Property taxes vary widely across states both in terms of annual taxes paid as well as effective tax rates. In 2019, the difference between average real estate taxes paid by New Jersey and Alabama home owners was $7,974. New Jersey continued its perennial distinction as having the highest average real estate tax bill per home owner ($8,687) as well as the highest effective tax rate (2.13%). Alabama ($713) and Hawaii (0.31%) were at the other end of the spectrum, boasting the lowest average effective tax rate and annual real estate tax bill, respectively. In the Midwest, Ohio ranks No. 2 (20th Nationally) in average annual property taxes paid with $2,910 and No. 2 (9th Nationally) with a 1.52% effective tax rate (see full database here).
The overall distribution has remained roughly unchanged since 2016, as the order of the top five and composition of the top ten remained the same. The map below illustrates the concentration of high average property tax bills in the Northeast. In contrast, southern states (with the exception of Texas) boast some of the lowest RET bills for their resident homeowners.
As property values vary widely by state, controlling for this variable produces a more instructive state-by-state comparison. In keeping with prior analyses, NAHB calculates this by dividing aggregate real estate taxes paid by the aggregate value of owner-occupied housing units within a state. The effective tax rate can be expressed either as a percentage of home value or as a dollar amount levied per $1,000 of this value.
The map below shows that New Jersey has the dubious distinction of imposing the highest effective property tax rate—2.13% or $21.34 per $1,000 of home value. Hawaii levies the lowest effective rate in the nation—0.31%, or $3.06 per $1,000 of value. However, this low rate combined with extremely high home values results in middle-of-the-pack per-homeowner property tax bills. At $749,707, the average home value in Hawaii is the highest of any state in the country and 52% higher than New York’s average home value ($494,375).
Interstate differences among home values explain some, but not all, of the variance in real estate tax bills across the country. Texas is an illustrative example of a state in which home values hardly, if at all, explain real estate tax bills faced by homeowners. While Texas ranks 27th in the country for average home values, it is 10th in average real estate taxes paid. Other factors are clearly at play, and state and local government financing turns out to be a major one.
Property taxes accounted for 38.9% of state and local tax receipts in 2019, on average, but some state and local governments rely more heavily on property taxes as a source of revenue than others. Texas serves as an excellent example once again. Unlike most states, Texas does not impose a state income tax on its residents. Even though per capita government spending is tame compared with other states—13th lowest in the country—Texas and its localities must still find a way to fund government obligations. Local governments accomplish this by levying the 6th highest effective property tax rate (1.60%) in the country, on average. The state government partly makes up for foregone individual income tax revenue by imposing its corporate tax on revenue rather than income.
Of course, neither home values nor a state’s reliance on property tax revenue is fully responsible for the geographic variance of property tax rates and revenues. State spending per resident, the nature of this government spending, the prevalence of homeownership within a state, and demographics all affect tax policy and, thus, the type and magnitude of tax collections. These variables combine to explain the variance that the two factors discussed here do not fully capture.