Property taxes are traditionally a cornerstone of municipal finance, funding everything from schools and police to parks and roads. This report examines whether a city could sustain itself without levying property taxes, exploring economic sustainability, legal feasibility, historical examples, and alternative revenue sources. We consider cases from small towns to large global cities to understand how public services might be maintained in the absence of property tax revenues.
Economic Sustainability Without Property Tax
Reliance on Property Tax: In the United States, property taxes are one of the largest revenue sources for local governments, comprising about 30% of local general revenues (and nearly 48% of local own-source revenue) as of 2021 . This stable, recurring tax base finances essential services such as schools, police/fire departments, infrastructure maintenance, and libraries. Replacing such a substantial and steady revenue stream is inherently challenging. For example, analysts in Florida noted that eliminating property taxes statewide would force a shift to other taxes or deep spending cuts, since property levies fund roughly one-third of local government services in the U.S. on average . Property tax revenues tend to be more stable than sales or income taxes, because property values (and assessments) fluctuate less dramatically than consumer spending or incomes . This stability helps cities avoid severe budget crises during economic downturns.
Volatility of Alternatives: Without property taxes, a city must lean on other income sources that may be more volatile or limited. Common alternatives include sales taxes, income taxes, tourism-related taxes, user fees, and intergovernmental aid. However, each comes with drawbacks. Sales tax revenue depends on consumer spending and can swing sharply in recessions . An analysis in Florida showed that even maximizing all local sales taxes (to state-allowed caps) could only replace roughly one-third of the property tax revenue in that state . Local income taxes, where allowed, tie revenue to employment and wages, which can decline quickly in a downturn. Moreover, sales and flat-rate income taxes tend to be regressive, placing a higher burden (relative to income) on lower-income residents compared to property tax’s burden (since property ownership is concentrated among higher-wealth households) . Thus, solely relying on consumption taxes or flat local income taxes could worsen inequality in funding public services.
Service Levels and Budget Pressure: Cities that have attempted to eliminate or forego property taxes often face tough choices about service levels. After an initial boost (for example, a city may attract development by advertising “no property tax”), the lost revenue can lead to budget gaps unless replaced. For instance, Stafford, Texas – a city famous for not charging municipal property tax – enjoyed decades of growth but eventually hit a $2.2 million budget shortfall, delaying police hires and vehicle repairs . Officials there warned that the “great ride” of no property taxes had reached a point where essential services were at risk without new revenue . This illustrates that in the long run, economic sustainability may be compromised if alternate revenues do not keep pace with rising service costs. A city can certainly reduce its dependence on property taxes (many U.S. cities diversify their revenue), but eliminating it entirely requires either significantly higher rates of other taxes, substantial economic growth to broaden the tax base, or spending cuts. As a Tax Foundation analysis of a proposal to abolish property tax cautioned, “outright repeal of the property tax is unsound and would ultimately force a shift to more economically harmful taxes and to state control of local revenues.” In short, the economics can be made to work in niche scenarios (discussed below), but not without trade-offs in revenue stability or equity.
Legal Feasibility and Policy Constraints
Authority to Tax: The ability of a city to operate without property taxes depends on legal frameworks that govern local finance. In many countries and states, municipalities are authorized (but not required) to levy property taxes by law . There is typically no law mandating that a city must impose a property tax – rather, local officials choose to levy it because it’s one of the few productive taxes available to them. That said, if a city chose to abolish its property tax, it must have legal authority to implement alternative taxes or fees, or rely on higher-level government funding. This is a sticking point: state laws often constrain what taxes cities can levy. For example, some U.S. states forbid municipalities from enacting local income taxes, and many cap the rate or types of sales taxes that can be imposed locally . In such states, giving up property tax would leave a city with few revenue options.
Examples of Legal Attempts: There have been moves to legally abolish or limit property taxes. State-level: North Dakota voters in November 2024 considered a constitutional amendment (Measure 4) to repeal all property taxes statewide, which would have made it the first U.S. state to do so . The measure failed at the ballot box. Fiscal analysis beforehand showed that wiping out property taxes (which fund local governments and schools) would necessitate large increases in sales or other taxes and a shift of control to the state level . Similarly, Nevada and Michigan have floated plans to eliminate or sharply curtail property taxes, often coupled with supermajority requirements for raising other taxes . These proposals ran into concerns about eroding local budgets, especially for education (Michigan’s plan, for instance, threatened to severely cut school funding if no replacement revenue was identified ). Local-level: Cities generally can decide to set their property tax rate to zero if they find other revenue. Texas law, for example, allows cities to not levy a property tax and instead use sales tax (up to a state-imposed cap). Stafford, TX took advantage of this flexibility (more on that case below). In contrast, some states like California heavily limit property tax growth (via Proposition 13) but allow alternative fees and taxes to some extent – full elimination would likely require state legislative changes or voter approval.
