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Chapter 1
Focus on Statewide Taxes

The Texas Constitution and Legislature empower local governments to impose, levy and collect a number of taxes and fees so they may carry out their responsibilities to provide schools, roads, hospitals, fire departments, police protection and other services. Local governments, which include 3,794 separate taxing jurisdictions, include counties, school districts, cities and special-purpose districts such as junior colleges, hospitals, utilities, flood control and emergency service districts, among others.

These governments fund their operations from a number of revenue sources, including property and sales taxes; franchise and user fees; and court costs and fines. The local property tax, however, generates the most revenue statewide. Local property taxes for all jurisdictions totaled $35.1 billion, or almost half of all taxes collected in Texas, in 2007 (Exhibit 1).

Exhibit 1

Source: Texas Comptroller of Public Accounts.

While local property taxes account for almost half of all tax revenue in the state, Texas has no state property tax. The Texas Constitution only authorizes local governments to collect property taxes. The state does not set property tax rates or collect property taxes.

The next-largest tax revenue source in Texas is the sales tax, which is allocated between the state and local governments (except for school districts, which do not have authority to assess a sales tax). In 2007, the combined sales tax totaled $25.8 billion, or 33.2 percent of all taxes collected in Texas. The bulk of that amount, $20.3 billion, went to the state, with local governments receiving $5.5 billion. Other state taxes, such as those imposed on motor fuels, cigarettes, utilities, etc., totaled $16.7 billion (21.5 percent). Local governments collect 52.4 percent of all taxes in the state, while state government takes in 47.6 percent.

Local Property Tax

The Texas Constitution authorizes local governments to adopt a property tax in order to provide public services. The constitution sets out five basic rules for property taxes in our state.

The first and overarching requirement is that property taxes must be equal and uniform. No single property or type of property should pay more than its fair share.

Local officials must base property taxes on value. If, for instance, an individual’s property is worth half as much as the property owned by his or her neighbor, then — everything else being equal — that individual’s tax bill should be one-half of his or her neighbor’s.

Generally, a local government must tax all property on its current market value — the price it would sell for when both buyer and seller seek the best price and neither is under pressure to buy or sell. The Texas Constitution provides certain exceptions to this rule, such as the use of “productivity values” for agricultural and timber land. This means that governments assess taxes based on the value of what the land produces, such as crops and livestock, rather than its sale value. This typically lowers the tax bill for such land.

Each property in a county must have a single appraised value. This means that the various local governments that collect property taxes cannot assign different values to the same property; all must use the same value. The Legislature created CADs to guarantee that this occurs.

All property is taxable unless federal or state law exempts it from the tax. These exemptions may exclude all or part of a property’s value from taxation.

Finally, property owners have a right to reasonable notice of increases in their appraised property value.

In tax year 2007, Texas’ local taxing units levied $35.1 billion in property taxes, 1.2 percent less than in 2006 (Exhibit 2).

Exhibit 2

Source: Texas Comptroller of Public Accounts.

Unlike other local governments, which can also collect sales taxes and fees, school districts' only source of tax revenue is the property tax. In 2007, the 1,026 school districts levied $18.9 billion in property taxes, or 53.8 percent of all property taxes levied in the state (Exhibit 3).

The levy imposed by school districts in 2007 was 9.8 percent lower than in 2006, due to House Bill 1, adopted by the third called session of the 79th Legislature.

Cities collected the second-largest share of the property tax in 2007 — $5.9 billion, an increase of 10.7 percent over the 2006 levy. Counties followed closely behind with a property tax levy of $5.8 billion, 9.3 percent more than in 2006. The levy of special-purpose districts rose by 13.6 percent from 2006 to 2007, to more than $4.5 billion.

In the last 20 years, property taxes have grown at an annual compounded rate of 6.2 percent, or by 254.2 percent from 1987 to 2007 (Exhibit 4).

Exhibit 4

Source: Texas Comptroller of Public Accounts.

During the same 20-year period, special purpose districts and counties saw the highest rate of increase in property tax collections, with an average annual increase of 6.7 percent. School districts experienced annual compounded rates of 6.3 percent. Cities had the lowest annual growth rate, at 5.2 percent.

Keeping Check on Local Property Tax Increases

The Legislature has provided Texas taxpayers with a mechanism to limit the rate of taxation a local government may adopt. If local taxing units adopt rates above a calculated “rollback” rate, taxpayers can petition for a rollback election.

A school district exceeding the rollback rate must hold an election automatically, without any need for a petition process. This allows its voters to decide whether to approve the proposed tax rate or to roll back the tax.

In 2007, 121 school districts exceeded the rollback rate, compared to 15 in 2006. Voters in 26 school districts rejected the tax rate proposed by the school board; in 93 elections, they ratified the board’s proposed rate; and two school districts cancelled the election and adopted the rollback rate. The highest tax rate increase voters approved was in Crowell ISD in Foard County, which saw its tax rate rise by 23.6 percent, from 95 cents per $100 of assessed value to $1.17 (Exhibit 5).

Exhibit 5

Source: Texas Comptroller of Public Accounts.

A school district that adopts a tax rate above the rollback rate must hold a rollback election between 30 and 90 days after its board of trustees adopts the rate. The school district’s election differs from that of other taxing units in that the district must ask voters to ratify the school district’s adopted tax rate. If a simple majority of votes cast in the election favors the adopted tax rate, it stands. If the voters disapprove the adopted rate, the school district’s rollback rate becomes the adopted tax rate.

This year marked the highest number of school rollback elections in the last 20 years. School districts triggered four times as many elections as the next highest year of 2001, which saw 30 elections. The 26 school district tax rates rejected by voters is also the highest number in the last 20 years and equals the number of rejected tax rates from 1990-2006 combined (Exhibit 6).

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