Property Tax
A tax levied on real estate (land and buildings) based on assessed value. Property taxes are the single largest revenue source for most U.S. city governments.
How It Works
Property taxes are calculated by multiplying the assessed value of a property by the tax rate, expressed as a mill rate or percentage. Cities set the rate through the annual budget process, while county assessors typically determine property values using mass appraisal techniques regulated by state law. Property taxes account for roughly 30% of general fund revenue nationally per the Census Annual Survey of State and Local Government Finances, but the share varies widely: New York City draws roughly 30% of general fund revenue from property tax, Chicago exceeds 40%, and many Texas and Tennessee cities without a state income tax exceed 50%. Property taxes are considered the most stable revenue source because property values are less volatile than sales or income tax revenue, assessed values typically lag market changes by 1-3 years, and collection rates in healthy cities exceed 97%. However, property taxes are regressive: they consume a larger percentage of income for lower-income homeowners, and studies from the University of Chicago Harris School have documented systematic over-assessment of lower-value homes in many jurisdictions. Under California's Proposition 13 (1978), assessed values are capped at 2% annual growth regardless of market appreciation, creating large gaps between assessed and market values. Property tax revenue funds public safety, schools (in most states), parks, and general government. The stability and level of property tax feed into the revenue diversity (10%) and budget balance (25%) factors of the CitySpend Fiscal Health Score.
Related Terms
- Mill Rate (Millage Rate), The property tax rate expressed as dollars per $1,000 of assessed property value. One mill equals $1 of tax per $1,000 of assessed value.
- Assessed Value, The value assigned to a property by a government assessor for the purpose of calculating property taxes, which may differ from market value.
- Tax Levy, The total amount of property tax revenue a city authorizes to collect in a given year, calculated by applying the mill rate to the total assessed value of all taxable property.
- Revenue Diversity, The degree to which a city's revenue comes from multiple sources (property tax, sales tax, fees, grants) rather than being concentrated in a single stream.
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About This Definition
This definition is part of the CitySpend Municipal Finance Glossary, 59 terms explaining how city governments fund and manage public services. All definitions are written in plain language for taxpayers, journalists, students, and municipal bond investors.