Posted by: John S Kiernan

Property taxes are insignificant to some and the bane of others’ existence. The average American household spends $2,149 on property taxes for their homes each year, according to the U.S. Census Bureau, and residents of the 27 states with vehicle property taxes shell out another $402 Considering these figures and the debt-fueled environment to which we have grown so accustomed, it should come as no surprise that roughly $11.8 billion in property taxes go unpaid each year, the National Tax Lien Association has found.

And though property taxes might appear to be a non-issue for the 37 percent of renter households, that couldn’t be further from the truth. We all pay property taxes, whether directly or indirectly, as they impact the rent we pay as well as the finances of state and local governments.

But which states pack the biggest property-tax punch, and what should residents keep in mind when it comes to meeting and ultimately minimizing their tax obligations? In search of answers, we analyzed the 50 states and the District of Columbia in terms of real-estate and vehicle property taxes. We also consulted a panel of property-tax experts for insights both practical and political. Read on for our findings and methodology.

1. Real-Estate Tax Ranking
2. Vehicle Property Tax Ranking
3. Ask the Experts
4. Methodology

Real-Estate Tax Ranking

Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/11585/property-geochart1.html" width="556" height="347" frameBorder="0" scrolling="no"></iframe> <div style="width:556px;font-size:12px;color:#888;">Source: <a href="http://ift.tt/2lSJUKW;  

Real-Estate Property Taxes by State

Rank	State	Effective Real-Estate Tax Rate	Annual Taxes on $179K Home*	State Median Home Value	Annual Taxes on Home Priced at State Median Value
1	Hawaii	0.27%	$487	$515,300	$1,406
2	Alabama	0.43%	$773	$125,500	$543
3	Louisiana	0.49%	$876	$144,100	$707
4	Delaware	0.54%	$959	$231,500	$1,243
5	District of Columbia	0.56%	$1,000	$475,800	$2,665
6	South Carolina	0.57%	$1,019	$139,900	$798
7	West Virginia	0.58%	$1,044	$103,800	$607
8	Colorado	0.60%	$1,073	$247,800	$1,489
9	Wyoming	0.61%	$1,097	$194,800	$1,196
10	Arkansas	0.62%	$1,111	$111,400	$693
11	Utah	0.68%	$1,218	$215,900	$1,472
12	New Mexico	0.74%	$1,324	$160,300	$1,188
13	Tennessee	0.75%	$1,335	$142,100	$1,062
14	Idaho	0.76%	$1,366	$162,900	$1,246
15	Mississippi	0.79%	$1,408	$103,100	$813
16	Virginia	0.80%	$1,420	$245,000	$1,948
T-17	California	0.81%	$1,438	$385,500	$3,104
T-17	Arizona	0.81%	$1,446	$167,500	$1,356
T-19	Montana	0.85%	$1,525	$193,500	$1,652
T-19	Kentucky	0.85%	$1,511	$123,200	$1,042
T-19	North Carolina	0.85%	$1,524	$154,900	$1,322
T-19	Nevada	0.85%	$1,523	$173,700	$1,481
23	Indiana	0.87%	$1,560	$124,200	$1,085
24	Oklahoma	0.88%	$1,569	$117,900	$1,036
25	Georgia	0.94%	$1,685	$148,100	$1,397
26	Missouri	1.00%	$1,790	$138,400	$1,387
27	Florida	1.06%	$1,894	$159,000	$1,686
T-28	Oregon	1.08%	$1,929	$237,300	$2,563
T-28	Washington	1.08%	$1,931	$259,500	$2,805
30	Maryland	1.10%	$1,956	$286,900	$3,142
31	North Dakota	1.12%	$2,000	$153,800	$1,722
T-32	Alaska	1.18%	$2,112	$250,000	$2,956
T-32	Minnesota	1.18%	$2,110	$186,200	$2,200
34	Massachusetts	1.20%	$2,139	$333,100	$3,989
35	Maine	1.30%	$2,321	$173,800	$2,259
36	South Dakota	1.34%	$2,389	$140,500	$1,879
37	Kansas	1.40%	$2,502	$132,000	$1,849
38	Iowa	1.48%	$2,649	$129,200	$1,916
39	Pennsylvania	1.53%	$2,725	$166,000	$2,533
40	Ohio	1.56%	$2,794	$129,900	$2,032
41	New York	1.62%	$2,899	$283,400	$4,600
42	Rhode Island	1.63%	$2,915	$238,000	$3,884
43	Vermont	1.74%	$3,116	$217,500	$3,795
44	Michigan	1.78%	$3,172	$122,400	$2,174
45	Nebraska	1.85%	$3,308	$133,200	$2,467
46	Texas	1.90%	$3,386	$136,000	$2,578
47	Wisconsin	1.96%	$3,499	$165,800	$3,248
48	Connecticut	1.97%	$3,517	$270,500	$5,327
49	New Hampshire	2.15%	$3,838	$237,300	$5,100
50	Illinois	2.30%	$4,105	$173,800	$3,995
51	New Jersey	2.35%	$4,189	$315,900	$7,410

*$178,600 is the median home value in the U.S. as of 2015, the year of the most recent available data.  

