Who Pays America's Highest Property Taxes?

[Mrs. Sharon B. Hodge]

Who Pays America's Highest property Taxes?
by Forbes.com staff

With the highest annual levies, these counties eat up homeowners' incomes the most.

Behind the manicured shrubs and stately single-family homes lining the streets of Garden City, N.Y., a 21,672-person town about 20 miles east of Manhattan, lies a harsh truth--high property taxes.

Nassau County homeowners pay a median $8,153--or 8% of their yearly income--to live there. It's the fourth-highest rate in the country.

Those living in Little Falls, N.J., should be so lucky. Property taxes in Passaic County, which includes Little Falls, eat up 8.5% of homeowner median incomes. In fact, Passaic property taxes are the highest in the nation. Rounding out the top five: Union County, N.J. (8.1%), Essex County, N.J. (8.1%), and Westchester County, N.Y. (7.8%).

Besides boasting the nation's five highest property tax rates, all are New York City bedroom communities. This is not a coincidence. Mid-Atlantic and New England states have traditionally been most reliant on property taxes because they have strong, local governments that are able to levy property taxes to pay for their independent municipal needs.

"The key in New Jersey especially," says David Brunori, a professor of public policy at George Washington University, "is that local governments don't have a lot of options in terms of revenues. There is no local-option sales tax, no local-option income tax."

Further north, in Cheshire County, N.H., homeowners at the $62,577 median level fork over 6.4% of their earnings in taxes. Partly to blame is the state's lack of a broad-based tax. Instead, it relies on property and business taxes to fill its coffers.

Counties in Southern states like Louisiana and Alabama boast low rates--below 1%--in part because those states have local governments with little local autonomy. There is less reliance on the property tax because it is considered a local tax.

Behind the Numbers

This list is compiled with data from the Tax Foundation, a Washington, D.C.-based nonpartisan tax research group. Using statistics from the 2007 U.S. Census American Community Survey, it calculated, by county, median property taxes paid on homes, median home value, taxes as a percentage of home value, homeowner median income and taxes as a percentage of income. Our rankings are based on the last measure.

These numbers are a time-honored touchy subject among homeowners. But today's weak real estate environment adds an extra layer of angst. In the New York City metro area alone, median home sale prices are down 7.5% from last year and 19% from two years ago.

This means that while home values continue to fall due to foreclosures, a lack of credit and a dearth of buyers, for many homeowners, property taxes still reflect inflated prices. Across the country, the values counties use to calculate tax bills might be based on assessed values of a year earlier. Indeed, many of today's bills reflect values of a year ago.

In Nassau, for example, where home values are assessed yearly, the April 1, 2008, assessment applies to bills facing homeowners from the '08-'09 fiscal year, or October 2008 through September 2009. Homeowners will be paying taxes on the Jan. 2, 2009, assessment for the 2010-11 fiscal year.

Still, as values fall, yearly property taxes do eventually fall in line with falling property values, and homeowners eventually see their balances drop. The rub: Local governments need tax revenue for everything from school district expenses and libraries to police, fire and ambulatory services. That means if tax revenue falls too much, local property tax rates are often raised to account for the budget deficit that results.

As a result of this specter, some are crying foul. Angry homeowners, whose tax bills are rising despite dropping home prices, have prompted lawmakers in New York, Georgia, Oklahoma and Wyoming to consider proposals to cap property taxes as a percentage of a home's value.

"People are unhappy that their bills are increasing," says Kim Rueben, public finance economist at the Urban Institute. "Now that values are falling, they want their bills to fall."

America's 5 Highest Property Taxes

1. Passaic County, N.J.
Taxes as a percentage of income: 8.5%
Median Homeowner Income: $81,853
Taxes as a percentage of home value: 1.7%
Median Home Value: $398,800
Median Property Taxes Paid on Homes: $6,928

2. Union County, N.J. (Tie)
Taxes as a percentage of income: 8.1%
Median Homeowner Income: $86,049
Taxes as a percentage of home value: 1.7%
Median Home Value: $422,700
Median Property Taxes Paid on Homes: $7,007

2. Essex County, N.J. (Tie)
Taxes as a percentage of income: 8.1%
Median Homeowner Income: $93,511
Taxes as a percentage of home value: 1.8%
Median Home Value: $422,800
Median Property Taxes Paid on Homes: $7,535

4. Nassau County, N.Y.
Taxes as a percentage of income: 8.0%
Median Homeowner Income: $101,558
Taxes as a percentage of home value: 1.6%
Median Home Value: $508,000
Median Property Taxes Paid on Homes: $8,153

5. Westchester County, N.Y.
Taxes as a percentage of income: 7.8%
Median Homeowner Income: $108,580
Taxes as a percentage of home value: 1.4%
Median Home Value: $582,300
Median Property Taxes Paid on Homes: $8,422

Source: The Tax Foundation

Click here for the full list of the 25 Counties Who Pay America's Highest Property Taxes