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The correlation coefficient: property taxes and sales taxes

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Property taxes fluctuate across U.S. states and localities, and the scope of the variance is a bit startling. The relationship between property tax reductions and sales tax rates in the U.S. also may surprise indirect tax professionals.

Let’s start with state-by-state (including local jurisdictions) property tax rate fluctuations. One way to gauge the differences is by looking at the property tax collections per capita in each state. By this measure, property tax burdens are highest in the Northeastern states, according to 2024 Tax Foundation research based on 2021 data. To review this information, go to the Tax Foundation’s 2024 Facts & Figures landing page and then select Table 34 (State & Local Property Tax Collections per Capita). 

Residents of New Jersey ($3,539 per capita) paid the most, followed by New York ($3,359), New Hampshire ($3,294), Connecticut ($3,292) and Vermont ($2,991). At the other end of the scale, Alabama residents had the lightest property tax burden at $658 per person, followed by Arkansas ($831), Oklahoma ($914), Tennessee ($921) and New Mexico ($936). 

Last year, several states – including Indiana, Montana, and Rhode Island – considered legislative proposals to reexamine property tax rates and/or enact some form of reduction or relief, according to the Tax Foundation. Nearly all states anticipate revenues remaining well above pre-pandemic levels, the report notes, and “lawmakers across the country are responding with pro-growth, pro-taxpayer reforms.” Wisconsin has already moved decisively in this direction with the June 2023 repeal of its personal property tax for assessments that began this January.

While this is good news for corporate and individual taxpayers (at least for now), indirect tax leaders should monitor the potential implications for indirect tax. Lawmakers may see an increase in sales tax rates as a viable counterbalance for the loss of revenue resulting from property tax rollbacks if fiscal conditions deteriorate. And a growing collection of signs suggest that may be happening, with the end of federal pandemic funding and the growing use of sales tax holidays and exemptions. 

Particularly at the local level, jurisdictions may need to increase sales tax rates in new areas, implement new fees and extend sales taxes to new areas – such as digital goods and services. Additionally, in the urban cores (not suburbia) degradation of the commercial property values is grossly affecting property tax collections. This loss of revenue, while significant, is being addressed proactively by cities by either raising the sales tax rate or actively converting commercial properties into personal residences (in order to shore up the property base). 

Disclaimer

Please remember that the Vertex blog provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in the Vertex blog are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.