Taxes in Worcester: Businesses are the top tax contributors to the City, but exemptions and the dual rates are leading to calls for reform

The largest taxpayers in Worcester represent a diverse group of industries. “We’ve historically had a healthy mix of property taxpayers, which is really important for cities and municipalities. We need to make sure one type of taxpayer is not carrying the burden,” said Peter Dunn, City of Worcester chief development officer. Yet, in a city with high-profile industries like higher education and health care, the biggest businesses tend to be tax-exempt. Organizations like UMass Memorial Health, the largest employer in the region, and the 182-year-old College of the Holy Cross contribute to public coffers through payments in-lieu of taxes agreements, but they do not have to pay the fluctuating property tax rate for-profit businesses do each year. “You hear Worcester characterized as having an educational and medical tax base, which has historically been resilient through recessionary cycles,” Dunn said. “But we also have a good mix of commercial taxpaying entities and a lot of residential growth as well.” Meanwhile, The City of Worcester’s commercial tax code remains a source of controversy. The dual tax rate, implemented in the 1980s, charges business property owners a higher rate than residential property owners. The City’s 2025 residential tax rate is $13.19 per $1,000 of valuation for residential properties and $28.61 per $1,000 for commercial and industrial properties. Business organizations like the Worcester Regional Chamber of Commerce are pushing city council to change the code to a single rate, saying this lessened burden on businesses will spur economic growth. Building improvements increase the value of a property, meaning there’s not a lot of incentive for businesses to invest in upgrades in fear of a higher tax bill. Still, Dunn said taxes are just one piece of the economic development puzzle. The city has advantages other communities don’t, like a large talent pool, tons of educational opportunities, and urban amenities like bars and restaurants. “[The tax is] one decision-making factor in a number of factors taken into account when a business decides to locate somewhere,” he said. The top taxpayers Utility companies are the largest contributors to the City’s commercial tax collections. National Grid and NSTAR Gas contributed $16.7 million and $10.3 million in real estate and personal property taxes to the City budget in fiscal year 2025. New England Power paid $2.2 million in taxes in 2025, and Verizon paid $1.9 million. Although utility providers were four of the City’s top 10 commercial taxpayers, some of Worcester’s most notable businesses are exempt from paying taxes, as nearly all colleges and hospitals are typically run as nonprofits. One notable exception is Saint Vincent Hospital, a for-profit institution owned by Tenet Healthcare in Texas, which paid $4.1 million in taxes to the City in fiscal year 2025 and was the City’s third-highest taxpayer. To make up for the property they own and don’t pay taxes on, large nonprofits contribute to the City coffers through PILOT agreements. The City has six active agreements, with Holy Cross, UMass Memorial, Clark University, MCPHS University, and two with Worcester Polytechnic Institute. Through a PILOT agreement initiated in 2009, for example, WPI paid $815,606.31 in fiscal 2025. The money went to fund Institute Park and the Worcester Public Library. These PILOT agreements and WPI’s nonprofit status became a source of tension last year when WPI purchased two hotels for $46 million in the Gateway Park section of Worcester, spurring concerns the City would lose about $1.6 million in annual tax revenue. WPI eventually came to a second PILOT agreement with the City, where it would pay the full taxes on the hotels until they are no longer operated as hotels. Members of the Worcester City Council were still upset by the situation and placed a non-binding question on the Nov. 4 election ballot, asking if colleges and universities should be required to contribute 0.5% of their endowment to a community impact fund. Property taxes are the most consistent source of revenue for municipalities, and the issue of nonprofits not having to pay tax is one that disproportionately impacts Gateway Cities like Worcester, said Tim Murray, president and CEO of the Worcester Regional Chamber of Commerce. “Its not unreasonable for business and government leaders to ask [nonprofits] to keep properties on tax rolls if they acquire new ones,” Murray said. “They benefit from the services the City provides, primarily through the City budget, which is primarily based on property tax.” Worcester has plenty of other commercial entities that pay taxes, Dunn said. Besides utilities, life sciences and real estate are major contributors. Worcester TC LLC, the owner of the 100 Research Drive property home to pharmaceutical giant AbbVie’s Worcester office, is the fourth-highest commercial taxpayer in the city, at $2.4 million. Worcester benefits from research and development organizations wanting to keep their manufacturing closeby, Dunn said. “We’ve found that in biomanufacturing, they like to have their contract organizations near where R&D is happening,” he said. “It’s not just based on cost. It’s, ‘Are you near the workforce that you need and companies doing R&D?’ That’s what we’ve been focusing on over the last 10 years in that particular sector.” Proposed changes to tax code Worcester’s split tax rate, or dual tax rate, implemented in 1984, means there are different tax rates for commercial and residential properties. Commercial, industrial, and personal property taxes made up about 36.5% of the total tax levy in 2023, but assessed values of these properties were only 21% of the total in the city, according to a 2024 report from the Worcester Regional Research Bureau. The dual tax rate, plus personal property taxes on things like equipment, are oftentimes enough for a business to think twice about Worcester, Murray said. “During the last municipal election, there was a candidate asking ‘Why does Shrewsbury have a new Market Basket and not Worcester?’ Well, if you take the footprint of that Market Basket and calculate what they'd be paying in property taxes, they'd be paying $200,000-$300,000 more a year in Worcester,” he said. District 1 city council candidate Keith Linhares has advocated in favor of a land-value tax, which would mean paying taxes based on the value of dirt underneath the building, but not the building itself. This type of taxation, Linhares said, incentivizes landowners to improve their existing properties because they won’t get taxed on building additions. Stephen Hoskins, director of community research and engagement at the New Jersey-based Progress and Poverty Institute, advocates for the land-value tax across the U.S. Doing it in Worcester would require state legislation, he said, and probably some investment in the assessing department to ensure fairness. But the idea is always for it to be revenue-neutral, he said. “In cities in particular, land takes a lot of value, not because of the person who owns it right now, but because of the efforts of the city council, providing things like street sweeping, and a functioning business environment. Those are what give the land its value,” Hoskins said. “When government creates the land value, it captures it back in the land tax.” The Worcester chamber favors a single tax rate, where taxes are the same whether a property is residential or commercial, Murray said. Communities like Fitchburg have done this, gradually lessening the dual tax rate over a period of time to encourage economic development while easing residents into the new system, he said. “You can’t change this overnight, but a gradual commitment over time sends the right signal to businesses that are here and want to be here,” Murray said. “Doing it over a period of time, you’re not creating sticker shock for existing homeowners.”