Changes to Real Estate Tax Rates Over Time

Embed on your website<a href="http://ift.tt/2lW4ic9; <img src="//d2e70e9yced57e.cloudfront.net/wallethub/posts/19814/gif1-real-estate-tax-2016.gif" width="700" height="" alt="gif1-real-estate-tax-2016" /> </a> <div style="width:700px;font-size:12px;color:#888;">Source: <a href="http://ift.tt/2lSJUKW;  

Red vs. Blue States

 

Vehicle Property Tax Ranking

Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/11585/property-geochart2.html" width="556" height="347" frameBorder="0" scrolling="no"></iframe> <div style="width:556px;font-size:12px;color:#888;">Source: <a href="http://ift.tt/2lSJUKW;  

Real-Estate Property Taxes by State

Rank	State	Effective Vehicle Tax Rate	Annual Taxes on $23K Car*
T-1	Hawaii	0.00%	$0
T-1	Delaware	0.00%	$0
T-1	District of Columbia	0.00%	$0
T-1	Utah	0.00%	$0
T-1	New Mexico	0.00%	$0
T-1	Tennessee	0.00%	$0
T-1	Idaho	0.00%	$0
T-1	Oklahoma	0.00%	$0
T-1	Georgia	0.00%	$0
T-1	Florida	0.00%	$0
T-1	Oregon	0.00%	$0
T-1	Washington	0.00%	$0
T-1	Maryland	0.00%	$0
T-1	North Dakota	0.00%	$0
T-1	Alaska	0.00%	$0
T-1	South Dakota	0.00%	$0
T-1	Pennsylvania	0.00%	$0
T-1	Ohio	0.00%	$0
T-1	New York	0.00%	$0
T-1	Vermont	0.00%	$0
T-1	Texas	0.00%	$0
T-1	Wisconsin	0.00%	$0
T-1	Illinois	0.00%	$0
T-1	New Jersey	0.00%	$0
25	Louisiana	0.10%	$23
26	Montana	0.37%	$86
27	Michigan	0.62%	$142
28	California	0.65%	$150
29	Alabama	0.75%	$174
30	Iowa	1.00%	$231
31	Arkansas	1.04%	$240
32	Kentucky	1.25%	$288
33	Minnesota	1.30%	$299
34	Indiana	1.30%	$300
35	North Carolina	1.31%	$302
36	Nebraska	1.44%	$331
37	Arizona	1.68%	$388
38	West Virginia	1.70%	$392
39	Nevada	1.72%	$398
40	Colorado	1.79%	$412
T-41	Wyoming	1.80%	$415
T-41	Kansas	1.80%	$416
T-41	New Hampshire	1.80%	$415
44	Missouri	1.92%	$443
45	Massachusetts	2.25%	$519
46	South Carolina	2.37%	$546
47	Maine	2.40%	$554
48	Connecticut	2.41%	$555
49	Mississippi	3.35%	$773
50	Virginia	4.19%	$966
51	Rhode Island	4.77%	$1,100

*$23,070 is the value of a 2016 Toyota Camry LE four-door sedan, the highest-selling car of 2015.  

Ask the Experts

Property taxes are an extremely important issue considering their impact on all of our lives. But how should we incorporate them into our financial decision making? And how should policy makers across the U.S. approach them as well? For answers to those questions and more, we consulted a panel of tax and public-policy experts. You can check out their bios and responses to key questions below.

1. Do people consider property taxes when deciding where to move? Should they?
2. Should nonprofits pay property taxes?
3. Should local tax policy be adjusted to rely more or less on property taxes versus other forms of taxation?
4. Should more types of property be subject to property taxes? If yes, what types?
5. Should certain groups of people be exempt from property taxes or be taxed at a lower rate?

< >

• Margaret McFarland Clinical Professor of Real Estate Development, and Director of the Colvin Institute of Real Estate Development in the School of Architecture, Planning & Preservation at University of Maryland
• Joshua A. Harris Lecturer of Finance and Director of the Dr. P. Phillips Institute for Research and Education in Real Estate at University of Central Florida
• John C. Banko Senior Lecturer of Finance in the Warrington College of Business Administration at University of Florida
• Susan Wachter Albert Sussman Professor of Real Estate and Finance in the Wharton School, and Co-Director of the Institute for Urban Research at University of Pennsylvania
• Kenneth M. Lusht Distinguished Professor of Real Estate at Florida Gulf Coast University, and Professor Emeritus of Business Administration at Pennsylvania State University
• Kenneth M. Lusht Chairman of the Department of Insurance and Real Estate, Professor of Business Administration, and Zimmerman Endowed University Fellow in the Smeal College of Business at Pennsylvania State University
• Jeffrey P. Cohen Associate Professor of Real Estate and Finance in the School of Business at University of Connecticut
• Dennis J. Ventry, Jr. Professor of Law at University of California, Davis, School of Law
• Joseph Sulock Cary Caperton Owen Distinguished Professor in the Department of Economics at University of North Carolina at Asheville
• Peter S. Reinhart NJAR/Greenbaum/Ferguson Professor of Real Estate Policy, and Director of the Kislak Real Estate Institute at Monmouth University
• Bradley T. Borden Professor of Law at the Brooklyn Law School
• Christopher J. Palmer Assistant Professor of Real Estate and Bakar Faculty Fellow in the Haas School of Business at University of California at Berkeley
• Richard J. Button Interim Executive Director of the Everitt Real Estate Center, and Associate Instructor of Real Estate at the Colorado State University, College of Business
• Steve Ranger Adjunct Clinical Professor of Finance at Walsh College
• Ellen Gutiontov Adjunct Professor in the College of Law and the College of Commerce, and Executive Director of the Center for Intellectual Property Law and Information Technology at DePaul University, and Of Counsel at The Law Offices of Marc J. Lane
• Vicki Bogan Associate Professor and Director of the Institute for Behavioral and Household Finance in the Charles H. Dyson School of Applied Economics and Management at Cornell University
• Jonathan Parker Robert C. Merton (1970) Professor of Finance in the Sloan School of Management at Massachusetts Institute of Technology

