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Chapter 1

Focus on Local Taxes Statewide

Texas local units of government rely heavily on property tax to fund their operations. Nearly 4,000 separate taxing jurisdictions impose a property tax; these include counties, school districts, cities and special-purpose districts, such as junior colleges, hospitals, utilities, flood control and emergency service districts.

In addition to property tax, the Texas Constitution and Legislature empower local governments to impose, levy and collect other taxes and fees that supplement their operations.

The local property tax remains the largest tax assessed in Texas. Statewide, property taxes levied by local governmental entities exceeded $40 billion in 2009, the most recent year for which the Comptroller has reported data (Exhibit 1).

Exhibit 1
Tax Revenue in Texas by Source, 2009

Type of Tax Tax
Amount
Percent of
Total Tax
Property Tax [6] $40,034,355,798 47.80%
State Sales Tax[7] $21,014,065,089 25.09%
Local Sales Taxes $5,903,570,177 7.05%
Other State Taxes $16,808,387,924 20.07%
Total Taxes $83,760,378,988 100%

Source: Texas Comptroller of Public Accounts and 2009 Annual Cash Report.

While local property taxes account for almost half of all tax revenue in the state, 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 imposed by both the state and local governments (except for school districts, which do not have authority to assess a sales tax). In 2009, combined sales tax collections totaled $26.9 billion, or 32.14 percent of all taxes collected in Texas. The bulk of that amount, $21 billion, went to the state, with local governments receiving $5.9 billion. Other state taxes, such as those imposed on motor fuels, cigarettes and utilities totaled $16.8 billion (20.07 percent). Local governments collect 48 percent of all taxes in the state, while state government takes in 52 percent.

Local Property Tax

The Texas Constitution sets out five basic rules for property taxes.

The first requirement is that property taxes must be equal and uniform.[8] No single property or type of property should be taxed at more or less than its taxable value. 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. In addition, an appraiser cannot appraise commercial property at 150 percent of market value while appraising residential property at 50 percent of market value.

Second, a local government must generally 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.[9] 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, which is usually higher. The Tax Code requires that taxable value be the lower of productivity or market value.

Third, each property in a county must have a single appraised value.[10] 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 requires CADs in each county to try to guarantee that this occurs.

Fourth, 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.[11] Finally, property owners have a right to reasonable notice of increases in the appraised value of their property.[12]

Local governments can assess and collect property taxes for two primary uses. First, they can collect a maintenance and operations (M&O) tax that is used primarily to pay for the day-to-day functions of the government. An interest and sinking (I&S) tax is collected to pay bonds, including interest, sold by the local entity to finance capital projects such as buildings, facilities or other infrastructure. The local government can only use these funds to pay principal and interest on bonds; to cancel and surrender bonds; and to pay the expenses of assessing and collecting these taxes. While I&S property taxes are not the only way for local governments to pay for infrastructure, it is one of the primary tools available for this purpose.

Local Property Tax Levies

In tax year 2009, Texas' local taxing units levied over $40 billion in property taxes, 2.7 percent more than in 2008 (Exhibit 2).

Exhibit 2
Property Taxes Reported by Unit Type, 2008 vs. 2009

Unit Type 2008
Number
of Units
2008
Tax Levy
2008
Percent
of Levy
2009
Number of Units
2009
Tax Levy
2009
Percent
of Levy
Percent Levy Change from 2008 to 2009
School Districts 1,025 $21,233,517,226 54.5% 1,025 $21,780,056,204 54.4% 2.6%
Cities 1,054 $6,451,012,447 16.5% 1,059 $6,593,755,037 16.5% 2.2%
Counties 254 $6,342,704,903 16.3% 254 $6,526,724,060 16.3% 2.9%
Special Districts 1,609 $4,952,734,969 12.7% 1,639 $5,133,820,497 12.8% 3.7%
Total 3,942 $38,979,969,545 100% 3,977 $40,034,355,798 100% 2.7%

Source: Texas Comptroller of Public Accounts.

Exhibit 3 /

Unlike other local governments, which can also collect sales taxes and fees, school districts' only source of tax revenue is the property tax. In 2009, the state's 1,025 school districts levied almost $21.8 billion in property taxes, or 54.4 percent of all property taxes levied in the state (Exhibits 2 and 3).

Cities collected the second-largest share of the property tax in 2009 - $6.59 billion, an increase of 2.2 percent from the 2008 levy. Counties followed closely behind with a property tax levy of $6.52 billion, 2.9 percent more than in 2008. The levy of special-purpose districts rose by 3.7 percent from 2008 to 2009, to $5.1 billion.

In the last 20 years, property taxes have grown at an average annual compounded rate of 6.58 percent from 1990 to 2009 (Exhibit 4).

