States weigh taking the axe to their property tax. Here's how they'd replace it.

There is interest in a number of states to put an end to property taxes, but it’s unclear whether the political will exists to make that happen.

More states are toying with property relief strategies as housing valuations rise with inflation, increasing housing costs for Americans. An obvious sticking point if property taxes go away is how municipalities would cover the cost of essential services such as schools, roads, public safety, parks and libraries.

Elected officials in states where there is movement on this issue say they would replace at least a portion of the property taxes with some other kind of assessment, but they also want to see local governments reduce their spending.

In North Dakota, where voters rejected a ballot proposal last November to get rid of property taxes, Gov. Kelly Armstrong said in his recent State of the State speech that he still sees that as the goal. State legislators are crafting a bill this month that would give homeowners a credit of up to $1,250 to offset what they pay in property taxes. The average annual single-family home property tax bill in North Dakota in 2024 was $2,868, according to real estate firm ATTOM.

To pay for it, the state plans to dip into earnings from a fund that contains oil and gas industry revenue. Armstrong said in his January speech that he sees a “path to zero” property taxes over the next few years.

Meanwhile, Florida Gov. Ron DeSantis said at the end of March that he wants to see a constitutional amendment on the ballot in 2026 to eliminate property taxes. He proposed replacing this funding with an increased sales tax, arguing that the state’s current rate is in the “middle of the pack.” He said raising the sales tax would put more of the financial burden on Canadian tourists, rather than Florida residents, and blamed high property taxes for discouraging people from buying homes in the state. Sixteen states have a higher sales tax rate than Florida's 6%, according to the nonprofit Tax Foundation, while nine others and the District of Columbia have the same rate.

“Just for living on your own property, you’ve got to keep writing a check to the government for the privilege,” DeSantis said in a speech. “You’re effectively a ward of the local government.”

Some people who study how governments collect revenue say they’ve heard calls to end the property tax for many years because it’s “the most hated tax,” according to David Brunori, who teaches at George Mason University’s Schar School of Policy and Government.

Brunori said that doesn’t mean replacing it is financially feasible.

“It’s not going to happen,” he said. “There’s not enough money to replace it.”

The bill pending in North Dakota’s state legislature that would give residents a tax credit would also bar local governments from raising property taxes by more than 3% in a year.

Cities and towns aren’t thrilled with this aspect of the bill.

“In North Dakota, you have some large cities, but then you have many small ones with less than 1,000 people that are stagnating but the cost of services is still going up. I think they’re going to be in a tough spot,” Matt Gardner, North Dakota League of Cities executive director, said in an interview.

He said he would prefer to see a cap on raising taxes that is indexed to inflation, to give local governments flexibility.

Some states are cutting property taxes without compensating cities and towns at all. That’s what happened this year in Wyoming, where a proposal to replace property taxes with higher sales taxes failed in the state legislature in 2024.

Gov. Mark Gordon signed a bill in March that gives single-family homeowners a 25% tax exemption on the first $1 million of their home's fair market value. An earlier version of the bill called for a 50% exemption along with funds to cities to offset the revenue loss.

Even in states like North Dakota that say they will ensure communities have the funding they need, ending property taxes is a bad idea, Brunori argued.

“There are things people want, like someone to answer the phone when you call 911, and it’s most efficient to pay for it with local property taxes,” he said. “It’s not efficient to have the state do it.”

A bill introduced in the Florida Legislature this session calls for a study on offsetting property taxes by raising the state sales and consumption taxes. For example, many cities collect taxes on restaurant meals.

DeSantis downplayed the negative impact of scrapping property taxes on cities and towns.

“They’ll tell you they won’t be able to pay for police or schools — that’s not true,” he said in his speech. “We’ll fund that. We have a big surplus.”

The state would need to double the sales tax rate to 12%, the highest in the nation, to replace property taxes entirely, according to a February report by the Florida Policy Institute. Doing so would result in “disproportionately and negatively impacting households with low to moderate incomes in addition to businesses and tourists.” The institute said the latter two groups contribute 20% and 14% of Florida sales taxes, respectively. Sales taxes would also be a less stable revenue source during economic downturns, the report said.

Shifting to sales taxes could affect renters' housing affordability and the state’s gross domestic product, said Manish Bhatt, a senior policy analyst at the Tax Foundation, a nonpartisan nonprofit. He noted a study in Indiana that suggested that moving from property taxes to relying on sales and income taxes would drop the GDP in the state by about 2.8%.

Legislators in several other states in the West and Midwest have floated proposals this year to get rid of property taxes, though bills that have succeeded to date have settled for merely cutting them.

