With the Texas budget deficit currently projected to exceed $27 billion, local taxing jurisdictions will be relying on the most stable of taxes to help make up this budget shortfall: property taxes.
Property taxes are administered at the local level, as Texas does not have a state property tax. Given that there is an estimated $150 to $250 million deficit in the Dallas Independent School District alone, property owners can expect their property values and tax rates to remain stable, and in some cases increase, despite declining values in the current market.
“The school districts count on property tax revenues to make up more than 50 percent of their funding,” says Jeff Mills, senior manager at Crowe Horwath LLP. “This adds pressure to all parties involved with the appraisal process to ensure that the overall taxable value is in line with their budgeted needs.”
Less than 10 percent of property owners appeal their tax assessments, effectively leaving money on the table when assessments are not in line with the current economic climate. Professional consultants can help taxpayers monitor their taxable values, become educated in the appraisal process, obtain available exemptions and ensure critical dates are met in the appeals process.
Smart Business spoke to Mills about what taxpayers in Texas should know about keeping their property taxes in line.
How is the property tax system structured?
Property taxes are administered at the local level via the county appraisal districts. Boards of directors are appointed by taxing units made up of school, city, county and special district representatives. The board of directors appoints the chief appraiser who oversees the appraisal of all of the properties in the district. The board of directors also appoints the Appraisal Review Board, made up of ‘independent’ citizens that are in charge of hearing appeals when an agreement cannot be reached between the taxpayer and the appraisal district informally. It is of note that the Appraisal Review Board is paid by the appraisal district and appraisers conduct multiple hearings throughout the year often with the same review board members.
How can taxpayers appeal their property tax values?
Frequently, taxpayers don’t understand the process of how to appeal their values. By the time tax bills are received, the deadline to appeal has already passed.
Properties are assessed as of January 1 of each year based on the ‘fair market value’ of the property: typically the price at which a property would transfer for cash or its equivalent under prevailing market conditions. Assessments notices are sent out in early May, but have been known to be mailed out much later. This is a crucial component of the appeal process, as a taxpayer only has 30 days to appeal from the date of the receipt of the assessment notice, or May 31, whichever is later. Not receiving an assessment notice or not knowing the critical dates may cause taxpayers to forfeit normal appeal rights. Other means of appeals can be very time-consuming and costly.
Once a timely appeal is filed, the taxpayer is required to receive 15 days’ advance notice before the hearing is scheduled to occur. Failure to receive notice is not necessarily grounds for rescheduling a new hearing.
How can people make sure they’re not paying more than their fair share of property taxes?
Whether you collect market data on your own or hire a property tax consultant, be prepared with an opinion of market value for your property and thorough support when challenged. Even if your assessed value stays the same or decreases slightly, the overall tax liability could still be higher. Tax rates are not set until October, several months after the protest deadline. It’s rare that the taxing units will vote to decrease their respective rates, especially during the kind of budget constraints they’re facing now.
Also, for owners of business and personal property, be aware that filing your fixed asset schedule in its entirety may cause an over-inflated assessment of market value. Conducting a fixed asset review may uncover several assets that are being assessed at a higher value due to lack of description on your asset ledger. In many cases, assets can be shifted to a faster depreciable life. A review can also help to identify ‘ghost assets,’ which are assets no longer located at the facility that have failed to be removed from the ledger.
What else should people know about saving on their property taxes?
Homeowners and business owners should understand or ask their advisers about the various exemptions available to them:
- Homestead exemption
- Freeport exemption (inventory shipped out of Texas)
- In-transit inventory (inventory passing through the state and protected under the Commerce Clause)
- Pollution control equipment
- Agricultural exemption
- Abatements — Property tax abatements do not include the school district portion of the property tax, which is the largest portion. Opportunities may exist to recoup a sizeable portion of this tax.
When in doubt, hire a licensed tax consultant; many will not charge a fee unless they are successful in reducing the assessed property value. These professionals have access to market data for various types of properties, and have experience with identifying savings opportunities and managing the appeals process. The No. 1 reason that taxpayers don’t achieve a reduction in a hearing is lack of preparation and support. I’ve seen numerous cases where taxpayers are trying to make an argument without knowledge of how their property is assessed.
While current market conditions may warrant a reduction in your appraised value, don’t expect a lower tax liability without knowing your rights, and appealing your values.
Jeff Mills, CMI, is a senior manager in the National Property Tax Practice at Crowe Horwath LLP and a licensed senior property tax consultant in Texas. Reach him at (214) 574-1037 or Jeff.Mills@crowehorwath.com.