Intergovernmental Support: In countries with more centralized finance, it is legally feasible for cities to have no local property tax because the national or regional government funds local services. For instance, unincorporated areas in Alaska have no local taxation authority at all, yet residents still receive basic services through state funding or adjoining borough services . Alaska’s constitution permits organized boroughs and cities to levy taxes, but many tiny communities simply do not enact a property tax due to their limited tax base. Legally, they survive by opting for sales taxes (if organized) or by remaining unincorporated and thus receiving state transfers for certain needs. Outside the U.S., a parallel can be found in some unitary countries where local governments get a share of national taxes. If that share is sufficient, a city might not need its own property tax. For example, Irish municipalities receive significant grants and have only modest local property charges; some Middle Eastern cities receive direct national subsidies from oil revenues, obviating the need for local taxation. In such cases, legal feasibility is tied to fiscal policy: a city can legally skip property taxes if the higher-tier government provides other revenue or if voters approve alternative funding mechanisms (like special assessments or local-option taxes).
Local Autonomy Concerns: Eliminating property tax can also reduce local fiscal autonomy. Property taxes are one of the few revenue sources that city councils directly control (setting the rate and base) in many jurisdictions . Without it, cities may have to depend on state allocations or tightly regulated taxes, effectively becoming more like administrative arms of the state. This trade-off was noted in a Georgia policy review: taking away property tax authority “converts local governments into the equivalent of state agencies that depend on the state to determine the level of expenditures.” In other words, while it’s legally possible for a city to operate on state funding or narrow local taxes, it means the city has less independent control over raising funds for its needs. Any legal path to a property-tax-free city must grapple with this balance between local self-reliance and dependence on external revenue.
Examples of Property-Tax-Free Cities (and How They Manage)
Real-world cases show that it is possible for a city or town to function without property tax, given the right economic conditions or revenue alternatives. Below is a set of examples – from small towns to wealthy city-states – that illustrate different models of running a locality with no (or minimal) property tax.
Table 1: Case Studies – Cities/Jurisdictions Operating Without Property Tax
| City / Jurisdiction | Population | How Public Services Are Funded (No Property Tax) | Outcomes / Notes |
| Stafford, Texas (USA) | ~17,700 (2024) | Abolished municipal property tax in 1995. Funds operations through a 2% local sales tax (1.5% to city general fund) and robust business activity . Also benefits from being part of a county and school district that still levy their taxes. | Attracted residents and businesses with the zero-city-tax policy. After ~30 years, however, the city faced a $2.2 million budget shortfall, straining its ability to hire police and fix equipment . In 2024, officials debated reintroducing a modest property tax to maintain services, showing the model’s limits. |
| Small Alaska Communities (USA) | Hundreds to a few thousand | No local tax base; many do not levy property tax. Of 19 boroughs in Alaska, 4 have no property tax, and only 11 cities (outside those boroughs) levy one . These areas rely instead on local sales taxes (often 2–5%) and significant state transfers (oil revenue sharing, state grants). | Low population density and limited property value made property tax impractical . Basic services are maintained through state funding and minimal local services. Residents often accept fewer amenities in exchange for low or no local taxes . This model works in rural or undeveloped areas but might not scale to larger cities. |
| Monaco (City-State) | ~39,000 | No property tax on individuals. The Monaco government is funded by other means: lucrative tourism and casino monopolies, a share of France’s VAT (by treaty), and taxes on business profits. Monaco also has no income tax for residents, attracting wealthy individuals. | The city-state sustains high public spending (world-class city services) despite no property levies. Monaco’s glistening real estate is attractive partly due to the absence of annual property taxes . This is viable because of substantial alternate revenues (the casino alone historically provided ~5% of revenue, and VAT and corporate taxes much of the rest). Monaco illustrates that a micro-city with unique economic assets (tourism, luxury retail, finance) can avoid property taxes, albeit as a special case. |
