Overall Vote Recommendation

Principle Criteria

Free Enterprise

Property Rights

Personal Responsibility

Limited Government

Individual Liberty

Digest

HB 361 seeks to address concerns about the fairness and accuracy of property tax appraisals for Texas homeowners who receive a residence homestead exemption. The bill focuses on the use of the market data comparison method, which is one of the primary tools used by appraisal districts to determine the market value of properties for ad valorem tax purposes. Specifically, HB 361 limits the kinds of comparable sales that a chief appraiser may use when valuing a homestead property.

Under the bill, which applies to counties with populations over 50,000, appraisal districts may only consider the sale of a property as a comparable if two conditions are met: first, the sold property must have had a residence homestead exemption in place on the date of its sale; second, the sold property must be located in the same neighborhood as the property being appraised. These criteria aim to ensure that only truly comparable, owner-occupied properties are used to determine taxable values for other homesteads, reducing the influence of investor-driven sales or sales in dissimilar areas.

The bill adds new Subsection (f) to Section 23.013 of the Tax Code and takes effect on January 1, 2026, applying to ad valorem tax appraisals for tax years beginning on or after that date. By narrowing the scope of allowable comparable sales, HB 361 is intended to reduce the likelihood of inflated valuations and promote greater equity in property taxation, especially for homeowners who reside in their properties and may otherwise be unfairly compared to properties sold for investment or development purposes.

The originally filed version of HB 361 and the Committee Substitute both aim to restrict how appraisal districts determine the market value of residence homesteads for ad valorem tax purposes, but they do so with important differences in both scope and legal placement within the Tax Code.

The originally filed bill amends Section 23.01 of the Tax Code by adding Subsection (i). It mandates that chief appraisers must only consider other residence homesteads in the same neighborhood when valuing a residence homestead. It explicitly bars the use of any property that does not receive a residence homestead exemption under Section 11.13 as a comparable. This version applies broadly and unconditionally to all counties in Texas, regardless of size or population.

In contrast, the Committee Substitute modifies Section 23.013 of the Tax Code instead of Section 23.01. It imposes stricter conditions under which a sale can be considered a valid comparable, but only in counties with populations over 50,000. Specifically, it requires that (1) the sold property must have had a residence homestead exemption at the time of sale, and (2) it must be located in the same neighborhood as the subject property. This narrows the applicability based on geography and demography, allowing for more flexibility in smaller counties while tightening standards in more populous ones.

In summary, while both versions share the goal of aligning appraisal comparisons more closely with actual homestead properties, the original bill is broader in scope and more rigid in application. The substitute version provides more specific appraisal criteria and limits applicability to larger counties, reflecting a compromise to accommodate diverse county appraisal practices across Texas.

Author (1)

Diego Bernal

Contact the Author

Rep. Diego Bernal

Capitol Phone:

(512) 463-0532

Capitol Office:

CAP 4N.6

E-Mail:

[email protected]

Visit Official Website

Fiscal Notes

According to the Legislative Budget Board (LBB), HB 361 would have no significant fiscal implication to the state of Texas. This assessment suggests that the restrictions imposed by the bill on the use of certain property sales as comparables for appraising residence homesteads would not materially affect state revenues or expenditures.

Similarly, the bill is not expected to result in significant fiscal impacts for local governments, including appraisal districts or taxing entities. While appraisal methods may need to be adjusted in counties with populations over 50,000, the operational and administrative changes required to comply with the bill are anticipated to be minimal. Appraisal districts already have access to the homestead exemption status of properties and neighborhood classifications, so the burden of compliance would be relatively low.

That said, while the direct fiscal implications are minimal, there could be indirect or long-term effects on local tax bases if the bill leads to systematically lower appraised values for homestead properties, thereby reducing taxable value growth. However, the fiscal note does not project such impacts to be significant at this stage, and it’s likely that any appraisal value adjustments would be offset by normal market factors or shifts in tax rates as determined by local taxing units.

Vote Recommendation Notes

While HB 361 aims to address a real and pressing concern—rapid increases in property taxes caused by speculative real estate activity—it does so through a narrowly tailored and potentially counterproductive mechanism. The bill would restrict appraisal districts in counties with populations over 50,000 from using non-homestead property sales as comparables when appraising residence homesteads, but only under specific circumstances and using a specific appraisal method (market data comparison). Although this is intended to protect homeowners from inflated tax bills, the long-term implications raise concerns about fairness, uniformity, and the integrity of the property tax system.

The most fundamental objection lies in the potential distortion of the real estate market within the appraisal process. By limiting which sales can be considered, the bill may cause appraisals to systematically undervalue homestead properties compared to their true market value. This undervaluation could artificially shrink the property tax base, leading to unintended consequences such as reduced funding for essential local services (e.g., public schools, emergency services, and infrastructure) or a heavier burden shifted onto other classes of property taxpayers, like renters and small businesses.

Another concern is the bill’s limited geographic scope. By applying only to counties with populations over 50,000, the bill creates an inconsistent legal framework that treats similarly situated taxpayers differently based solely on the size of their county. Moreover, since the bill applies only to one appraisal method, it allows for inconsistent enforcement and may encourage appraisal districts to shift toward other valuation techniques not covered by the restriction, undermining the bill’s intent and further complicating the system.

Finally, while this legislation targets a symptom of rising property taxes—aggressive valuation practices—it does not address the root cause: the state’s structural reliance on local property taxes to fund essential services. Sustainable tax relief will require comprehensive reform of the school finance system and a balanced approach to property tax reduction, preferably by using revenue to 'buy-down' school maintenance and operations property taxes. HB 361, in contrast, offers a piecemeal solution that could complicate the appraisal process and exacerbate disparities across the system without delivering long-term benefits.

HB 361 attempts to respond to community concerns with a narrowly scoped policy fix that risks undermining the accuracy, neutrality, and equity of the property tax system. Texas Policy Research recommends that lawmakers vote NO on HB 361, reflecting a commitment to uniform tax policy, a transparent appraisal framework, and a belief that more comprehensive reforms are necessary to address Texas’s growing property tax burden. Texas Policy Research recommends that lawmakers vote NO on HB 361.

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