Margaret McFarland Clinical Professor of Real Estate Development, and Director of the Colvin Institute of Real Estate Development in the School of Architecture, Planning & Preservation at University of Maryland Do people consider property taxes when deciding where to move? Should they? Yes, people often consider property taxes when they decide where to retire, or if there are optional choices of state or locality relative to their work location -- as in multiple state options (NY/NJ; MD/DC/VA; PA/MD/WV), and sometimes within a state such as the difference between Baltimore, Prince George's County, Howard County, St. Mary's County, for example. Looking at property taxes alone is not a good strategy; to do a real analysis of taxes as a cost of living, all the taxes in an area would have to be considered, not just property taxes. Should nonprofits pay property taxes? Well that is a policy question, so depends on whether we want to benefit non-profits. I would personally advocate for Payments in Lieu of Taxes for non-profits generally, or just target non-profits such as churches that have very limited revenue, but none of their activities; not hospitals or schools where taxes can be included in tuition. Texas experimented with no property taxes for affordable housing properties, which generated a lot of affordable housing, but the local jurisdictions didn't care for it much, as it impacted their revenues. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Property Taxes as the primary revenue stream for schools is the biggest public policy problem, as it means the revenue stream for schools varies based on the value of the property and officially (or unofficially) bends public policy towards zoning for higher income residential, industrial, office and retail properties which pay higher property taxes. Should more types of property be subject to property taxes? If yes, what types? All properties, or no properties should pay property taxes -- it just depends on what you dedicate that income stream to. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? It depends as to whether we want to assure that older people don't have to move -- and the taxes accumulated and due only upon sale or transfer by inheritance, etc. Joshua A. Harris Lecturer of Finance and Director of the Dr. P. Phillips Institute for Research and Education in Real Estate at University of Central Florida Do people consider property taxes when deciding where to move? Should they? Most people do consider them as they are part of their monthly payment (lenders collect in escrow so, effectively, part of their mortgage payment), further the lender will underwrite the loan based on expected property taxes so they will be considered if a loan is being applied for. Some consumers, especially first time home buyers, do sometimes fail to realize that they may go up considerably based on the sales price they pay; this tends to cause some sticker shock years later. Should nonprofits pay property taxes? Well, this again veers into social engineering via tax policy. In states like Florida, we derive significant tax revenues from sales tax and tourist taxes paid by nonresident visitors. These visitors do consume some local goods paid by these taxes but nowhere as intensively as a resident (no use of schools, and rare use of social services, medical services, courts, etc.); thus, visitors are subsidizing local residents. In Florida and elsewhere, this in part has allowed us not to have things like state income taxes. Not having state income taxes allows us to attract retirees, companies, and high net worth individuals to move to our state and declare residency; this has enormous positive implications for job creation and growth of economic activity. Thus, I would not advocate for Florida to start an income tax to give property tax breaks. Overall, relying on sales tax and property taxes has served Florida well, but in recessionary times, it causes great chaos to state budgets. Finding a goldilocks solution is just not that easy. Should more types of property be subject to property taxes? If yes, what types? I’m generally not in favor of “new” types of taxes, especially in the property arena. Property taxes are based on values and thus is costly to the government to assess (appraise) and then to collect. Worse, it can create tax bills on nonproductive assets and create unequal burdens (property tax tends to be very regressive and hits low income people much harder than middle income or even high income). Should certain groups of people be exempt from property taxes or be taxed at a lower rate? Every state addresses so called “equality” of property taxes in different ways so this may be hard to generalize. In Florida, like many other states, owner occupants are given special benefits in terms of value exemptions (called homestead exemptions in Florida) and sometimes caps on increase in annual assessments (it is 3% for homestead property per year in Florida). These make home ownership more affordable and protect seniors on fixed incomes (major reason enacted in Florida). This also means that first time homebuyers (usually on the lower income scale of life) can pay shockingly more property tax than higher income, longtime resident neighbors. Also, since rental property does not generally get such benefits, low income renters and businesses pay a higher share of property tax via the rents they pay to landlords. So, should this be changed? I think equal distribution is better than regressive distribution (the present state), but very difficult to change as would be asking some to pay more so others can pay less (senior citizens would be hit the hardest and thus their voter block makes such changes almost impossible). John C. Banko Senior Lecturer of Finance in the Warrington College of Business Administration at University of Florida When I think about taxes, I split it into four pieces I will likely pay (at the local level): state income tax, use taxes (toll roads, etc.), property taxes, and sales taxes. Stuff needs to be paid for, and I’m ok with paying my part. But I’m certainly aware of opportunities to reduce my part. I choose to live in Gainesville - higher property taxes than many local areas. No toll roads, or other local use taxes that I pay. No state income tax. I used to buy a lot of items on Amazon simply because it was cheaper – part of which was no sales tax, but I’m guessing also cheaper than maintaining a physical store. At any rate, I’ve never added up the whole bill. But among the four areas, I’d guess I pay $10K - $15K. The first thing I would find interesting it to take a comparable family and situation (4 kids in public schools, finance professor, working spouse) and see how that compares in different areas of the country. What do they pay? What are the amenities they get? Even anecdotal could be interesting. Compare someone like myself to someone at a top university in a few other states. But, to get specific about property taxes, the first question I would ask is who pays it? Seems like everyone would – it’s either direct (property owner) or indirect (renter). But then we get into elasticities, exemptions, etc. Tried looking at a few research papers on the topic, and the answer seems to be “it’s complicated”. Alright, well then let’s look at other issues (as with any tax): games and unintended consequences. Florida passed this (stupid) law a few years ago – “Save Our Homes”. It sounded good: property tax based on your starting point of a house purchase; avoided homesteaded property paying higher taxes during housing booms. The problem? You and I could live in identical houses right next to each other. But I pay half of the property tax because of the design of the law. That’s going to get challenged one of these days. That’s one example of how it gets nuts. Another – property taxes disincentivize individuals from updating property. You do XX to your