The Impact of Increases in Property Taxes and Transfer Taxes
National Association of Realtors ® Research May 2008
Despite signs of improvement in
the economy, the budget outlook
for many states is still poor.
According to the Center on Budget and Policy
Priorities, 47 states face shortfalls in fiscal year
2009 or 2010.
Budget Shortfalls FY2009 as Share of State General Fund
Washington
Washington
Maine
Maine
Montana
Montana North Dakota
North Dakota
Michigan
Michigan
Oregon
Oregon Minnesota
Minnesota Vermont
Vermont
Idaho
Idaho New Hampshire
New Hampshire
South Dakota Wisconsin
Wisconsin New York Massachusetts
New York Massachusetts
South Dakota
Michigan
Michigan Connecticut
Connecticut
Wyoming
Wyoming
Iowa
Iowa Pennsylvania New Jersey
Pennsylvania New Jersey
Nebraska
Nebraska
Nevada
Nevada Ohio
Ohio
Maryland Delaware
Maryland Delaware
Utah
Utah Illinois
Illinois Indiana
Indiana
California
California West Virginia
West Virginia
Colorado
Colorado
Virginia
Virginia
Kansas
Kansas Missouri
Missouri
Kentucky
Kentucky
North Carolina
North Carolina
Tennessee
Tennessee
Oklahoma
Oklahoma
Arizona
Arizona
New Mexico
New Mexico Arkansas
Arkansas South Carolina
South Carolina
Alabama
Alabama Georgia
Georgia
Texas
Texas Mississippi
Mississippi
Legend Louisiana
Louisiana
0.00% - 5.00% Florida
Florida
5.01% - 10.00%
10.01% - 15.00%
15.01% - 25.00%
25.01% - 35.50% Alaska
Alaska
None
0 145 290 580 870 1,160
Miles Hawaii
Hawaii
Budget Shortfalls FY2010 as Share of FY 2009 State General Fund
Washington
Washington
Maine
Maine
Montana
Montana North Dakota
North Dakota
Michigan
Michigan
Oregon
Oregon Minnesota
Minnesota Vermont
Vermont
Idaho
Idaho New Hampshire
New Hampshire
South Dakota Wisconsin
Wisconsin New York Massachusetts
New York Massachusetts
South Dakota
Michigan
Michigan Connecticut
Connecticut
Wyoming
Wyoming
Iowa
Iowa Pennsylvania New Jersey
Pennsylvania New Jersey
Nebraska
Nebraska
Nevada
Nevada Ohio
Ohio
Maryland Delaware
Maryland Delaware
Utah
Utah Illinois
Illinois Indiana
Indiana
California
California West Virginia
West Virginia
Colorado
Colorado
Virginia
Virginia
Kansas
Kansas Missouri
Missouri
Kentucky
Kentucky
North Carolina
North Carolina
Tennessee
Tennessee
Oklahoma
Oklahoma
Arizona
Arizona
New Mexico
New Mexico Arkansas
Arkansas South Carolina
South Carolina
Alabama
Alabama Georgia
Georgia
Legend Texas
Texas Mississippi
Mississippi
Louisiana
Louisiana
None
0.01% - 5.00% Florida
Florida
5.01% - 10.00%
10.01% - 15.00%
15.01% - 25.00%
25.01% - 30.00% Alaska
Alaska
Gap - unknown size
0 145 290 580 870 1,160
Miles Hawaii
Hawaii
Many observers reach the same conclusion
The three main organizations that track state fiscal
conditions — the National Conference of State
Legislatures, the National Association of State Budget
Officers and the Center on Budget and Policy Priorities
— have found large and growing shortfalls in the vast
majority of states.
Center on Budget and Policy Priorities report
Budget shortfalls are large and growing
through FY 2011
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0 0
-20 -20
-40 -40
-60 -60
-80 -80
-100 -100
-120 -120
-140 -140
-160 -160
-180 -180
NCSL (Shortfall After Budget Adoption) NCSL (Shortfall Before Budget Adoption) CBPP Shortfall (Total)
NCSL data from April 2009 report; CBPP data from March 2009
NCSL reports that only 67.5 billion in FY 2010 shortfalls remain unresolved
What is the likely result?
