New Jersey Homeowners Pay Highest Property Taxes in the US

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New Jersey is #1 in another negative category, as New Jersey has the highest property tax rate in the country. Property taxes play a pivotal role in financing local governments and constitute a significant portion of state and local revenues in New Jersey. In the fiscal year 2020, property taxes made up a substantial 32.2 percent of the total tax collections in the state, surpassing all other sources of tax revenue. Local governments in the Garden State heavily depend on property taxes to fund essential services, including schools, infrastructure maintenance, police departments, fire and emergency medical services, and various other amenities related to residency and property ownership. In fact, property taxes accounted for a substantial 72.2 percent of local tax collections during the same fiscal year.

Due to the localized nature of property taxes, making direct state-level comparisons can be challenging. To offer a comprehensive perspective, this article will delve into two key aspects of property taxes in New Jersey. The first will examine the median property tax bills in each county within the state, while the second will compare the effective property tax rates across different states.

The median property tax payments in New Jersey exhibit significant variation across counties. In 2021, the average property tax payment across the state stood at $1,682. Notably, seven counties in New Jersey reported median property tax bills of less than $200 per year:

1. Northwest Arctic Borough and the Kusilvak Census Area in Alaska

2. Allen, Avoyelles, East Carroll, and West Carroll in Louisiana

3. Choctaw County in Alabama

(Notably, some areas in Alaska have no property taxes, but these are often excluded from federal surveys due to their small populations.)

The following counties reported the next-lowest median property taxes in the nation:

1. Madison Parish in Louisiana ($215)

2. Bienville Parish in Louisiana ($220)

3. Sioux County in North Dakota ($223)

4. Lamar County in Alabama ($234)

5. McDowell County in West Virginia ($237)

Conversely, the 11 counties with the highest median property tax payments in New Jersey exceeded $10,000. These counties are:

1. Bergen County

2. Essex County

3. Hunterdon County

4. Morris County

5. Passaic County

6. Union County

7. Nassau County in New York

8. New York County in New York

9. Rockland County in New York

10. Westchester County in New York

11. Falls Church in Virginia

With the exception of Falls Church, these counties are located near New York City. Suffolk County ($9,911) and Putnam County ($9,855), both in New York, follow closely behind.

Property tax payments also vary significantly within New Jersey itself. In some states, where property tax burdens are generally low, the variation within counties is minimal. For instance, in Alabama, median property taxes range from under $200 in Choctaw County to $1,167 in Shelby County, which is part of the Birmingham–Hoover metropolitan area. The statewide average property tax bill in Alabama amounts to $449. In contrast, in Virginia, median property taxes range from $378 in Buchanan County to more than $10,000 in Falls Church, which is part of the Washington metropolitan area. Virginia's average property tax bill stands at $1,764.

Another noteworthy aspect of property taxes is the concentration of higher median payments in urban areas. Median property taxes paid in counties such as New York County, San Francisco, Cook County (Chicago), and Miami-Dade County (Miami) are often two to three times higher than their respective state averages. This phenomenon can be attributed to the prevalence of above-average home prices in urban centers. Since property taxes are calculated as a percentage of home values, areas with higher housing prices naturally yield higher property tax payments. Additionally, these higher payments also reflect the overall higher cost of government and, consequently, higher taxes in these urban regions.

While taxpayers in high-tax areas may not be celebrating their annual property tax bills, it's important to recognize that property taxes are primarily rooted in the benefit principle of taxation. This means that those who pay property taxes are typically the ones who benefit most from the services funded by these taxes, such as K-12 education and local parks. As argued by Joan Youngman in her book "A Good Tax," the well-designed property tax, despite being a frequent target of political criticism, can be considered a sound tax due to its visibility, transparency, simplicity, and stability, aligning with most principles of sound tax policy.

Property tax bills often fluctuate with changes in housing prices, making state-to-state comparisons challenging. Additionally, tax rates may not carry the same meaning across different states or even within counties, as the millage is often imposed on only a percentage of actual property value. Nevertheless, one effective method for comparison is to examine effective tax rates on owner-occupied housing, which represent the average residential property taxes paid as a percentage of home value.

As of 2021, New Jersey reported the highest effective rate on owner-occupied property at 2.23 percent. It was followed by Illinois at 2.08 percent and New Hampshire at 1.93 percent. In contrast, Hawaii reported the lowest effective rate at 0.32 percent, closely followed by Alabama (0.40 percent), Colorado (0.55 percent), and Wyoming (0.56 percent).

Property taxes are levied on real property in various ways, with some jurisdictions imposing a millage on the property's fair market value, while others base it on a percentage known as the assessment ratio of the market value. Assessments can be influenced by comparable sales, although the calculation methods for assessed values may differ among jurisdictions. Although property taxes are typically imposed at the local level, the fundamental framework is often established by state law.

Certain states have equalization requirements in place to ensure greater consistency across the state. Property tax limitations can sometimes restrict annual increases, and rate adjustments may be mandated after assessments to maintain uniformity or revenue stability. Abatements, which are reductions or exemptions, are often available to specific groups such as veterans or senior citizens. Residential property is frequently taxed at a lower rate compared to commercial property. Moreover, property tax rates are determined not only by cities and counties but also by school boards, fire departments, and utility commissions, depending on the state.

In some states with high property taxes, such as New Hampshire and Texas, there is a heavier reliance on property taxes as opposed to other major tax categories. This often involves greater delegation of authority to local governments, which assume responsibility for a broader range of government services compared to states that primarily rely on state-level revenues, such as income or sales taxes. Conversely, states like New Jersey and Illinois impose high property taxes alongside elevated rates in other major tax categories.