Why a State Cannot Excel on a Property Tax Alone

State and local governments are in the business of providing their citizens with basic amenities, such as education, as well as of maintaining basic infrastructure, such as the water supply. Of course, this all comes at a cost, which is why both states and local jurisdictions assess and collect taxes.

Through property, income, consumption, and corporate taxes, state and local governments raise revenue to deliver on these obligations. As states debate different options for collecting the necessary revenue, they know one thing for sure: They cannot raise the necessary funds from a property tax alone.

Background on State and Local Jurisdiction Tax Collection

Aside from consumption and corporate taxes, states and local governments may raise revenue through property and income taxes.

• Tax on Property: Collecting funds by taxing real estate owners a percentage of the fair market value of their land plus structures
• Tax on Income: Raising funds by taxing your pay and your capital (any interest earned from savings, dividends/capital gains earned from stocks, etc.)

We’ve discussed previously how more states are choosing to collect consumption taxes instead of income taxes in order to raise revenue. This is mainly because consumption taxes are more consistent during economic recessions, and they offer the least amount of damage to economic growth, according to The Wealth of States (p. 81).

However, it’s not an option for states to replace the income tax solely with one option, such as a property tax. For starters, these are collected by local, not state, jurisdictions, such as your city or your county. Local jurisdictions typically use these taxes to fund different services than what income taxes usually fund. These local services include public schools, utility costs for your municipality (such as garbage collection), libraries, and public safety (police officer salaries, benefits, and structural equipment).

Property taxes are also only assessed on real estate owners. By raising revenue through these taxes alone, states would end up unfairly taxing one part of the population.

Lowering Your Property Taxes, Even in High Tax-Burdened States

Below are the top 10 states that collected the most in property taxes on average per capita in 2012, according to the Tax Foundation.

1. New Jersey – $2,924
2. Connecticut – $2,626
3. New Hampshire – $2,585
4. New York – $2,435
5. Wyoming – $2,308
6. Rhode Island – $2,234
7. Vermont – $2,202
8. Alaska – $2,072
9. Massachusetts – $2,061
10. Illinois – $1,985

As if being a real estate owner in one of these high property tax states isn’t costly enough, The Wealth of States notes that “very high property tax states tend also to be high overall tax burden states” (p. 82).

Are you a real estate owner living in a state with a high tax burden? Don’t fret. You can appeal your property tax assessment either by stating your case in front of a review board (information for doing so should be included in your annual property tax assessment) or by enlisting the help of a tax-fighting firm.

While states won’t be able to use property taxes to raise all of their revenue anytime soon, one thing is clear: This tax on real estate owners seems to be here to stay. If you own property, it’s in your best interest to learn how to fight your property assessment and lower your overall tax burden for years to come.

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