The property tax has been an enduring component of government finance since the origin of this country. However, historical events like the Great Depression and the tax revolts initiated by California’s Proposition 13 have had profound effects on state and local governments’ reliance on tax revenue generated from property taxes. State governments have undoubt- edly developed tax revenue structures that generate very little revenue from the property tax. For example, in 2003 national totals of state government tax revenue amounted to the income tax (both corporate and personal) and the general sales and gross receipts tax, contributing 38.33% and 34.66%, respectively, to total tax revenue (U.S. Census Bureau). In addition, the combination of excise tax revenue generated from motor fuel sales, tobacco product sales and alcoholic beverage sales contributed to 8.74%
of total state tax revenue (U.S. Census Bureau). However, property taxes only contributed to 2% of total tax revenue generated by state governments in 2003, which represents the average contribution that the property tax has made to overall state tax revenue since 1988 (U.S. Census Bureau).
Thus, the movement of states away from the property tax that occurred after the Great Depression and resulted in the property tax becoming a local government revenue source has steadfastly continued into the present era and will likely continue well into the future.
The past and present state of property taxation have also illustrated a somewhat decreasing reliance on property tax revenue from local govern- ments coinciding with a strengthening of other revenue sources, including intergovernmental revenue, user charges and fees, and other tax revenue.
For example, in the 2001–2002 fiscal year, local governments throughout the United States generated 38.11% of their total own-source revenue from charges and other miscellaneous revenue (U.S. Census Bureau). During that same time period, tax revenue derived from sources other than the property tax constituted almost 17% of total own-source revenue for local govern- ments (U.S. Census Bureau). In addition, local governments throughout the country received 40% of their general revenue from federal and state intergovernmental aid during the 2001–2002 fiscal year, while at the same time generated only 37% of their total general revenue through taxation (U.S. Census Bureau). Thus, it is apparent that the property tax has waned somewhat in its importance as a revenue source for local governments.
However, aside from intergovernmental revenue, alternatives to the property tax still comprise a relatively small portion of local governments’
own-source revenues and in some cases have even declined over time.
Figure 6.8 illustrates the proportion of total tax revenue for local governments generated from motor fuel sales, tobacco product sales and
The Property Tax: Past, Present and Future g 173
alcoholic beverage sales during the time period 1994–2003. As can be seen from Figure 6.8, the proportion of local government tax revenue that is generated from each individual excise tax source amounts to less than one percent for all three sources. These small contributions to local government financing cannot be considered viable alternatives to the property tax.
In addition, Figure 6.8 shows that all three of these excise tax revenue sources have been declining in their contribution to the overall tax revenue generated by local governments. The proportion of total tax revenue generated from motor fuel sales declined from 0.30% to 0.21%
during the time period. The contribution that taxes on tobacco product sales made to overall local tax revenue declined from 0.08% to 0.06%.
Finally, the proportion of total tax revenue derived from alcoholic beverage sales declined from 0.12% to 0.08% during the time period.
Aside from the contributions to tax revenue made by excise taxes, the proportion of total tax revenue generated by local governments from the income tax (both corporate and personal) also declined between 1994 and 2003 from 5.16% to 4.46% (U.S. Census Bureau). While the proportion of total local tax revenue generated from the general sales and gross receipts tax did increase by almost 5% over the time period, this revenue source only contributed to 12.7% of total local tax revenue in 2003 (U.S. Census Bureau). At the same time, the property tax still amounted to 76.55% of total local tax revenue generated in 2003 (U.S. Census Bureau).
These findings overwhelmingly suggest that local governments have not yet found a replacement for the property tax. Local governments have continued to depend heavily on property taxation as a means to finance Figure 6.8 Local excise tax revenue as a proportion of total tax revenue 1994–2003.Source: U.S. Census Bureau.
public service provision. Property taxes endure ‘‘because they produce reliable, stable, independent revenue for the governments closest to the people and there is no clearly superior alternative for providing fiscal autonomy’’ (Mikesell, 2003). Thus, the picture for the future seems to be that the property tax will continue as a fundamental source of local government revenue for many years to come.
Notes
1. Data is reported in 1980 constant dollars using the Consumer Price Index. Data amounts refer to the tax revenues collected by state governments alone. As defined by the U.S. Census Bureau, total tax revenue collections comprise gross amounts collected (including interest and penalties) minus amounts paid under protest and amounts refunded during the same period. These amounts also consist of all taxes imposed by a government, whether the government collects the taxes itself or relies on another government to act as its collection agent (http://www.census.gov/govs/www/class_ch7.html#S7.21).
2. State–local tax burden is calculated as total state–local taxes as a percentage of income.
3. Data for Figures 6.3 through 6.8 was obtained from the U.S. Census Bureau, which defines general property tax revenue as relating to property as a whole, which is taxed at a single rate or at classified rates according to the class of property. Property is defined as both real property and personal property, which can be tangible or intangible.
