Later this year, Texas voters will consider a $12.7 billion property tax relief package that promises to save millions of property owners from rising taxes.
Last weekend, Gov. Greg Abbott signed the cutbacks law, ending months of deliberations among top Republicans. Texas voters must decide in a constitutional election on Nov. 7 whether to allow the state to spend billions in taxpayer money, mostly gathered from Texans over the past two years, to pay for the enormous cuts. If adopted, which seems likely given voters’ historical support of tax reduction, the revisions would apply to January 2023 tax bills.
Make your choice with this information.
We vote on what?
In the recent special session of the 88th Legislature, lawmakers took decisive action on three proposals, allocating a substantial $13.3 billion from a historic state surplus. The primary aim was to address the pressing issue of Texas property taxes, which currently rank among the highest nationwide. The surge in sales tax collections, a levy applicable to all Texans during purchases, significantly bolstered the state’s financial reserves amid escalating national inflation during the outbreak. Notably, a substantial portion of the allocated funds—$5.3 billion—was earmarked for 2023 school tax cuts.
When combined with the planned Property Tax Reductions outlined in Senate Bill 2, totaling $12.7 billion, and the $600 million in decreased franchise taxes for select corporations as per Senate Bill 3—both masterfully crafted by Houston Republican state Sen. Paul Bettencourt—property owners are poised to benefit from a considerable $18.6 billion in tax savings this fiscal year. Despite the focus on tax relief, there is an evident absence of explicit measures addressing the ongoing disputes related to property taxes in the legislative discourse.
These measures won’t be on the ballot. The November constitutional amendment, House Joint Resolution 2, by state Rep. Will Metcalf, R-Conroe, would allow the state to cut those two bills.
The package’s supporters wanted a constitutional amendment to require voters to approve any future changes to the bill. The amendment also ensures that all tax cuts this year won’t count against voters’ and politicians’ two-year spending caps on the $321.3 billion state budget.
Five major pieces make up the tax-cut package.
Bettencourt claimed Texas school districts will receive $7.1 billion to decrease property taxes. The “compression” measure would lower school districts’ maintenance and operations property tax rate by 10.7 cents per $100 of property value. The M&O tax, which accounts for the majority of most property owners’ tax bill, funds public education costs like teacher salaries and school facility maintenance.
$100,000 homestead exemption: An estimated $5.6 billion would more than double the $40,000 property tax exemption for all Texans who own their principal dwelling. Homestead exemptions allow homeowners to deduct the value of their home before taxes. A $350,000 home is taxed at $310,000 under the present exemption for most homeowners. Under the homestead exemption enacted this year, the identical house would be taxed on $250,000.
Temporary 20% appraisal cap: The measure would limit appraisals for commercial, mineral, and residential properties under $5 million without a homestead exemption. Texas counties’ appraisal districts could not increase the taxable value of certain properties by more than 20% per year for three years. The program ends in 2026 unless politicians and voters renew it.
Franchise tax exemptions: The legislation, which is not a property tax cut but was included in the package as another tax relief measure, would double a business’s income before it must pay Texas’ franchise tax, which applies to larger entities. It would rise from $1.24 million to $2.47 million. Additionally, businesses that don’t meet the new franchise tax level wouldn’t have to file tax reports.
Appraisal officials elected: County appraisal districts are appointed and typically include nine members. Under the new law, appraisal districts will have three directors elected by a majority vote at county general elections for four-year terms. Lawmakers argued the amendment will make appraisers more accountable to property owners.
If authorized, how do I obtain cuts?
If voters approve tax code changes, they will generally take effect without property owner action.
The franchise tax code modifications, 20% appraisal cap, and M&O tax rate compression would appear on tax bills without additional action.
The homestead exemption of owner-occupied properties would likewise grow from $40,000 to $100,000 without action.
Residents who haven’t received the homestead exemption must apply for it through their county’s appraisal district office. Usually, the exemption is retroactive for two years. The exemption does not expire until the homeowner leaves the home.
How would the modifications affect under-65 homeowners?
Texas has 5.7 million homesteads, tax-friendly primary residences. These can be single-family residences, duplexes, or condos.
Policy experts and lawmakers estimate that the enhanced homestead exemption and lower school tax rate would slash Texas homeowners’ property taxes by 41.5%, or $1,300 per year for a $350,000 home.
