Part II

Property Taxes
Property taxes are the main source of revenue for local governments (cities, townships, counties, school districts and other tax-assessing jurisdictions), not states. The state specifies the maximum legal tax rate that can be charged against the partial or full appraised market value of the property (land and buildings), while a local assessor determines the market value.

There are property taxes in every state, but rates vary greatly between states and even between counties and local communities within a state. For example, 40 states offer property tax credits or “homestead exemptions” limiting the property value subject to taxes.

In fact, all 50 states provide some type of property tax relief for property-owners over a certain age, though recipients often need relatively low income levels to receive the benefit. Specific counties and local communities may also have their own property tax relief programs.

These property tax relief programs take a number of different forms:

* Tax credits: provide rebates or credits on a certain percentage of property taxes paid

* Homestead exemptions: exclude some part of a home’s assessed market value from property taxes

* Property value freezes: lock-in the assessed market value of the property when the owner reaches a specific age

* Tax deferral programs: to allow payment of property tax assessments on homes owned by low-income, elderly to be deferred until the owner moves or the home is sold, though the property taxes eventually must be paid

* Property Tax Circuit-breaker: To protect low-income home-owners from excessive property tax burdens, some states set a maximum percentage of their income that an eligible family should pay as property taxes, then provides a rebate or tax credit for any amount paid above the maximum limit set. Most circuit-breakers only apply to homeowners over a certain age, but six of the 31 states with these programs provide for participation regardless of age.

Local CPAs and tax preparers should be able to provide specific information on property tax rules in specific communities and counties.

Property Taxes by County
Based on Census Bureau’s American Community Survey data, covering three-year averages for locations with populations over 20,000, homeowners in certain New York and New Jersey counties paid the highest property taxes from 2005 to 2007, while those in specific parishes in Louisiana paid the least.

The Tax Foundation collated the Census Bureau data to list the five most expensive counties based on average median real estate taxes paid during the survey period:
1) Westchester County NY ($7,908)
2) Nassau County NY ($7,726)
3) Hunterdon County NJ, ($7,708)
4) Bergen County NJ ($7,370)
5) Somerset County NJ ($7,201)

The five least expensive counties were all in Louisiana:
1) Vernon Parish ($115)
2) Allen Parish ($116)
3) Franklin Parish ($117)
4) Richland Parish ($118)
5) Assumption Parish ($123)

As a percentage of median home value during the survey period, the highest five counties were all in New York:
1) Orleans (3.05%)
2) Niagara (2.90%)
3) Allegany (2.87%)
4) Montgomery (2.86%)
5) Monroe (2.84%)

As with the total property taxes paid, the five counties with the lowest taxes as a percentage of median home value were all in Louisiana:
1) St. John the Baptist Parish (0.122%)
2) Ascension Parish (0.134%)
3) Tangipahoe Parish (0.139%)
4) West Baton Rouge Parish (0.145%)
5) and St. James Parish (0.145%)

The Tax Foundation website has additional charts and data for property taxes paid on owner-occupied homes in all 1,800 counties with populations over 20,000 for the Census Bureau’s survey years (2005 to 2007), as well as other tax data.

Excise Taxes
Excise taxes, also known as “sin” taxes, are commonly increased when governments need to raise revenues, as they mainly target “politically incorrect” behavior, like smoking or drinking alcohol. Usually excise tax increases are used instead of politically painful income, sales or property taxes, but this year, many states are raising rates on several taxes, including excise taxes on cigarettes/tobacco products, alcohol and gasoline, among others.

- Cigarettes
States have taxed cigarettes since 1921 when Iowa enacted the first cigarette tax. These taxes are very popular for governments to increase, given the social stigma and health costs associated with smoking.
This year, 10 states increased their cigarette taxes, including New Jersey ($2.575 to $2.70). While the highest state tax on cigarettes is in Rhode Island ($3.46), New York is the most expensive place to buy cigarettes at $4.25 (exclusive of the federal cigarette tax of $1.01 per pack) with a state tax of $2.75, while New Jersey’s state cigarette tax is the next highest at the new rate of $2.70. Counties and cities often add taxes on cigarettes (from $0.01 to $2.00 per pack), so roughly 82% of the average retail price of a pack of cigarettes – $5.11 (including state sales taxes, but not local cigarette or sales taxes) – is paid to the government in taxes and other costs, rather than for the cigarettes.

- Alcohol
New York and New Jersey were the only two states to raise taxes on alcoholic beverages. New York increased the tax on beer from $0.11 to $0.14 per gallon, while New Jersey raised its tax on spirits from $4.40 to $5.50 per gallon. Both states raised their excise tax on wine, with New York’s rate increasing from $0.19 to $0.30 per gallon, while New Jersey’s rate increasing from $0.70 to $0.875 per gallon.

- Fuel Tax
All states collect excise taxes on gasoline, diesel fuel and gasohol. New York highest state excise tax on fuel at $0.425, while neighboring New Jersey is ranked 47th with a fuel excise tax of only $0.145. Alaska is 50th with a zero excise tax rate on fuel. These figures only include state taxes, inclusive of sales taxes, gross receipts taxes, oil inspection fees, underground storage tank fees, miscellaneous environmental fees, and other taxes paid at the retail level. However, these rates are exclusive of federal excise taxes ($0.184 for gasoline and $0.244 cents for diesel). In addition, nine states allow municipalities or counties to add local excise taxes on fuel.

Tax Burden By State
For all residents of a state, particularly retirees and others on fixed incomes, a state with a lower tax burden is a more attractive location to live than a state with a higher tax burden. In evaluating each state, both the state and local (county and/or municipality) taxes must be included to assess the full tax burden of that locale. According to the Tax Foundation, the national average is 9.7% tax burden at the state level for 2008. This is lower that the 9.9% average in 2007 (because income grew faster than tax collections), but the state burden is expected to increase in 2009, as many states raise income, sales and/or excise taxes. New Jersey residents have the highest tax burden at 11.8%, followed closely by New York at 11.7% and Connecticut at 11.1%. At the bottom of the list, Alaska has a tax burden of only 6.4%, while Nevada is second lowest at 6.6&.

The Tax Foundation has additional information on state and local taxes, while CPAs and tax preparers are also useful courses of information on tax rates.

Conclusion
Tax increases to fund new programs and close projected budget gaps have mainly focused on personal income, sales and excise taxes. Many states are still discussing their 2009-2010 budgets, with additional tax increases being contemplated in several states. While states may need to raise revenues to meet their funding needs, high tax rates will make states less attractive to individuals interested in relocating, especially those on fixed incomes.

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