These amounts also include: special property taxes levied on selected types of property and subject to rates not directly related to general property tax rates, taxes based on income produced by property as a measure of its value on the assessment date, penalties and interest on delinquent property taxes, proceeds of tax sales and tax redemptions (up to the amount of taxes due plus penalties and interest), and any commissions, fees, or other items representing collection expenses retained from tax proceeds for governments collecting taxes as agents for another (http://www.census.gov/govs/www/qtaxtechdoc.html).
Local tax revenue was calculated as the difference between recorded state tax revenue and recorded state and local combined tax revenue.
Where appropriate, data is presented in constant dollars using the Consumer Price Index. Property tax revenue that is defined and calculated differently might portray trends unlike those presented in this chapter.
4. The Midwest region includes the following states: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota,
The Property Tax: Past, Present and Future g 175
Ohio, South Dakota, and Wisconsin. The Northeast region includes:
Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. The West region includes: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming. The South region includes: Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia.
References
Alm, James and Mark Skidmore. ‘‘Why Do Tax and Expenditure Limitations Pass in State Elections?’’ Public Finance Review. Vol. 27, No. 5 (1999):
481–510.
Appraisal Institute. The Appraisal of Real Estate, 10th edition. Chicago:
Appraisal Institute, 1992.
Bland, Robert L. and Phanit Laosirirat. ‘‘Tax Limitations to Reduce Municipal Property Taxes: Truth in Taxation in Texas.’’ Journal of Urban Affairs.
Vol. 19, No. 1 (1997): 45–58.
Bradbury, Katharine L., Christopher J. Mayer and Karl E. Case. ‘‘Property Tax Limits, Local Fiscal Behavior, and Property Values: Evidence from Massachusetts under Proposition 2ẵ.’’Journal of Public Economics.
Vol. 80, No. 2 (2001): 287–311.
Brunori, David. Local Tax Policy. Washington D.C.: The Urban Institute Press, 2003.
Cantrell, Lang. ‘‘Some Basic Modifications of American Property.’’
The Journal of Finance.Vol. 9, No. 4 (1954): 427–428.
Council of State Governments.The Property Tax: A Primer.Lexington, KY:
The Council of State Governments, 1978.
De Tray, Dennis and Judith Fernandez. ‘‘Distributional Impacts of the Property Tax Revolt.’’ National Tax Journal. Vol. 39, No. 4 (1986): 435–451.
Downing, Paul B. and Edward J. Bierhanzl. ‘‘User Charges and Special Districts.’’ Management Policies in Local Government Finance, Fourth Edition. Ed. J. Richard Aronson. International City/County Management Association, 1996.
Duncombe, William and John Yinger. ‘‘Alternative Paths to Property Tax Relief.’’ Property Taxation and Local Government Finance.
Ed. Wallace E. Oates. Cambridge, MA: Lincoln Institute of Land Policy, 2001: 243–290.
Elder, Harold W. ‘‘Exploring the Tax Revolt: An Analysis of the Effects of State Tax and Expenditure Limitation Laws.’’ Public Finance Quarterly.
Vol. 20, No. 1 (1992): 47–64.
Elkins, David and Elaine Sharp. ‘‘Living with the Tax Revolt: Adaptations to Fiscal Limitation.’’ Public Administration Quarterly. Vol. 15, No. 3 (1991): 272–287.
Fisher, Glenn W. ‘‘Some Lessons From the History of the Property Tax.’’
Assessment Journal. Vol. 4, No. 3 (1997): 40–47.
Galles, Gary M. and Robert L. Sexton. ‘‘A Tale of Two Tax Jurisdictions:
The Surprising Effects of California’s Proposition 13 and Massachusetts’
Proposition 2ẵ.’’American Journal of Economics and Sociology. Vol. 57, No. 2 (1998): 123–34.
Hale, Dennis. ‘‘The Evolution of the Property Tax: A Study of the Relation between Public Finance and Political Theory.’’ The Journal of Politics.
Vol. 47, No. 2 (1985): 382–404.
Howard, Marcia. ‘‘State Tax and Expenditure Limits: There Is No Story.’’
Public Budgeting and Finance. Vol. 9, No. 2 (1989): 83–91.
Institute of Property Taxation.Property Taxation, 2nded. Ed. Jerrold Janata.
Washington D.C.: Institute of Property Taxation, 1993.
Joyce, Philip G. and Daniel R. Mullins. ‘‘The Changing Fiscal Structure of the State and Local Public.’’ Public Administration Review. Vol. 51, No. 3 (1991): 240.
Kahan, Paul. ‘‘An Integrated Tax Structure: Property Taxes Linked to other Business Taxes.’’ Journal of Property Valuation and Taxation. Vol. 14, No. 3 (2003): 38–45.
