We’ve all heard the saying “The only certain things in life are death and taxes”. While this is true, the tax part does carry some uncertainty. That uncertainty is “How much am I going to have to pay”?
We all pay taxes. Some people like to say, "Taxation is theft!" but from my perspective it's an odd kind of thief that breaks into your home, takes a few dollars from you and then gives you roads, emergency services, trash collection and schools. Reasonable people understand, and have always understood, that taxes are the price of admission for living in an ordered society. In Texas, most of the taxes gathered by the state, county and local governments come in the form of sales taxes and property taxes.
Texas is one of 7 states in the nation that does not have a state income tax, so our property taxes, which are determined by an assessment of a percentage of value of our homes or commercial property, represent a big chunk of the revenue of our local communities - 37%. Texas law allows local governments to collect and use property taxes to fund services that improve our lives and make our towns places we want to live.
There has been a lot of discussion about property tax increases across the state recently. The Texas government has made several attempts to deal with the issue but - like with many other issues, such as education - have consistently failed to make coherent improvements in the taxation methods in use.
One of the major issues with property taxes today is the inequity between residential property and commercial property. While residential property owners have some ability to affect their tax rates other than homestead exemptions, commercial property owners have a major tool in their toolbox to challenge property tax assessments. It’s called “Unequal Appraisal” and allows a company to gather comparable properties in the district and if those properties are assessed at a lower value, then the company can claim their taxes should be lowered to that comparable amount. An amendment to the taxation code passed in 1997 created an easier, cheaper way to claim unequal appraisal and gain an automatic reduction in value—so easy that it is now routinely used in tax protests and dominates big-ticket litigation. You simply select a “reasonable” number of “comparable” properties, adjust their values up or down and find the median—the middle number on the list. If your valuation is higher than the median, it gets lowered to the median number.
If for some reason the Unequal Appraisal gambit doesn’t work, a corporation can sue the taxation authority. Big corporations such as a major energy producer will often employ this tactic to gain a settlement with the taxing authority thereby reducing their tax obligation. Because many large corporations plan for this type of litigation, it gets baked into their financial plans and is considered a cost of doing business. Meanwhile, the residential property owner in the area doesn’t have the financial resources to litigate toward a settlement that will reduce their tax burden. So a shift of tax liability moves from a company to an individual, and because the taxing district needs a certain amount of money to provide the services necessary to its citizens, the residential property will see their property tax levels increase with little remedy other than a tax protest.
We need to find a better way of apportioning the tax burden across the citizens of this state. Corporations who make use of common services should not get off so easily when it comes to paying for roads, bridges, schools for the children of their employees or other services such as emergency responders and hospitals.
The Texas legislature needs to take a hard look at how property taxes are determined across the state, and consider a new approach. It is an issue that deserves some serious review, because many residential property tax owners are seeing their properties valued to the point that they cannot deal with the tax burden, often forcing them to sell their homes and move to a home of lower value.
Texans are reasonable people. We know we need to pay our fair share of taxes for all of us to enjoy our state and have services when we need them. The critical factor is how these taxes are determined and if they are equitable across all prospective tax payers.