The homestead exemption exempts property from the enhanced franchise tax exemption and 20% appraisal cap. However, homesteaders’ 10% appraisal cap will remain.
Consider some examples. Under the current $40,000 homestead exemption, a Corpus Christi homeowner paid taxes on $610,000 of her huge seaside property’s $650,000 valuation last year. This year, the home’s assessment was restricted at $715,000. With the $100,000 exemption, the homeowner would pay taxes on $615,000 of her property’s worth instead of $691,000. She may save over $100 each month on taxes at present rates.
Meanwhile, a homeowner in Amarillo, Texas, whose home is worth $315,000 this year, would save around $80 monthly. The monthly savings for the owner of a $1 million home in Spring, Texas, would be around $150.
If there are modifications, how will they effect homeowners 65 and older and those with special needs?
Homeowners 65 and older and those with disabilities in Texas will continue to be eligible for the additional $10,000 exemption they currently get, bringing their total homestead exemption to $110,000.
When the exemption was increased in May 2022 from $25,000 to $40,000, a problem arose. This new law fixes that problem.
School property taxes in Texas have been frozen for Texans 65 and older and those with disabilities, who are often on fixed or limited incomes, to shield them from rising tax rates and property values. However, the higher exemption that voters approved last year did not apply to those homesteaders because to the way the legislation was structured.
If the constitutional amendment is approved, it would compensate homeowners for the tax savings they would have received last year but didn’t receive because their taxes were frozen, and it would guarantee that those homeowners would receive the benefits of any future exemption increases that would reduce their taxes.
These homeowners would also benefit from a reduction in their school property taxes. Bettencourt estimates that senior and disabled homeowners will save $1,450 per year in property taxes thanks to the drop in the school tax rate and the increase in the homestead exemption from $80,000 to $110,000.
How will the alterations effect local companies?
If voters approve the new cutbacks, entrepreneurs who own the property their businesses occupy would see their school M&O taxes reduce by 10.7 cents per $100 valuation.
In addition, a 20% annual cap on the increase in a property’s appraisal would safeguard commercial assets with values below $5 million against wild fluctuations. If lawmakers and voters elect to keep the cap in place, it would remain in effect for another three years.
Any land a company owns in Texas up to a certain value would be eligible for the tax cuts, regardless of whether or not the company’s headquarters are located there.
Here’s a case in point. According to official tax documents, the value of a downtown Corpus Christi businessman’s waterfront office space increased by 18% between 2021 and 2022, and by another 48% between 2022 and 2023. His home’s worth has practically doubled in the new year.
Value increased to $638,000. His building would be subject to the proposed assessment cap and get a yearly reduction of $123,000 because its value is less than $5 million.
If the value of your property doesn’t rise by more than 20% this year, you won’t get any money from the cap.
Unless they have a commercial contract that explicitly links rent and property taxes, business owners that rent the property they use would not be able to take advantage of the proposed school tax savings or the 20% appraisal cap.
However, similar to firms that own the land on which they operate, they may be eligible for a reduction in their franchise tax.
The amount of annual revenue a company can produce before being subject to franchise taxes would also increase, from $1.24 million to $2.47 million, as a result of the tax savings package. About 67,000 additional small and medium-sized firms would no longer have to pay the franchise tax as a result.
Those companies whose annual revenue is below the new franchise tax level would no longer have to waste time and resources filing tax returns reporting zero dollars in revenue.
How might these modifications effect major corporations?
Companies with significant assets in Texas, regardless of their corporate headquarters location, would be eligible for the statewide reduction in school taxes.
As long as no one of their commercial properties is worth more than $5 million, they too would be subject to the annual 20% cap on rises in appraised value. Individual parcel values, rather than the aggregate value of a company’s land holdings, would determine eligibility.
However, several types of businesses wouldn’t qualify for these benefits, including those with a public access airport or whose land is dedicated for agricultural use; timber production; individual or group sporting activities; parkland or camping; development of historical, archaeological, or scientific sites; or the conservation and preservation of scenic areas.
How will those modifications influence commercial and multifamily property owners?
Landlords would qualify for the reduction in school property taxes:
The annual cap of 20% on assessment values for the next three years would apply to rental properties as well, provided their individual values are less than $5 million.
