Not all property taxes are created equal, and effective tax rates (i.e., (property taxes as a percentage of market value) for a given city may be influenced by factors beyond the top-line homestead tax. In their annual 50-State Property Tax Comparison Study, the Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence evaluate effective 2024 tax rates of 75 large U.S. cities and 50 rural municipalities (one in each state) on homestead, commercial, industrial and apartment properties. The data reveal that high effective property tax rates usually arise from some combination of high reliance on property taxes, low home values and higher local government spending.
The report identifies four factors that explain the variation in effective property tax rates: property tax reliance, property values, level of government spending and how local tax systems treat different types of property.
“Even though this year’s report shows that the average effective tax rate on a median-valued home in each state’s largest city fell by over 5% compared to 2023, about 20 of these 53 cities experienced an increase in effective tax rates,” said Bethany Paquin, senior research analyst at the Lincoln Institute of Land Policy. “Differences in the structure of state property tax systems, reliance on the property tax versus other state and local taxes, property tax relief policies, how property is classified and local preferences all play a role in the variation we see in property tax rates on homes across the country.”
For example, Detroit has the highest homestead effective property tax rate in the country, primarily because of the city’s low home values. A median-valued home in Detroit faces an effective property tax rate of 3.02%. But move the discussion to Honolulu, and you’ll find that high property values, low local government spending and classification that favors homeowners all contribute to that city’s lowest-in-the-nation effective tax rate of 0.30%.
Although K–12 education is the largest expenditure for local governments across the U.S., school funding in Hawaii is centralized at the state level, contributing to lower local government spending. These two contrasting cities illustrate how the size of a local government’s tax base, the public services it provides and its state and local government tax structure influence homeowner property tax rates.
Another key driver of tax disparities is the use of assessment limits, which restrict how fast property values can rise for tax purposes. While intended as tax relief, the report finds these limits shift the tax burden to new homeowners, particularly in high-growth markets, while rewarding longtime owners. In cities such as Tampa, Los Angeles and Miami, a new homeowner might pay at least double what a neighbor in an identical home pays.
In many states, commercial, industrial and apartment properties face higher effective tax rates than homes due to classification systems that favor homeowners. In Charleston, SC, due to classified tax rates and an exemption for homeowners from property taxes for school operations, commercial and apartment buildings are taxed at nearly six times the rate of owner-occupied homes, raising concerns about impacts on renters and small businesses.
“Although effective tax rates are the best way to compare levels of taxation across jurisdictions, whether a rate is high or low doesn’t tell the whole story,” said Bob DeBoer, research director at the Minnesota Center for Fiscal Excellence. “This report is the best representation of the design of property tax systems across the country and reminds us that state policy decisions can result in dramatic differences in tax burdens between different classes of property.”
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