Boston Proposes Commercial Tax Hike to Improve Office Market Slump

Boston Mayor Michelle Wu is proposing a temporary increase in the city’s commercial property tax rates to counteract the significant decline in office property values and protect homeowners from steep tax hikes. The plan seeks to adjust the tax-rate ceiling for commercial properties, redistributing the tax burden without raising additional revenue. Ashley Groffenberger, Boston’s chief financial officer, emphasized that the proposal aims to create stability and shield residents from disproportionate impacts. This move, however, could intensify the struggles of commercial real estate amid a nationwide slump in office demand driven by remote work.

Boston’s fiscal stability is at risk, with more than one-third of its tax revenue dependent on commercial property taxes, unlike cities such as Chicago, Miami, New York, and Washington, D.C., which rely on such taxes for a smaller portion of their revenue. Currently, Boston taxes commercial properties at about 2.5%, compared to approximately 1.1% for residences. A report by Tufts University’s Center for State Policy Analysis and the Boston Policy Institute warns that maintaining the current tax structure could lead to a significant shortfall in tax revenue. The mayor’s plan, modeled after a similar measure following the dot-com bubble burst, aims to prevent a massive tax increase on homeowners, underscoring the city’s commitment to residential affordability. However, experts caution that raising taxes on an already struggling commercial sector could drive businesses to more favorable locations.