During the same 20-year period, special purpose districts saw the highest rate of increase in property tax levies, with an average annual increase of 7.26 percent. Counties followed closely behind with an increase of 7.2 percent, school districts experienced annual compounded rates of 6.48 percent and cities had the lowest annual growth rate, at 5.9 percent.

Exhibit 4
Growth of the Property Tax by Unit Type, 1990-09

Tax Year Special Purpose District Levy County Levy City Levy School Levy Total Levy
1990 $1,354,607,273 $1,743,176,612 $2,218,971,749 $6,605,433,619 $11,922,189,253
1991 $1,459,643,501 $1,894,013,461 $2,303,609,801 $7,566,042,099 $13,223,308,862
1992 $1,492,043,534 $1,996,116,460 $2,311,630,199 $8,181,309,478 $13,981,099,671
1993 $1,535,769,813 $2,176,974,573 $2,362,404,482 $8,681,859,148 $14,757,008,016
1994 $1,620,504,796 $2,311,389,149 $2,493,554,910 $9,024,885,601 $15,450,334,456
1995 $1,628,217,607 $2,391,961,283 $2,596,742,540 $9,340,994,056 $15,957,915,486
1996 $1,698,557,436 $2,537,183,937 $2,701,214,386 $9,910,195,171 $16,847,150,930
1997 $1,759,622,591 $2,658,308,076 $2,847,081,480 $10,394,500,372 $17,659,512,519
1998 $1,889,138,306 $2,828,286,927 $3,005,996,060 $11,334,614,289 $19,058,035,582
1999 $2,041,041,011 $2,979,279,400 $3,247,964,177 $12,009,923,498 $20,278,208,086
2000 $2,389,110,312 $3,200,919,731 $3,530,863,516 $13,392,336,012 $22,513,229,571
2001 $2,703,512,059 $3,566,857,130 $3,884,829,249 $15,155,217,587 $25,310,416,025
2002 $2,864,454,984 $3,849,728,346 $4,186,795,363 $16,418,788,831 $27,319,767,524
2003 $3,092,285,295 $4,121,758,950 $4,415,212,819 $17,264,153,972 $28,893,411,036
2004 $3,369,068,834 $4,462,844,074 $4,607,757,531 $18,533,964,802 $30,973,635,241
2005 $3,609,629,697 $4,772,652,208 $4,901,791,597 $20,194,915,813 $33,478,989,315
2006 $3,972,185,910 $5,339,613,542 $5,322,985,519 $20,918,122,059 $35,552,907,030
2007 $4,513,060,409 $5,836,989,949 $5,890,306,731 $18,874,239,532 $35,114,596,621
2008 $4,952,734,969 $6,342,704,903 $6,451,012,447 $21,233,517,226 $38,979,969,545
2009 $5,133,820,497 $6,526,724,060 $6,593,755,037 $21,780,056,204 $40,034,355,798
Average Annual Increase 7.26% 7.20% 5.90% 6.48% 6.58%

Source: Texas Comptroller of Public Accounts.

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, other than school districts, 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 adopted tax rate or to roll back the tax rate.

In 2009, 48 school districts exceeded the rollback rate, compared with 116 in 2008. Voters in 24 school districts rejected the tax rate proposed by the school board and in 24 elections voters ratified the board's proposed rate (Exhibit 5).

Exhibit 5
2009 School District Rollback Election Results

School District County (or Counties)
in Which the School District is Located
Election Results
(Rate Ratified
or Rolled Back)
Aledo ISD Parker Rolled Back
Alvord ISD Wise Ratified
Anson ISD Jones Rolled Back
Bryan ISD Brazos Rolled Back
Canutillo ISD El Paso Ratified
Centerville Trinity Rolled Back
Cherokee ISD San Saba Ratified
City View ISD Wichita Ratified
Coleman ISD Coleman Ratified
Collinsville ISD Grayson Rolled Back
Devine ISD Medina Ratified
Dime Box ISD Lee Rolled Back
Elkhart ISD Anderson Ratified
Everman ISD Tarrant Rolled Back
Frost ISD Navarro Rolled Back
Gunter ISD Grayson, Collin Ratified
Hempstead ISD Waller Rolled Back
Huntsville ISD Walker Ratified
Jonesboro ISD Coryell Rolled Back
Karnes City ISD Karnes Ratified
Keene ISD Johnson Ratified
Lake Travis ISD Travis Rolled Back
Lorena ISD McLennan Rolled Back
Louise ISD Wharton Ratified
Lovejoy ISD Collin Rolled Back
Millsap ISD Palo Pinto, Parker Rolled Back
Mission ISD Hidalgo Rolled Back
Northside ISD Wilbarger Ratified
Paint Rock ISD Concho Ratified
Palestine ISD Anderson Ratified
Panther Creek Cons. ISD Coleman Ratified
Petrolia ISD Clay Rolled Back
Prairiland ISD Lamar Rolled Back
Premont ISD Jim Wells Rolled Back
Richland Springs ISD San Saba Ratified
Robinson ISD McLennan Ratified
Ropes ISD Hockley Ratified
Rotan ISD Fisher Ratified
San Augustine ISD San Augustine Rolled Back
San Elizario ISD El Paso Rolled Back
San Saba ISD San Saba Rolled Back
Santa Maria ISD Cameron Rolled Back
Santa Rosa ISD Cameron Rolled Back
Santo ISD Erath, Palo Pinto Rolled Back
Southland ISD Garza, Lynn Ratified
Sulphur Bluff ISD Franklin, Hopkins Ratified
Venus ISD Johnson Ratified
Zavalla ISD Angelina Ratified

