Property Taxes 101: How can you protest the value of your home?
Texans shoulder one of the largest property tax burdens in the country, paying around $60 billion a year.
At the same time, the state provides a nearly equal amount in tax breaks each year — on products ranging from food to medicine, help for charitable and school groups, even through homestead and business property exemptions.
Now, as state lawmakers are deep into debate about property tax reform, hoping to provide some relief while also paying more into public schools, Tarrant County Judge Glen Whitley has a suggestion.
Why not consider eliminating some of the state’s nearly $60 billion in annual tax exemptions?
“If they want to bring down property taxes and generate more sales tax, either broaden the base or do away with some of the exemptions,” Whitley said. “If we all agree more money needs to be spent, the Lord ain’t sending it down from Heaven.
“They’ve got to stand up and make tough decisions.”
State Sen. Kelly Hancock, R-North Richland Hills, said he believes lawmakers are on the right path without delving into exemptions.
“Judge Whitley is trying to divert off what the real problem is,” said Hancock, who serves on the Senate Finance Committee. “Appraisal rates are going up and local revenues are going up.
“We are looking at addressing this in a broad based way.”
Taxes and exemptions
In 2017, Texans paid $59.4 billion in property taxes, up from $40.3 billion in 2010 and $22.5 billion in 2000, state records show.
This fiscal year, there will be about $59.8 billion in exemptions — $14.2 billion in school property tax exemptions and $45.6 billion in other categories, according to estimates from the Texas Comptroller’s office.
That includes $9 billion for raw materials used in manufacturing, $3.2 billion in food and about $1 billion in over the counter drugs, prescription medicines and devices, the report shows.
Overall, sales tax exemptions — on items such as school lunches, water, dry cleaning, timber, even products bought from coin-operated machines — make up $42.9 billion. Texas also offers four sales-tax free holidays each year, giving residents a chance to save on emergency preparation supplies, energy efficient items, water efficient items and clothes as students prepare to head back to school.
At the same time, franchise tax exemptions make up $2.3 billion a year. These taxes are imposed on businesses and nonprofit groups but tax breaks are given in some cases, such as when charitable groups or schools make purchases or travel.
There’s $204 million in motor vehicle sales tax exemptions, which are given, for instance, when vehicles bought in Texas are transported out of the state. Oil production tax exemptions add up to about $53.6 million and gasoline tax exemptions — for federal agencies, public school contractors and more — total around $131.2 million.
At the same time this year, the Texas Economic Development Act, which is geared to draw new capital investment projects to this state, will make up about $584 million in tax breaks.
Property tax reform
Texas has the sixth highest effective property tax rate in the country, according to a new report by 24/7 Wall St.
“High property taxes are more despised than bad barbecue in Texas,” said Brandon Rottinghaus, a political science professor at the University of Houston.
School taxes are by far the biggest part of property tax bills, accounting for about half of the total. In some districts, it’s even more.
Gov. Greg Abbott designated property tax reform an “emergency” item to let lawmakers get to work quickly. And he and others have touted the Property Tax Reform and Relief Act of 2019, Senate Bill 2 and House Bill 2, which would do many things, including limit property tax revenue growth to 2.5 percent — or trigger an election.
The Senate’s new Property Tax Committee on Feb. 11 approved a revised version of SB 2, a measure some leaders have criticized, saying it could prevent them from funding important local needs. Democrats and some local leaders call the proposed cap arbitrary, saying it won’t bring true property tax relief.
State lawmakers have not said how they’ll make up for the loss of school funding the proposal would bring. But Texas Comptroller Glen Hegar has said the state has an extra $9 billion in revenue for the 2020-21 state budgets because “the economy has been extremely robust.”
Some suggest that lawmakers might dip into the state’s Economic Stabilization Fund, known as the Rainy Day Fund, which should hold more than $15 billion by the end of 2021.
“The most likely scenario is that lawmakers will primarily shift funds from other sources such as health care and the Rainy Day Fund to increase the state’s share of public school financing,” said Mark P. Jones, a political science professor at Rice University.
They might cut some deductions or exemptions and possibly raise some fees. “But any tax increase is likely off the table,” Jones said.
It’s early in the session, though, so it remains to be seen exactly what state lawmakers will approve before they go home on Memorial Day.
Texans are hurting, Hancock said, because appraisal rates continue to swell, making property tax bills grow. And local officials across the state aren’t consistently lowering rates to lessen the taxpayer burden, he said. Dallas-Fort Worth home prices increased 35 percent between 2014 and 2018.
Hancock notes that local officials do support keeping at least some exemptions, such as those used to attract new businesses. Whitley, he said, “is trying to divert from one issue to the next. People want property tax reform.”
State Sen. Jane Nelson, R-Flower Mound, said the key isn’t just to pump more money into the budget.
“Property tax bills will not automatically go down if the state adds new revenue sources to the state budget,” said Nelson, who heads the Senate Finance Committee. “This is a false narrative. Local property tax rates are set by locally elected leaders.”
But some local lawmakers say Whitley may be on to something.
“I agree with Judge Whitley that the Legislature should take a comprehensive look at the various tax exemptions, credits and loopholes in the tax code and evaluate them to see if they still serve a purpose,” said state Rep. Chris Turner, D-Grand Prairie, who chairs the House Democratic Caucus.
State Sen. Beverly Powell, D-Fort Worth, said she’s looking at all of the state’s choices.
“I am committed to examining all options when making important legislative decisions on reducing local property taxes, including closing loopholes, looking at exemptions and ending unfunded mandates,” she said.
State Rep. Ramon Romero, D-Fort Worth, said he hopes lawmakers will put all of the new revenue projected by Hegar into public education, to help both schools and property owners.
But if the financial focus of the Legislature veers from public education to other issues, lawmakers might have to look at alternatives.
“If Judge Whitley suggests exemptions, I would love to know which ones he thinks we should remove,” Ramon said. “But at this point, I think it’s too early to look at exemptions.”