With property taxes never far from top-of-mind in our state, perhaps especially so this year, it’s helpful to get a national perspective. According to the Tax Foundation’s 2019 State Business Tax Climate Index, Washington’s property tax ranks right in the middle, No. 25. Here’s a look at how the property tax component of the index breaks down.
The Index’s property tax component evaluates state and local taxes on real and personal property, net worth, and asset transfers. The property tax component accounts for 15.4 percent of each state’s overall Index score.
Property taxes matter to businesses for several reasons. To start, tax rates on commercial property are often higher than the rates on comparable residential property. In addition, many states and localities levy taxes not only on the land and buildings a business owns, but also on tangible property, such as machinery, equipment, and office furniture, as well as intangible property, such as trademarks. Across the nation, property taxes represent one of the most substantial state and local tax burdens most businesses face. In fiscal year 2013, taxes on real, personal, and utility property accounted for 36.1 percent of all taxes paid by businesses to state and local governments.
The Tax Foundation points out that while property taxes are often unpopular, a properly structured property tax regime can conform well to the benefit principle (taxes paid reflect benefits received) and are transparent. Also important:
…taxes on intangible property, wealth, and asset transfers are harmful and distortive. States that levy such taxes–including capital stock taxes, inventory and intangible property taxes, and estate, inheritance, gift, and real estate transfer taxes–are less attractive for business investment because these taxes at times incentivize business decisions that are contrary to basic economic principles.
Washington gets dinged on the property tax scale for its real estate transfer tax and estate tax.
Washington’s overall ranking was No. 20 on the State Business Tax Climate Index.