Property taxes are an important revenue source for state and local governments, and many couldn't thrive without them. In the U.S., property taxes make up roughly 31% of all state and local tax revenue—more than any other tax revenue source aside from sales and gross receipts.
Of course, someone has to pay those taxes that become state and local revenue. For homeowners, property taxes can become a major expense, but the tax burden isn't the same everywhere. Let's look at how these tax rates break down.
The Highest Property Taxes by County
While it can help to consider state averages, property taxes are typically set at the county level. Therefore, looking at specific counties will give you a better sense of how high property taxes can actually get. ATTOM Data Solutions reports that the counties with the highest effective tax rate as of 2020 were:
- Alcona County, Michigan (5.53%)
- Allegany County, New York (3.48%)
- Salem County, New Jersey (3.40%)
- Oswego County, New York (3.32%)
- Camden County, New Jersey (3.14%)
Property taxes are typically higher in metropolitan areas with big cities. However, the higher home values in these areas can sometimes reduce the effective property tax rate.
Lowest Property Taxes by County
Head south if you want to pay less in property taxes—many southern states have lower property taxes, on average. In fact, of the five counties with the lowest relative property taxes, three are in Alabama. However, there are a few outliers from elsewhere in the country that sneak into the bottom five. Here are the five counties with the lowest property taxes (relative to home value):
- Daphne, Alabama (0.33%)
- Honolulu, Hawaii (0.35%)
- Montgomery, Alabama (0.38%)
- Tuscaloosa, Alabama (0.39%)
- Colorado Springs, Colorado (0.41%)
Property Tax Rates by State
Another way to look at this is to consider the median property tax rates per state.
States With the Highest Property Taxes
According to Atom data, the states with the highest effective property tax rates in 2020 were:
- New Jersey (2.2%)
- Illinois (2.18%)
- Texas (2.15%)
- Vermont (1.97%)
- Connecticut (1.92%)
New York is notably absent from this list, despite its famously high costs of living. There are two reasons for this. First, it's calculated as a statewide average, so any outlier counties with high tax rates could be offset by other counties with lower rates. Second, these figures are effective tax rates that take into account the value of the home. Therefore, a shockingly high dollar value of property taxes somewhere like New York City could become less shocking as you consider the price of the homes that those taxes apply to.
States With the Lowest Property Taxes
The lowest effective tax rates in 2020 were:
- Hawaii (0.37%)
- Alabama (0.44%)
- West Virginia (0.51%)
- Colorado (0.54%)
- Utah (0.54%)
Causes for the Differences
Property taxes are based on two separate components: a home's assessed value and the county's tax rate. When a county includes a lot of high-priced real estate, it can affect median calculations, because a median figure is one that falls right in the middle. Additionally, tax rates are percentages of value. A county might have a 0.25% property tax rate, but 0.25% of $1 million works out to a lot more than 0.25% of $100,000.
Areas with steep real estate values naturally rank higher in annual property tax bills than those where moderately priced real estate is more the norm. Combine this with the revenues needed by these counties to keep themselves up and running, which is commonly how tax rates are determined.
Revenues raised from property taxes typically pay for things like schools, parks, libraries, transportation infrastructures, police departments, and fire departments.
Although some states have very low property taxes, they tend to make up for this lack of revenue in different ways, such as higher personal income tax or sales tax. So, you can blame the economy in your area, at least in part, if your county or state made the list of the most expensive.