| Dubai (Emirate of Dubai, UAE) | ~3,000,000 | No recurring property tax on real estate. Instead, Dubai charges a 5% municipality fee on annual rental values (a “housing fee” paid by tenants/owners) and a 4% one-time fee on property sales (registration duty) . The vast majority of Dubai’s budget comes from other sources: 56% from fees and fines (e.g. business licenses, visa fees, road tolls, utility fees), ~17% from government investment returns, ~14% from taxes like VAT (UAE introduced a 5% VAT in 2018) and new corporate taxes, and ~4% from oil revenues . | As a major global city, Dubai manages without a Western-style property tax by leveraging its role as a trade and tourism hub. The high fee revenue reflects a “user pays” model – e.g. every expat resident’s utility bill includes the 5% housing fee, contributing to municipal coffers . This model has allowed robust infrastructure spending while keeping direct taxes extremely low. The downside is sensitivity to economic cycles: fees and transactional taxes boom during growth (property booms, tourism influx) but can drop if the economy slows. Dubai mitigates this with large fiscal reserves and diversified income streams. |
| Chinese Cities (e.g. Shanghai, Shenzhen) | Millions (Shanghai 25M) | No traditional annual property tax (as of 2025). Chinese cities historically funded local budgets via land sales and selective fees rather than recurring property taxes . City governments lease state-owned land to developers for upfront payments – in 2021 these land sales provided ~30% of all local government revenue . Additionally, cities collect some “property-related taxes” such as transaction taxes or urban maintenance fees, totaling ~19% of revenue . Combined, roughly 38% of local revenues came from land sales and related levies at the peak of the real estate boom . | This land-driven financing model fueled rapid urban development for decades, but it is economically unsustainable long-term. Land sale revenue is highly cyclical: when China’s property market cooled, land sale income fell by one-third (from ¥8.7T in 2021 to ¥5.8T in 2023) , leaving many city budgets in deficit. The central government had to step in with stimulus and is now piloting western-style property taxes to create a more stable revenue base . Chinese cities’ experience shows that while you can run a city without property tax for a time, relying on one-off asset sales (land leases) eventually hits a wall, necessitating reform. |
These examples demonstrate that special circumstances can enable a city to forego property taxes. Small U.S. towns (or rural areas) might do it by accepting lower service levels or tapping state funds; wealthy enclaves or city-states can do it if they have alternative cash streams (tourism, casinos, oil, etc.); and some rapidly developing cities replaced property tax with land sales – effective in a boom, problematic in a bust. Notably, even in cases like Stafford or Monaco, other entities still levy property taxes (e.g. school districts, neighboring counties, or national governments on certain properties), so the city proper offloads some responsibilities. Completely tax-free cities are usually part of a larger system that provides support (for instance, Monaco benefits from French public services arrangements, and Stafford residents still pay county and school property taxes ).
Alternatives to Property Tax Revenue
If a city seeks to minimize or eliminate property taxes, it must cultivate other revenue streams. Below are key alternatives, with their advantages, disadvantages, and examples of how they have been used:
- Local Sales Taxes: Cities can levy taxes on retail sales of goods/services. This can generate substantial revenue in areas with strong retail or tourism sectors. Pros: Visible and tied to economic activity; can capture revenue from visitors and non-residents who shop in the city. Cons: Volatile – drops in recessions and can leave budgets short ; also regressive (lower-income families pay a higher share of their income). Some cities fund themselves primarily through sales tax – for example, Stafford, TX uses a 1.5% city sales tax as its primary revenue , and many Alaskan towns that lack property tax have a local sales tax instead . However, to replace property tax entirely, the required sales tax rate might be very high. A study in Florida estimated doubling the state sales tax (from 6% to 12%) would be needed to offset eliminating property levies – an extreme measure that would make the total tax burden among the highest in the nation . Politically and economically, over-reliance on sales taxes can be risky.
- Local Income Taxes: Some cities tax wages, salaries, or business profits earned within the jurisdiction. This is common in parts of Europe and occasionally in the U.S. (e.g. New York City, Philadelphia, and many Ohio cities have a wage tax). Pros: Can be more progressive than sales or property taxes, since the tax grows with income; taps the economic output of the city’s workforce. Cons: Administrative complexity; possible deterrent to businesses or residents (people might work or live just outside to avoid the tax); and volatile with the job market. Nordic countries prove that cities can thrive on income taxes: in Denmark, Sweden, Norway, and Finland, municipal income taxes (typically flat ~20–30% additions to national tax) provide the bulk of local revenue, whereas property taxes contribute under 5–10% of local budgets . For example, Stockholm’s local income tax is around 30%, funding schools, healthcare, transit, etc., with only a small national property fee on real estate. In the U.S., by contrast, few states permit high local income taxes; where allowed, the rates are much lower (NYC’s is about 3.9%). A city could in theory swap property tax for a broad income tax, but this usually requires state law changes and can face public resistance (since it shifts tax from property owners to wage earners).