For a landlord of single-family homes, an illustration of this in action is provided below. One duplex owned by a man who has several in Austin’s central eastside saw its value increase by 54% between 2021 and 2022, from $359,000 to $554,000. He wouldn’t need the 20% appraisal cap because the property’s value dropped marginally this year.
Still, he might save close to $600 yearly in property taxes thanks to a decrease of 10.7 cents per $100 of valuation in the Austin Independent School District.
It is not a requirement of the statute that he pass the savings on to his tenants:
Let’s shift our focus to a commercial property owner. Brenham’s Mars & Space Investment LLC has a 1.3-acre plot on Alamo Street, close to the city’s central business district, on which are located a laundromat, a tax services firm, a pest control company, a gas station/convenience store, and a donut shop.
The total land and building value of the strip increased by 106%, from $373,000 in 2021 to $770,000 in 2022. This year’s appraisal put its value at $972,430, up 26% from 2022.
If the owners’ complaint of the property’s valuation doesn’t succeed, the firm stands to gain from the 20% cap.
The impact on those who lease private residences is not clear:
Renters will not get any savings from the new property tax package unless their rent is linked in some way to tax rates, which is unusual in residential leases.
Landlords are not obligated under the new law to share any Property Tax Savings with tenants. There was an unsuccessful attempt by Democratic lawmakers to include a clause that would have provided tenants with income-based Tax Credits.
Proponents of the package argue that the small business property valuation cap would prevent landlords from raising rents at the rapid rate seen in recent years, and that the consequent competitive market will help bring down prices.
But skeptics of this reasoning contend that the housing crisis in Texas is pushing rent costs higher than property taxes, so whether renters would eventually profit from the tax reduction remains uncertain.
The proposed property tax relief package in Texas encompasses a range of measures aimed at benefiting homeowners, businesses, and major corporations. The November constitutional amendment represents a crucial decision for voters, as they weigh the potential impact on their property taxes and the broader economic landscape.
Frequently Asked Questions (FAQs) – Texas Property Tax Relief Package
- What is the Texas property tax relief package, and why is it significant?
The Texas property tax relief package is a $12.7 billion initiative aimed at reducing property taxes for millions of Texas homeowners. It’s significant because it addresses rising property taxes and includes measures to benefit homeowners, businesses, and major corporations.
- When will Texas voters decide on the property tax relief package?
Texas voters will make their decision in a constitutional election on November 7. The proposed changes, if approved, are expected to apply to January 2023 tax bills.
- What bills are on the ballot, and how do they relate to the property tax relief package?
The specific bills (Senate Bill 2 and Senate Bill 3) won’t be on the ballot. Instead, voters will decide on the November constitutional amendment (House Joint Resolution 2), which authorizes the state to enact the intended tax cuts outlined in those bills.
- What are the key components of the tax-cut package?
The package comprises five major components, including funding for school districts, an increase in the homestead exemption, a temporary 20% appraisal cap, franchise tax exemptions, and the election of appraisal officials for accountability.
- How will the proposed changes affect under-65 homeowners?
Under-65 homeowners, including an estimated 5.7 million homesteads, are expected to see a substantial reduction in property taxes, with a projected 41.5% cut for a $350,000 home.
- What about homeowners 65 and older and those with special needs?
These homeowners will continue to be eligible for the additional $10,000 exemption, bringing their total homestead exemption to $110,000. The constitutional amendment aims to ensure they receive the benefits of tax savings.
- How will the property tax relief package impact local companies?
Local entrepreneurs owning the property their businesses occupy would see reductions in school M&O taxes. The 20% annual cap on the increase in property appraisals and franchise tax exemptions could provide relief for businesses.
- What is the expected effect on major corporations with significant assets in Texas?
Major corporations with significant assets in Texas would be eligible for statewide reductions in school taxes, provided none of their properties exceeds $5 million in value.
- How will the property tax relief package affect commercial and multifamily property owners?
Landlords would qualify for reductions in school property taxes, and the 20% cap on assessment values for the next three years would apply to rental properties with values under $5 million. The direct impact on tenants is less clear.
- How can voters ensure they receive the benefits of the proposed changes?
If voters approve tax code changes, these modifications will generally take effect without property owner action. However, homeowners who haven’t received the homestead exemption may need to apply through their county’s appraisal district office