In Montana, a state legislative committee rejected a proposal this month to cut homeowners’ property taxes and offset the revenue loss with a tax increase on the owners of vacation homes and short-term rentals. The state doesn’t have a sales tax it can increase.

In Illinois, Rep. Thaddeus Jones presented a bill to kick-start a study on eliminating property taxes in the state, which has the second-highest rate in the country, according to the Tax Foundation.

Under Jones’ plan, the funds would be replaced with a higher income tax, which Illinois residents — if limited to top-earners — were in favor of during the November election.

Voters favored higher taxes on incomes exceeding $1 million in exchange for lower property taxes for everyone else. The ballot question was deemed the “millionaire tax” and received 60% of the vote, which was nonbinding.

An analysis from the Illinois Policy Institute, a research nonprofit, indicated that the increase in income tax would not fully replace property taxes. Illinois Policy predicted it would fall $2 billion short.

Another bill looks to eliminate property taxes only for those who’ve owned a home for 30 years or more. The sponsor, Senator Neil Anderson, did not say how that revenue would be replaced.

It’s not an automatic exemption, either. Homeowners can secure the relief only if they apply for the exemption, which would be done annually. It’s also unclear how many Illinois residents would be eligible. The median homeownership duration in Illinois is about 13 years, according to the National Association of Realtors.

In Kansas, which imposes a state property tax that funds public schools, a representative hopes to reevaluate state exemptions and funnel the savings into a special fund.

Representative Blake Carpenter’s bill proposes a constitutional amendment that includes creating a citizen’s board to evaluate current tax exemptions. The new tax dollars generated by eliminating some of those exemptions would go into what Carpenter calls the “Freedom From Taxes Fund.”

That fund includes two sub-funds: one for property taxes and the other for income and privilege taxes. Once the accrued interest on those funds is enough to pay for those state-imposed taxes, they will replace those taxes. This would not affect local-level property taxes, which take in billions annually.

“The fund will never deplete, and it’ll be a self-generating fund every single year,” Carpenter said in an interview.

Carpenter said there are $9 billion worth of tax exemptions and many without sunsets. It would take an estimated 10 to 15 years for the fund to reach the $900 million needed to offset state-imposed property taxes. The relief of state-imposed property taxes would save owners about 15% to 20%.

Kansas residents would vote on the amendment in November 2026. Once the funds help to offset state property and income taxes, the state can create additional sub-funds for other efforts, such as local property taxes.

“I don’t know of any other state that has necessarily looked at it with this type of solution,” said Carpenter. “I would say it’s unique, it’s interesting, as many of my colleagues have said.”

Affordability is the key impetus for property tax reform and elimination, but it’s also a tad metaphorical in Pennsylvania.

Representative Russ Diamond proposed a bill in March that calls for abolishing property taxes by 2030 through a constitutional amendment. According to the Tax Foundation, the state’s property tax rate is 1.35%, the 12th highest in the country.

For Diamond, who has proposed the amendment four previous times, it’s about “personal liberties.”

“It’s criminal in that our right to acquire, possess, and protect property is actually declared in Article 1, Section 1 of our Constitution,” Diamond said in an interview. “The very first section, with only life and liberty themselves coming before it. We don’t tax the right to free speech, we don’t tax the right to a jury trial, we don’t tax the right to assemble or your ability to go and vote.”

The representative compares property taxes to paying rent to the government and argues that the state’s ability to sell a home with delinquent taxes means homeowners don’t truly own their property.

“You should be able to have a place that you can call your own even if you have borrowed money to buy it. Once you pay it off, it should be yours,” he said.

Diamond said he purposely left out how the $23 billion in property taxes would be replaced. Instead, he is encouraging open dialogue for solutions and focusing on educating residents on the “broken” tax system. He hopes it will lead to a swath of tax reform throughout the state.

“Everyone says it’s a pipe dream,” said Diamond. “Well, yes, it is a pipe dream, but a dream worth pursuing.”

According to the Tax Foundation, property taxes are responsible for 73% of local revenue.

Removing the property tax “could leave governments unfunded or under-funded, which impacts local services and has a downstream effect on property value. There’s a real cost that taxpayers could bear to the outright elimination,” said Bhatt, the Tax Foundation policy analyst.

Property values could sink due to a drop in the quality of schools, for example. Where there are good services, there are good property values.

He suggested levy limits to ease property taxes rather than eliminating the system altogether. These keep local government revenues from growing too fast too quickly and not providing service improvements to match.