The average homeowner in the United States pays 1.18% of their home’s value each year in real estate taxes. But there’s a big difference between the tax bills in high- and low-tax states. In fact, some homeowners pay more than double the national average real estate tax.
Here’s a rundown of the 10 states with the highest real estate taxes, as well as some of the reasons why they have such high taxes.
Highest real estate taxes by state
|Rank||State||Average Tax Rate (% of Home Value)|
The highest-tax states are concentrated in the Northeast, with six of the 10 states on the list coming from the region.
Although it’s probably not surprising for anyone who lives there, New Jersey tops the list of highest-tax states. What’s more, New Jersey has the highest median home value out of the top 10 at $321,100. That makes the average real estate tax bill $7,840.
To put these numbers into perspective, consider that the average real estate tax bill in the U.S. is $2,279. And, based on the median U.S. home value of $193,500, this translates to an average real estate property tax rate of 1.18%. In other words, New Jersey’s real estate tax rate is more than double the national average, and the average real estate tax bill paid by a New Jersey homeowner is more than three times as much as the average U.S. homeowner pays.
It’s also worth comparing these to the lower-tax states to give you an idea of the wide range of real estate tax rates paid by Americans. For example, my current home state of South Carolina has an average real estate tax rate of 0.57% and a median home value of $148,600. That translates to an average annual bill of just $851.
To be fair, there’s more to the "tax friendliness" of a state than real estate taxes. For example, South Carolina residents pay annual property taxes on vehicles they own, while New Jersey residents don’t. The same can be said about residents of Illinois, Wisconsin, Vermont, Texas, and New York. Another good example of offsetting taxes can be seen in Texas, which is on the chart of highest real estate taxes but doesn’t have any state income tax whatsoever.
Having said that, there are some states that are all-around high-tax places to live. New Jersey is definitely on this list, as are several other states in the chart above.
Why do some states have such high real estate taxes?
States use their tax revenue differently, and there are different reasons why certain states have such high property taxes. Let’s start by looking at New Jersey. Here are six reasons New Jersey’s property taxes are so high, according to NJ.comstyle="text-decoration: underline">:
- As a densely-populated state, infrastructure costs in New Jersey are high.
- As a high-cost-of-living state, New Jersey has high government employee labor costs.
- New Jersey doesn’t allow county or local governments to impose local income or sales taxes. This means the costs of all local government and school expenses come from property taxes.
- New Jersey’s government is very fragmented, and this can be inefficient cost-wise. For example, the state has 600 school districts, while many other states have less than 100. South Carolina has just 85 and is much larger in terms of land size.
- New Jersey’s pension fund is dramatically underfunded, and property tax revenues keep it afloat.
- New Jersey spends more on public education per student than most other states in the U.S. This is one reason the state’s schools are among the highest-rated in the nation, but it does cost money. (I grew up and went to school in New Jersey, and I’ve taught at schools in two lower-tax states, and I can say firsthand that there’s a big difference.)
In other states with high property taxes, there’s a lot of overlap among these reasons. Here are some of the main reasons for the rest of the list. (Keep in mind that there are other reasons that taxes are high, too.)
- The primary driver of Illinois’s high real estate taxes is rising pension costs, according to a report from the Illinois Policy Institute. Plus, Illinois home prices have grown more slowly than the national average, making tax hikes necessary.
- New Hampshire is heavily reliant on property taxes, with two thirds of all state and local taxes coming from real estate taxes. Connecticut is also very reliant on this type of revenue, as real estate taxes are the primary revenue source for local governments.
- Wisconsin has a few reasons for high property taxes. The government is large when compared with states of similar size, and local governments provide more services than local governments elsewhere. For example, in certain Wisconsin counties, trash service is free -- it's paid for through property taxes instead of billed separately. And Wisconsin’s government isn’t allowed to charge lower taxes on owner-occupied properties like many other states do.
- Vermont’s education funding is highly dependent on real estate taxes as opposed to income taxes.
- Texas doesn’t have income tax, so property taxes are a larger source of government funding than in other states. Texas’ sales tax rates are also on the lower end of the spectrum, so the state’s overall tax burden isn’t as high as its property tax rate suggests.
- While Nebraska has an income tax, the effective tax rates paid by its residents are quite low -- under 5% for even the richest residents. So the state relies on property taxes more than others do for its basic funding needs.
- In most states, property taxes are a key source of public education funding. This is especially true in New York, where the state’s per-student spending is the highest in the U.S. -- 85% more than the national average.
- Rhode Island is the second-most densely populated state in the U.S., just behind New Jersey. As such, its infrastructure costs are higher than average, which is passed on to residents in the form of higher property taxes. Also like New Jersey, Rhode Island has above-average labor costs for its government workers.
Do you get what you pay for?
There’s a solid case to be made that you get value for your tax dollars in many high-tax states. For example, I mentioned that the New Jersey public school system is much better than those in many lower-tax states.
Warren Buffett once said, "Price is what you pay, value is what you get." If you get sufficient value for your property taxes through excellent schools, great roads, and efficient public services, a higher tax bill can be easier to stomach than if your money was simply going towards a top-heavy government or out-of-control pension costs.