The Texas Property Tax system – (An unfair process)

Property tax in Texas is a locally assessed and locally administered tax.  Property taxes pay for schools, roads, police and fireman, emergency response services, libraries, parks and other services provided by the local government.  Here in Texas property taxes have continued to rise due to a flawed system forcing some longtime residents to sell their homes because they cannot afford the growing annual cost. 

How are property taxes calculated?

The annual property tax consists of two factors:

• Property’s appraised value
• Tax rate

Each county’s central appraisal district (CAD) uses a mass-appraisal process (algorithms) to set the market value of each property as of January 1.  In the spring CADs send notices of appraised values to property owners.  In Texas, property owners can protest if they believe their property was appraised incorrectly.  For example, in Dallas County you can walk-in for a face-to-face with an appraiser before the protest deadline.  If you are not satisfied with the outcome of your face-to-face you can go before the appraisal review board (ARB).  The ARB may lower the appraisal, keep it as is, or possibly raise it.  If you still feel snubbed, you can file a petition for an arbitration hearing at your cost or file suit in district court.

Types of taxes

While things are moving at CAD, local taxing entities are drafting their budgets for the coming year.  Each local taxing entity will propose a tax rate it will use to collect revenue from taxpayers within its jurisdiction by August 7 or soon afterwards.  They must adopt tax rates by September 29^th or 60 days after receiving the certified appraisal roll from the County.  Local taxing entities are legally required to schedule public hearings and publish certain information publicly, including:

• Proposed tax rate: This is the tax rate the local taxing entity seeks to adopt. This rate is used to generate the revenue required to cover their budget.  The equation looks like this: Budget = (Value of all appraised properties in the jurisdiction) x (Tax rate)
• Effective tax rate: The tax rate that would generate the same amount of revenue as the previous year for the taxing entity.
• Voter approval rate: The maximum tax rate they can adopt before requiring voter approval. The 2019 property tax reform bill lowered this from 8% to 3.5% triggering an automatic election if a local government wants to bring in more than 3.5% more money than the previous year.  Property taxpayers will now have an opportunity to rein in the growth of their property tax bill.  Elections for increased rates must be held on a uniform election date which typically will be the first Tuesday in November.    

Why are property taxes soaring?

Since 2012, DFW has experienced a population boom.  The metropolis growth is understandable for a few reasons: affordable home prices, good weather, large corporations moving their headquarters and workforce to the metroplex, and our friendly business environment.  Nevertheless, the high demand for homes has increased market values leading to higher appraisals, causing many folks to attribute the rise in property taxes to higher appraisals only.

So, let us focus on the second portion of the equation: the tax rate (Remember: Budget = Appraised value x Tax rate).  The bottom line is tax rates are not being lowered enough to offset the higher property values.  This factor plays a significant role in determining property tax bills, however it doesn’t gin up the same attention or talk as appraised values. 

Local governments have relied on increased appraisals to generate revenue to cover their budgets rather than adjusting tax rates to compensate for higher values.  For years they have hid behind increased appraisals to fund budgets – lacking transparency.  If local governments need to increase their services, requiring additional funds they should be more transparent by informing taxpayers about why extra funds are needed rather than just allowing tax rates to increase automatically.

The 2019 property tax reform bill helped some but did not go far enough leaving the Texas Property Tax system – an unfair process.  I urge every homeowner to scrutinize their annual property tax bills and attend public hearings to voice concerns and ask tough questions.  Any homeowner who feels their bills are too high should protest.

Remember: property tax bills are mailed to every homeowner in October with a January 31 payment deadline.  Taxes become delinquent February 1 and on this date penalties and interest do accrue.