As the cliché goes, the only things you can count on are death and taxes. But according to a recent study from WalletHub, some states are feeling the crunch of the latter more than others. The study found that the average American household spends $2,471 on real-estate property taxes plus another $445 for residents of the 27 states that levy vehicle property taxes.
State by state breakdown:
According to the survey, the top 10 states with the highest real estate tax rates are:
- New Jersey (2.49%)
- Illinois (2.27%)
- New Hampshire (2.18%)
- Connecticut (2.14%)
- Vermont (1.90%)
- Wisconsin (1.85%)
- Texas (1.80%)
- Nebraska (1.73%)
- New York (1.72%)
- Rhode Island (1.63%)
States that levy a vehicle property tax are:
- Alabama
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- North Carolina
- Rhode Island
- South Carolina
- Virginia
- West Virginia
- Wyoming
Of these states, the 10 with the highest vehicle tax are:
- Virginia (4.04%)
- Mississippi (3.46%)
- Rhode Island (3.01%)
- Missouri (2.60%)
- Connecticut (2.59%)
- South Carolina (2.50%)
- Maine (2.40%)
- Massachusetts (2.25%)
- Kansas (1.93%)
- New Hampshire (1.80%)
Key findings:
- While New Jersey has the highest property tax rate ($5,419), Hawaii has the lowest ($606).
- Virginia has the highest vehicle property tax ($1,023), Louisiana has the lowest ($25).
- Blue States have 31.12% higher real-estate property taxes, averaging $2,722, than Red States, averaging $2,076.
- According to the National Tax Lien Association, more than $14 billion of these taxes go unpaid every year.
Experts answer questions:
Lyndsey Rolheiser, an Assistant Professor at the University of Connecticut, and Gary S. Forshner, founder at Law Offices of Gary S. Forshner, offered their professional opinions on this data.
Do people consider property taxes when deciding where to move? Should they?
“People looking to buy homes in a community absolutely do consider the property tax rate. The property tax rate (in most cases) is a representation of the level of public services available in the community. If households are considering some seemingly similar suburban municipalities, a differentiating feature may be the level of services. Some households may value the bundle of services the property tax expense represents, others may not…It is an especially important consideration for households with children as the local school system is primarily funded through local property taxes. There is a great deal of research on the regressiveness of such a framework and how it contributes to income/class/race segregation within communities and schools,” said Rolheiser.
She added, “The financial decision of whether or not to purchase real estate needs to consider the entire bundle of costs associated with the home purchase and ownership. Those that do not consider property taxes do so at their peril. Unfortunately, property taxes are all too often overlooked by homebuyers when considering whether or not to purchase real estate. Real estate taxes vary significantly from one town to another and from one state to another, sometimes by multiples. Lenders consider all major homeownership expenses including mortgage payments, mortgage insurance premiums, homeowners insurance, homeowner association fees and property taxes amongst the most significant. Homebuyers would be well-advised to evaluate all of these expenses as well.”
Should certain groups of people be exempt from property taxes or be taxed at a lower rate?
“An important aspect of local property taxation is that many communities have property tax classification,” said Rolheiser. “This is where a community has differential tax rates for various property types. Under this scenario, communities can adjust the tax burden away from homeowners and towards commercial/industrial property owners. This can be problematic when done in the extreme as commercial/industrial property owners also consider tax rates in their location choices (especially in suburban areas). Further, they are less likely to benefit from the public services provided in the community unless they are also residents of the community. A disproportionate tax burden on non-residential property can discourage business activity. However, this is less true in urban areas where businesses are more inelastic in their sensitivity to tax costs as the benefits of being centrally located may outweigh these costs. But rising downtown land values and building owners passing through the higher tax payments to commercial renters can cause an increase in vacancies.”
Forshner added, “Some states and local jurisdictions exempt certain groups from property taxes, in whole or in parts, such as seniors or veterans. Where this is equitable, reduced or waived property taxes should be considered. Seniors, for instance, are most commonly on a fixed income, such as reliance on pensions and social security. In decades past, the poverty rate amongst seniors was amongst the highest in the nation. Social security went a long way to resolve that, but many of our seniors are still unable to provide basic needs if, for instance, they only qualify for basic social security. Reduced taxes for groups that are traditionally lower income may be necessary to reduce poverty and where the income reflects that need lower property taxes benefit not only the individual but their families and communities as well.”
Should local tax policy be adjusted to rely more or less on property taxes versus other forms of taxation?
“Local taxes relying upon property is a regressive tax,” said Forshner. “In other words, poor and working-class families typically pay significantly more of their income for housing than those of greater means and therefore, property taxes fall more on lower- and middle-class households. Moreover, when local communities rely exclusively or substantially on property taxes, lower-income communities often struggle to provide critical services otherwise available in wealthier communities when in many cases lower-income communities have a greater need for certain services, such as police and social services. The better policy is to spread taxes for services, such as schools, infrastructure maintenance and expansion, snow and trash removal over a broader and more equitable base than local property taxes.”
Rolheiser concluded, “Many urban economists will instead point to the need for a land value tax in place of, or complementary to, a property tax. This form of taxation encourages the development of land to its highest and best use. Redevelopment of a single-family home into a multi-family may not take place due to the increased property tax expense. Under a land value tax, the owner is not taxed on the structure so would not face the additional burden if they redeveloped to the highest and best use. The main idea here is that this form of taxation would encourage the building of additional housing in denser forms which in turn can contribute to increasing the supply of more affordable housing. Of course, this requires that zoning allows for such redevelopment. But many communities are slowing considering the harms that exclusionary zoning (strict single-family zoning) has on its residents and prospective residents and relaxing some of their strictest zoning regulations.”
For more information, visit www.wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585.