Kirlin, John J.The Political Economy of Fiscal Limits. Lexington, Massachu- setts: D.C. Heath and Company, 1982.
Lowery, David and Lee Sigelman. ‘‘Understanding the Tax Revolt: Eight Explanations.’’ The American Political Science Review. Vol. 75, No. 4 (1981): 963–974.
McGuire, Therese. ‘‘Alternatives to Property Taxation for Local Government.’’ Property Taxation and Local Government Finance.
Ed. Wallace E. Oates. Cambridge, MA: Lincoln Institute of Land Policy, 2001: 301–313.
Mikesell, John L. Fiscal Administration: Analysis and Applications for the Public Sector. Belmont, California: Thomson Learning, Inc., 2003.
Mullins, Daniel R. and Philip G. Joyce. ‘‘Tax and Expenditure Limitations and State and Local Fiscal Structure: An Empirical Assessment.’’
Public Budgeting & Finance. Vol. 16, No. 1 (1996): 75–102.
O’Conner, Patrick. ‘‘State and Local Government Finances, Property Tax Emphasis.’’Assessment Journal. Vol. 10, No. 4 (2003): 75–97.
O’Sullivan, Arthur. ‘‘Limits on Local Property Taxation: The United States Experience.’’ Property Taxation and Local Government Finance. Ed.
Wallace E. Oates. Cambridge, MA: Lincoln Institute of Land Policy, 2001: 177–198.
Petersen, John E. and Dennis R. Strachota (1997). Local Government Finance. Chicago, Illinois: Government Finance Officers Association.
Pomp, Richard D. and Oliver Oldman.State and Local Taxation, 4thedition.
Richard D. Pomp Publisher, 2001.
The Property Tax: Past, Present and Future g 177
Preston, Anne and Casey Ichniowski. ‘‘A National Perspective on the Nature and Effects of the Local Property Tax Revolt, 1976–1986.’’National Tax Journal. Vol. 44, No. 2 (1991): 123–146.
Rafool, Mandy. ‘‘State Tax and Expenditure Limits: Appendix C.’’
National Conference of State Legislatures. November 1996.
www.ncsl.org/programs/fiscal/lfp104c.htm
Reeves, H. Clyde. ‘‘Leadership for Change.’’ The Property Tax and Local Finance. Ed. C Lowell Harris. New York: The Academy of Political Science, 1983: 1–13.
Renne, J. Scott. ‘‘Valuation Methodologies for the Assessment Function, Current and Past Practices.’’ Assessment Journal. Vol. 10, No. 4 (2003):
103–109.
Roemer, Arthur C. ‘‘Classification of Property.’’The Property Tax and Local Finance. Ed. C. Lowell Harris. New York: The Academy of Political Science, 1983: 108–122.
Rothenberg, Jerome and Paul Smoke. ‘‘Early Impacts of Proposition 2ẵon the Massachusetts State-Local Public Sector.’’ Public Budgeting and Finance. Vol. 2, No. 4 (1982): 90–110.
Sears, David O. and Jack Citrin. Tax Revolt: Something For Nothing in California. Cambridge, Massachusetts: Harvard University Press, 1982.
Sexton, Terri A. ‘‘The Property Tax Base In The United States: Exemptions, Incentives, and Relief.’’Assessment Journal. Vol. 10, No. 4 (2003): 5–34.
Sexton, Terri, Steven Sheffron and Arthur O’Sullivan. ‘‘Proposition 13:
Unintended Effects and Feasible Reforms.’’National Tax Journal. Vol. 52, No. 1 (1999): 99–112.
Shadbegian, Ronald J. ‘‘Do Tax and Expenditure Limitations Affect Local Government Budgets? Evidence From Panel Data.’’ Public Finance Review. Vol. 26, No. 2 (1998): 118–136.
Shapiro, Perry, David Puryear and John Ross. ‘‘Tax and Expenditure Limitation in Retrospect and Prospect.’’ National Tax Journal. Vol. 32, No. 2 (1979): 1.
Sheffrin, Steven. ‘‘Commentary.’’ Property Taxation and Local Government Finance. Ed. Wallace E. Oates. Cambridge, MA: Lincoln Institute of Land Policy, 2001: 315–319.
Sigelman, Lee, David Lowry and Roland Smith. ‘‘The Tax Revolt:
A Comparative State Analysis.’’ The Western Political Quarterly. Vol. 36, No. 1 (1983): 30–51.
Swartz, Thomas R. ‘‘A New Urban Crisis in the Making.’’Challenge. Vol. 30, No. 4 (1987): 34–42.
U.S. Census Bureau, Census of Governments,State and Local Government Finances. http://www.census.gov/govs/www/qtaxtechdoc.html.
Youngman, Joan. Legal Issues in Property Valuation and Taxation: Cases and Materials. Chicago: The International Association of Assessing Officers, 1994.
Chapter 7