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Highest and Lowest U.S. Property Tax Rates

by Vicki Robbins, August 2016

 

Property taxes are the largest revenue source for local governments. Property tax rates vary dramatically from state-to-state and city-to-city. A new report looks at the highest and lowest property tax rates and explains some of the reasons behind the statistics.

 

Why Property Tax Rates Vary Across Cities

 

Researchers at the Lincoln Land Institute and the Minnesota Center for Fiscal Excellence compiled The 50-State Property Tax Comparison Study for Taxes Paid in 2015. The report identifies key factors that explain the variation in property tax rates.

 

Property tax reliance is one of the main reasons why tax rates vary. While some cities raise most of their revenue from property taxes, others rely more on alternative revenue sources like sales or income taxes.

 

Property values are a crucial factor explaining differences in property tax rates. Cities with high property values can impose a lower tax rate and still raise at least as much property tax revenue as a city with low property values.

 

Additional factors that help explain the variation in tax rates are the level of local government spending. With all things equal, cities with higher spending will need to have higher property tax rates. Varying tax rates also depend on property classification issues. Some cities impose lower property taxes on homesteads, but higher property taxes on business and apartment properties.

 

Varying Commercial Tax Rates

 

There are significant variations across cities in commercial property taxes. In 2015, the effective tax rate on a commercial property worth $1 million averaged 2.11% across the largest cities in each state.

 

The highest rates were in Detroit, New York City, Providence, Chicago, and Bridgeport, all of which had effective tax rates that were at least two-thirds higher than the national average.

 

On the other hand, rates were less than half the national average in Cheyenne, Seattle, Honolulu, Virginia Beach, and Wilmington. (See table below).

 

Highest and Lowest Effective Property Tax Rates
on $1 Million Commercial Property

Highest
 
Why

Detroit, MI

4.13%

Low property values

New York City, NY

3.96%

High local government spending, classification that shifts tax to businesses

Providence, RI

3.71%

High property tax reliance

Chicago, IL Government

3.60%

Classification shifts tax to businesses, high local spending

Bridgeport, CT

3.59%

High property tax reliance

 

 

 

Lowest
 
Why

Cheyenne, WY

0.64%

Low property tax reliance

Seattle, WA

0.88%

High property values, low property tax reliance

Honolulu, HI

0.91%

High property values, low local government spending

Billings, MT

1.01%

Low local government spending

Virginia Beach, VA

1.03%

High property values, low local government spending