Property taxes are the largest single source of state and local tax receipts, according to NAHB tabulations of the Census Bureau’s quarterly tax data. At 40.3%, property taxes represent a significantly larger share than the next largest sources: individual income taxes (28.1%) and sales taxes (27.2%). From the second quarter of 2013 through the end of the first quarter of 2014, approximately $494 billion in taxes were paid by property owners. This was a small increase from the previous trailing four-quarter $492 billion.
Overall, state and local revenue in the first quarter of 2014 increased $7 billion over the first quarter of 2013. There were increases in all four of the major revenue sources; property tax, state and local individual income tax, corporate income tax, and sales tax.
State and local government individual income and sales tax revenue continue to experience the largest increases. From the second quarter of 2013 through the end of the first quarter of 2014, approximately $345 billion in individual income taxes were paid. This represents an increase in individual income tax revenue of nearly $20 billion or 6% from the one year ago. The increase in sales tax revenue for the same period was approximately $16 billion or 5%.
Although house prices experienced healthy increases over the last two years, one should not expect property tax collections to increase significantly. Instead, lagging assessments and the ability of local jurisdiction to make annual adjustments should lead to only modest increases. The S&P/Case-Shiller House Price Index – National Index grew by 2.5% on a not seasonally adjusted basis in the fourth quarter and 10.3% last year.
Property tax collections are not as prone to cyclical fluctuations as sales or income tax collections. Annual adjustments to tax rates and lagging property assessments smooth collections across business cycles. The relatively low volatility is reflected in steadily increasing nominal property tax collections.
* Data footnote: Census data for property tax collections include taxes paid for all real estate assets (as well as personal property), including owner-occupied homes, rental housing, commercial real estate, and agriculture. However, housing’s share is by far the largest when considering the stock of both owner-occupied and rental housing units.