Property taxes are among the oldest forms of taxation, used in ancient China, Egypt, Persia and Babylon. In the United States, the first property tax was levied in New Hampshire. Today, the property tax is a primary revenue source for local and state governments in the U.S.
Medieval Property Taxes
In medieval times, a property tax was an obligation that landowners owed to European kings. British tax assessors used property ownership as a way to estimate how much a landowner could pay. Although the tax wasn’t assessed against the property, it was so strongly tied to it, people began considering it a tax on the property. Eventually the perception became reality.
Colonial America Property Taxes
In colonial America, property taxes were usually a fixed amount added to specific items. Only occasionally were the items taxed based on value. As the colonies entered the Revolutionary War, the tax rates increased to support the war effort. By the dawn of the 19th century, all states had property taxes but only a few based the tax on the property’s value.
Illinois adopted a uniformity clause in 1818 requiring taxation of land based on its value. By the end of the 19th century, 33 states had followed suit. Some states required taxation of all property in that manner. Value-based taxes were more popular in the West, where property was not as expensive as property in the East. Real estate taxes also began gaining popularity because it was easy to determine which government received the tax since property location dictated where the tax went. Sales and excise taxes generated less revenue for rural governments where there was little or no business.
Failure of General Property Tax
Taxes are seldom popular and property taxes have been no exception. By the beginning of the 20th century, local governments were experiencing problems with collecting general property taxes because of the way many businesses were owned. There was also reluctance to value property at full value if the assessor wanted to be reelected.
Refining Property Tax
States began to develop ways to reform the general property tax in the early 20th century. This created many different taxation methods with varying degrees of success. The Great Depression caused a lot of property delinquency and governments instituted limits on the tax so people could keep their homes.
By the 1970s, rising property values caused rising taxes, which in turn caused residents to revolt against what they perceived to be high taxes. Some states imposed limits on property taxation. California residents passed Proposition 13 in 1978, which created strict limits on how often property taxes in the state could increase.