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Tax Season
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6 min read
The 86th Texas Legislature regular session convened on January 8, 2019, and adjourned May 27, 2019. School finance and property taxes were the top priority of the state’s leadership, tapping into surplus revenues as a result of the thriving Texas economy. The Texas Legislature enacted numerous changes to the Tax Code which included substantial property tax reform at a cost of $11.6 billion for the 2020-2021 biennium.
House Bill 3 (HB) and Senate Bill 2 (SB) account for almost all of the new spending. HB 3 allocates $4.5 billion in new public education funding, $2 billion in teacher compensation, and more than $5 billion to “buy down” local property taxes. HB 3 also changes the formula for the “Robin Hood” recapture plan.
School Finance
House Bill 3 is one of the most transformative education bills in recent history. The bill increases teacher pay, provides more money for Texas classrooms, reduces recapture, and cuts local property taxes. Key elements of HB 3 include:
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The state will pay 45% of the total cost of public education. They previously paid 38%.
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Local property taxes will now pay 55% of the total cost of public education. They previously covered 62%.
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Increased compensation for teachers and other school personnel:
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Teacher incentive funding and Teacher Excellence rewards
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Increased minimum salary schedule
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Teacher mentor allotment program
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- Increased funding and equity
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Using current-year property values, rather than prior-year values to estimate and equalize Tier One annual school funding, eliminating the lag time and ensures all districts are funded at intended levels
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- Reduced and reforms property taxes and recapture
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Tax rates drop an average of $.08 per $100 of property valuation in 2020
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Tax rates drop an average of $.13 per $100 of property valuation in 2021
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Provides a 2.5% threshold for school districts
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Tax rates continue to decline as property values grow more than 2.5%
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Recapture cut from $3.6 billion to $2.0 billion in year one
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Texas Property Tax Reform and Transparency Act of 2019
Senate Bill 2, the omnibus property tax bill, includes a multitude of reform and transparency measures. Most of these changes took effect January 1, 2020. Key provisions include:
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Reduced rollback rate (now called “voter-approval tax rate”) to slow local property tax growth.
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Voter approval will be required before the state’s most populated cities, counties, and special districts may raise property taxes on existing properties by more than 3.5% in a single year. These taxing units may also “bank” and carry forward any used revenue growth for up to three years, allowing them to potentially increase their voter-approval rate above 3.5% in certain years. The current revenue threshold is 8%, at which point voters can petition for an election to roll back the increase—elections are not currently automatic.
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Taxing units (other than school districts) with proposed maintenance and operation tax rates of 2.5 cents or less per $100 of taxable value, as well as junior college districts and hospital districts, remain subject to the current 8% threshold.
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Smaller taxing units are generally permitted to increase their property taxes by up to $500,000 without voter approval to help finance small, one-time purchases.
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Effective tax rate now called “no-new-revenue rate”
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Appraisal Review Boards (ARBs) are prohibited from determining an appraised value to be greater than the amount included on the notice of appraised value. The limitation does not apply to protests involving the cancellation or denial of an exemption or the application of special appraisals.
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A chief appraiser must deliver—not just make available—requested evidence to a taxpayer at least 14 days prior to an ARB hearing or the evidence may not be offered through a document, argument, or testimony or in any form.
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A protest hearing shall be set for a specific date and time. If the hearing has not begun within two hours of the scheduled time, the ARB shall postpone the hearing on the request of the property owner or the owners designated agent.
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ARB members are limited to serving all or part of three terms (six years maximum) in counties with a population of 120,000 or more. The one-term sit-out period for ARB members in counties with a population under 120,000 is repealed.
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A former member of the board of directors, former officer, or former employee of an appraisal district may not serve on the appraisal review board for that county.
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A former member of the board of directors, former officer, or former employee of a taxing unit served by the appraisal district may not serve on the appraisal review board for that county within four years the person ceased to be a member or an officer.
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An employee or an officer of a taxing unit that participates in the appraisal district may not be employed by that appraisal district.
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Effective September 1, 2020, special ARB panels will be established in counties with a population of one million or more to hear protests involving certain types of properties valued at $50 million or more: commercial (real and personal), utility (real and personal), industrial and manufacturing (real and personal), and multifamily residential (real).
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Tax Code Section 42.23(i) is repealed. This provision (scheduled to take effect January 1, 2020) would have authorized a court to give preference to the testimony of an appraisal district employee over that of a taxpayer’s expert if the employee was also a state-licensed or certified appraiser.
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A taxing unit may not repeal or reduce the amount of a Historic Site exemption that otherwise qualifies for the exemption unless consent is received from the property owner, or written notice is provided to the owner no less than five years in advance of the date the tax unit intends to repeal or reduce the exemption.
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A late application for Freeport exemption may be submitted after the April 30 deadline if it is filed on or before the later of June 15, or 60 days after the date the chief appraiser delivers written notice requesting a rendition or property report. A 10% late application penalty still applies.
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Property owners will receive notice each August, via mail or email that their estimated tax liability for each applicable taxing unit has been posted to the countywide website. The website must post and maintain information regarding tax rates, tax levies, public hearings, and other actions taken by each taxing unit.
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The time period individuals must wait to serve as an arbitrator after previously representing taxpayers or working with an ARB or appraisal district is reduced from five years to two years.
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For purposes of binding arbitration, “contiguous tracts of land” is defined to ensure a property owner may appeal the value of contiguous tracts of land that comprise a single economic unit (i.e., shopping center and parking lot) in the same arbitration hearing and for a single application fee, regardless of whether the respective tracts are improved or unimproved.
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By January 1, the comptroller shall prepare and publish a list of statewide tax rates from the preceding year on the comptroller’s website.
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At least once every two years, the comptroller shall review the governance of each appraisal district to include taxpayer assistance, operating and appraisal standards procedures, and methodologies and report their findings in writing.
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An appraisal district shall maintain a list of individuals who have designated themselves to provide free assistance to an owner’s principal residence.
Senate Bill 2 was signed by the Governor on June 12, 2019. A copy of the bill can be viewed in its entirety along with its various effective dates here: Senate Bill 2.
The information contained in this blog post is for informational and/or educational purposes only and does not constitute legal advice. SWBC Ad Valorem Tax Advisors is not a law firm nor is Gary A. Rivas a licensed attorney. Readers should keep in mind that property tax situations are unique, each with their own set of facts and circumstances and readers should seek professional advice specific to their circumstances from SWBC Ad Valorem Tax Advisors, other tax professionals, or a licensed attorney competent in their subject matter.
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