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U.S. Cities with the Highest and Lowest Property Taxes

by Vicki Robbins, September 2017

 

Property taxes are the single largest source of revenue for local governments. A new report examines the wide range of property tax rates in more than 100 U.S. cities and helps explain why they vary so widely. The 50 State Property Tax Comparison Study for Taxes Paid in 2016 was compiled by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence.

 

To understand why property tax rates are high or low in a particular city, it is critical to look at some key factors:

 

  • Property tax reliance is one of the main reasons why tax rates vary across cities. While some cities raise most of their revenue from property taxes, others rely more on alternative revenue sources. Cities with high local sales or income taxes do not need to raise as much revenue from property taxes, and thus have lower property tax rates on average.

  • Property values are another 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 tax revenue as a city with low property values.

  • Two additional factors that help explain variation in tax rates are the level of local government spending and whether cities tax homesteads at lower rates than other types of property.

A comparison of $1 million commercial real estate shows the highest rates were in Detroit, New York City, Chicago, Bridgeport, and Providence, all of which had effective tax rates that were at least three-quarters higher than the average. On the other hand, rates were less than half of the average in Cheyenne, Seattle, Honolulu, Fargo, Billings, and Virginia Beach. (See chart.)

 

The data has important implications for cities because the property tax is a key part of the package of taxes and public services that affects cities’ competitiveness and quality of life.

 

Effective Property Tax Rates on $1-Million

Commercial Property

Highest

  Detroit (MI) 4.09% Why: Low property tax values  
  New York (NY) 3.93% Why: High local government spending  
  Chicago (IL) 3.86% Why: Classification shifts tax to business; High local government spending  
  Bridgeport (CT) 3.81% Why: High property tax reliance  
  Providence (RI) 3.71% Why: High property tax reliance  

Lowest

  Billings (MT) 1.03% Why: Low local government spending  
  Fargo (ND) 1.01% Why: Low local government spending  
  Honolulu (HI)

0.91%

Why: High property values; Low local government spending  
 

Seattle (WA)

0.89% Why: High property values; Low property tax reliance  
  Cheyenne (WY) 0.66% Why: High property values; Low property tax reliance  

Note: Analysis includes an additional $200k in fixtures, office equipment, etc.