How Property Tax Reform Is Raising Sales Tax Compliance Costs

The accelerating pace of U.S. property tax reform is pressuring state and local sales tax policymakers to address declining tax revenue. These shortfalls drive more frequent sales and use tax rule updates and rate increases as well as the enactment of new fees. This flurry of rate changes – sales tax rate increases outnumbered rate decreases at the city level by a 4.5:1 ratio during the first half of 2026 – requires indirect tax teams to manage compliance as a continuous activity.

Put simply, property tax rate decreases often correlate with sales tax increases.

Nine Ballot Measures and Counting

The movement to reduce property taxes through a variety of mechanisms – including higher homestead exemptions, lower property valuation increase limits, and restrictions on how governments can spend property tax revenues -- continues to gain steam. A quick glance at Ballotpedia’s property- tax-legislation tracker shows that voters will decide on at least nine different ballot measures in November.

One of those measures, Florida Amendment 3, has attracted national attention and generated pointed debates. The state’s legislative staff has estimated that the amendment, if passed, would decrease local government revenue in the Sunshine State by $4.6 billion in fiscal year 2027-28 and $8.4 billion in fiscal year 2028-29.

Proponents of the ballot initiative argue that it will provide financial relief to homeowners in the face of inflation and rising living costs. Opponents counter that the constitutional amendment would result in significant reductions to essential public services and sales tax increases that have an outsized effect on commercial entities, renters, and other consumers who would not directly benefit from lower property taxes.

Florida is not alone. Residents of Georgia, Louisiana, Oklahoma, and Wyoming will also vote on state ballot measures concerning property tax reform this fall.

Revenue Has to Come from Somewhere

Property tax increases are a real problem in many states given that property value increases have outpaced inflation by more than 25% in the past five years. Yet, the Tax Foundation cautions that many current reform proposals could create unintended consequences. For example, shrinking Florida’s property tax base would require tax revenue to be generated through other mechanisms, such as imposing higher millage rates on property that remains taxable. To prevent massive property tax hikes on those properties, write the Tax Foundation policy experts Nicole Fox and Katherine Loughead, Florida might instead adjust sales taxes to recover the lost revenue. This would involve major changes, Fox and Loughead assert, including “substantially higher local and/or state sales tax rates, a sweeping expansion of the sales tax base (likely to more than just final personal consumption), or a combination of these approaches.”

What This Means for Indirect Tax Teams

Vertex research indicates that 45% of enterprises have difficulty keeping pace with changing tax rules and regulations today. Property tax reform and the sales tax rate volatility it causes will intensify the struggle while making it more important than ever for indirect tax groups to treat compliance as a continuous lifecycle.