Texans Pay The Second Highest Effective Tax Rate In The Nation
Property taxes accounted for about 22% of state and local government revenue in 2005, according to a study by economists at the National Association of Home Builders (NAHB). The analysis is important for comparing the affordability of housing and the cost of living in general, and is helpful for those planning to relocate or retire in another state.
With its generous homestead exemption, Louisiana has the lowest real estate tax in the nation, at $1.72 per $1000 of assessed value. The two states with the highest effective tax rates are Wisconsin and Texas, respectively, where rates exceed $18 per $1000 of property value.
Natalia Siniavskaia, the author of the report, notes that it is often difficult to compare effective tax rates on residential real estate based on state and local government data because local jurisdictions follow different assessment, administration and reporting procedures, and 37 states also collect property taxes on the state level. However, expansion of information collected by the U.S. Census Bureau at the request of NAHB has provided more data for counties and metropolitan areas.
State and local governments in New Jersey and New Hampshire rely on property taxes for their revenue more than governments in any other state, the study finds. New Hampshire, a state that does not tax wages and salaries, derives almost 43% of statewide government revenue from property taxes. New Jersey derives 35%.
In a recent development since the NAHB study was completed, New Jersey passed legislation that reduces property taxes for about 95% of all homeowners. Starting in 2007, homeowners will receive a 20% tax credit (incomes up to $100,000), a 15% tax credit (incomes between $100,000 and $150,000, and a 10% tax credit (incomes between $150,000 and $250,000) up to a maximum of $2,000.
The six New England states are among the 10 states most dependent on property taxes as a source of government revenue, according to the report. On the other hand, Delaware, New Mexico and southern states such as Alabama, Arkansas and Louisiana derive no more than 9% to 11% of statewide revenue from property taxes.
The study also found a strong correlation between the extent to which state and local governments rely on property taxes to fund local services and the amount of real estate taxes they collect per home. While state median property taxes per home reflect home values to a certain extent, the correlation is not as strong.
Among other findings of the study:
- The state with the highest median real estate taxes is New Jersey, where more than 50% of all households pay more than $5,352 in property taxes per home.
- States like California, Hawaii and the District of Columbia have higher home values than New Jersey but on average collect significantly less real estate taxes per property.
- The state with the second highest property taxes, New Hampshire, collects a median of $3,920, or $1,432 less per home than New Jersey.
- At the low end of the spectrum, states in the South Census Region -- such as Arkansas, Mississippi, West Virginia, Alabama and Louisiana -- have median real estate taxes that don't even reach $500. In Louisiana, half of all households pay less than $175 in taxes per home.
- Median home values in the highest tax rate states -- Wisconsin and Texas -- are well below the national average. But the three states with the most expensive homes -- California, Hawaii and the District of Columbia -- have some of the lowest property tax rates in the nation -- $4.77, $2.04 and $3.76 per $1,000 of value, respectively.
- Niagara, N.Y. is the county with the highest effective median tax rate, with a rate of $28.12 per $1,000 of value. New York stands out for having the most diverse tax rates across the state. At the low end, Kings County has a tax rate of $4.79 per $1,000 of value, almost six times lower than in Niagara.
- Among states where there is data covering more than two counties, Nebraska has the most consistent tax rates across its counties.
- St. Bernard Parish, La.; Maui, Hawaii; and Apache County, Ariz. have the lowest median tax rates among all counties - $1.35, $1.62 and $1.64 per $1,000 of value, respectively.
To here to read the report and view a map and two tables showing the property tax burden in each state.
Note: Study released May 22, 2007
Posted to naswc.org 01/22/08
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