Budget gaps will be closed by some
combination of the following options:
• Raising revenues (new taxes or tax rate increases)
• Cutting spending
• Tapping into reserves
• Securing money from Federal Stimulus
Composition of State and Local
Revenue FY2006
State and Local Revenue Structure in US and WEST VIRGINIA
100%
Other General Revenue
Other General Revenue
90% Interest Earnings
Other Charges Interest Earnings
80%
Hospital Charges Other Charges
Education Charges Hospital Charges
70%
Other Taxes Education Charges
60% Other Taxes
Individual and Corporate
Income Tax
50%
Individual and Corporate
Income Tax
40%
Property Tax
30% Property Tax
20%
Sales & Gross Receipts Tax Sales & Gross Receipts Tax
10%
0%
US WV
Despite recent declines in the housing market, property
taxes collected at the state level have increased slightly.
US State Taxes 2000-2008
(thousands of nominal $)
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008
US Property Taxes
Aggregate local data is not out yet; anecdotally,
local property taxes are increasing too.
“Thousands In N.Va. Face Tax Increases: Rise
Comes Despite Officials' Efforts”
April 30, 2009 Washington Post
“Syracuse meets with residents after proposing
tax hike”
May 7, 2009 The Salt Lake Tribune
“Rise in property taxes coming to City of Florence”
June 11, 2009 WMBF News.com
State Government Reliance on
Property Taxes for Revenue
Property Taxes as Share of State Revenue 2007
Washington
Washington
Maine
Maine
Montana
Montana North Dakota
North Dakota
Michigan
Michigan
Oregon
Oregon Minnesota
Minnesota Vermont
Vermont
Idaho
Idaho New Hampshire
New Hampshire
South Dakota Wisconsin
Wisconsin New York Massachusetts
New York Massachusetts
South Dakota
Michigan
Michigan Connecticut
Connecticut
Wyoming
Wyoming
Iowa
Iowa Pennsylvania New Jersey
Pennsylvania New Jersey
Nebraska
Nebraska
Nevada
Nevada Ohio
Ohio
Maryland Delaware
Maryland Delaware
Utah
Utah Illinois
Illinois Indiana
Indiana
California
California West Virginia
West Virginia
Colorado
Colorado
Virginia
Virginia
Kansas
Kansas Missouri
Missouri
Kentucky
Kentucky
North Carolina
North Carolina
Tennessee
Tennessee
Oklahoma
Oklahoma
Arizona
Arizona
New Mexico
New Mexico Arkansas
Arkansas South Carolina
South Carolina
Source: Census Bureau,
Alabama
Alabama Georgia
Georgia
NAR Calculations
Texas
Texas Mississippi
Mississippi
Legend Louisiana
Louisiana
0.00% - 1.00% Florida
Florida
1.01% - 2.00%
2.01% - 4.00%
4.01% - 6.00%
6.01% - 18.58% Alaska
Alaska
N/A
0 145 290 580 870 1,160
Miles Hawaii
Hawaii
Local Government Reliance on
Property Taxes for Revenue
Property Taxes as Share of Local Government 2006
Washington
Washington
Maine
Maine
Montana
Montana North Dakota
North Dakota
Michigan
Michigan
Oregon
Oregon Minnesota
Minnesota Vermont
Vermont
Idaho
Idaho New Hampshire
New Hampshire
South Dakota Wisconsin
Wisconsin New York Massachusetts
New York Massachusetts
South Dakota
Michigan
Michigan Connecticut
Connecticut
Wyoming
Wyoming
Iowa
Iowa Pennsylvania New Jersey
Pennsylvania New Jersey
Nebraska
Nebraska
Nevada
Nevada Ohio
Ohio
Maryland Delaware
Maryland Delaware
Utah
Utah Illinois
Illinois Indiana
Indiana
California
California West Virginia
West Virginia
Colorado
Colorado
Virginia
Virginia
Kansas
Kansas Missouri
Missouri
Kentucky
Kentucky
North Carolina
North Carolina
Tennessee
Tennessee
Oklahoma
Oklahoma
Arizona
Arizona
New Mexico
New Mexico Arkansas
