History & Purpose of Property Taxes

Property taxes pay help public schools purchase new supplies and equipment.

In drafting the Constitution, our founding fathers intended to allow states to retain the power to tax its own residents. Since property taxes benefit local residents with community improvements, the federal government does not play a big role in how each state uses its property taxes or how states tax its residents as long as states do not violate federal laws or Constitutional rights.

Historical Relevance

Historically, the federal government did not impose property taxes on taxpayers and allows each state's government to create and implement its own property tax schemes for taxing the state's residents. As time passed, states passed the taxing power to local governments and allowed local county or city governments to implement their own local property taxes.

Educational Purpose of Property Taxes

Most commonly, property taxes fund our educational system and according to the National Center for Education, only one-tenth of school funding comes from federal taxes. The remainder of the funding comes from local property taxes. Because funding for schools is generated through local property taxes, richer counties frequently have disproportionately higher funding for schools than lower-income areas. Property taxes are used for public education programs, school equipment and capital building improvements.

Community Safety Purpose of Property Taxes

In addition to using property taxes to pay for local public school, local governments also use property taxes to fund public welfare and public health programs. Property taxes pay for police personnel and police stations, hospitals, fire stations and firefighters, and ambulances and paramedics. Since property taxes reflect a city's collective riches or wealth, the lack of public services and outdated public school buildings are signs that a community is unable to generate enough revenue through its property taxes to fund these public works projects.

Real Estate Taxes

Local governments impose both real and personal property taxes on their residents. Real property taxes are assessments that homeowners pay for owning real estate within the local government's jurisdiction. Either annually or semi-annually, the county, city or local municipality conducts real estate assessments for each home within its jurisdiction. Local governments determine the tax base or tax rate that each resident must pay for owning real estate within the local jurisdiction. The higher the land and building value, the more property taxes homeowners pay.

Personal Property Taxes

Local jurisdictions tax their residents for owning personal property within the jurisdiction. Common forms of personal property include vehicles used for both personal and commercial use, boats, sheds and trailers. Tax rates for personal property depend on tax rates and property value. Many jurisdictions provide their residents with personal property tax credits for personal use vehicles.

References

• Treasury.gov: Fact Sheet: State and Local Taxes
• Treasury.gov: Fact Sheet: History of the U.S. Tax System
• PBS.org: How Do We Fund Our Schools?
• IRS.gov: Publication 17: Your Federal Income Tax
• National Conference of State Legislatures: Tax Policies

Resources

• Treasury.gov: Fact Sheet: State and Local Taxes
• Treasury.gov: Fact Sheet: History of the U.S. Tax System
• National Conference of State Legislatures: Tax Policies
• IRS.gov: Publication 17: Your Federal Income Tax