2004 Truth in Taxation Changes
Taxing Units Will See Few Changes in Setting Tax Rates
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When setting 2004 property tax rates this summer, some taxing units will see a few changes in the truth-in-taxation laws, as passed by the 78th Texas Legislature, Regular Session, in 2003. These changes vary by type of taxing unit. Truth-in-taxation laws provide taxpayers with information that compares tax rates to the prior year with adjustments for property value changes.
The Comptroller’s Truth in Taxation Manual – 2004 explains these laws and includes the new 2004 provisions.
Beginning in early August, taxing units take the first step toward adopting a tax rate by calculating and publishing the effective and rollback tax rates.
The effective tax rate is a calculated rate that would provide the taxing unit with about the same amount of revenue it received in the prior tax year, on properties taxed in both years. If property values rise, the effective tax rate will go down, and vice versa.
The rollback rate is a calculated maximum rate allowed by law without voter approval. The rollback rate would provide the taxing unit with about the same amount of tax revenue it received the previous year for day-to-day operations, plus an extra 8 percent increase for those operations, and sufficient taxes to pay its debts in the coming year. For school districts, the extra increase is 6 cents per $100 of property value, rather than 8 percent.
If a unit adopts a tax rate that is higher than the rollback rate, voters in the unit can circulate a petition calling for an election to limit the size of the tax increase. For school districts, no petition is required. The school board simply calls for an election to ratify the adopted rate if the adopted rate exceeds the rollback rate.
Each taxing unit, other than a school district, a water district or small taxing unit (with a rate of less than 50 cents per $100 of property value that raises $500,000 or less), publishes the effective and rollback rates in a local newspaper. It also publishes a list of the debts it must pay and the amount of money left over from the previous year. A school district, small taxing unit or water district must publish a special notice in the newspaper.
If taxpayers believe that the taxing unit hasn’t calculated and published these rates or other required information in good faith, they may ask a district court to stop the taxing unit from adopting a tax rate until it complies with the law.
New for school districts
Beginning for the 2004 tax rate, school districts must extend the school tax limitation on homesteads to disabled homeowners. The limitation is based on the 2003 school taxes, if the homeowner received the disability exemption in that year. The qualified homeowner will not pay more in school taxes than the 2003 school taxes, even if the home’s value or tax rate should rise.
In calculating the school rollback tax rate, the school district will deduct both the taxes and taxable value for those homesteads that have the limitation. These steps are the same that school districts have used for the over-65 homeowners’ tax limitation in previous years.
By removing both the taxes and taxable value for homesteads with limitations from the rollback tax rate calculation, the school rollback tax rate is not skewed and is based on those properties that do pay on all their taxable value.
Municipal school district
Beginning for the 2004 tax rate, a municipal school district (MSD) has special requirements for the public hearing on the annual budget and tax rate. A MSD is one operating under the former Education Code Chapter 24 (repealed in 1995). Stafford MSD in Fort Bend County is the only MSD in Texas.
Before 2004, the MSD and city held separate hearings for adopting their budgets and tax rates.
This year, the MSD board and the city council now must jointly hold any hearing required by law for adopting the school’s annual budget and property tax rate. Adopting the school budget and the school tax rate requires an affirmative vote of a majority of the school board members present and voting and at least three-quarters of the total of the voting school board members and city council members that are present and voting. If a quorum of the city council is not present at the hearing to adopt the budget and tax rate, then the school board may adopt the budget and tax rate without regard to votes from the city council members.
Both the MSD and the city must follow all other procedures for the truth-in-taxation process required by the Tax Code.
County, city or junior college district
Beginning January 1, 2004, a county, a city or a junior college district may adopt a tax limitation for homeowners 65 or older or disabled. If the taxing unit adopts the limitation in 2004, the amount of 2004 taxes will establish the limit. The limitation applies to taxes imposed on or after 2004, depending on the year of adoption by the taxing unit.
A taxing unit will need to track the properties with a limited tax based on 2004 taxes. For the 2005 tax rate, these taxing units will have additional steps in calculating the effective and rollback tax rates for the taxes and value for those homesteads that have the limitation, similar to those followed by school districts in the past.
However, for the 2004 tax rate, no deductions will be required for the limitation since the 2004 taxes set the limits.
As in past years, the taxing unit will be required to deduct for any new exemptions granted a property for the first time. This will include any new homesteads that did not have an exemption in 2003.
Taxing units with TIF zone
Beginning with the 2004 tax rate, more taxing units that have a tax increment financing (TIF) zone now may adjust their taxes and value in the effective and rollback tax rates. For 2003 and past years, only taxing units in counties with less that 500,000 populations had TIF adjustments. This year, the Legislature repealed the county population restriction.
Further, if a taxing unit does not have any TIF captured appraised value in the current year to exclude from the effective and rollback rate calculations, then it does not have any tax increment from the prior year to exclude in those calculations. When the taxable values in a TIF decline, rather than continue to increase, there may be no captured appraised value for the TIF payment.
Another new provision for the 2004 tax rate addresses new properties in a TIF. In the effective and rollback calculations, any property classified as both “new” in the new property value step and as part of the TIF captured value is not deducted twice. The taxing unit only deducts it as new property. This provision prevents a taxing unit from including the same value in two different deductions in the calculations.
The TIF steps above do not apply to school districts. School districts already have a step to adjust their values for any TIF values in the rollback tax rate calculation.
The Comptroller’s Property Tax Division will review these changes and the entire truth-in-taxation process at regional seminars this July.