Property Tax-ology

With the Oct. 1 start of the next fiscal year quickly approaching, local cities, counties and school boards are in full swing of discussing and proposing tax rates and budgets to hold public hearings and meet state deadlines.

The various terms, numbers and laws that many public officials utilize can be confusing to those unfamiliar with local government funding, and taxing entities rarely explain terminology in public meetings.

The Citizen answered some common questions and defined frequently used terms below based on information from the Texas Comptroller’s Office.

How are my property taxes calculated?

Property tax, also referred to as ad valorem tax, is measured by the value of a taxpayer’s property calculated from a base amount, against which the tax rate is imposed, and a rate, or a percentage that determines the amount of tax due.

The base amount is calculated by appraisal districts based on market conditions, the property owner and any applicable exemptions.

Counties, cities, school districts and various special districts, like water districts, each set their own tax rates and collect taxes. Texas does not have a statewide property tax.

What exemptions are there? What exemptions are required by school districts?

Local taxing entities offer partial and total exemptions from a qualifying property’s appraised value that are outlined in state law.

Property owners must apply for an exemption in most circumstances through the county appraisal district. The general deadline for filing an exemption application is before May 1.

The primary exemption options are: residence homestead, inherited residence homestead, age 65 or older or disabled persons, disabled veterans and surviving spouses of disabled veterans, surviving spouses of first responders killed in the line of duty, surviving spouses of qualifying veterans, solar and wind-powered energy device, and charitable organizations and businesses.

State law requires school districts to exempt certain amounts for residence homesteads and property owners age 65 or older or who are disabled. A residence homestead is a house or other residential structure with up to 20 acres of land on which it sits.

School districts must provide currently a $140,000 exemption on a residence homestead. For example, a home appraised at $300,000 with a school district’s required $140,000 exemption would pay school taxes on the home as if it was worth only $160,000. State law also allows any taxing unit to adopt a local option residence homestead exemption of up to 20% of a property’s appraised value.

School districts are required to provide an additional $60,000 residence homestead exemption for qualifying property owners for a total exemption of $200,000.

To learn more about exemptions and their requirements, visit comptroller.texas.gov/taxes/property-tax/exemptions/.

What are the different rates used to determine the final property tax rate?

The following rates help taxing entities determine what total property tax rate to propose. These rates are not summed, and some are designed to be informational in nature.

Each rate will be presented as a dollar amount per $100 of a property’s final appraisal value.

No-New-Revenue Tax Rate. This rate would generate the same amount of total revenue for the city as the previous fiscal year. The no-new-revenue tax rate will usually be lower than last year’s tax rate because property values are required to increase each year and new property typically gets added to the tax roll.

No-New-Revenue Maintenance and Operations Tax Rate. This rate funds day-to-day operations, utilities, personnel and more. This rate is calculated based on the prior fiscal year’s tax rate, total taxable value and M&O rate and the current year’s taxable value.

Interest and Sinking Tax Rate. Also referred to as the debt rate or debt service rate. This rate covers the interest and principal payments of any bonds and other debt secured by property tax revenues. This number is not based on the prior fiscal year’s debt taxes.

Unused Increment Tax Rate. When a taxing entity adopt a tax rate lower than its voter-approval rate, it can bank the difference up to three fiscal years to apply towards future calculations. This rate is the sum of the prior three fiscal years’ forgone tax revenue amounts divided by the current taxable value.

Voter Approval Tax Rate. This rate is the sum of no-new-revenue M&O and I&S rates, plus the unused increment rate, if applicable. State law caps the increase of property tax revenue from year to year that taxing entities can adopt without voter approval at 3.5%.

De Minimis Rate. State law outlines an exception where certain taxing entities can raise $500,000 in property tax revenue using this rate without having to hold an election even if it goes above the 3.5% voter approval tax rate. This rate is the sum of the no-new-revenue M&O rate, the I&S rate and a rate that, when applied to a taxing unit’s current total value, will impose an amount of taxes equal to $500,000.

To learn more about how each rate is calculated, visit comptroller.texas.gov/taxes/ property-tax/truth-in-taxation/calculations.php/.

What happens if a city adopts a rate higher than the voter approval rate?

Voters can petition to hold a tax approval election if:

• The de minimis rate exceeds the voter-approval tax rate; and
• The adopted tax rate is equal to or lower than the taxing unit’s de minimis rate and greater than the greater of the taxing entity’s: 
  • voter-approval tax rate calculated as if the taxing entity were a special taxing entity, or
  • voter-approval tax rate.

The requirements and process of such petitions are outlined in Texas Tax Code Section 26.075. State laws can be viewable online at statutes.capitol.texas.gov/.

What is the fiscal year timeline?

The fiscal year starts on Oct. 1, and taxing units begin sending tax bills to property owners. This is also when entities start utilizing their approved budgets.

Property owners must pay their tax bills by Jan. 31 of the following year to avoid penalties and interest. If a bill remains unpaid by July 1, additional penalties may be imposed.

Appraisal districts will appraise property values and process applications for exemptions from Jan. 1 of the following year to April 30. Notices of the appraised value are sent between April and May. Afterwards through July, the appraisal district will hear protests from property owners, make determinations and approve appraisal records.

Appraisal districts will notify local taxing entities of tax rate and value calculations between late July and August. Taxing entities will then determine their budgets and what rate to propose.

The entities will then hold the required one to two public hearings on both the proposed tax rate and the budget before approval. Taxing entities generally must adopt its budget and tax rate by Sept. 30.

How did property taxation change in 2019?

The Texas Legislature passed Senate Bill 2 in 2019 to overhaul how local governments and taxing entities set and adopt various tax rates, how entities must provide notice and transparency to the public, shifted state-level administrative duties and more.

The bill retitled the effective tax rate as the non-new-revenue tax rate, the effective maintenance and operations tax rate as the no-new-revenue maintenance and operations tax rate, and the rollback tax rate as the voter approval tax rate. The bill also introduced the unused increment tax rate.

For the new voter approval rate, SB 2 reduced the maximum increase of property tax revenue from year to year that taxing entities can adopt without voter approval from 8% at 3.5%. SB 2 also mandated elections for tax rates that exceed the cap instead of a petition for a rollback election.