How do state and local property taxes work?

The jurisdiction in the District of Columbia and all the other 50 states impose property taxes on the basis of different aspects. Most of the property tax revenue comes from the local levies such as the municipal, county, special district, and school district on the lands and improvements on it. Apart from this, some of the states also tax personal property such as equipment, machinery, and motor vehicles. Let us move forward to understand the revenue raised, differences in the taxes in the countries, and much more. 

The revenue raised by state and local governments from property taxes

Where property taxes play a significant source of local government revenue, they are considered a very small revenue source from most of the states. As per the reports, the state governments levied property taxes in 36 states in the year 2017 that generated $16 billion revenue or can be said that 1% of their own source general revenue. The own-source revenue does not include the intergovernmental transfers. At the same time, the local governments collected $509 billion through the property taxes in the year 2017 or it can be said as half of their own-source general revenue. 

The property taxes are considered as the largest own source of revenue for the cities, countries, townships, school districts, special districts that are specific purpose units like water and sewer authorities. The school districts depend quite heavily on the property taxes where they collect $212 billion in 2017 that was 83 percent of their own general revenue. As the school districts receive substantial intergovernmental transfers, the own-source revenue makes up lesser than half that is around 45% of the total general revenue. 

How do property tax rates differ across the country?

The effective property tax rates differ a lot across as well as within the states and make them difficult to be compared. In addition to the differences in the statutory tax rates, the local governments also use different methods to calculate the real property tax base. 

The taxing jurisdiction classically assess the real property value with the approximations regarding what the property will sell for in an arms-length transaction. However, some of the jurisdictions decide the value on the last sale attainment or price value of the property. The others consider the income that the property may generate such as the empty plot can be used for hotel and some of the base assessments solely depend on the size or physical attributes such as location or design of the property. There even are differences in the timing of assessments where a few of the jurisdictions are assessed yearly and other less frequently. 

A few of the jurisdiction’s tax the entire assessed value of the property before deductions and credits and other only value the fraction of the assessed value. 

For instance, the countries in South Carolina tax only 4% of the assessed value. The jurisdictions may impose statutory tax rates for different types of properties mostly differentiating between the residential and business property. 

States limiting the property taxes

Many states have imposed the limits on property tax rates, property tax revenue or increase in the assessed property values along with reducing the reliance on the property tax as the main source of revenue. For instance, California limits the tax rate to 1 percent and annual valuation increases to 2% till a property is resold. As a result, the neighbors having similar houses may have differences in the tax liabilities depending on the last changed hands on their house. The state and local governments even use limits, deductions, exemptions and credits for lowering the tax liability.

A few of the examples are: 

  • The assessment limits prevent any of the property’s assessed value from increasing by more than the fixed percentage among the assessments. These limits can help to reduce a property’s assessed value below the market value and prevent rapid property value increases from raising the burden over the owners of the property. Whenever a property is sold, its assessed value is reset at the market value. 
  • The homestead deductions and exemptions decrease the taxable value of the real property with a fixed amount. It is similar to the standard deduction decreases the taxable income for the owners who occupy the specific property. 46 states and the District of Columbia have homestead exemptions that help to reduce a fraction of the assessed value as per the tax value. 


These were a few of the major details regarding the state and local property taxes and their workings. This article is brought to you by Josh Welch and his team who are working to bring awareness among people regarding the higher tax rates and are not opposing the tax structures. 

Josh Welch is the founder of Americans for Growth Coalition who runs a Houston-based real estate firm that has around $200M assets. Being a successful business owner creating hundreds of jobs, he is adamantly fighting for the issues he cares about. For more details please visit our website.

News Reporter