house, the appraiser will be there. That strikes me as problematic. California is the worst – property tax based on purchase price – as long as you don’t update/upgrade it much. Neighborhoods start to have fabulous homes right next to run-downs, entirely because of the design of the tax - tail wagging the dog. Even worse, CA has a serious “cheater” problem. Lots of people claiming a house is a primary (homesteaded) residence, but clearly being rented (meaning property tax bill should be based on fair market value). Easy to check – match driver license addresses to property tax homestead exemptions. A lot of names won’t match. Bad designs of taxes encourage “games” – in this case, illegal games. The rest of the “shoulds”? Well, in my mind, I’d prefer a taxing system that ignores social goals. Avoids the “shoulds.” Seems a bit severe, and I’m smart enough to know that the two will get tangled. Churches, not-for-profits, etc. What is the theory behind not having them pay? Noble intent? Along those lines, I would usually vote against our city accepting land as a donation – especially land that will not be developed (we have lot of that here in Gainesville). Why? Comes off the property tax role. And we (city) now need to pay to maintain it – or worse, not maintain it. Great – that was helpful. Same undeveloped lot, now less valuable. Fixes? Be like trying to “fix” the federal income tax system. So, one example -- property tax only based on land value, not improvements. This avoids some of the issues above. But, who decides on the split? Could be just as troublesome. I prefer consumption-based taxes. Why? I don’t consume – it lets me manage my tax bill. But is that “fairer”? In the end, I will (likely) leave Gainesville for precisely this issue. For the moment, I have 4 kids in public schools, and they are getting an education I am happy with - despite the many (financial) challenges in public education today. Property tax (along with house insurance) will be too high for me once the kids are gone. And perhaps that is an important point. I’d hope most people think about this a bit before entering a city. You pay X, you get Y - your choice. Fair? Who cares? To the extent we can choose where to live. And that is an interesting (separate) question… Susan Wachter Albert Sussman Professor of Real Estate and Finance in the Wharton School, and Co-Director of the Institute for Urban Research at University of Pennsylvania Do people consider property taxes when deciding where to move? Should they? People do consider property taxes when they move, and they should. But not just taxes, also the quality of the local services that the taxes support. What makes property taxes different is that they are locally set. In the US, local governments provide many public services. Home buyers do look at and need to look at both sides, the quality of public services and tax expenditures. And the size and price of the home matters: accessing high quality public services is possible, for example, by purchasing a relatively less expensive home in a district with good schools. Should more types of property be subject to property taxes? If yes, what types? All for profit property types should be subject to property taxes since all property users consume local services. There may be a public policy reason for differential rates. This too should reflect local choices and circumstances. Kenneth M. Lusht Distinguished Professor of Real Estate at Florida Gulf Coast University, and Professor Emeritus of Business Administration at Pennsylvania State University Do people consider property taxes when deciding where to move? Should they? Yes, people do consider taxes, but it isn't correct to assume everyone avoids high tax locations. The other side of the equation is what the taxes buy. Most parents, for example, look for high quality schools for their children, and that is often associated with the higher taxes that can buy better facilities and teachers. Should nonprofits pay property taxes? Whether non-profits should pay taxes is a political and social question that must be answered locally. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Property taxes endure because the nature of the asset facilitates the process. Property can't be hidden or moved, and over time tends to hold its value. The issue is implied in my answer to the first question -- because property taxes are used for things like schools, it can be argued that children in less affluent school districts are discriminated against with regard to what many believe is a fundamental right to a K-12 education. That is why over time substitutes like an increased sales tax have been proposed and in some cases implemented. Also why some states have homogenized taxes by collecting some portion of the tax and then allocating to school districts equally. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? There are two views of taxes: One, they should be progressive (i.e., based on ability to pay), and two, they should be based on cost/benefit. The former would suggest property taxes should be imposed more or less like the income tax. The latter would suggest everyone should pay about the same because we share the same police, etc. However, it should be noted that the elements of a progressive property tax are already in place, given the widespread use of homestead exemptions and the reasonable assumption that incomes and housing values are related. Having said that, prior research has produced mixed results with respect to whether or not the tax is progressive in specific areas. Kenneth M. Lusht Chairman of the Department of Insurance and Real Estate, Professor of Business Administration, and Zimmerman Endowed University Fellow in the Smeal College of Business at Pennsylvania State University Do people consider property taxes when deciding where to move? Should they? Yes, people do consider taxes, but it isn't correct to assume everyone avoids high tax locations. The other side of the equation is what the taxes buy. Most parents, for example, look for high quality schools for their children, and that is often associated with the higher taxes that can buy better facilities and teachers. Should nonprofits pay property taxes? Whether non-profits should pay taxes is a political and social question that must be answered locally. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Property taxes endure because the nature of the asset facilitates the process. Property can't be hidden or moved, and over time tends to hold its value. The issue is implied in my answer to the first question -- because property taxes are used for things like schools, it can be argued that children in less affluent school districts are discriminated against with regard to what many believe is a fundamental right to a K-12 education. That is why over time substitutes like an increased sales tax have been proposed and in some cases implemented. Also why some states have homogenized taxes by collecting some portion of the tax and then allocating to school districts equally. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? There are two views of taxes: One, they should be progressive (i.e., based on ability to pay), and two, they should be based on cost/benefit. The former would suggest property taxes should be imposed more or less like the income tax. The latter would suggest everyone should pay about the same because we share the same police, etc. Having said that, it must be noted that we effectively already have a progressive property tax, if we reasonably assume those living in higher valued real estate have higher incomes than others. Jeffrey P. Cohen Associate Professor of Real Estate and Finance in the School of Business at University of Connecticut Do people consider property taxes when deciding where to move? Should they? Absolutely; people consider property taxes when choosing a residential location. In fact, that is not the only consideration – for instance, there is a whole menu of combinations of property taxes and public services that potential residents consider when deciding where to live. As an example, people with children are often willing to pay higher property taxes when accompanied by higher public school quality, while senior citizens generally would prefer lower taxes with less concern about the quality of public school systems. Property taxes and public services are inter-twined. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Local tax policy may be improved with adjustments so that different parts of the property tax are emphasized more, and other parts less. Real property consists of land and improvements. The amount of land in a city is fixed – it will not change if the tax rate on land changes. On the other hand, the structures part of a property tax is highly dependent on the tax rates. We all can think of examples of people who delay renovating their kitchens because they know this will lead to a higher assessed value of their property, and in turn, a higher tax bill. If the tax rate on improvements is lowered, this should encourage economic development. Some Connecticut municipalities have been recently considering such a property tax system – called a two-rate tax on land and buildings, or a split-rate tax or a land value tax. It has been successfully implemented in several cities in Pennsylvania and other parts of the world, and it is worthy of further consideration. There are other examples of how taxation of improvements to land can create distortions. For instance, shotgun housing in New Orleans – where there are deep but very narrow buildings – arose due to a tax on frontage which discouraged people from building properties with a large amount of frontage. Two economists, Robert Schwab and Wallace Oates, recently studied the window tax in the UK, and found evidence that this tax encouraged people to cement over windows in order to avoid higher tax bills. Taxes on improvements to land affect building and development decisions, and one approach to counteract these potential negative consequences is to lower the tax on structures. The lost tax revenue can be made up by raising the land tax rate – which should have no effect on development but would be an effective way for local governments to raise money. Should more types of property be subject to property taxes? If yes, what types? Related to this, fewer types of property should be subject to a property tax. If the tax on structures is lowered while at the same time raising the tax rate on land, this could potentially encourage development without affecting the amount of land in a jurisdiction. It can also be a more progressive form of taxation than the conventional property tax. The 19th century economist, Henry George, advocated this idea of a land value tax as a way to deter land speculation and encourage a more equitable distribution of wealth. Dennis J. Ventry, Jr. Professor of Law at University of California, Davis, School of Law Do people consider property taxes when deciding where to move? Should they? Whether they do or don’t, they should. Indeed, property taxes can significantly raise monthly housing costs, between 5-20 percent per month, depending on where you live. They are particularly salient in states and localities with robust property taxes (such as New Jersey, Illinois, New Hampshire, Connecticut, Wisconsin, and Texas). Moreover, in high-cost states like California and New York, they can amount to well over $10,000 a year in additional housing costs. And if you’re buying a home that hasn’t been on the market for a while, the historical property tax will get readjusted upon purchase such that you could easily be paying twice as much as the former owner or, even more maddeningly, your new neighbor who’s lived in the same house for thirty years. Should nonprofits pay property taxes? Federal and state tax exemptions for non-profits (or “tax-exempt organizations”) exempt these organizations from income taxes. There is no natural reason to extend tax-exempt status to these organizations with respect to property taxes. And states hemorrhage revenue as a result of the tax giveaway. Having said that, most states grant property tax exemptions to organizations with 501(c)(3) status under the federal income tax (so long as they are operated exclusively for religious, charitable, scientific, or hospital purposes, a catchall characterization that encompasses almost any charitable organization). Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? It really depends on where you’re talking about. In California, where Prop 13 imposed a constitutional limitation on year-over-year increases in property tax assessments, which decimated funding for public education, which, in turn, resulted in drastically underperforming schools and students, the current property tax should be reinvigorated. The current law is riddled with indefensible loopholes, including the ability to transfer your property tax base to a new home, historical assessments that result in neighbors paying 500% more or less in property taxes as well as homes valued at tens of millions of dollars being subjected to lower property tax bills than homes valued at less than $1 million, heirs paying taxes at historical values even though they received the home with a step-up in basis (meaning they could sell it at Fair Market Value and pay no gain, even though the previous owner may have purchased the home for $50,000 and it’s now worth $500,000), and businesses paying lower property taxes than homeowners (because they, too, enjoy the benefits of historical valuation). Should certain groups of people be exempt from property taxes or be taxed at a lower rate? There should be hardship exceptions, particularly for folks on fixed incomes, or some kind of circuit breaker that limits year-over-year assessment increases during times of rapid appreciation. Joseph Sulock Cary Caperton Owen Distinguished Professor in the Department of Economics at University of North Carolina at Asheville Do people consider property taxes when deciding where to move? Should they? They likely consider property taxes (a cost) in relation to the perceived services (benefits) like schools, police and parks provided by an area. If they don't, they should. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Relative to other taxes, a property tax (defined here as a tax on land, structures and perhaps vehicles) is likely to cause less economic distortions where individuals either legally or illegally try to avoid the tax. A potential downside regards a commonly-accepted principle of taxation. Some type of "progressive rate structure" (where taxes/income increase as income increases) is often considered fair. A property tax is likely to violate this. That said -- and I bet there have been studies on this -- I wonder if the tax is in fact progressive if benefits received were factored in. Should more types of property be subject to property taxes? If yes, what types? Probably not. Beyond a tax on land, structures and perhaps vehicles, the tax would be hard to administer. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? This depends mainly on what one thinks is fair. Sometimes new businesses are given tax incentives to locate in an area. This could attract businesses, but any increase in economic activity comes at the expense of other areas. Simply redistributes jobs and the like. A radical proposal (not likely to happen!) is to pass some type of federal law to make it difficult for localities to grant tax concessions to new businesses. Peter S. Reinhart NJAR/Greenbaum/Ferguson Professor of Real Estate Policy, and Director of the Kislak Real Estate Institute at Monmouth University Do people consider property taxes when deciding where to move? Should they? People do consider property taxes in deciding where to move. Since property taxes are a component of mortgage qualification by lenders, the amount is critical in whether a buyer can afford a home. Should nonprofits pay property taxes? Nonprofits should not pay taxes. Nonprofits provide services for the public that would otherwise have to be paid by government. If nonprofits had to pay taxes, they would either have to reduce services or try to raise even more in donations. Given the difficult economy, that is a poor choice. If nonprofits did pay taxes, the reduction in taxes paid by the rest of the taxpayers would be very small compared with the larger impact of the loss of the good work provided by the nonprofits. