To What Extent Does Your State Rely on Property Taxes?

by Ben Strachman  and Katherine Loughead, Tax Foundation, June 20, 2018

Property taxes represent a major source of revenue for states and localities. In fiscal year 2015, the latest year of data available, 31.1 percent of total U.S. state and local tax collections came from property taxes, more than any other source of tax revenue. In the same year, 25 states and the District of Columbia raised the greatest share of their tax revenue from property taxes (see Facts and Figures Table 8).

A variety of local political subdivisions have authority to set property tax rates, including counties, cities, school boards, fire departments, and utility commissions. While most tax jurisdictions levy property taxes based on the fair market value of a property, some base the property tax rate on income potential or other factors. In addition, some states place limits on the extent to which property tax rates may increase per year or impose rate adjustments to achieve uniformity throughout the state.

In FY 2015, New Hampshire and Alaska relied most heavily on property taxes, at 65.7 percent and 57.2 percent of their tax collections, respectively, while North Dakota and Alabama raised the smallest portion of their state and local tax revenue through property taxes, at 13.3 percent and 17.2 percent, respectively.

It is important to note that a heavy reliance on property taxes does not necessarily indicate a high overall tax burden in any given state. For example, while Alaska is among the states that rely most heavily on property taxes, it is also among the states with the lowest state and local tax collections per capita (see Facts and Figures Table 6).

At the same time, states and localities that generate less revenue through property taxes tend to depend more on general sales taxes, individual and corporate income taxes, excise taxes, and others. For example, North Dakota derives much of its tax revenue from severance taxes while generating relatively little revenue from property taxes.

Note: This is the first in a four-part map series in which we will examine the primary sources of state and local tax collections.