Tax Foundation: R.I. has 7th-highest dependence on property taxes

RHODE ISLAND has the seventh-highest reliance on property taxes of any state nationwide, according to fiscal 2020 analysis by the Tax Foundation. / COURTESY THE TAX FOUNDATION

PROVIDENCE – Rhode Island relies on property taxes more than most states, with more than 40% of its annual tax revenue coming from state and local property taxes, according to a new report by the Tax Foundation.

The 42.7% of state tax revenues that came from state and local property taxes in fiscal 2020 was the seventh-highest among states nationwide, according to the report published on Thursday. Rhode Island’s dependence upon property taxes is also well above the national average of 32.2%, according to the report.

At the local level, property tax revenue is even more critical, comprising 97.3% of local revenues, versus the 72.2% national average.

The report measured sources of state and local tax revenue across five categories: property taxes, general sales taxes, income taxes, corporate taxes and other taxes, looking at their respective contributions at the state and local level.

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Given its reliance on property taxes, Rhode Island’s revenue from income and sales taxes may be less important than in other states.

Sales taxes comprised 18.4% of the state’s fiscal 2020 revenue – compared with a 23.8% average nationally – while the 19.8% of tax revenue from income tax was slightly below the 22.8% national average. 

Just 3.8% of state and local tax revenue came from corporate taxes, with the remaining 15.7% reflecting “other” taxes on gas, alcohol and tobacco.

The report also noted that states define and structure their taxes differently, making an apples-to-apples comparison difficult. However, the highest-income states tend to rely more heavily on property taxes, while lower-income states are more dependent upon sales taxes.

Economists also “tend to favor” property taxes over alternate forms of taxation, because they have a “relatively limited impact” on growth and development, the report stated. Property taxes also better reflect the “benefit principle,” meaning that taxes are levied to offset the public benefits received.

The analysis reflects tax rates and revenues for the fiscal year that ended June 30, 2020, using U.S. Census Bureau data and Tax Foundation calculations.

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.

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