How Local Governments Raise Their Tax Dollars

Property taxes are most common, but some rely more on sales and income levies

How Local Governments Raise Their Tax Dollars

For each tax dollar that cities and counties collect overall, about 61% comes from property tax, 16% from general sales tax, 7% from income tax, and the remaining 16% from other taxes such as those on entertainment and alcoholic beverages licenses.

Other key highlights of local tax revenue:

  • Property taxes are the largest source of tax revenue for local governments in 40 states. Localities in every state levy property taxes, with cities and counties in Connecticut and Maine collecting the highest share (98%) of their total tax revenue from them.
  • General sales taxes are the largest source of local tax revenue in eight of the 37 states that collect them. Oklahoma’s local governments are the most reliant on general sales taxes at 66% of total tax revenue.
  • Personal income taxes are a source of local revenue in only 11 states. Localities in Kentucky (45%) and Ohio (41%) receive most of their local tax revenue from this source.

Taxes make up over 60% of local governments’ total revenue from local sources (that is, funding not from state and federal government), with the remainder coming from service charges, fees, utility revenue, and others. This infographic illustrates the sources of local tax revenue in each state as of 2017, the latest year for which data is available.

Mix of Local Tax Sources by State, FY 2017

Select revenue sources below to highlight them and resort the chart:

Property tax
General sales tax
Individual income tax
Other
Skip to after chart
0%25%50%75%100%0%25%50%75%100%

Source: Pew analysis of U.S. Census Bureau data

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How Property Is Taxed in Philadelphia

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Many Philadelphians dislike the city’s property tax. In a Pew Philadelphia Poll conducted in early 2022, respondents ranked the tax’s fairness below that of the city’s wage and sales taxes. And when property values from the latest round of assessments were posted in May, some City Council members said they were flooded with calls from outraged constituents

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Local Tax Limitations Can Hamper Fiscal Stability

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Tax limitations can create daunting challenges for cities and counties as they try to balance their budgets while maintaining the level of services their residents expect in the long term. And evaluating if and how states’ tax limitations impede the ability of local officials to manage their finances and provide services effectively is a key first step. Policymakers can then take the appropriate measures to ensure that local governments have the necessary tools to weather unexpected budget crises and strengthen their fiscal health into the future.

How states raise their tax dollars
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How States Raise Their Tax Dollars, FY 2021

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Taxes make up about half of state government revenue, with two-thirds of states’ total tax dollars coming from levies on personal income (39.8%) and general sales of goods and services (29.2%).