The amount of tax paid on a given acre of business property increases with the amount of capital used on the property. Greater capital is used closer to the city, so greater business property taxes will have to be paid closer to the city. This decreases the slope of the business bid-rent function. The decrease in territory and density of the central business area decreases labor demand and causes an excess supply of labor that decreases the wage. The lower wage decreases the quantity of labor supplied to the area and the density of the residential district decreases.
Equilibrium occurs with lower total employment and a lower wage.
A residential tax would start with a decrease in labor supply rather than a decrease in demand. This increases the wage differential between the city center and the suburb and thus decreases the relative attractiveness of the CBD to business. Business in the CBD now has to pay a higher wage to attract same workers because their commuting costs have gone up. The profitability of business in CBD declines and bid-rent function decreases. This results in the fraction of the area's employment in the CBD declining.