June 29, 2023
This was a blog we previously posted back on April 12 of 2022. I thought it would be appropriate to bring back given the attempt by the Texas congress to pass a property tax relief bill.
Property tax revenue is the largest source of income for local government programs and services. Property taxes are ad valorem taxes meaning they are levied according to the value of a person’s real estate. The more valuable the real estate, the higher the tax. Determining the amount of tax a person has to pay on their property involves 3 steps: 1) the local government determines the annual budget 2) all taxable property is appraised 3) the budget is then allocated among all property owners.
When determining the revenue needed to cover costs, each taxing authority prepares their own budget. These taxing authorities include: State of Texas, counties, cities, towns, villages, school districts, utility districts, water districts, hospital districts etc. After the budgets have been prepared, then sources of revenue (sales tax, income tax, licenses etc.) are subtracted from the budgets and the left-over balance must come from property taxes.
Next, the value of the taxable property within each taxing authority’s district must be determined. This is where the appraisal district within each county appraises each taxable parcel of land along with any improvement on that land. The appraised value is the estimated fair market cash value of the property. The appraised value is converted to an assessed value and added together with all the other values for the taxable property within that district.
The tax rate is then determined by dividing the taxing authorities’ budget by the total value of the taxable property. For example, let’s say MISD has a budget of $1,000,000. The value of taxable property within the district is $20,000,000. ($1M/$20M = 5% or $5 per $100 of value). In Texas the levy is expressed as dollars per hundred.
Once each taxing authority has calculated its rate, this is then applied to each property within its district. Thus, taking the rate and multiplying it into the assessed value of a property gives you the tax that is due from that property owner for that parcel to cover the budget for the taxing authorities.
The massive increases for assessed values that owners in Montgomery County have seen over the last 2 years, some over 500%, have caused people to reassess the fairness of the property tax system and how appraisals are conducted. Many owners of commercial property are livid, as the increases obliterate their cashflow. Leaving many questioning how they will survive without drastically increasing the rates and prices they charge tenants and customers.
Immediate property tax reform is needed for commercial property owners. This current bill that the Senate recently passed (6/28/23) provides for relief to businesses in the form of doubling the the Franchise Tax exemption to nearly $2.5 million. While this is helpful, it leaves out the single owner or mom and pop facilities that were already below the minimum threshold who are perhaps the most vulnerable.
Checkout our other related content:
- Blog: https://crdrealty.com/how-do-you-calculate-unknown-expenses-on-a-self-storage-pro-forma-commercial-real-estate/
- Blog: https://crdrealty.com/what-is-cost-segregation-and-how-can-it-benefit-you/
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