Tax Increases Ravage
Commercial Property

Although the booming housing market has led to skyrocketing property-tax bills for many homeowners, a new report shows that in many cases commercial-property owners are suffering even more, as states and cities have shifted their property-tax burdens to the owners of office buildings, shopping malls and the like.

According to the report, a national state-by-state property-tax study for taxes paid in 2004, states and cities are taxing commercial properties much more heavily than they were 10 years ago, in an effort to appease homeowners angered by the rising property-tax bill. And the gap between commercial and residential property-tax rates has widened.

The average ratio of commercial to residential property-tax rates increased to 3.329 to 1 from 2.751 to 1 in 1995. That means, on average, a $1 million commercial property, for example, had a property-tax rate three times as high as the rate for a $70,000 home. The study shows that 43 cities had some form of preferential treatment of residential property, up from 33 in 1995.

The gradual increase of the property-tax burden on businesses stemmed in part from homeowner backlash against rising property taxes, which put pressure on elected officials to cut property taxes or at least keep increases in check, the report said.

The study was written by the Minnesota Taxpayers Association, a St. Paul, Minn., public-finance and policy-research group, on behalf of the National Tax Conference, a network of state-level taxpayer associations.

The shift has implications not just for businesses but for cities and states, and, indirectly, for homeowners and consumers. High property taxes can be one factor in a developer's decision on where to construct a building or a company's decision on where to set up shop. Commercial-property owners often pass through the expense of property taxes to companies leasing space in their buildings, which in turn raise prices.

"Most voters don't understand that business property taxes are passed along," says Lynn Edward Reed, executive director of the Minnesota Taxpayers Association. "The primary way they are passed along is through lower wages and higher prices. To the extent that businesses are taxed more heavily, it's like stacking taxes in a place where voters are not aware they are paying them. It's an invisible tax on the voters."

Boston topped the list of areas with the biggest difference between what a business -- whether it owned the building or leased space there -- paid in property taxes in 2004 and what a homeowner paid. There, the property-tax rate for a building valued at $1 million was nearly 32 times as high as for a homeowner with a $70,000 home. New Orleans ranked second, with property-tax rates for commercial-property owners 23 times as high as for homeowners.

New York City, Honolulu and Washington, D.C., rounded out the top five. In New York City, commercial property-tax rates were 15.2 times as high as for residential property. In Honolulu, commercial property-tax rates were 5.2 times as high. In the District of Columbia, they were 4.7 times as high. Colorado, Iowa, Hawaii, Illinois and Utah were among the states where the shift was most pronounced over the 10-year period.

To be sure, the findings don't mean that homeowners' property taxes are going down. In some cases, it just means that they might have gone up even more if it hadn't been for the shift. According to the study, Newark, N.J., recorded the highest residential property-tax bill on a median-value home out of the 55 big cities surveyed, at $8,637. Newark was followed by Bridgeport, Conn., with a tax bill of $6,393. The median residential property-tax bill was $6,096 in Miami, $5,516 in Detroit, and $5,443 in Providence, R.I. The average property-tax bill for the 55 cities studied in the report was $2,788.

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