Source: Texas Comptroller of Public Accounts, 2009-10 Operations Survey.

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 school 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.

Appraisal districts reported that no cities or counties held rollback elections.

Appraised and Taxable Values

The Tax Code requires the Comptroller's office annual report on the operations of appraisal districts to include, for each appraisal district, county and school district, the following:

  • total appraised values, assessed values and taxable values of taxable property by class of property;
  • assessment ratio; and
  • tax rate.

The Comptroller's office may also include the same information for other taxing units, such as cities and special purpose districts.[13]

With a few exceptions described previously, the appraised value of property is based on an appraiser's opinion regarding a property's market value as of a certain date. Generally, the Tax Code defines appraised value as market value as of Jan. 1.[14] Appraised value means the value as determined by Chapter 23 of the Tax Code.[15]

Taxable value means the amount determined by deducting from appraised value, the amount of any applicable partial exemptions.[16]

Property Classifications

At least once every two years, the Comptroller's office must conduct a study in each appraisal district to determine the degree of uniformity of and the median level of appraisals by the appraisal district within each major category of property.[17] Pursuant to this requirement the Comptroller's office developed the Property Classification Guide that CADs use to submit data to the Comptroller's office. Each CAD reports total appraised value in the following property categories:

Exhibit 6
Property Categories

Category Category Name Description
A Real Property: Single-family Residential Houses, condominiums and mobile homes located on land owned by the occupant.
B Real Property: Multi-family Residential Residential structures containing two or more dwelling units belonging to one owner. Includes apartments but not motels or hotels.
C Real Property: Vacant Lots and Tracts Unimproved land parcels usually located within or adjacent to cities with no minimum or maximum size requirement.
D1 Real Property: Qualified Agricultural Land All acreage qualified for productivity valuation under Texas Constitution, Article VIII, 1-d or 1-d-1.
D2 Real Property: Non-Qualified Land Acreage that is not qualified for productivity valuation and is rural in nature.
E Real Property: Farm and Ranch Improvements Improvements associated with land reported as Category D property, including all houses, barns, sheds, silos, garages, other improvements associated with farming or ranching and land separated from a larger tract for residential purposes.
F1 Real Property: Commercial Land and improvements devoted to sales, entertainment or services to the public. Does not include utility property, which is included in Category J.
F2 Real Property: Industrial Land and improvements devoted to the development, manufacturing, fabrication, processing or storage of a product, except for utility property included in Category J.
G Oil, Gas and Other Minerals Producing and non-producing wells, all other minerals and mineral interests and equipment used to bring the oil and gas to the surface, not including surface rights.
H Tangible Personal Property: Nonbusiness Vehicles Privately owned automobiles, motorcycles and light trucks not used to produce income.
J Real and Personal Property: Utilities All real and tangible personal property of railroads, pipelines, electric companies, gas companies, telephone companies, water systems, cable TV companies and other utility companies.
L1 Personal Property: Commercial All tangible personal property used by a commercial business to produce income, including fixtures, equipment and inventory.
L2 Personal Property: Industrial All tangible personal property used by an industrial business to produce income, including fixtures, equipment and inventory.
M
(M1 and M2)
Mobile Homes and Other Tangible Personal Property Taxable personal property not included in other categories, such as mobile homes on land owned by someone else. It also may include privately owned aircraft, boats, travel trailers, motor homes and mobile homes on rented or leased land.
N Intangible Personal Property All taxable intangible property not otherwise classified.
O Real Property: Residential Inventory Residential real property inventory held for sale and appraised as provided by Tax Code Section 23.12.
S Special Inventory Certain property inventories of businesses that provide items for sale to the public. State law requires the appraisal district to appraise these inventory items based on business's total annual sales in the prior tax year. Category S properties include dealers' motor vehicle inventory, dealers' heavy equipment inventory, dealers' vessel and outboard motor inventory and retail manufactured housing inventory.