Arkansas South Carolina
South Carolina
Alabama
Alabama Georgia
Georgia
Source: Census Bureau,
NAR Calculations
Texas
Texas Mississippi
Mississippi
Louisiana
Louisiana
Legend Florida
Florida
0.00% - 10.00%
10.01% - 20.00%
20.01% - 30.00%
30.01% - 40.00% Alaska
Alaska
40.01% - 55.75%
0 145 290 580 870 1,160
Miles Hawaii
Hawaii
Household property tax burden
State & Local Property Tax Collections Per HH 2006
Washington
Washington
Maine
Maine
Montana
Montana North Dakota
North Dakota
Michigan
Michigan
Oregon
Oregon Minnesota
Minnesota Vermont
Vermont
Idaho
Idaho New Hampshire
New Hampshire
South Dakota Wisconsin
Wisconsin New York Massachusetts
New York Massachusetts
South Dakota
Michigan
Michigan Connecticut
Connecticut
Wyoming
Wyoming
Iowa
Iowa Pennsylvania New Jersey
Pennsylvania New Jersey
Nebraska
Nebraska
Nevada
Nevada Ohio
Ohio
Maryland Delaware
Maryland Delaware
Utah
Utah Illinois
Illinois Indiana
Indiana
California
California West Virginia
West Virginia
Colorado
Colorado
Virginia
Virginia
Kansas
Kansas Missouri
Missouri
Kentucky
Kentucky
North Carolina
North Carolina
Tennessee
Tennessee
Oklahoma
Oklahoma
Arizona
Arizona
New Mexico
New Mexico Arkansas
Arkansas South Carolina
South Carolina
Alabama
Alabama Georgia
Georgia
Source: Census Bureau,
Texas
Texas Mississippi
Mississippi Tax Foundation Calculations
Louisiana
Louisiana
Legend Florida
Florida
$0.00 - $1,000.41
$1,000.42 - $2,000.00
$2,000.01 - $3,000.00
$3,000.01 - $4,000.00 Alaska
Alaska
$4,000.01 - $6,582.00
0 145 290 580 870 1,160
Miles Hawaii
Hawaii
Impact of Property Taxes
Property taxes are a major source of funding for local
governments and for some states.
As home values decline, many localities may try to increase
property tax rates or adjust assessed values in an effort to
boost revenues.
These efforts will only further depress the value of homes in
the locality because tax increases will be capitalized into the
value of the home.
Lost home value after $1000 increase in property taxes*
$12,000 - $15,000
* Estimate assumes 32 year time horizon for capitalization of $1000 annual payments at
5.5 percent discount rate and capitalization rate of 80 – 100 percent; actual results will vary
Impact of Transfer Taxes
Many state legislatures turn to transfer taxes because
they are relatively easy to implement
A small group of individuals are taxed relatively
infrequently
However, what is easy is not always best
Optimal tax theory suggests that taxing a broad based
group at a low rate is the most efficient form of taxation
because it does not distort market activity
Possible distortions from transfer tax increases include
avoidance of the taxed activity—resulting in fewer
transfers (sales of property) and decreased mobility
States have collected less from transfer
taxes in recent years
U.S. Documentary and Stock Transfer Taxes
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: US Census Bureau
Transfer Taxes reduce home sales
We can estimate the number of people who might be
affected by a 1% increase in a transfer tax
The results tell us the number of potential
homebuyers in a state who would not be able to
purchase a home as a result of the tax increase
Number of Households in West Virginia
unable to buy a house because of the transfer
tax
3,481
Source: Data on conventional homes from the Federal Housing Finance Board;
Data on income distribution from the Census Bureau, NAR Calculations