Central Appraisal Districts are responsible for determining and applying the taxable value for all properties in their respective counties,. Because we have a variety of property types, we don’t have a one-size-fits-all appraisal approach.
For example, much of Texas’ land is used for agricultural purposes, and our state allows property owners to have their land appraised based on the land’s capacity to produce agricultural products rather than the land’s market value. This often provides a substantial reduction in the appraised value that is used for ad valorem taxation.
However, the Texas Tax Code allows that when land that has qualified for agricultural appraisal changes use to non-agricultural purpose, the property owner who changes the use will owe a “rollback tax” for each of the previous five years when the land had the lower appraisal (with some exceptions). This rollback tax is the difference between the taxes paid on the land’s agricultural value and the taxes that would have been paid if the land had been taxed on its higher market value.
Another unique appraisal consideration is related to communities near Texas’ international border with Mexico, known as “colonias,” that lack infrastructure such as water, wastewater, and paved roads. All Texas counties within 50 miles of the border are subject to “Colonias Laws” that intend to assure infrastructure exists for new residential developments. However, existing state law effectively makes these properties unsalable.
What does this mean for the real estate industry?
Both of these circumstances are currently resulting in unfair and unjustified ad valorem taxation on property owners.
“Model subdivision laws” that are making colonia properties unsalable were put into place to address important issues; however, the practical effect then sets the market value at zero.
For agricultural property, a significant future tax burden can deter potential property owners from seeking to use their property as they see fit, which violates their private-property rights.
The Texas REALTOR® position
Our association supports repealing or reducing the five-year rollback tax collection imposed when land that has qualified for agricultural appraisal changes use to non-agricultural purpose.
Our association supports legislation that states if a parcel of real property that is subject to “Colonias Laws” and located within 50 miles of an international border is not improved and therefore is not marketable or saleable due to existing state or local regulations, then it shall be deemed to have a minimum value for the purposes of eminent domain, which shall be fully exempted for ad valorem tax purposes.
We expect to see legislation addressing these issues as the Texas Legislature continues to focus on reducing property tax burdens statewide.
Texas has two constitutional provisions that value qualified property based on its agricultural use rather than on its market value.
Voters first added agricultural valuation to the Texas Constitution in 1966 as Article VIII, Section 1-d. Property qualified if it was used for agricultural purposes and was owned by a family or individual whose primary occupation was farming or ranching. The primary purpose was to keep land in agricultural use. As Texas became increasingly urbanized and ownership shifted from the family farm to other ownership structures, this approach became increasingly ineffective.
In 1978, voters added Article VIII, Section 1-d-1 to the Constitution. This approach focuses entirely on the use of the land and does not consider ownership structure or occupation. This approach is now used for most agricultural valuation in Texas.
The two provisions contained a rollback penalty to discourage changes from agricultural property and avoid holding property in agricultural use simply to avoid paying taxes on market value. The deduction from market value for agricultural use property is estimated at more than $210 billion.
It now appears that after 40 years of history and stability in the land use process,the rollback penalty has served its purpose and has become counterproductive to development and a limitation preventing needed value additions to taxing unit tax bases.