Property Taxes Account for 40% of State and Local Revenue Among Major Sources

According to the latest data from the Census Bureau, taxes paid by homeowners and other real estate owners remain the largest single source of revenue for state and local governments. Beginning with the third quarter of 2013, the survey of State and Local Government Tax Revenue was streamlined and now includes only four major sources of revenue; property tax, state and local individual income tax, corporate income tax, and sales tax. At 40.2%, property taxes represent the largest share of revenue generated from the four major sources.

By focusing on only four sources, the quarterly survey no longer includes data on revenue from miscellaneous sources like motor fuel taxes, motor vehicle taxes, tobacco taxes, and alcohol taxes. In the second quarter of 2013, prior the change, revenue from miscellaneous sources was $74 billion or 19.3% of total state and local tax revenue for the quarter.

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The major revenue source with the largest increase over 2012 was state and local individual income tax receipts. In 2013, approximately $344 billion in taxes were paid. This was an increase of increase of 10.0% from 2012. Corporate income tax receipts increased 6.6% and sales tax receipts increased by 3.4% over 2012.

State and local government property tax collections continue to increase on a nominal basis. In 2013, approximately $488 billion in taxes were paid by property owners. This was an increase of increase of 3.1% from 2012.

As state and local government property tax collections from the four major sources of revenue increased in recent years, the share of local tax collections due to property taxes fell from a high of 44.9% in the third quarter of 2010 to the current share of 40.2%. The average share for property taxes since 2000 is 39.2%.

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State and local individual income tax, corporate income tax, and sales tax collections are very responsive to changing economic conditions. The changing share of local collections is due predominantly to fluctuations in state and local individual income tax, corporate income tax, and sales tax receipts. For example, in the fourth quarter of 2009 state and local governments collected $60 billion in individual income tax. In the fourth quarter of 2013, the most recent, state and local governments collected $77.5 billion in individual income tax. The dramatic 29% increase in state and local individual income tax receipts is due to improving economic conditions, rising incomes, and higher individual income tax rates in several states.

Although house prices experienced healthy increases over the last two years, one should not expect property tax collections to increase significantly. The S&P/Case-Shiller House Price Index – National Index grew by 2.6% on a not seasonally adjusted basis in the fourth quarter and 11.4% last year. Instead, lagging assessments and the ability of local jurisdiction to make annual adjustments should lead to only modest increases.

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* Data footnote: 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.



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