The Texas Property Tax
What You Wish Your Constituents Knew
When it comes to explaining the property tax, logic may not be the best approach. Consider the seemingly logical questions posed by taxpayers:
The name of my appraisal district includes “county” (i.e. Ector County Appraisal District), my tax bill has the word county, so the county must be in charge of my property tax appraisal, right?
If my property value decreases, my taxes will automatically go down, right?
If the county, schools or city need more money to operate, then they just tell the appraisal district to raise taxable value, right?
If the county, city or school still doesn’t have enough money, the state will help, right?
Wrong, Wrong, Wrong and Wishful Thinking (No. 4).
The Texas Tax Code is comprised of 600-plus pages. With that in mind, taxpayer confusion is probable, if not a bit logical, especially to those who do not understand county government and its forced dependence on the property tax.
When it comes down to it, maybe we need to use some logic of our own. For example, how can we expect constituents to understand county government and the property tax if we’ve never taken the time to explain it to them?
Perhaps it’s time for a primer.
Did You Know?
County Progress asked both a tax-assessor collector and a county commissioner to provide their definitions of the property tax.
Brazos County Tax Assessor-Collector Kristy Roe: The property tax is also referred to as an "ad valorem" tax, which simply means "according to value." A property tax is a tax that is calculated based on the value of the real estate, mineral interest, standing timber, and personal property used in the production of income, or a manufactured home owned by an individual. In Texas, the value that is taxed is the "market value" of the property as of Jan. 1 of the tax year.
Parker County Commissioner John Roth: Property within the boundary of a taxing entity is taxed to provide funding for the services of that entity.
Counties are limited to property taxes as their main revenue source, said Oldham County Judge Don Allred, president of the County Judges and Commissioners Association of Texas.
However, just because the county is supported primarily by this tax doesn’t mean the county has a say in how much property is worth.
When it comes to the property tax, “the most common misperception that I see is that the commissioners court and the appraisal district work together to set property values at a higher rate each year to bring more income to the county,” said Ector County Judge Susan Redford, West Texas County Judges and Commissioners Association board member.
Property appraisals are conducted by appraisal districts, which are charged with identifying and listing the value of all property in the county for taxation, said Denton County Tax Assessor-Collector Steve Mossman.
“The appraisal district is not part of the city, county or school district,” Mossman said. “The appraisal district is an independent government.”
While state law created “centralized” appraisal districts, many counties retain the word “county” in their title creating the perception that appraisal districts are part of county government. Some counties, such as Denton, use the term “central,” as in Denton Central Appraisal District versus Denton County Appraisal District.
“It is commonly believed that the commissioners court, school board, or city council can contact the appraisal district and instruct them to raise the taxable value of property to generate more tax revenue for their districts,” Roe said. In reality, the appraisal district must appraise property at the market value for that area in that year. After identifying, listing and appraising all taxable property within the county, the appraisal district certifies the tax roll, Mossman said. When the roll is certified, it means the property value has been agreed to or has not been challenged by the property owner.
The commissioners court is not involved in any portion of the appraisal process. Rather, the role of the county judge and county commissioners is to approve the county budget and set the tax rate on the appraised properties to help fund the county budget and service any county debt.
The office of the county tax assessor-collector is a part of county government and is responsible for calculating the taxes, mailing tax statements, accepting and processing certified changes to the tax roll(s), and collecting and remitting the current and any delinquent taxes.
Setting the Tax Rate
Commissioners courts must adhere to state law when setting the tax rate. According to the Texas Constitution, Article VIII, Section 9, the county cannot levy a tax rate in excess of $.80 per $100 of property value for the county’s general fund, permanent improvement fund, road and bridge fund and jury fund.
The county is authorized to levy an additional $.15 road and bridge tax and a $.30 farm-to-market road/flood control tax; however, these taxes are subject to voter approval. In addition, counties on the Gulf of Mexico can levy a special tax for construction of sea walls, breakwaters, or sanitary purposes, not to exceed $.50 per $100 valuation.
Counties are also authorized by several statutes to levy certain special purpose taxes. However, these taxes when combined with the general fund tax may not total more than $.80 per $100 assessed valuation.
In addition, the court must follow a mandated process called “truth in taxation.” According to the Office of the Texas Comptroller, this process is designed to:
make taxpayers aware of tax rate proposals; and
allow taxpayers, in certain cases, to roll back or limit a tax increase.
Beginning in early August, taxing units take the first step toward adopting a tax rate by calculating and publishing the effective and rollback tax rates.
