The Incidence of Differential Commercial Property Taxes: Empirical Evidence

This paper evaluates the effects of property tax differentials within and among municipalities on the sales value of commercial real estate to provide a direct empirical test of Mieszkowski's (1972) argument about the incidence of commercial property taxation. He argued that consumers of the products made with commercial capital must "bear 75 percent or more of the burden in the form of higher prices". By examining the commercial real estate market in the Phoenix metropolitan area, I find that over 70 percent of interjurisdictional differences and about 60 percent of intrajurisdictional differences on commercial property taxes are borne by property owners, either capital or land owners, instead of consumers as Mieszkowski suggested. It implies that the spatial demand for commercial real estate is highly price elastic in metropolitan Phoenix and differences in commercial property taxes largely caused by errors in the assessment practice may have significant resource allocation effects.