2025 Guide to Local Taxes: Types, Rates, and What You Pay

Julia Kagan is a financial and consumer journalist and former senior editor in personal finance at ZAMONA.

What Are Local Taxes in 2024?

Local taxes are charges imposed by state, county, or city governments designed to finance vital public services such as schools, roads, sanitation, and emergency services. These taxes vary widely and include property taxes, sales taxes, income taxes, and licensing fees, reflecting the unique needs of each community.

Municipal taxes, often synonymous with local taxes, are assessed by cities or towns to support local initiatives.

Key Insights

• All but eight states collect income taxes withheld from employee paychecks.
• Sales taxes on goods and services are common across most states and many localities.
• Property taxes typically represent the largest local tax bill for homeowners.

Understanding the Role of Local Taxes

Under the U.S. Constitution, states have the authority to levy taxes on their residents, while the federal government also imposes taxes. Local taxes fund essential community services like police, fire departments, education, libraries, and infrastructure maintenance.

Unlike federal taxes where benefits may be less visible, local taxes directly support services that residents rely on daily. Local governments balance tax rates carefully to provide necessary services without overburdening taxpayers.

Common tax types at the state and local level include personal and corporate income taxes, estate taxes, fuel taxes, and sales taxes.

Main Types of Local Taxes in 2024

Property Tax

Property tax is the most significant local tax for many homeowners, calculated based on the assessed value of their homes. Each state sets rules governing how local governments assess and collect property taxes.

Other Local Taxes

Some states and municipalities impose income taxes withheld directly from wages, though local wage taxes are less common and allowed in only 16 states.

Local school district taxes, often included in property tax bills, help fund education costs, as seen in places like Ohio.

Sales taxes apply to goods and services purchased within a state and may be supplemented by city-level taxes. For instance, New York City charges an 8.875% combined sales tax, with 4% going to the state.

Sales taxes are considered regressive because the same rate applies regardless of income level.

Important Notes

Local governments prioritize funding education, public safety, and road upkeep.

Except for Alaska, Delaware, Montana, New Hampshire, and Oregon, all states impose sales taxes. Many states exempt essentials like food or reduce taxes on items such as vehicles. Additionally, several states implement "sin taxes" on products like cigarettes and alcohol.

Use taxes apply to items purchased out-of-state but used locally, including vehicles registered in a different state from where they were bought.

Alternative Funding Methods

Municipal governments often issue bonds to finance large community projects. Investors buying these bonds loan money to the government, which repays with interest over time.

To meet bond repayment obligations, local governments might introduce new taxes or increase existing ones.

What Do Local Taxes Fund?

Local tax revenues pay for public employee salaries, including police and firefighters, and support schools, libraries, public transportation, road repairs, parks, and recreational facilities.

States with Highest Income Taxes in 2024

California leads with the highest top income tax rate of 13.3%, followed by New York, Hawaii, and New Jersey, all with rates above 10%.

States with No or Low Income Taxes in 2024

Seven states currently have no personal income tax: Wyoming, Texas, Tennessee, South Dakota, Nevada, Florida, and Alaska. New Hampshire taxes interest and dividends but not wages, while Washington taxes high-income capital gains.

Conclusion

State and local taxes remain essential for funding the infrastructure and public services that communities depend on. Residents should understand the types of taxes they pay, how rates vary by location, and how these taxes contribute to the quality of life in their area.

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