- Tourism and Hospitality Taxes: Cities with significant tourism can levy special taxes on hotel stays, rental cars, restaurant meals, amusement tickets, etc. These “tourist taxes” effectively export some of the tax burden to visitors. Pros: Can raise large sums in tourist hubs; helps pay for services (police, sanitation, infrastructure) that visitors use. Cons: Seasonal and economy-dependent; if too high, may discourage tourism; not all cities have enough tourists to matter. Many cities use hotel occupancy taxes to fund convention centers, arts, or general operations. For instance, Amsterdam has Europe’s highest hotel tax at 12.5%, deliberately used to fund city maintenance and manage overtourism . In the U.S., Orlando and Las Vegas rely heavily on hotel and entertainment taxes (Las Vegas Strip hotel taxes and gaming fees fund roads and even schools). A small example: Lake Como, Italy used €350,000 of its hotel bed-tax revenue in one year specifically to pay for organic waste collection and lakeshore cleanup – services needed partly due to tourist impact . A robust tourism tax can offset lower property taxes for locals; however, it requires a strong tourist economy and typically complements, rather than fully replaces, property tax (since tourism revenue alone can be unpredictable).
- Natural Resource and Land Lease Revenues: A city blessed with natural resources (oil, gas, minerals) or valuable land can earn money through royalties, severance taxes, or land leases. This can sometimes sustain public budgets without needing property tax. For example, Middle Eastern cities like Doha or Riyadh historically had no property taxes; oil revenue collected at the national level fund their city services. In the U.S., the North Slope Borough of Alaska (home to Prudhoe Bay oilfields) taxes oil infrastructure and uses the proceeds to fund local services generously (even distributing dividends to residents) with minimal local taxation otherwise. Another variant is land lease revenue: Hong Kong and Chinese cities, as noted, lease government land to private developers. During the boom years, Chinese local governments derived 30–40% of revenues from land sales , enabling them to keep other taxes low. The advantage of resource revenues is that they can be enormous (effectively other people are paying for the city’s needs, whether oil companies or land buyers). The disadvantage is volatility and sustainability: commodity prices fluctuate, and land can only be sold once. Dubai, for example, gets only ~4% of its revenue from oil now – it had to diversify into fees and tourism as oil reserves declined. Resource-rich cities need prudent management (saving in boom times to stabilize bust periods) if they forgo stable taxes.
- User Fees and Public-Private Partnerships (PPPs): Cities can charge direct fees for services – such as utilities (water, sewer, electricity), garbage collection, road tolls, parking, recreation facilities, etc. In some cases, they can invite private investment to build infrastructure (a PPP) so that a private operator charges users over time instead of the city paying upfront. Pros: Follows a “user pays” principle – those who use a service fund it; can attract investment and efficiency from the private sector; reduces the need for general tax funding of infrastructure. Cons: Fees can become inequitable if essential services cost more than some residents can pay; over-reliance on fines/fees may be seen as nickel-and-diming residents. Many municipalities have increased fees to ease tax pressure – for example, Dubai’s 56% revenue from fees includes things like licensing fees, traffic fines, metro fares, and the 5% housing fee on renters . Some U.S. cities have leased assets to private firms for upfront cash (Chicago famously leased its parking meters for $1.1 billion to cover budget gaps – trading future parking fee revenue for a present lump sum). PPPs have financed toll roads, airports, and even civic buildings: the Long Beach, CA Civic Center was rebuilt via a PPP, with private financing repaid over decades by leasing the property back to the city . While these strategies don’t “create” new revenue out of thin air, they can shift costs off the property tax rolls. Studies indicate PPP infrastructure projects have saved local governments around 20% compared to traditional public procurement . Still, most cities view fees and PPPs as supplements – a city would have to charge extremely high fees (or privatize most services) to entirely replace property tax income. Excessive fines or fees can also generate public backlash or social costs (e.g. if people can’t afford utility bills).
