Most states collect the sales taxes, and rebate a portion of them back to cities based upon where they were generated. When I was in California, the state rebated 1 cent of the 6 cent sales tax back to municipal governments.
Our state, Connecticut, keeps 100 percent of the sales tax.
Ditto for the hotel/motel room tax. Most states collect this and rebate it back to their municipal governments based on where it was generated. Our state keeps 100 percent of this tax, too.
This is why we have a 98 percent reliance on the property tax to finance our local governments.
When the Connecticut Conference of Municipalities (CCM) did their study a couple of years ago, local governments in Connecticut had the third highest reliance on the property tax of any state in the nation (only New Hampshire and Maine were higher).
Also, keep in mind that, our state and federal governments are primarily financed from the income tax, a tax on realized wealth. Local governments, on the other hand, are financed primarily from the property tax, a tax on unrealized wealth. You don’t make any money on your house unless you sell it!
Most citizens in our cities and towns do not like their property taxes increasing from year to year, and they have to pay them even though they are not making any money/revenue from their house. Again, the property tax is a tax on unrealized wealth, and it is not a fair method of taxation to finance our local governments.
For about half of the states in our nation, the property tax is relied upon for up to three-quarters of the revenues to finance municipal operations – not 98 percent, as in our state.
Connecticut should help local governments diversify their revenue sources so they can decrease their reliance on the property tax.
Roger L. Kemp is a practitioner in residence at the University of New Haven’s Henry Lee College. He was city manager of the City of Meriden from 1993 to 2005 and worked as a city manager in California and New Jersey.