Effective tax rate. The effective tax rate is a calculated rate that would provide the taxing unit with about the same amount of revenue it received in the year before on properties taxed in both years. If property values rise, the effective tax rate will go down and vice versa.
“The effective tax rate is a place to start,” Roe said. Commissioners courts review how much money they required the previous year and determine if they need more or less.
Rollback tax rate. The rollback rate is a calculated maximum rate allowed by law without voter approval. The rollback rate provides the taxing unit with about the same amount of tax revenue it spent the previous year for day-to-day operations, plus an extra 8 percent increase for those operations, in addition to sufficient funds to pay debts in the coming year. If a unit adopts a tax rate higher than the rollback rate, voters in the unit can circulate a petition calling for an election to limit the size of the tax increase.
Actual tax rate. Commissioners courts set the tax rate based on how much money they will need to fund the county budget and service any county debt. In some cases, this may be the calculated effective tax rate or the rollback rate, but not necessarily so.
Truth in taxation requires the taxing entity to post proposed tax rates and hold hearings if the proposed rate brings in any additional revenue to the entity, Roe said.
County government is a unit of the State of Texas, and the structures and duties of county government are set forth in the Texas Constitution. County government responsibilities are mandated by law and must be funded by the county budget. These mandated services include:
Process and maintain voter registration
Maintain and construct county roads and bridges
Provide for public safety
Maintain and operate the court system including provision for indigent legal defense
Provide medical care for indigent county citizens
Facilitate the issuance and recording of public documents
Process motor vehicle registration and title transfers
Collect and remit state motor vehicle taxes
Provide local support for state agencies such as Texas Department of Mental Health and Mental Retardation, Department of Public Safety, Texas Parks & Wildlife, and the Alcoholic Beverage Commission
Counties also strive to provide discretionary services, often called “quality-of-life services,” such as community centers, health departments and libraries.
The commissioners court makes its decisions based on the services the county must provide as required by law. However, constituents do not always automatically equate their taxes with these services. Often times when appraisals go down, taxpayers expect an automatic deduction in taxes.
“If the appraised value across the jurisdiction goes down, the tax rate set by the governing board may have to be raised because the county or the school district or the city still has to pay their bills,” Mossman said. “The dollar value has to remain pretty much the same.”
Or, Mossman continued, officials could ask taxpayers, “Without a change in the appraised value, I can lower your tax rate. What services do you want me to eliminate? Police? Fire?”
Another assumption involves new values to the tax roll, such as construction or newly discovered mineral sources. Taxpayers often assume this additional value will automatically pump new revenue into county coffers. However, this is not always the case, Roth said. Again, it all depends on the adopted tax rate. If the effective tax rate is adopted, there will be no increase in tax revenue to the county because the county will adjust the tax rate to bring in the same revenue as the previous year. Mineral owners will be assuming a larger portion of the tax pie, and others on the tax roll will see a reduction in the taxes they pay. If the county adopts a tax rate higher than the effective tax rate, then county coffers will grow.
Many taxpayers do not understand the stress and strain on counties across the Lone Star State that are inching closer and closer to the maximum tax rate of $.80 per $100 of property value. As costs continue to increase, counties face the growing concern that they will have to focus solely on mandated expenditures and abandon existing discretionary programs. In the meantime, the State of Texas continues its age-old habit of issuing mandates without funding to support the required service.
Allred explained the plight of many struggling counties as follows:
v County budgets are driven by the laws that are implemented in Austin by the Texas Legislature.
v Counties are limited to property taxes for their main revenue source.
v Taxes, for the most part, are determined by mandates put on the county by the State Legislature.
v Discretionary spending for local services is the first to be cut because spending for state-mandated services is just that, mandated.
v If the state would fund the laws that they adopt, then our property taxes could be more closely tied to local services and therefore could legitimately be used by local taxpayers and local governments to indicate the need for higher or lower taxes based on their desire for services.
v As things stand today, local governments tend to be the state's scapegoat to blame for higher property taxes, when in reality higher budgets are, more often than not, the result of the state’s unfunded, mandated programs and services.
v When this happens local officials must either raise taxes, cut local spending, and/or both. Local taxpayers see higher taxes and fewer services, leading to frustration.
v The State of Texas, by our Constitution, is prohibited from having a state property tax; however, the ability to require counties to spend local property taxes on state programs allows the state to circumvent this prohibition.
v If we are ever to have complete truth in taxation, the state should fund the programs and services they require by mandate. This will allow local property taxes to be used for local programs and services, the purpose for which they were designed. H – By Julie Anderson