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# House Bill 5 Over-65/Disabled School Tax Ceiling Reduction

## Attention Tax Assessors & Chief Appraisers

Senate Joint Resolution 13 that proposed an amendment of the Texas Constitution to provide for the reduction of tax ceilings for over-65 or disabled homeowners, was approved by voters. House Bill (HB) 5 implements the amendment. The explanation below shows how the reduction is calculated under the new law.

If you have any questions concerning this new legislation, please call the Property Tax Division’s Technical Assistance staff at (800) 252-9121 ext. 2, or e-mail ptd.cpa@cpa.state.tx.us.

HB 5 contains two tax-ceiling-reduction provisions. The first reduction is on the tax ceiling of a property owner who first qualified for the school tax ceiling in 2006. The second reduction is on the tax ceiling of a property owner who qualified for the school tax ceiling before 2006.

1. For property owners who qualified for their school tax ceiling in 2006, the law requires the collector to multiply the amount of the owner’s 2006 taxes by a fraction (percentage). The numerator in this fraction is the school’s 2007 total tax rate. The denominator in this fraction is the school’s 2006 total tax rate.

Because the purpose of the legislation is to reduce the tax ceiling, the revised sections of the Tax Code instruct the collector to determine the lesser of (a) the amount computed by applying the above percentage to the 2006 taxes and (b) the 2006 taxes and add any tax imposed in the 2007 tax year that is attributable to improvements made in the 2006 tax year. The same result is achieved by never allowing the percentage to exceed 100 percent. To simplify the calculations, we have capped the percentage at 100.

2007 Total Tax Rated divided by 2006 Total Tax Rate equals Percentage, not to exceed 100 percent

Assuming a \$1,000 school tax amount (and ceiling) for 2006, a 2007 total tax rate of \$1 and a 2006 total tax rate of \$1.33, the collector would use the following formula:

(2007 total tax rate divided by 2006 total tax rate, not to exceed 100 percent) multiplied by 2006 taxes
(1 divided by 1.33) multiplied by \$1,000
0.75188 multiplied by \$1,000
\$751.88

Therefore, \$751.88 is the new tax ceiling.

Note that the law uses total tax rates, not just operating rates; so a high or increasing debt rate might affect the recalculated ceiling amount.

2. For property owners who qualified for the school tax ceiling before 2006, the calculation is done in two steps.

Step One: The collector multiplies the 2005 taxes imposed by a fraction (percentage). The numerator of this fraction is the school’s 2006 total tax rate. The denominator is the school’s 2005 total tax rate.

2006 Total Tax Rate divided by 2005 Total Tax Rate equals Percentage 1, not to exceed 100 percent

The amount computed by applying the above percentage to the 2005 taxes is added to any 2006 taxes attributable to improvements made in the 2005 tax year.

Step Two: The collector multiplies the amount calculated in Step One by another fraction (percentage). The numerator of this fraction is the school’s 2007 total tax rate. The denominator is the school’s 2006 total tax rate.

2007 Total Tax Rate divided by 2006 Total Tax Rate equals Percentage 2, not to exceed 100 percent

Then, any tax imposed in the 2007 tax year that is attributable to improvements made in the 2006 tax year is added.

Assuming a tax imposed of \$1,000 in 2005, no improvements in 2006 or 2007, a 2007 total tax rate of \$1, a 2006 total tax rate of \$1.33, and a 2005 total tax rate of \$1.50, the collector uses the following formula:

Step One

(2006 total tax rate divided by 2005 total tax rate, not to exceed 100 percent) multiplied by 2005 taxes
(1.33 divided by 1.50) multiplied by \$1,000.00
0.88667 x \$1,000.00
\$886.67

Step Two

(2007 total tax rate divided by 2006 total tax rate, not to exceed 100 percent) multiplied by Result of Step One
(1 divided by 1.33) multiplied by \$886.67
0.75188 x \$886.67
\$666.67

Therefore, \$666.67 is the final adjusted 2007 ceiling.

Again, a school district’s debt rates for each year will affect the above calculations. The law directs that the new ceiling remains on the home until the residence is no longer the owner’s homestead.