- Intergovernmental Aid and Grants: A straightforward alternative is for a higher government to provide the city with revenue. Many cities receive state or federal grants for specific programs (transportation, housing, etc.), but these usually cover only portions of budgets. A city without property tax could seek a larger share of state revenue. For example, Delaware cities have very low property taxes partly because the state funds services (Delaware has no sales tax, but a portion of other state taxes goes to local needs) . In unitary states like the UK, local councils rely on a combination of council tax (a property-based charge) and a Revenue Support Grant from central government – theoretically, the government could boost grants to offset lower council tax. Pros: This can equalize resources between rich and poor areas and relieve the local tax burden. Cons: It makes the city’s budget dependent on political decisions elsewhere; local needs might go unmet if higher authorities have other priorities. Unless a special arrangement exists (e.g. a capital city receiving national funding due to its status), it’s rare for intergovernmental aid to fully replace a core local tax, because it undermines local fiscal responsibility. In Alaska’s no-property-tax areas, the absence of a local tax base is balanced by modest state support and the reality that those communities often self-limit their services (e.g. volunteer fire departments, minimal road networks) . Thus, while aid can fill gaps, it’s usually coupled with leaner local budgets.
Conclusion
Can a city run without property taxes? The evidence suggests it is possible, but only under certain conditions and often not indefinitely. Cities that have successfully minimized or eliminated property taxes tend to share one or more of these characteristics:
- Alternative revenue windfalls: They benefit from other robust revenue sources – be it sales taxes (Stafford’s case), natural resources (oil-rich regions), tourism and fees (Dubai, Monaco), or state support (small Alaska communities). These inflows must be sufficiently large and stable to fund services that property taxes would otherwise cover.
- Unique economic base or small scale: Many examples are either small communities with limited services or unique city-states. A large metropolitan city with diverse service demands would find it difficult to rely entirely on niche revenues. For example, no major U.S. city has eliminated property tax, because it would leave a multi-billion-dollar hole that sales or income taxes (constrained by law and economic behavior) couldn’t reliably fill . Even internationally, most big cities use some form of property taxation – if not directly on real estate, then via land leases or rates – to harness the wealth tied up in property values.
- Trade-offs in governance: Eliminating property tax often means accepting less local autonomy or reduced services. A city that hands off funding to the state or lives off volatile revenue might have to cut services during lean times. As seen in Stafford and Chinese cities, a no-property-tax regime can be tested when growth slows or unexpected costs arise, forcing reconsideration of the policy. Public opinion can also shift – residents might enjoy “no property tax” until vital services like schools, road maintenance or emergency response are underfunded, at which point support can grow for restoring a stable tax.
In the end, most cities that “run without property taxes” do so as exceptions rather than the rule. For the vast majority of municipalities, property tax remains a linchpin of fiscal health – providing a broad-based, predictable revenue aligned with local wealth and land use. That said, cities can and do reduce their reliance on property taxes by diversifying their revenue mix. Increasing sales taxes a bit, charging fair user fees, attracting tourism dollars, and lobbying for state aid can all lighten the property tax burden on residents without gutting services . Some reformers advocate for alternatives like land value taxes (taxing only land value, not buildings) or broader regional revenue sharing to alleviate inequities caused by property-tax-funded localities . These measures stop short of elimination but aim for a more sustainable and equitable system.
Bottom line: Yes, a city can operate without property taxes, but it needs a strong substitute revenue source and likely accepts more budget uncertainty. Historical cases show it’s a delicate balancing act – one that works best in special scenarios (small towns, tourist enclaves, or resource-rich locales). For most cities, completely doing away with property tax would threaten economic sustainability or require significant changes in law and funding structures. The more practical approach seen in recent years is to seek a better balance: diversify revenues to avoid over-reliance on any single tax, implement targeted relief for those hit hardest by property taxes, and ensure that whatever mix of funds is used, the city can maintain the public services that residents and businesses expect .
Sources:
- Tax Policy Center – How do state and local property taxes work?
- Florida Policy Institute – A Risky Proposition: Weakening Local Governments by Eliminating Property Tax Revenue
- Stafford, TX Official Site – City Tax Structure (Property Tax Abolished)
- ABC13 News – “City of Stafford could make residents pay property taxes for the 1st time in 3 decades” (June 21, 2024)
- Alaska DCRA – Local Government Resource Desk: Property Tax
- Nomad Capitalist – Countries with No Property Taxes (Monaco)
- PwC Tax Summary (UAE) – Municipal tax on property (Dubai)
- Emirates NBD Research – Dubai Budget Revenue Breakdown
- PIIE (T. Huang) – Chinese Local Governments’ Reliance on Land Revenue
- Wikipedia – Tourist tax (Lake Como example)