At the start of the current legislative session, we wrote about Governor Abbott’s proposals for dealing with rising property taxes and school funding in Texas. As the legislative session has continued, property taxes are still at the forefront of the debate. In this post, therefore, we talk about how local jurisdictions raise money through property taxes, what the parties are proposing in this legislative session, and how these proposals are likely to affect commercial properties.
How Property Taxes are Determined
As you likely know, property tax revenues are essential to local municipalities. It is their main source of funding. This process begins when the local appraisal district determines the assessed value for each property in the district. It is at this stage that law firms like Bukowski Law Firm help property owners reduce their property taxes by protesting the appraised values assigned by the local appraisal districts. It is essential for Texas property owners to protest their appraised values every year to minimize their tax burden.
Once the appraised value of a property is set, the taxing districts determine the tax rates. Properties generally have multiple taxing districts that levy a tax on the property. This includes:
- School districts – responsible for approximately 54% of property taxes;
- Counties – approximately 17% of taxes; and
- Cities – approximately 16% of taxes.
Since the recovery from the depression of 2008-10, property values (including appraisal district assessed values) in Texas have generally been increasing. Meanwhile, tax rates have generally stayed the same. As a result, the tax burden for commercial property owners has increased significantly.
Unfortunately, the current legislative proposals to combat the rising property taxes are focused solely on residential taxes. As a result, we do not expect commercial property owners to see their tax burden alleviated.
As we discussed previously, prior to the legislative session, Governor Abbott outlined a framework for property tax reform focusing mainly on residential taxes.
Similarly, in the Democrats’ recent legislative proposal, minor property tax suggestion were directed at residential homeowners. Under the proposal, homeowners would be able to double the amount of the homestead exemption to $50,000.
There are two GOP bills currently proposed – one in the House and one in the Senate. Both bills propose limiting the amount a local municipality can increase the property taxes collected from 8% to 2.5% for each year. Under that proposal, any increase over 2.5% would automatically trigger a local vote.
As you can see, these plans also do not stop property taxes from increasing. They would simply lower the cap on how much they can increase. And they do not differentiate between residential and commercial property taxes. As a result, because of political pressure on local municipalities, we believe any reduction in property taxes to meet this new target (if it passes) would come from residential – not from commercial.
We do not believe, therefore, that any of the proposals currently in the legislature will have a substantial effect on curbing the rapid growth in commercial property taxes in Texas. It is thus extremely important to hire a company like Bukowski Law Firm to help protest your property tax assessments.