Preparing for the Property Tax Rate Adoption: What Texas Business Property Owners Need to Know in August
Preparing for the Property Tax Rate Adoption: What Texas Business Property Owners Need to Know in August
As a property owner, it is critical to understand the process involved to ensure you are best prepared for potential changes in your property tax bills.
In our post below, learn about the tax rate adoption process, key dates and deadlines, how tax rates impact property taxes, and how you can participate in public hearings to make your voice heard.
Texas's tax rate adoption process involves several steps and public involvement to ensure transparency and compliance with state laws. They are as follows:
1. Calculating Tax Rates:
No-New-Revenue (NNR) Tax Rate: This rate is calculated to generate the same revenue as the previous year, excluding new properties added to the tax roll. The NNR Tax Rate is a mechanism to maintain revenue neutrality, allowing for transparency and informed decision-making in the property tax rate adoption process.
Example:
Suppose last year, a county had a total taxable value of $1 billion and a tax rate of 1%, generating $10 million in revenue. This year, the same properties have a total taxable value of $1.1 billion. To generate the same $10 million in revenue, the NNR Tax Rate would be approximately 0.909% ($10 million / $1.1 billion).
Voter-Approval Tax Rate (VATR): This rate allows for the same operations revenue as the previous year plus a set percentage increase, usually 3.5% for most taxing units. Specific units, like hospital districts, can have an 8% increase. The VATR ensures taxpayer involvement in significant tax rate decisions, balancing the need for revenue growth with taxpayer protection. Example:
Suppose the NNR M&O rate is 0.90%, and the taxing unit can increase this by 3.5%. The adjusted M&O rate would be 0.90% + (0.90% * 3.5%) = 0.9315%. If the debt rate is 0.20%, the total VATR would be 0.9315% + 0.20% = 1.1315%. If the taxing unit wants to adopt a rate higher than 1.1315%, it must seek voter approval.
2. Public Notification, Hearings, and Adoption:
Taxing units must publish the proposed tax rates and notices of hearings either in a local newspaper or by mailing notices to each taxpayer.
A special public hearing is required for increases above the lower of the NNR or VATR. This hearing allows taxpayers to voice their opinions and ask questions about the proposed rate.
If the tax rate is not decided at the hearing, the governing body must announce a date, time, and place for its formal adoption. Generally, the tax rates are adopted before September 30 each year.
Why this matters:
Comprehending the reasons behind a proposed tax rate increase and its impact is essential for property owners. This understanding provides valuable insights into the proposal's implications and offers a direct avenue to voice opinions, influencing the final decision. Ensuring transparency, taxpayer involvement, and informed decision-making.
4. Tax Rate Elections:
This process ensures that significant tax rate increases are approved by the voters, maintaining a check on the taxing authority's power to raise taxes.
A tax rate election may be required for specific increases. Taxing units other than school districts or water districts must hold an election if they adopt a rate that exceeds the VATR or the de minimis rate. School districts must automatically have a tax rate ratification election (TRE) if they adopt a rate exceeding.
Example:
If a county adopts a tax rate of 1.2% while the VATR is 1.1%, a tax rate election must be held to seek voter approval for the higher rate. Similarly, if a school district proposes a rate of 1.3% with a VATR of 1.15%, a TRE is required unless the increase is in response to a natural disaster.
5. Taxpayer Remedies:
Taxpayers who believe a taxing unit has failed to comply with the tax rate adoption laws can seek an injunction in district court to stop tax collections until compliance is achieved This process allows taxpayers to challenge improper actions and protect their rights, promoting transparency and accountability in the property tax system.
Example:
If a city adopts a tax rate without holding the required public hearing or providing proper notice to taxpayers, a taxpayer can seek an injunction in a district court to stop the city from collecting property taxes until it complies with the law.
6. Deadlines:
Specific deadlines are set for each phase, and taxing units must adhere to them to ensure a valid process. For instance, the order for a tax rate election must be issued no later than the 71st day before the election date.
Preliminary Calculations:
Calculate NNR and VATR: Early in the process, typically in July or August, the taxing unit must calculate the No-New-Revenue (NNR) and Voter-Approval Tax Rates (VATR).
Notice and Publication:
The proposed tax rates must be published in a local newspaper, mailed to taxpayers, and posted on the taxing unit’s website at least seven days before the public hearing.
Public Hearings:
The public hearing to discuss the proposed tax rate must be held at least five days after the notice is published, allowing taxpayers to voice their opinions.
Tax Rate Adoption:
The tax rate must typically be adopted by the end of September. Specific deadlines within September may vary based on local regulations.
Election Orders:
If a tax rate election is required, the order must be issued no later than the 71st day before the election date. This ensures adequate time for preparation and voter notification.
Election Day:
The election is held on a specified date, allowing voters to approve or reject the proposed tax rate that exceeds the VATR or de minimis rate.
Implementation and Compliance:
If non-compliance is identified, taxing units must take corrective actions within the specified deadlines to rectify the issue and achieve compliance.
7. Petitions:
Under certain circumstances, taxpayers can petition for a tax rate election, mainly when the adopted rate is higher than certain thresholds but less than the de minimis rate. This ensures taxpayer involvement and oversight.