Property taxes in the US are one of the main sources of revenue for local governments in the United States, and are essential for funding public services such as education, infrastructure, security and health. In 2022, these taxes represented approximately 27.4% of total state and local tax collections, surpassing other sources of tax revenue.
Because they are mostly collected at the municipal and state level, the amounts vary significantly between states and counties. Some regions have extremely low taxes, while others can have high rates that directly impact the cost of living and real estate investments.
How are property taxes calculated?
Property taxes in the USA are based on the market value of the property, i.e. the price at which the property could be sold on the open market. Each local government sets a millage rate that determines how much tax will be charged for every $1,000 of the property’s value.
In addition, some states apply assessment rates, where properties can only be taxed on a percentage of the total value. This means that a property valued at $300,000 may only be taxed on 70% of its value, depending on the state’s rules.
These taxes are usually levied annually or biannually, depending on local legislation.
States with the highest property taxes
Property tax rates vary significantly across the United States. The states with the highest effective property tax rates are:
1. New Jersey – 2.23%
2. Illinois – 2.07%
3. Connecticut – 1.92%
4. New Hampshire – 1.86%
5. Vermont – 1.80%
In New Jersey, for example, a homeowner with a property valued at $300,000 can pay more than $6,600 in annual property taxes.
States with the lowest property taxes
The states with the lowest property tax rates are:
1. Hawaii – 0.27%
2. Alabama – 0.38%
3. Colorado – 0.49%
4. Nevada – 0.50%
5. South Carolina – 0.51%
In states like Hawaii, a property valued at $300,000 would result in an annual property tax bill of approximately $810, making it one of the most attractive states for real estate investors and retirees.
Differences in Property Taxes by County
In addition to the differences between states, property taxes vary significantly between counties within the same state. For example, in California, while Marin County has average taxes of more than $10,000, in other more remote areas the amounts can be significantly lower.
The counties with the highest taxes include:
– Marin County, California
– Nassau County, New York
– Bergen County, New Jersey
– Rockland County, New York
– Essex County, New Jersey
The counties with the lowest property taxes include:
– Choctaw County, Alabama
– Oglala Lakota County, South Dakota
– Madison Parish, Louisiana
– Copper River County, Alaska
– Maui County, Hawaii
The disparity between tax values can be attributed to factors such as cost of living, real estate appreciation and local demands for tax revenue.
Factors that influence property taxes
Property taxes vary according to several factors, including:
– Market value of real estate – States and cities with high real estate prices tend to have higher taxes.
– Municipal and state budgets – Places that rely on property tax revenue to fund public services may set higher tax rates.
– Local revenue needs – Areas with high infrastructure and service costs, such as New York and California, require higher taxation.
– State and local tax policies – Some states apply exemptions or reductions for certain groups, such as seniors and veterans.
The impact of property taxes on companies and investors
For businesses and real estate investors, property taxes can have a significant impact on operating costs. In states with high tax rates, the costs of maintaining commercial real estate can reduce the profit margin of investors and companies.
In states with lower taxation, the environment is more favorable for new investments, making places like Texas, Florida and Nevada attractive options for business expansion.
In addition, companies planning to expand to the US should consider not only corporate tax rates, but also the costs of commercial and residential property for their employees.
Count on Drummond Advisors
Property taxes are one of the main components of the US tax system and directly impact both residents and investors. Understanding the variations between states and counties is essential for good financial decision-making.
If your company needs tax advice and tax planning in the US, Drummond Advisors can help you better understand the implications of property taxes and other tax obligations. Get in touch with our experts via the available chat!
Source: Tax Foundation
Written by Marcos Ferreira, Content Analyst at Drummond Advisors