According to NAHB tabulations of the Census Bureau’s quarterly data, property taxes constituted 39.7% of state and local tax receipts among major sources for 2014. Sales taxes had the second largest share at 27.8%, followed closely by individual income tax at 27.9%. At 4.6%, corporate income taxes held the smallest share of state and local tax receipts among major sources.
Further gains are expected in all tax receipts as the economic recovery strengthens, however state and local individual income tax, corporate income tax, and sales tax collections are particularly responsive to changing economic conditions.
Gains in state and local individual income tax, corporate income tax, and sales tax collections had outpaced increases in property tax receipts until recently. This trend pushed the property tax share of total receipts from the four major sources from a high of 44.9% in the third quarter of 2010 to just below 40% as of the end of 2014. The share did stabilize recently as property tax revenues continue to grow. The current property tax share remains higher than pre-housing boom measures.
Revenues from property taxes totaled just under $498 billion for 2014.
Lagging property assessments and annual adjustments smooth property tax collections across business cycles. Nominal property tax collections are not as prone to cyclical fluctuations as other tax collections and have tended to increase with minor business cycle fluctuations.
* 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.
The traditional property tax contains both a cause and a remedy for the boom and bust real estate cycles that plague our economy.
Typically, when an improvement in schools, transportation or other public infrastructure results in an increase in property value, the lion’s share of that increase ends up as a windfall to the property owners who are lucky enough to own well-served land. The opportunity for receiving such windfalls is the fuel for land speculation. And, as we see periodically, the boom and bust in real estate values caused by speculation typically precedes a general economic recession or depression.
Fortunately, a few jurisdictions are applying a remedy. They are reducing the property tax rate applied to privately-created building values while increasing the rate applied to publicly-created land values. Without losing any revenue, they can obtain the following results:
The lower tax rate on buildings makes them cheaper to build, improve and maintain. This is good for residents and businesses alike.
Surprisingly, the higher tax rate on land values tends to make land more affordable as well. By reducing the profits from land speculation, the tax on land values reduces the speculative demand for land, and this moderates land-price inflation. Additionally, the higher tax on land values encourages development of high-value sites. These are typically infill sites near urban infrastructure amenities — and these are the very places where development should occur, thereby reducing urban sprawl which imposes excessive infrastructure costs (and tax burdens) on communities.
If you would like additional information, see http://webapps.icma.org/pm/9407/public/cover.cfm?author=Rick%20Rybeck%20and%20Walt%20Rybeck&title=Break%20the%20Boom%20and%20Bust%20Cycle&subtitle=
Very Misleading graph. Corporations pay Property taxes and Sales tax and I would venture to think that they pay a higher share of property taxes.
The corporate tax category represents corporate income tax only. S Corps and LLCs income tax are listed under individual tax, consistent with tax law. Yes, businesses pay property taxes as well, but housing is responsible for the majority of property tax payments (owner-occupied and rental properties). The owner-occupied housing stock is now valued at $20.6 trillion, thus generating more than $220 billion alone. Adding in apartment buildings, homes under development and residential lots, and that adds up to a majority of property tax payments.