If you’ve ever thought, "Why is my property tax bill so high?" you aren't alone. That question passes through millions of Americans' minds every year when their property tax bill comes due.
For the unversed, property taxes are a type of ad valorem tax, which means that the tax is calculated based on the assessed value of the property. The government levies these taxes on homeowners through counties and municipalities to fund public services like education, infrastructure, transport, and other relevant areas.
Usually, the process of evaluating tax rates for properties begins with local government accessors determining the property values within their jurisdiction. On the basis of this assessed value, the property tax rate is decided, and homeowners are issued property tax notices.
While the process may seem straightforward, there are some loopholes in the assessment procedure, and the government may not always demand a fair amount of property taxes from homeowners like you.
That's where protesting your tax property bill comes into play, which can potentially save you thousands of dollars. While protesting tax bill is an option for existing homeowners and real estate investors, it's advisable for people looking to buy houses or make investments in real estate to purchase properties in the USA after weighing the tax rate of each state.
In this article, we have covered some of the U.S. states with the highest property tax rates. If you're looking to move to a new state or aspiring to buy your first property, keep reading to make as informed a decision as possible.
The U.S. state with the highest property tax
According to the Tax Foundation, an American tax policy research and analysis firm, New Jersey tops the list of 11 counties with the highest median property tax bills exceeding $10,000.
The property tax rate in New Jersey in 2023 is 2.23%. While this percentage may not seem too high, the homes in New Jersey are priced higher than any other state, meaning that New Jersey homeowners have to shell out more money on their property tax bills than anyone else in the US.
The property tax rates in New Jersey didn't soar this high overnight. In 1980, the average effective property tax rate in New Jersey was 1.89%. By 2000, it had increased to 2.22%, and now in 2023, it is about 2.47%. This shows how the tax rate has increased steadily over the past few decades.
Apart from high property values, some of the reasons behind the high property tax rate in New Jersey include the following:
1. Small tax base: New Jersey has the 44th smallest tax base in the U.S., meaning that fewer taxpayers have to help shoulder the burden of various state funding and expenses.
2. High-quality public schools: Schools in New Jersey are a major expense for local governments and need to be funded through property taxes.
3. High cost of living: Being one of the most expensive states to live in, the New Jersey property tax rate isn't solely due to high-value properties; the overall high cost of living and the high cost of public services have led to increases in property tax rates in the state.
4. State policy: Despite New Jersey's state making efforts to control property tax growth through legislation, like the 2% cap on property tax levy increases, the state continues to struggle to reduce the overall tax burden on its citizens.
While New Jersey currently holds the position of the state with the highest property tax rates in the U.S., there are other states with equally soaring property tax rates.
The top 10 U.S. states with the highest property taxes
A study by WalletHub—a prominent personal finance company in the U.S.—studied about 50 states to determine which U.S. states were paying the highest and lowest property taxes.
Here are the current top 10 U.S. states paying the highest property tax (excluding New Jersey):
While talking about New Jersey, we discussed a set of factors that were responsible for the high property tax rates in that state. The other states on this list experience more or less the same challenges, with some additional ones.
Reasons why property tax rates are high in some U.S. states
1. Reliance on property taxes for local government revenue:
Local governments in the U.S. greatly rely on property taxes to fund various public services like schools, infrastructure, and public safety.
2. Limited aid:
Due to the limited assistance provided by state and federal governments, local governments have to raise property taxes in order to comfortably fund essential public services.
3. Rising cost of homes:
Increasing home values is not a challenge limited to a few big states in the U.S.; this trend can be seen everywhere in the country today. The higher the property value, the higher the property tax being collected by the government.
4. Public debt:
Local governments may increase property tax rates to service their incurred debt caused by large capital projects. This may be applied in areas where the debt burden is high.
5. Population density:
Urban areas with more population require more developed, better quality, and extensive infrastructure than in rural regions where the demand for services and infrastructure is lower, due to the lower population density.
6. Imbalance in tax rates due to tax exemptions:
Many residents are qualified for either full or partial exemptions on their property tax bill, which consequently reduces their tax burden. However, this potentially leads to higher taxes for other property owners to compensate for the lost revenue.
7. State-wise reasons:
In addition to the general factors discussed above, every state may have some specific factors that affect their property tax rates. For example, one reason why property tax rates in New Jersey are so high is to fund its larger number of high-quality public schools. On the other hand, one reason property taxes in Illinois are high is due to its small tax base (low population) and increased pension costs.
These factors cover most reasons why the property tax in the U.S. is so high. Apart from these, there are some less common reasons, like market fluctuations and political factors that may temporarily arise to affect the property tax rates for a time.
If you're aspiring to buy a property or invest in real estate, we encourage you to read more insights on our blog to make a fully informed decision.
Having said that, even with this knowledge in mind, your property tax bill may seem unfair, and the possibility of wrong assessment should never be ruled out entirely. If the state is not assessing the properties regularly, relying on old data, or if there are disparities in assessments, the accuracy of the property assessment will be compromised and homeowners may financially suffer.
If you think this may be happening in your case, connect with Bezit, where we have helped 500+ homeowners in Texas protest their property tax bill and retain thousands of hard-earned dollars in their wallet.