Proposal Would Shift Responsibility for Paying Property Taxes to Homeowners from Businesses
A proposed property tax cut for businesses would raise taxes for homeowners and other owners of residential property, who are already paying a much larger share of total property taxes than in past decades.
Lawmakers have proposed eliminating the business personal property tax, which is one component of the property tax. Most personal property is exempt from the property tax, but owners of property used for commercial and manufacturing purposes pay a small amount of personal property tax on items like equipment, machinery, fixtures, and boats. The total statewide personal property tax levy in 2013 was $270 million, or 3% of the total property tax levy.
Eliminating the business personal property tax wouldn’t change the total amount of property tax collected by local governments, but it would change who pays property taxes. Cutting taxes for businesses would shift more of the responsibility for paying property taxes onto the shoulders of homeowners, and would increase property taxes by $80 on a typical home.
The share of total property taxes that is paid by homeowners and other residential property owners has climbed dramatically in recent decades, and it makes little sense to further shift the responsibility for paying property taxes onto the shoulders of homeowners. In 1970, residential property owners were responsible for paying just half of the total property taxes collected. That share climbed steadily until about 2005, when more than $7 out of every $10 in property taxes collected came from residential property owners. The share has decline slightly in recent years, although it remains far above the level in previous decades. In 2013, residential property owners paid 68% of the total property tax amount – a figure that would have been pushed to 70% had personal property been exempt from taxation at that time.
Proponents of eliminating the personal property tax say that the tax is difficult for businesses to comply with, and that the tax takes a lot of administrative resources for local governments to enforce. If that’s the case, lawmakers should fix the tax code to streamline the process, rather than raising property taxes for homeowners. Residential property owners already pay a much higher share of total property taxes than they have in the past, and lawmakers should be looking for ways to decrease that share rather than increasing it.