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In 1979, the Texas Legislature approved the Property Tax Code to abolish unequal property tax appraisals by cities, counties, and school districts. The “Peveto Bill” created 254 appraisal districts, charged with the responsibility of ensuring uniformity based on “fair market value.” Since the adoption of this reform, the legislature has adopted over 1,000 amendments to the Property Tax Code. Unfortunately, most of these amendments were at the behest of special interests and resulted in a deviation from the goal of uniform, fair appraisals.
With no lobbyists on their behalf, homeowners have seen their property values increase with the real estate market, resulting in a 98 percent average taxable value on single-family homes. Meanwhile, the Property Tax Code has been revised to grant special valuations and exemptions to numerous other property categories, shifting the total property tax burden from 40 percent residential to 60 percent residential. A few examples of the many special-interest appraisal provisions are discussed in this column.
While other states share their severance taxes with local governments, Texas does not. Counties depend upon property taxes on oil and gas reserves in the ground to support local needs. However, the legislature has inserted a special valuation formula for these minerals in the Property Tax Code, removing them from the standard fair market value system. Aggregates, such as gravel and sand, also have special valuation rules. Recently, the legislature granted an exemption for certain mineral royalty interests.
Special appraisal depreciation rules apply to solar energy facilities, and exemptions have been granted to all renewable energy generated for on-site use. Exemptions have been added for precious metals, income-producing personal property, and intangible personal property. There are literally dozens of special exemptions in Chapter 11 of the Tax Code.
In addition to specific exemptions, advantages have been granted to non-residential properties in the appraisal process. While homes are easily appraised through comparable sales, industrial and commercial properties are able to effectively contest their appraisal and dispute their market value using their retained experts and attorneys. Since they are able to avoid their tax responsibilities during an appeal, these properties often litigate these values for years. Many appraisal districts are compelled to compromise and settle these appeals to prevent hardship on the local school district.
The legislature has compounded the corruption of the system by linking the state public education budget to the level of appraisals. Higher local property tax appraisals and collections reduce the amount of state appropriations required to finance public education. Although some additional funding has been provided, the local property tax share of public education remains above historical levels.
The Interim Charges to the House Ways and Means Committee includes an assignment to study and consider “whether the property tax appraisal system is working as intended, and opportunities to improve the system to benefit homeowners and businesses.” The County Judges and Commissioners Association of Texas will be preparing information on the present inequities in the property tax appraisal system, recommendations for removal of special interest provisions, and other improvements of the system. Please submit your ideas and comments to CJCAT Legislative Director Rick Thompson.
