Survey Finds Highs, Lows in Property Taxes

In a year where income taxes have been a big headline-grabber, a new survey shows a couple of other directions our money goes. WalletHub, a financial information and education site for consumers, puts together a list of the best and worst states for real-estate property taxes every year.

We thought we’d give you a brief break from the income tax grind by taking a look at another form of taxation: real-estate property taxes, and to a lesser degree, vehicle property taxes.

According to WalletHub, the average U.S. family spends over $2,000 every year on property taxes. And for those living in the 27 states that levy an ad valorem tax on the value of vehicles, tack on an average bill for an additional $436.

By the Numbers

The WalletHub survey finds a surprising winner in the rankings for the lowest real-estate property taxes. Ask most folks what state would have the lowest real-estate property tax rate, and Hawaii probably won’t be one of the answers. Yet, the Aloha State sits firmly atop the list with a property tax rate of just 0.27%. That means a house appraised at $185,000 would have a property tax bill of just $501 in Hawaii. Alabama, the number-two finisher, comes in with a rate of 0.43%, and a $791 tax bill on that same sample home.

Louisiana, Delaware, and the District of Columbia round out the top five, with DC taxing real estate at 0.56%. A $185,000 home in the district would have a $1,026 tax bill.

On the flip side, New Jersey has the unfortunate distinction of having the highest real-estate property taxes, with a 2.4% tax rate. Illinois is close behind at 2.32%, followed by New Hampshire (2.19%), Connecticut (2.02%), and Wisconsin (1.95%).

Remember the $185,000 sample home that costs $501 in Hawaiian property tax? In New Jersey that home will rack up a $4,437 tax bill every year.

Another area of property taxation is on vehicles. Twenty-seven states don’t tax vehicles based on their value. Of the remainder, like the real estate property taxes, the results differ widely.

The lowest vehicle property taxes are paid by drivers in Louisiana, where the rate is just 0.10%. Using a sample vehicle worth $24,000, Louisiana drivers would pay $24 in vehicle property tax. Michigan is second, but a bit farther back with a rate of 0.59% and a tax bill of $142 on our sample car.

Spots three through five are claimed by California, Alabama and Arkansas. The Razorbacks have a 1% tax rate on vehicles and would pay $239 on the sample vehicle.

On the high end, Rhode Island has the highest vehicle property taxes, charging $1,144 on our sample car with a 4.77% tax rate. Next is Virginia with a 4.05% rate and a $971 tax bill on the sample. Our bottom five are rounded out with Mississippi, South Carolina, and Connecticut. Drivers would pay $609 in tax with a 2.54% tax rate in Connecticut.

It’s Not Just Taxes

With all the talk about best and worst, highest and lowest, rates and samples, should we use taxes and tax rates as reasons to change where we live? Stephen Lusch, Assistant Professor of Accounting at Texas Christian University’s Neely School of Business says there should be more to the decision to move than just taxes. A neighborhood’s amenities, overall property values, quality of schools, and recreation can all figure into one’s decision along with other factors.

One thing to remember about all these figures, professor Lusch reminds, is that while the tax landscape may differ from state to state, the need for revenues doesn’t.

“One thing that is quite unique about tax policy is that a jurisdiction has a lot of autonomy in designing the tax system it believes will work best for it. Thus, we see significant variation across the country in how state and local governments design tax system,” Lusch writes. “Some states, such as Texas, have high average property tax rates; however, the trade-off is that Texans do not pay state income tax. Then, you see other states, such as Hawaii, that generally have low property tax rates, but have high state income tax rates.

“At the end of the day, governments need revenue, and they are going to collect that revenue from some sort of taxation.”

Curious about where your state is in the WalletHub rankings? Check out their list.

Previous articleComing to Bank Accounts Soon: EITC and ACTC Refunds
Next articleCourt Case Highlights IRS Process Change
Bob Williams
Forget genes; I’ve got words in my DNA. Communication has been part of who I am nearly all my life. From a long career in radio news to another one in newspapers – and a University of Georgia journalism degree sandwiched between the two – language has been my life. I’ve also been fortunate to have learned the tax business from the ground up here at Drake, starting with 1040.com online forms some years ago before moving on to work on the Web. In all things tax-ish, we aim to give you tools you can use.