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? The question of shifting the taxes among property taxes and other forms like income or sales taxes will vary from state to state. In high property tax states like New Jersey, the question is more relevant. In New Jersey, property taxes are the primary source of funding for public education. In order to significantly reduce property taxes, funding for education would need to be shifted to other taxes like sales tax or income taxes. That is a conversation that needs to be held now that property taxes have risen to levels that are causing people to leave the state. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? Some states do have lower property taxes for senior citizens or homesteaders, as in Florida. In each case, that simply increases the taxes on the rest of the taxpayers. In essence, I believe there needs to be a serious reconsideration of the entire tax structure including property, sales and income taxes. In New Jersey, there has not been any meaningful realignment in decades. It's time for that discussion instead of the tinkering that has been done. Bradley T. Borden Professor of Law at the Brooklyn Law School Should nonprofits pay property taxes? The justification for exempting nonprofits from paying taxes is that they provide services that the government would otherwise have to provide. Nonprofits that provide such services should be exempt from tax. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Property taxes tend to provide a more stable form of tax revenue than other forms of taxes, such as income tax. Revenues from income tax can fluctuate significantly during times of economic booms and busts. Property taxes, on the other hand, tend to be more stable because property values tend to be stable. Income taxes can also be regressive because income tax laws tend to provide tax breaks to individuals with the highest income. High income earners tend to realize significant amounts of income from increases in asset values and from income that is subject to favorable rates. Property taxes, on the other hand, should not be regressive. Christopher J. Palmer Assistant Professor of Real Estate and Bakar Faculty Fellow in the Haas School of Business at University of California at Berkeley Do people consider property taxes when deciding where to move? Should they? Many people do consider property taxes when they move. Online mortgage payment and affordability calculators have options to include property taxes when estimating monthly payments and affordability. Some mortgage companies include property taxes in monthly payments and hold funds in escrow to ensure property taxes are paid. These mechanisms make property taxes salient to potential buyers. Whether borrowers compare property taxes across towns is less clear. Towns with high property taxes also have higher property values, which is arguably a much more pressing concern for potential buyers than property taxes. Moreover, in populous California, and similarly in other areas with property tax limits, Prop 13 limits property tax rates such that there are not bargains to be had from a property tax rate standpoint. Should nonprofits pay property taxes? Whether nonprofits should pay property taxes is a political question. Our government has seen fit to privilege nonprofits in a host of ways, one of them being broad exemption from many forms of tax. There are reasons for this, but there are also costs to this practice, and clearly nonprofits benefit substantially from property-tax funded local services. Payments in Lieu of [Property] Taxes (PILOTs) are an increasingly popular way for nonprofits who are in a position to contribute to local governments to do just this. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Local governments’ reliance on property taxes opens their fiscal well-being up to substantial risk from property value fluctuations. However, there are very good reasons for small local governments to tax land instead of income or spending, both of which are mobile. If a local government taxes spending, for example through sales taxes, hotel taxes, etc., people simply spend money elsewhere. Should more types of property be subject to property taxes? If yes, what types? Again, the problem with taxing things besides real estate is that they are mobile. If boats are heavily taxed for example, I will decide not to own a boat or to register my boat elsewhere. That doesn’t help the local situation and makes residents worse off. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? This is also a political question. Retirees living on a fixed-income have often paid off their homes and are cash-poor, making it hard to pay substantial property taxes. If local voters value the presence of retirees in their communities, they may wish to subsidize their presence by reducing their property tax burden. However, low turnover induced by such subsidies also has an impact on cities and towns. If subsidies are too strong, it can discourage downsizing, keeping housing market inventory artificially low and pushing up home prices. One smart idea in this arena is what some towns have done by setting up reverse property tax mortgages where retirees with significant amount of home equity can delay paying property taxes until they sell their home or pass away, essentially selling a little bit of their home to the town each year to pay their property taxes. Richard J. Button Interim Executive Director of the Everitt Real Estate Center, and Associate Instructor of Real Estate at the Colorado State University, College of Business Do people consider property taxes when deciding where to move? Should they? It depends on any number of interfacing factors, but where one might see more consideration regarding real estate tax implications is among populations residing in areas along state boundaries: New York State vs. Connecticut, for example. Here, the magnitude of real estate taxation may actively factor into the decision of buying a house. Short of border towns, there is very little that can be done to option tax structure. In most cases, the burden of taxation is proportional to the market value of the property. In this sense, most people are prequalifying prior to purchase and lenders encourage escrowing for items like real estate taxes and property insurance. In a perfect world, real estate taxes should be closely studied as it impacts household disposable income and may serve as a barometer of government fiscal health. Should nonprofits pay property taxes? Nonprofit status in many ways is considered a society good and therefore should have this privilege. Yet there are plenty of examples where large-scale non-profits, such as “land-locked” universities, continue to grow. Universities often accommodate this growth by acquiring off-campus property, which, in doing so, frequently takes it off the tax-roll. Each time this happens, tax base is lost and may place incremental pressure on the delivery of public services. Resultantly, cities have often fought the status and won. Another way of looking at this is that many non-profits are located in commercial buildings where property taxes are being paid. Therefore, one could argue they do pay taxes because it is effectively embedded in their monthly rental payments. