As the Research Council has noted in the past, non-uniformity in the taxation of property, particularly real property, can hurt business and impede economic growth. In states that allow different tax rates for separate classes of real property, voters are able to raise property taxes on business disproportionately without significantly increasing their own taxes. And in these states it is common to see business property taxed at significantly higher rates than owner-occupied housing. The local business climate suffers. The tax on business property directly reduces the rate of return earned on business investment.
Capital is mobile, however, and flows to the locations where the return is the highest.
Thus the ultimate effect of an increase in the local property tax is to reduce capital investment in an area. The consequences include higher prices for locally produced goods and services and lower wages for workers. In Washington state, because of the state constitution, the manifestations of classification have been limited to exemptions for certain types of personal property. The state of Minnesota has a particularly egregious system of classified property taxes. MTA recently completed an update to their 50-State Property Tax Comparison Study .