Changes in Law, COVID-19 Impact Property Taxes in Texas
By Rachel Duck, director and senior property tax consultant at Popp Hutcheson LLP, the Texas member of the American Property Tax Counsel
Property taxes are big news in Texas. Last year, property taxes were a primary focus of the 86th Legislature, and Texas Gov. Greg Abbott deemed property tax relief so important that he declared it an emergency item.
The 2019 legislative session produced significant modifications to tax law. Here’s a rundown of the most noteworthy changes affecting taxpayers in 2020, along with a look at how fallout from the COVID-19 pandemic may complicate the taxpayer’s position.
Removing The Veil
Property taxes are not only big news, but they are also confusing, particularly given the “Texas two-step” appraisal and assessment process. After an appraisal district values a property, taxing entities separately tax that property based upon the final determined value. For a single property, a taxpayer may owe five or more taxing entities spread among three assessors’ offices. Understanding the ultimate tax liability for such a property can be a monumental task for taxpayers.
Senate Bill 2 addressed the confusion and promoted transparency and truth in taxation, earning it the title of “The Texas Property Tax Reform and Transparency Act of 2019.” Each appraisal district is now required to maintain a website with useful information that allows taxpayers to better understand their tax bills.
The website must include the three pertinent tax rates summarized in the table above. Additionally, appraisal districts will calculate the effect that each taxing entity’s proposed rate would have on its overall tax collection and include an estimate for any proposed increase’s effect on a $100,000 home. Finally, the websites must provide the date and location of public hearings to address concerns with any proposed increases.
Revenue Increase Limits
In addition to transparency, lawmakers fought to create some avenue of property tax relief. What ultimately passed between Senate Bill 2 and House Bill 3 was a limit on tax revenue increases by jurisdiction. This restricts the amount that taxing entities can increase revenues through tax rate setting.
Beginning in 2020, most taxing entities will have a maximum revenue increase limit of 3.5 percent year over year. To adopt a tax rate that increases revenue over 3.5 percent, that taxing entity must call an election for approval. This new cap is significantly lower than the prior law, which allowed for up to an 8 percent increase in tax rates year over year without voter approval.
Junior college districts, hospital districts and other small taxing units including those with tax rates of 2.5 cents or less per $100 of valuation retain their 8 percent permitted increase. (For clarity, this article expresses tax rates in dollars per $100 of assessed value.)
Relief from school district taxation falls under a separate calculation, which was revised by House Bill 3. For the 2019-2020 school year, maintenance and operations (M&O) rates will be compressed by 7 percent. For school districts with a Tier 1 $1.00 M&O rate, the rate drops by 7 cents to 93 cents on the dollar.
For 2020-2021, local school district rates will compress by an average of 13 cents, based on statewide property value growth exceeding 2.5 percent. The M&O rate caps will vary across school districts, and the Texas Education Agency will publish all maximum compressed rates.
Relevant Procedures, Policies
While tax system de-mystification and revenue increase limits were the major reforms, lawmakers enacted many administrative and procedural changes as well. Administrative process changes now prohibit value increases at an Appraisal Review Board (ARB) hearing, add ARB member training requirements, and create special ARB panels to hear protests for complex properties. Additionally, the business personal property rendition date moved to April 15.
In a win for those litigating appraised values, the state revised Section 42.08 of the property tax code, allowing a taxpayer to pay less than the full amount of tax on a property with pending litigation. Previously, if the final property value from a lawsuit resulted in a tax burden exceeding the amount originally paid, the taxpayer incurred delinquent penalties and interest on the remaining amount owed.
The revision removes the taxpayer’s risk for attempting to discern where a litigated value may settle by eliminating the possibility of penalties and interest on the additional tax due.
Despite changes enacted in the 2019 Legislative Session, at least some of those reforms are on hold as the state and its communities respond to the coronavirus pandemic. Gov. Abbott’s Mar. 13 disaster declaration allows cities, counties and special districts to use the old 8 percent threshold on revenue increases rather than the new 3.5 percent limit.
Further, the governor has the authority to change deadlines during a disaster. As of Mar. 19, Texas had suspended in-person ARB hearings and may extend that suspension into the normal administrative protest season.
Rapid developments may continue to disrupt the property tax assessment and appeal process in 2020. How the disaster will ultimately affect the 2020 property tax cycle remains to be seen, but the recent changes enacted in law will shape the property tax process in Texas for years to come.
For more detailed information on property tax law changes, please refer to the 2019 Texas Property Tax Code, additional resources on the Texas Comptroller’s webpage, and consult with a property tax professional.
— This article first appeared in the April 2020 issue of Texas Real Estate Business magazine.