Texas’ Efficient Property Tax System Could Serve as Model for Other States

— By Jim Popp, Hotel News Resource, January 2007

The taxing units that impose and collect the tariff do not value property;
an appraisal district is set up soley for this purpose.

Some states tilt their tax systems toward fairness to the taxpayer and others tend to favor the taxing unit. Fairness of the system and to taxpayers depends on each state’s legislature. Since property tax is levied primarily on real estate, many of the favorable taxpayer systems are a result of a commercial real estate community’s involvement with the legislative process.

A recent review of the 30 states with the largest property tax indicates that Texans enjoy one of the most efficient systems. The Texas method clearly illustrates five significant characteristics that make for a taxpayer-friendly process.

The state separates the valuation method from the levy and collection process. The taxing units that impose and collect the tariff do not value property; rather, an appraisal district is set up solely for this purpose. This removes valuation from any appearance of political influence. It also promotes taxpayer understanding because a single value is established on a property for use by all taxing units. An effective check-and-balance system is provided by an appraisal district board of directors appointed by the taxing units and a state ratio study review of appraisal district performance. The ratio study compares the market value of commercial assetss to the appraisal district tax value for a sample of properties. It is a means to encourage valuation at 100% of market value.

Second, a fundamental goal of any fair property tax system is to place a value on property that is equal in comparison to others and accurate compared to an understandable standard. The valuation of an asset based on 100% of market value each year accomplishes both of these goals. It is equal because the same standard applies to all and is understandable because property owners are familiar with market value. Systems with appraisal ratios (valuation at a percentage of market value for different properties) or appraisal limitation caps (an artificial limitation on yearly value increases) invariably create a sense of unfairness among taxpayers.

Providing meaningful information about and access to the process is also important. In Texas, a single notice is mailed for each property if the value increases above the prior year. A statewide uniform challenge deadline is applicable to all local appraisal entities. An owner can challenge the valuation of the asset by filing a simple form without any reason for or evidence in support of the challenge. Hearings at the administrative level are informal. Finally, taxpayers have the ability to vote to rollback tax increases over 8%.

The state also provides for equality of value among various types of commercial properties. Owners frequently comment that they just want to be treated fairly. For example, an investor purchases an office building for $100 per sf, resulting in $100-per-sf tax value, but competitive office properties remain at $80 a foot. An equal and uniform statute allows comparison between the tax value of the $100-per-sf property and the value of comparable assets. Thus, the tax for that property would be reduced to $80 per sf in order to conform to the equal and uniform statute.

Finally, it’s essential to maintain a level playing field. All remedies encourage the tax authorities to negotiate in good faith but not be so one-sided as to affect overall fairness. Taxpayers are entitled to attorney’s fees if they prevail in a lawsuit. This encourages the settlement process. The appeal process consists of an informal administrative first step in which many problems are resolved. Then a formal appeal to district court is filed. Lastly, taxing units possess limited opportunities to initiate challenges to taxpayers’ valuations.

In reality the life of an industrial building may be much shorter and should result in a reduction of the assessor’s value. In addition, costs for maintenance, which simply keep a building productive, should not be used by the assessor to reduce the age of the plant, thereby, increasing the assessed value.

Owners bear a burden of unfair taxation in states where the tax system doesn’t include the five characteristics discussed above. Legislators welcome information from informed individuals like commercial real estate owners who often know a lot about property taxes. In states where the commercial real estate community took an active role in the education of legislators about property taxes, the property tax systems have proven to be the most taxpayer friendly.

The views expressed in this article are those of the author and not Real Estate Media or its publications.

Jim Popp is a partner with the Austin, Texas law firm of Popp, Gray & Hutcheson. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Popp can be reached at jim.popp@property-tax.com.