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Real estate taxation structure/magnitude varies around the country. Some jurisdictions reassess on a frequent basis (every few years), others not so much (every 10 years). For those that reassess less frequently the annual reestablishment of the millage is quite fundamental to municipal, school and county government budgeting. For most parts of the country, the taxation of real estate is the primary revenue source for local government. It typically accounts for approximately 70% of their revenue. It is hard to imagine any meaningful movement away from real estate taxation. Should more types of property be subject to property taxes? If yes, what types? Many believe real estate taxation is regressive, which places disproportionate burden on households with less income. Others debate that commercial real estate doesn’t pay a fair share, and consequently, the residential sector is unfairly over-burdened. Turn to other parts of the country and the argument is reversed. Many cities have devised strategies to address the concept of fairness by “localizing” real estate taxation into districts and by instituting incremental costs like development “impact fees”. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? To begin with, I think one needs to define the classifications of people. And, here too, I could imagine the inertia around governmental change makes my response not practical. One could imagine that a formula could be constructed to proportion the tax burden based on a person’s demand for public services… senior citizens vs. young families, for example. One would have to carefully reflect upon the greater good and/or the health, safety and welfare of society. At the end of the day, governmental budget demands will not change. Therefore, any delineation would have to meet a rigorous fairness test. Another way of thinking about it is through the economic development lens. Government is uniquely positioned to engage in activities the private deems too risky, to gentrify a neighborhood by waving real estate taxes. In doing so, the cost of doing business and corresponding risk profile are lowered. Taxation can be a tool for change… is it narrowly a neighborhood benefit or does the entire city share in the success? If done well, doesn’t everyone enjoy the benefit of a rising tide where property values are increasing, and therefore, the tax base as well? Steve Ranger Adjunct Clinical Professor of Finance at Walsh College Do people consider property taxes when deciding where to move? Should they? It is critical that potential homeowners consider the impact of property taxes as they make decisions concerning home ownership and the level of home that is affordable to them. Furthermore, while the current level of property taxes should be considered, what is equally as important to account for is how property taxes will change over time, as the underlying value of the home changes. In Michigan, property taxes for homes are determined based on formulas that consider a home’s underlying value. If a Michigan resident classifies his/her own as the primary residence, the underlying property taxes on that home are first determined based on value but then in the years that follow, the property taxes can only rise in relation to inflationary pressures – value of the home is not considered in assessing property tax increases. This creates a potential problem for the homeowner when the time comes to sell the home as the property tax levels will be re-adjusted to the sales price for the new buyer. If a seller of a home has owned their primary residence for an appreciable time and the home has increased in value over that time, upon sale of the home, the underlying property taxes could increase significantly and to levels unexpected by the new buyer. The potential for these increases must be considered by the new buyer as it could place the buyer in a precarious financial position down the road. Most mortgage specialists are aware of this issue here in Michigan but if the buyer is not fully informed, it could lead to unexpected financial hardships as the property taxes ultimately adjust upward with the home sale. Upward adjustments in property taxes will also be dictated by where a home may be located if a particular area realizes or has realized significant increases in underlying value. Such potential increases in taxes and the millage under which the taxes are determined will vary from location to location and must be considered by buyers as they select where to establish their residences. Should nonprofits pay property taxes? This topic is a bit tricky but it seems logical that if at least a portion of property taxes are used for protective services such as fire and police, then any property owner, regardless of federal tax status, should contribute towards these services through a property tax. The method of determining property value to assess taxes is where things may get difficult. Since many jurisdictions base property taxes on underlying value, how does one calculate the value of a property that is used for non-profit services (churches, hospitals, schools, etc.)? Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Many larger jurisdictions incorporate income taxes in their tax structures to help finance needed services. While this type of additional tax may serve to help alleviate reliance on property taxes to finance key services, the presence of such taxes may also impact property owner decisions to locate away from those places that have such taxes (i.e., income taxes) in addition to traditional property taxes. Some taxing authorities have used personal property taxes or luxury taxes on high-end items as a means of raising additional funds. The logistics of implementing such programs seems daunting, however. A means of tracking these additional items which would now be subject to taxes needs to be put into place and also a means of calculating the taxes is needed. Personal property tax programs seem to invite fraud as the payers of such taxes seek ways to hide their personal property from the taxing authorities or find ways to lower the value of the personal property in the hopes of lowering their tax bills. For this reason, I am a proponent of taxes based on real property and improvements only. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? Michigan once had a state program that reduced property taxes for lower income payers. (If this program is still in place, the credit for low-income payers has been reduced significantly of late.) This program greatly benefited the elderly on fixed incomes – it seemed to make sense that property taxes on the elderly, who it would be assumed do not directly benefit from the school systems funded by the property taxes, should be lower than those who perhaps had school-age children in their households. A potential drawback of such a tax credit system, however, is that it eliminates the consideration of property taxes from the home buying decision. If my property tax burden is controlled via a credit, then I might be more inclined to locate to a tax jurisdiction with a higher property tax assessment (presumably an area with higher property values) since I do not have to consider the level of property taxes in my budget decision. This then further burdens others in the jurisdiction that now need to make up for the taxes which go uncollected from the receiver of the tax credit. Ellen Gutiontov Adjunct Professor in the College of Law and the College of Commerce, and Executive Director of the Center for Intellectual Property Law and Information Technology at DePaul University, and Of Counsel at The Law Offices of Marc J. Lane Do people consider property taxes when deciding where to move? Should they? Yes, but not nearly as much as they should. Higher taxes will generally have the