State and Local Property Taxes Target Commercial and Industrial Property

November 30, 2012

In fiscal year 2010, state and local governments collected $441.6 billion in property taxes, comprising 23.5 percent of state and local own-source revenue. Because the tax is so unpopular with homeowners, many people have pushed to shift more of the tax burden on commercial and industrial properties, says Joseph Henchman of the Tax Foundation.

Despite being stable, visible, and locally controlled and administered, there are several reasons why the property tax is politically unpopular. One reason may be that the tax is so visible and highly collected that taxpayers notice it the most. Others complain about the administration of the tax, such as assessments at odds with market values or the fact that the tax is unpredictable from year to year.

Policymakers have responded to complaints about the tax by including homestead exemptions, separate property classifications, economic development abatements, circuit breakers and deferrals. Some states have turned to raising taxes on commercial and industrial properties and reducing taxes on residential properties.

  • Commercial properties face higher tax rates than residential properties in 39 states.
  • Only four states have higher taxes for residential property than commercial property.
  • Overall, commercial property paid 1.724 times what a homestead paid in 2010.
  • Across the nation, state and local governments collected 44 percent of property tax revenue from residential property; the majority came from non-residential property.

Some states show that they receive more tax revenue from residential properties. However, that data may be misleading since there may be more residential properties than commercial and industrial properties, like in New Jersey.

Despite making up less than 25 percent in assessed valuation, commercial and industrial properties pay more than their fair share. Because politicians want to please their constituents, they try and reduce the property taxes on residents. However, the result of this will simply shift the tax burden and make it less transparent. For example, businesses may end up raising their prices on goods and services or paying workers lower wages, which have a greater impact on long-term economic growth.

Source: Joseph Henchman, "State and Local Property Taxes Target Commercial and Industrial Property," Tax Foundation, November 20, 2012.

 

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