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Property taxes are a significant source of revenue for local governments in Texas, funding services such as government education, emergency services, and infrastructure. However, the property tax process can be complex and often misunderstood by homeowners. This explainer aims to demystify the property tax process in Texas, with a special focus on the No New Revenue Rate.
The Basics of Property Taxation in Texas
In Texas, property taxes are levied by local entities such as counties, cities, school districts, and special districts. The Texas Constitution and statutory law govern the property tax system, ensuring a uniform and fair approach to property assessment and taxation.
1. Property Valuation
The first step in the property tax process is the valuation of properties. Each county in Texas has an Appraisal District responsible for determining the market value of all taxable property within its jurisdiction. This valuation is conducted annually and serves as the basis for calculating property taxes.
2. Tax Rate Determination
Once the property values are assessed, local taxing units set their tax rates. These rates are expressed in dollars per $100 of property valuation. The governing body of each taxing unit adopts a tax rate that, when applied to the total taxable value, generates the necessary revenue to fund their budgets.
3. Tax Collection
After tax rates are established, property tax bills are issued to property owners. These bills are usually sent out in October, and payments are due by January 31 of the following year. Penalties and interest accrue on unpaid taxes starting February 1.
You can find more information on the basics of property taxation at the Texas Comptroller’s website here.
Components of Property Tax
Property tax bills in Texas can be broken down into several components, reflecting the different taxing units. In total, there are over 4,796 local taxing units in Texas.:
County Taxes
Fund county-level services such as law enforcement, roads, and public health.
City Taxes
Support municipal services including police, fire protection, and parks.
School District Taxes
Primarily finance public education.
Special District Taxes
Include hospital districts, water districts, and other specialized services.
The No New Revenue Rate
The No New Revenue Rate (NNRR), previously known as the Effective Tax Rate, is a crucial concept in Texas property taxation. It represents the tax rate that would generate the same amount of revenue as the previous year, considering changes in property values.
Calculation of the NNRR
The NNRR is calculated by dividing the previous year’s tax levy by the current year’s total taxable property value, then multiplying by $100. This rate adjusts for any increase or decrease in total property value within the taxing unit, aiming to collect the same revenue as before without benefiting from rising property values.
No New Revenue Rate = (Last Year’s Tax Levy ÷ This Year’s Total Taxable Value) x 100
Importance of the NNRR
The NNRR ensures transparency and accountability in property taxation. By comparing the proposed tax rate to the NNRR, taxpayers can determine whether their local governments are increasing their tax burden beyond what is necessary to maintain the same revenue levels.
Public Involvement
Local governments must publish the NNRR and hold public hearings if they propose a tax rate higher than the NNRR. This process allows taxpayers to participate in discussions about tax rates and express their opinions before any changes are made.
Protesting Property Valuations
Property owners have the right to protest their property valuations if they believe they are incorrect. Protests can be filed with the local Appraisal Review Board (ARB), which reviews the cases and makes determinations.
Steps to Protest
1. File a Notice of Protest
Submit a notice to the ARB within the designated timeframe, typically by May 15 or 30 days after receiving the appraisal notice.
2. Prepare for the Hearing
Gather evidence such as recent property sales, appraisal reports, and photographs to support your claim.
3. Attend the Hearing
Present your case to the ARB. You can represent yourself, hire an agent, or have a lawyer assist you.
ARB Decision
The ARB reviews the evidence and decides on the appropriate value of the property. If the property owner is dissatisfied with the ARB’s decision, they can further appeal to the state district court, an arbitrator, or the State Office of Administrative Hearings.
Tax Relief and Exemptions
Several exemptions and tax relief options are available to Texas property owners to reduce their property tax burden:
Homestead Exemption
Reduces the taxable value of a primary residence. The current Tax Code requires school districts to provide a $100,000 exemption on a residence homestead and allows any taxing unit to adopt a local option residence homestead exemption of up to 20% of a property’s appraised value.
Age 65 or Over or Disabled Persons Exemption
Provides additional tax reductions for property owners aged 65 and older or disabled. The current Tax Code requires school districts to provide an additional $10,000 residence homestead exemption and allows any taxing unit to adopt a local option exemption, which cannot be less than $3,000.
Disabled Veterans & Surviving Spouses Exemption
Texas provides for a disabled veteran exemption if the property and property owner meet the qualifications. A disabled veteran exemption can exempt a portion or the total property value. An exemption amount is determined by the disability rating issued by the U.S. Veterans Administration or the branch of the armed services in which the veteran served. Certain disabled veteran exemptions apply to a qualifying residence homestead, while others can be applied to any one property owned by the qualifying individual.
These exemptions can significantly reduce the overall property tax liability, providing financial relief to qualifying property owners.
Recent Developments and Reforms
The Texas Legislature has frequently reviewed and attempted to reform property tax laws to address taxpayer concerns and improve the system’s fairness and transparency. Recent legislative sessions have introduced measures aimed at limiting property tax increases and enhancing taxpayer protections.
Property Tax Reform and Transparency Act
The Property Tax Reform and Transparency Act of 2019 introduced several significant changes, including:
- Lowering the threshold for voter approval of tax rate increases.
- Enhancing transparency by requiring detailed notices and public hearings.
- Providing taxpayers with more information about how their tax bills are calculated and how to engage in the rate-setting process.
We have data/research on property tax levies since 1994 in Texas. You can find those here, broken down by taxing component.
Conclusion
Understanding the property tax process in Texas is crucial for homeowners and taxpayers. From property valuation to tax rate determination and collection, each step plays a vital role in funding local services. The No New Revenue Rate serves as a benchmark for maintaining revenue neutrality, ensuring that taxpayers are not unduly burdened by rising property values. By staying informed and participating in the process, Texas property owners can better navigate the complexities of property taxation and advocate for fair and transparent tax policies.
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