Tech Companies Pay Lower Property Taxes But Boost Municipal Revenue
Translated & summarized from Globes by baba
A Geocartography Institute analysis found that discounted property taxes for high-tech firms do not necessarily reduce municipal revenue, as factors like total commercial space and demand play a larger role. Cities like Tel Aviv and Herzliya, despite offering lower rates, generate high income from business properties due to high demand and large commercial footprints. The study suggests that discounted rates can be a tool for development in areas with weaker demand, with the ultimate success measured by increased business activity over time.
The story in 5 lines · by baba
- Discounted property taxes for high-tech firms don't always mean lower municipal revenue, according to a new analysis.
- Tel Aviv generates high revenue from business properties despite offering lower tax rates to high-tech companies.
- Herzliya also sees significant income from business properties despite offering discounted rates to the tech sector.
- The amount of commercial space, demand, and occupancy are key factors in municipal tax income.
- Discounted rates can serve as a development tool in cities with weaker demand for commercial space.
A new analysis by the Geocartography Institute reveals that discounted property tax rates for high-tech and software companies do not necessarily translate to lower municipal revenues. The study examined the varying reliance of local authorities on business property taxes and the impact of tax policies on high-tech firms.
While high-tech companies often receive significantly reduced tax rates per square meter compared to standard office rates, their overall contribution to municipal income depends heavily on the total area of commercial space, demand, and occupancy levels. For instance, in Tel Aviv, despite a discounted rate of approximately 196 shekels per square meter for high-tech in 2024, compared to 308-450 shekels for regular offices, the city generates substantial revenue from business properties (63.9% of total tax income). This is attributed to the large volume of commercial space (16.6 square meters per resident) and high demand.
Similarly, Herzliya offers discounted rates for high-tech (146-159 shekels per square meter) versus regular offices (250-350 shekels per square meter). Business property taxes still constitute a significant portion (47.9%) of Herzliya's total tax revenue, with 10.9 square meters of commercial space per resident.
The analysis indicates that even a relatively small amount of commercial space can yield high revenue per square meter if demand and property values are high. Conversely, in cities like Karmiel, where the discounted high-tech rate is about 52 shekels per square meter compared to 250-255 shekels for regular offices, a large amount of commercial space (17.1 square meters per resident) still results in business taxes making up 51.6% of total revenue. However, the wide gap between high-tech and regular office rates may explain lower revenue per square meter in some cases, as seen in Modi'in-Maccabim-Re'ut and Haifa.
The key conclusion is that there is no simple correlation between the size of the tax benefit offered to high-tech firms and a city's income. In cities with weaker demand, discounted rates can be a tool for development, potentially filling empty spaces or attracting projects that might otherwise not materialize. The true measure of success is whether the increase in space, occupancy, and business activity over time compensates for the lower tax rate.