Source: Texas Property Tax Assistance Property Classification Guide.

Appraisal District Values

In 2009, CADs continued to appraise property with uniform results and close to market value. Market value is the price at which a property would transfer for cash or its equivalent under prevailing market conditions, if:

  • it is exposed for sale in the open market with a reasonable time for the seller to find a purchaser;
  • both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used, and of the enforceable restrictions on its use; and
  • both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the other.[18]

The median appraisal ratio measures how closely a CAD's typical appraisal is to market value. A median is a statistical measure of central tendency, which is the middle number in a group of numbers ranked from highest to lowest. If the sequence of numbers has an even number of entries, the median is the average of the two middle numbers.

According to the 2009 Property Value Study (PVS), the CADs' median appraisal ratio for market value was 99 percent. Exhibit 7 compares the statewide median appraisal ratios from the PVS for 1999 through 2009.

Exhibit 7
Statewide Median Appraisal Ratios, 1999-09 PVS

Property Category 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
A: Single-family Residences 98% 98% 97% 98% 99% 99% 98% 98% 98% 98% 99%
B: Multi-family Residences 98% 98% 99% 98% 98% 98% 98% 97% 97% 99% 99%
C: Vacant Lots 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
D: Rural Real 98% 98% 98% 99% 99% 98% 99% 99% 99% 98% 99%
F1: Commercial Real 98% 97% 98% 98% 98% 97% 97% 97% 96% 97% 97%
G: Oil, Gas, Minerals 102% 103% 99% 101% 100% 100% 101% 102% 100% 100% 102%
J: Utilities 100% 100% 100% 100% 100% 100% 100% 100% 100% 99% 101%
L1: Commercial Personal 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Overall 99% 99% 99% 100% 99% 99% 99% 99% 99% 99% 99%

Source: Texas Comptroller of Public Accounts, 2009 PVS.

Exhibit 7 does not include figures for the following categories, because they are not sampled:

  • F2: Real Property - Industrial;
  • L2: Personal Property - Industrial;
  • M: Mobile Homes and Other Tangible Personal Property;
  • O: Real Property - Residential Inventory; and
  • S: Special Inventory.

Appraised Values

CADs annually submit data to PTAD electronically that cover critical aspects of their appraisal work. Each CAD reports total appraised value in the property categories developed by the Comptroller's office (Exhibit 10).

Exhibit 10
2009 Market Value of Taxable Property by Category of Property, CADs

Property
Category
Number
of Items*
Total Market Value
of Taxable Property
Percent of Total Market Value
A. Real: residential, single-family (properties) 6,776,678 937,139,606,029 43.49%
B. Real: residential, multifamily (properties) 151,178 87,384,447,438 4.06%
C. Real: vacant lots/tracts (lots) 1,658,044 45,231,166,746 2.10%
D1. Real: qualified ag land (acres) 143,932,338 213,157,133,952 9.89%
D2. Real: non-qualified land (acres) 18,200,239 21,640,311,834 1.00%
E. Real: farm and ranch improvements (parcels) 612,171 46,167,247,956 2.14%
F1. Real: commercial (properties) 459,356 298,582,186,772 13.86%
F2. Real: industrial (properties) 23,900 89,841,501,454 4.17%
G1. Real: minerals oil and gas (leases) 3,816,491 108,237,710,549 5.02%
G2. Real: other mineral reserves (properties) 53 75,794,130 0.00%
G3. Real: non-producing minerals (properties) 2,867 7,610,393 0.00%
H. Tangible, non-business vehicles (accounts) 15,423 175,650,989 0.01%
J. Real and tangible personal: utilities (companies) 149,592 58,091,602,660 2.70%
L1. Personal: commercial (properties) 874,778 129,804,342,456 6.02%
L2. Personal: industrial (properties) 85,426 99,476,072,397 4.62%
M1. Mobile homes (mobile homes) 333,758 5,638,166,046 0.26%
M2. Other: tangible personal (accounts) 770 33,127,498 0.00%
N. Intangible personal (accounts) 5 45,870 0.00%
O. Real property, inventory (properties) 298,859 9,719,199,145 0.45%
S. Special Inventory (properties) 14,142 4,318,228,946 0.20%
Total   2,154,721,153,260 100%

* Property categories are counted in a number of ways, such as properties, acres, leases, parcels, companies and accounts. The type of unit is in parenthesis in each category in the first column. No total is provided since they include different types.
Source: Texas Comptroller of Public Accounts, Appraisal District - Report of Property, 2009.

Full details of all appraisal values are available: