There has recently been an increasing pushback on property taxes across the country. In November 2024, multiple states including Arizona, Florida, Georgia, New Mexico, Virginia and Wyoming had ballot initiatives passed designed to lower property taxes. Now, Florida lawmakers have taken it one step further by proposing to eliminate property taxes altogether. This begs the question of whether this is feasible, and if so, how would states generate revenue without property tax revenue?
Over the last few years, property values have skyrocketed. With property taxes tied to a building's value, the increase in value has caused a similar increase in property tax assessments. Lawmakers have felt pushback from constituents who are upset about the tax increase on real estate properties. This often leads to increased homestead exemptions, such as Florida's recent changes, or exemptions for disabled veterans, as occurred in Colorado, New Mexico and Virginia. Most of these exemptions or changes apply primarily to owner-occupied homes and rarely extend to business assets.
North Dakota attempted to take this one step further. A ballot measure there designed to eliminate property taxes failed after pushback over the spending cuts it would require. This scenario is similar to a measure attempted in 2012, which also failed; however, it is important to know that the 2024 ballot measure was much closer, with only 63.5% voting against, as opposed to 76.5% voting against it in 2012. The increased pushback on property taxes was especially notable when North Dakota Governor Kelly Armstrong unveiled a plan in January to eliminate property taxes for most homeowners within the upcoming decade.
Florida Governor Ron DeSantis followed suit and is pushing for elimination of property taxes across the state. As a state without an income tax, this could be detrimental to state funding. Property taxes in Florida bring in approximately $50 billion annually, which offsets 50% to 60% of school funding, 18% of county revenue and 17% of municipal revenue. While eliminating the property tax burden sounds good in theory to citizens, making up the gaps in funding becomes an issue. One way to make up this funding deficit would be to increase the sales tax. Unfortunately, to make up the revenue difference, Florida's sales tax would have to double to nearly 12%.
Increasing sales taxes to offset property taxes can have negative effects. Sales taxes disproportionately affect lower-income earners as they spend a higher percentage of their income on goods and services than higher-income earners. Additionally, this could exacerbate inflationary pressures already felt across the country. Potentially more important to the government is that sales tax revenue tends to be less stable than property tax revenue. In economic downturns, sales tax revenue drops, leading to increasing instability for the state.
Another option states should consider is continuing to increase homestead exemptions for homeowners, or looking to eliminate property taxes for homeowners, similar to the proposals of North Dakota's governor. One problem with this proposal is that it shifts the tax burden to businesses from individuals. This could be detrimental to states attempting to attract business investment. Shifting the burden of taxation solely to businesses could make owners question putting down roots in specific locations.
All considerations regarding how to change a state's property tax revenue reveal how much of a burden it has become in recent years. Increasing costs of homes continues to lead to skyrocketing tax rates affecting homeowners, businesses and governments across the country. What is a business owner or their advisor to do in the meantime? The worst thing a business owner can do is to sit back and wait to see if the government will change its position on property tax. If the North Dakota example shows anything, it is that changing property tax structures is difficult and takes time.
A first step business owners should consider is to question their property tax assessments. What many taxpayers do not realize is that their property tax assessment can — and in many cases should — be reviewed and appealed. With property taxes becoming a much higher burden on businesses and individuals, it's a perfect time to look to determine if a property is accurately assessed. A qualified property tax consultant can look to determine if the property is accurately assessed or overassessed based on multiple factors. Questioning and appealing assessed values can allow building owners to gain control while waiting to see if local governments will change the way property taxes are levied.
