Nov. 2006
Here in Texas, we enjoy the luxury of not having to pay a state income tax. But if you are a homeowner, you probably already know that we are burdened with some of the highest property taxes in the nation. In fact, The Tax Foundation claims that the average annual property tax per Texan is nearly 20% more than the average national collection per capita!
For more than 100 years, we have relied heavily on property taxes to fund city streets, libraries, parks, police and fire protection, and other services. But more than half of all Texas property-tax levies support public education. These school tax levies have priced many would-be homebuyers right out of the market. In an attempt to reduce this tax burden and meet a requirement set forth by the state's Supreme Court, Texas lawmakers recently passed the most comprehensive tax-reform package in decades.
In addition to closing the loopholes on the business franchise tax and implementing a broad-based, low-rate business activity tax, the Texas Legislature gave property owners an approximately one-third reduction in school property taxes. This tax reduction should save Texas homeowners on average $500 or more each year. But since its passage, homeowners have received their property-tax bills and are complaining that the tax-reform package passed earlier this year did little, if anything, to help reduce the tax burden. Some homeowners say they received a modest tax cut, while others argue that their property taxes actually increased. That may be true. But it's not the whole picture. You cannot figure out your tax savings by comparing last year's tax bill to this year's. Instead, you have to look at what this year's tax bill is compared to what this year's bill would have been without the tax cut.
In most school districts, your rate for the maintenance-and-operations portion of school property taxes will go from $1.50 per $100 valuation to $1.33 this year. That rate will be cut again the next year, down to $1 per $100 valuation. Let's look at a hypothetical example of the tax savings. If your home is valued at $150,000 after exemptions, you will save approximately $255 this year and $750 in 2007. It's my guess that most people would agree that $1,000 dollars over two years is a significant amount of savings.
There are several reasons why the tax savings may be less evident on your tax bill, including higher appraisals, taxing entities that are not directly affected by the cut, voter-approved school bonds, the local enrichment option, and the process for phasing in the tax relief.
For most of you, skyrocketing appraisals tops the list. Unfortunately, this is not something new. This is an ongoing problem for many homeowners throughout Texas, with appraised values rising 5%, 7%, even 10% every year, threatening the ability to buy or even keep one's home. In Texas, it's typical that property appraisals outpace a homeowner's wage increases, leaving little money for discretionary spending and having a significant impact on the state's overall economy. But this so-called "silent tax hike" has property owners outraged. While there is a 10% cap in place to protect you from bloated property valuations, those of you who have experienced a significant rise are probably not seeing the advantages of the recent property-tax cuts.
Another reason why the tax savings may not be apparent this year is that other taxing entities, including counties, cities, and municipal utility districts (MUDs), are not affected by the tax cut and may choose to even raise taxes. Also, voters can approve bonds to construct new school facilities, and these amounts are not subject to the tax cut. Schools also have the ability to increase their tax, called an "enrichment" option. This means that school districts can asses a tax up to four cents without having to ask for a public vote. So while some of you may not be in a district that takes advantage of this option, others of you may see it as early as next year. However, this tax is currently a one-time assessment. The school districts cannot turn around and raise it another four cents in 2008 or 2009.
And finally, it's important to remember that the property-tax cut is being phased in over a two-year period. The larger portion of the tax cut is coming in 2007. Maybe by that time, we will also have some recommendations in place for improving the state's appraisal process.
For more information read "What does the property-tax cut mean for me?"
In response to consumer outrage over rising property valuations, Gov. Perry announced the creation of a 15-member task force to examine the state's current appraisal system and make recommendations — with input from the public — for improving it. Modernizing the tax structure is vital to the future of our state, as real estate has been driving the Texas economy for more than five years. I expect 2007 to be a rough ride for Texas lawmakers. Fixing a system that has been in place for years is a difficult task. The recommendations could have enormous implications for property owners and the future of the Texas.
Even with the property-tax cut and the creation of an appraisal reform task force, Texas still relies much too heavily on property taxes to pay for local and state programs. This emphasis on property taxes unfairly singles out one group — Texas homeowners. But looking for alternative methods, such as a state income tax, is very unpopular. As you can see, the task force, along with Texas lawmakers, have a tough road ahead. But the work that has been done thus far is definitely a step in the right direction.
Texas REALTORS® will continue to work to make homeownership more affordable for all Texans, but overhauling an established system will likely take time. You can help by learning more about the issues and voicing your concerns. As the appraisal reform task force travels the state, take part in their open meetings. Let your voice be heard. Currently, Texas ranks 42nd out of 50 states in homeownership. It's time Texas moves much higher on that list, and reducing the property-tax burden even further will do just that.
