Property taxes are an important source of revenue for state and local governments to pay for government services, particularly education.
When factoring in revisions, Census data of state and local government tax collections for the third quarter of 2011 indicate a small increase from the previous quarter to $467 billion on an annualized basis. Nonetheless, total property tax collections from the fourth quarter of 2010 through the third quarter of 2011 were down 1.5% on a year-over-year basis as declining house prices eroded state and local property tax bases.
Although the share of state and local government tax collections due to property taxes continues to decline, falling below 35% in the third quarter of 2011, total property tax collections did stabilize. It is also important to note that the property tax share of state and local tax collections remains relatively high compared to recent history. The average share since the year 2000 is 32%, so housing and other real estate owners are still paying a higher than average contribution of state and local government tax receipts compared to recent history.
This elevated tax burden is significant, especially when one considers the decline in housing prices since 2006. According to the Case-Shiller house price index of the 20 largest metropolitan areas, housing prices are down 32% over the last 5 years. Yet the decline of property taxes paid is negligible thus far (1.5%). This means that the effective tax homeowners pay on their homes remains high. However, as assessments catch-up to accurately reflect current fair market values of owner-occupied homes, property taxes are expected to decline both in terms of the total amount paid and the share of all taxes collected.
And despite the recent decline in the share of total taxes due to property tax, taxes paid by homeowners and other real estate owners remain the largest single source of taxes for state and local governments. At 35%, property taxes represent a significantly larger share than the next largest sources: sales and gross receipt taxes and individual incomes taxes, each at 22%.
*Data footnote: the Census data for property tax collections include taxes paid for all real estate assets (as well as personal property), including owner-occupied homes, rental housing, commercial real estate and agriculture. However, housing’s share is by far the largest when considering the stock of both owner-occupied and rental housing units.