biggest impact on buyers with the least disposable income, as they can greatly affect their ability to qualify for a mortgage in the first place and can have an enormous effect on their monthly payment with future tax increases. Interestingly, it is these buyers who often underestimate the importance of property taxes even though they would be the most affected by them. On the contrary, buyers with a high disposable income will generally carefully consider the level of real estate taxes before moving to a particular community, even though they are far less affected by it. In addition, while higher property taxes are often theoretically associated with a higher level of services, better schools and other amenities, this is not always the case. Indeed, states and cities with the highest property tax rates in the country may simultaneously have some of the worst schools in the country, etc. It is my opinion that every buyer should consider property taxes, understand how they would influence their financial condition/liability, and investigate the kind and quality of services they would receive in return for paying higher (or lower) property taxes. Should nonprofits pay property taxes? Yes, but it should depend on the type and size of the nonprofit. Since real estate tax is the main source of local government funding and covers numerous services provided to local communities, businesses, and individuals, exempting too many properties from paying real estate taxes can cost a lot of money and place an excessive burden on the rest of the community. All nonprofits consume services provided by the local government and while nonprofits formed for purely charitable purposes should be exempt from real estate taxes, in my opinion, sizable nonprofits like colleges and universities, hospitals, and other similarly situated organizations should pay for services they consume, though potentially at a lower rate. Some states already utilize payments in lieu of taxes which are voluntary payments by nonprofits, but I feel that going the real estate tax route would provide a much easier and more uniform approach. Should more types of property be subject to property taxes? If yes, what types? Probably not; several things need to be considered. First, in general, land value appreciates with time (ignoring the major real estate market collapses). Therefore, since the real estate tax is an “ad valorem” or according to value tax (tax based on the value of the property), the amount of tax collected should go up with time. On the contrary, most personal property (with some exceptions, like art) actually depreciates with time and thus wouldn’t provide significant tax income for any extended period of time. In addition, while transfers of real estate are simple to track through the recording office, most personal property is not and therefore it would be virtually impossible to track and collect taxes on it. Alternatively, we could consider collecting property taxes on intellectual property (patents, trademarks, and copyrights), especially since intellectual property now represents the major source of wealth in the United States. That said, I don’t want to embark on a major policy debate on this topic, so I would exempt intellectual property for now. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? This question may result in as many opinions as the number of people asked. Most local governments already provide some exemptions for homeowners and senior citizens. One alternative would be to include a provision that would phase out these exemptions at a higher income or property value level. This is strictly a policy decision that would require weighing many factors. Vicki Bogan Associate Professor and Director of the Institute for Behavioral and Household Finance in the Charles H. Dyson School of Applied Economics and Management at Cornell University Do people consider property taxes when deciding where to move? Should they? It can be easy to forget about property taxes when making a home purchase decision. Especially since a great deal of the process focuses on your monthly mortgage principal and interest payment. However, the decision about whether or not to buy a home in a particular area should focus on all of the costs of homeownership, including taxes, maintenance, and other costs. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? For municipalities, finding the proper balance between property taxes and other forms of taxation can be tricky. Property taxes can be a stable form of government income. However, if property taxes are too high, it can discourage home ownership and growth and people will move out of the area. The other taxation options and the business base in the area are also important considerations. Jonathan Parker Robert C. Merton (1970) Professor of Finance in the Sloan School of Management at Massachusetts Institute of Technology Do people consider property taxes when deciding where to move? Should they? Yes they do. Property taxes are listed on real estate property listings and people pay attention. When renting, for the rental market, property taxes affect rents, so that even if people do not directly react to taxes, they surely are affected by rents which, in part, reflect property taxes. Should nonprofits pay property taxes? Depends on the non-profit. My general opinion is that there is no “should” here. Should local tax policy be adjusted to rely more or less on property taxes vs. other forms of taxation? Property taxes are a good source of local revenue for things like schools that are delivered to the same residents that pay the taxes. They are less appropriate for things like roads, where the drivers can be from other local communities. Also, some communities tax properties according to somewhat opaque or arbitrary measures of value that can possibility allow favoritism and unequal effective rates of taxation. Should more types of property be subject to property taxes? If yes, what types? I am concerned about commercial and industrial buildings being given property tax exemptions. These loopholes should be eliminated. Should certain groups of people be exempt from property taxes or be taxed at a lower rate? Generally, not. People should pay the tax in proportion to the value of what the property that they enjoy. In many ways, a property tax is fairer than an income tax, since it taxes in proportion to what is consumed – the house or apartment. An income tax, for example, leaves a low-income, high-wealth household paying very little taxes.

Methodology

In order to determine the states with the highest and lowest property taxes, WalletHub’s analysts compared the 50 states and the District of Columbia using U.S. Census Bureau data to determine real-estate property tax rates and by applying assumptions based on national auto-sales data to determine vehicle property tax rates.

For real-estate property tax rates, we divided the “median real-estate tax payment” by the “median home price” in each state. We then used the resulting rates to obtain the dollar amount paid as real-estate tax on a house worth $178,600, the median value for a home in the U.S. as of 2015, according to the Census Bureau.

For vehicle property tax rates, we examined data for cities and counties constituting at least 50 percent of a given state’s population and extrapolated this to the state level using weighted averages based on population size. For each state, we assumed all residents own the same vehicle: a Toyota Camry LE four-door sedan — 2016’s highest-selling car — valued at $23,070, as of February 2017.

Please note that Georgia formerly imposed vehicle property tax but replaced it in 2013 with a one-time tax imposed on a vehicle’s fair market value (FMV).

Sources: Data used to create this ranking were collected from the U.S. Census Bureau and each state’s Department of Motor Vehicles.

from Wallet HubWallet Hub


via Finance Xpress