The Texas Legislature passed several property tax reform laws to benefit current and future property owners in the Lone Star State.
Over the past several years, property owners in Texas had endured one property tax increase after another. These property owners would complain consistently – arguing that their appraisals were wrong or that their property tax statements were confusing or misleading.
This was making owning a home in Texas less and less affordable.
But Senate Bill 2, which was signed into law by Gov. Greg Abbott in June, will provide homeowners with more transparency and better information about taxation, appraisals and the best way to challenge, or protest those appraisals, if necessary.
Property tax bills are calculated using the property’s appraised value and the tax rates set by each of the taxing entities where the property is located. Cities, counties, school districts and other local governments use property tax revenue to fund their annual budgets.
“The most talked about portion of the bill was the provision that now requires most cities and counties to hold elections if they wish to raise property tax revenue by more than 3.5 percent over the previous year.”
Higher property values are usually borne out of economic growth and prosperity for a local community. An example in Texas is in the San Antonio area, where Bexar County residents saw an average increase of 8.7 percent on their property value this year.
The new law will give property owners more information about the process used to set the tax rates that determine their property tax bills.
Senate Bill 2 makes a variety of changes to the property tax system and the appraisal process, making it easier for homeowners to understand and also giving voters a say in how much local governments municipalities can raise property taxes each year.
Tax rates and other information now must be available in convenient online databases that are accessible to the public and searchable by property address and owner.
The most talked about portion of the bill was the provision that now requires most cities and counties to hold elections if they wish to raise property tax revenue by more than 3.5 percent over the previous year.
This rate is currently at 8 percent, and voters must currently petition to hold an election. Now these elections will be automatic.
There is an exclusion for taxes levied on new construction, which allows for the growth rate to be averaged over three years, meaning some taxes can exceed that 3.5 percent increase without an election.
School Finance Reform
House Bill 3 was signed into law by Gov. Abbott, providing a massive overhaul of Texas’ long-floundering school finance system.
“You could not overstate the magnitude of the law that I’m about to sign because this is a monumental moment in public education history in the state of Texas,” Abbott said back in June. “We did something that was considered to be highly improbable, and that is to be able to transform public education in the state of Texas without a court order forcing us to do so.
“This one law does more to advance education in the state of Texas than any law that I have seen in my adult lifetime in the state of Texas.”
House Bill 3 included approximately $6.5 billion in new public education spending in Texas plus an additional $5.1 billion earmarked for lowering property tax bills in the state.
The money budgeted for this landmark legislation includes pay increases for teachers, a funding of full-day pre-kindergarten classes for 4-year-old students, and a steep reduction in Texas’ Robin Hood program, which allows for wealthier school districts to subsidize poorer school districts.
In addition, school districts that want to create merit programs for their teachers now can, awarding bonuses between $3,000 and $12,000 annually. This program also creates incentives for teachers to work in rural school districts or in districts of high need.
As for the property taxes, early estimates are that homeowners will see an average 8-cent tax rate reduction in 2020 and 13-cent reduction in 2021.
Reducing Agricultural Rollback Tax
In Texas, many property owners maintain their land as agricultural before they develop it for another purpose.
Agricultural tax valuations that were put in place to help farmers can help lower their property’s taxable value.
However, when a property switches to non-agricultural use, it is usually dinged with an agriculture rollback tax.
Currently, this tax is the difference between taxes paid on the property’s agricultural value and the taxes it would have incurred on its higher market value for the previous five years. In addition, the property owner would currently pay interest of 7 percent for each year from the date the taxes would have been due.
This year, the Texas Legislature passed House Bill 1743, which amends the tax code in Texas to reduce the number of years in the rollback of taxes from five to three and to reduce the interest rate from 7 percent to 5 percent.
This new law takes effect on September 1, 2019.
More Wins for Property Owners
This has been a banner year for property owners in Texas as far as new legislation. In addition to the aforementioned changes:
- The legislature has ended the practice of forced annexation across the entire state.
- More resources will be available for property owners affected by disasters and disaster recovery and prevention plans are being put into place.
- Buyers will be getting more detailed information about a property’s flooding history.
- A law was passed to continue the Texas Real Estate Commission’s protection of real estate consumers.