THIS IS THE FIRST IN A SERIES OF CONVERSATIONS WITH TX Representative Terry Wilson
helping us understand the Who, What, Why, and How of our Ad Valorem taxes.
Property tax, or ad valorem tax, is charged by local governments based on the value of a property. It is also the most-frequently-asked issue for our State Representative, Colonel Terry M. Wilson (US Army, Retired). Rep. Wilson says, “People ask me all the time what can be done about their taxes. Last session, the State Legislature passed the ‘Texas Taxpayer Transparency Act’ to provide people with the tools to understand their property tax bill and to get involved before the tax rates are even set.”
SETTING THE TAXES
Texas is one of nine states that do not collect a personal income tax. Instead, local governments charge property taxes to provide local services and pay down debts. Texas does not have a state property tax and instead relies on other taxes, like sales and use tax, to generate state revenue. On average, about half of the property taxes you owe are paid to the local school district. You may also pay property taxes to your city, county, and special purpose districts, such as emergency services districts (ESD), hospitals, community colleges, and municipal utilities (MUD). In Georgetown, the majority of property taxes are paid to Williamson County, City of Georgetown, and Georgetown ISD.
Each taxing entity determines your property tax bill by applying their adopted property tax rate to the taxable value of your home. Rates are set, individually, by a governing body or executive committee of those taxing entitles; e.g., City Council or MUD Board. Before setting a property tax rate, cities, counties and school districts must propose a budget and hold a public hearing on the proposed budget, then build a budget to address everything from salaries to road repair, and decide what to charge property owners to cover those costs.
The proposed budget must be made available for inspection and posted on the city, county, or school district website. Budget discussions can start as early as January of a given year, and beginning in early August, most taxing units take the first step toward adopting a tax rate based on a certified list of properties and respective values they received from the appraisal district. By August 7th , most taxing entities will post budgets and proposed tax rates online. For Williamson County properties, information on the taxable value of property, the proposed tax rate, and the estimate of the total tax bill—if the rate is approved—will be available in August at williamsonpropertytaxes.org.
This is the reason taxing entities have public hearings—everyone is welcome to attend the budget planning meetings to hear about the needs of a county, city, school district, etc.
Rep. Wilson adds, “Budgets determine revenues, and revenues determine rates. While budget planning can be complex, it is worthwhile to attend those hearings. That is the time to do your homework. If you believe the city should prioritize funding for the fire department or updating a local park, sending an e-mail to your city council member is the best starting point. Attend the public hearing, ask ‘why’ things are needed, and get the details. Your participation is integral to ensuring local budgets match local priorities and elected officials are all asking for your input.”
While speaking at a recent multi-district school board meeting, the Representative asked about community participation during budget meetings. He says, “Their answer was ‘little to none.’ Considering school district property tax makes up more than 50 percent of our property tax bill, it is imperative property owners participate in the budget process. Being informed will significantly justify the tax rate and how much we pay in taxes.”
THE VALUES
A tax bill is determined by multiplying the total tax rate by the taxable value of the property. Taxable value is determined by looking at the property’s market value, assessed value, and any applicable exemptions.
MARKET VALUE
The Texas Constitution requires property to be appraised at its market value. Market value is defined as the price for which the property would sell between a willing buyer and a willing seller. The chief appraiser in each appraisal district is responsible for determining the market value of each property in the county as of January 1. Appraisers will review recent sales of similar properties and report those values to the Appraisal District Board of Directors.
ASSESSED VALUE
Property values may increase or decrease each year to match the market values. If your house qualifies for a homestead exemption (a sole and primary home), you do not pay property taxes on the full market value of your home.
While the market value increases or decreases year to year based on the local housing market, an appraisal cap acts as a buffer against drastic changes on your residence homestead, limiting any increase to your home’s assessed value to 10 percent per year until the Assessed Value and the Market Value are equal.
- 2020:You bought a new home and the appraisal district determined the Market Value was $200,000 on January 1, 2020. The 2020 Market Value and Assessed Value are $200,000 for the residence homestead.
- 2021: The home’s Market Value increased to $300,000 but your Assessed Value would only increase 10 percent—to $220,000.
- 2022: The market value stays at $300,000, your Assessed Value would still increase by 10 percent to $242,000, since the assessed value is still below the Market Value.
TAXABLE VALUE
The appraisal district calculates the Taxable Value by subtracting applicable exemptions. An exemption removes part of the property’s value from taxation, which lowers the tax bill. Homesteads receive a mandatory $25,000 exemption on their taxable value for school taxes, so our hypothetical homestead above would have a taxable value of $175,000 for the school district. Because each local government may offer different optional exemptions*, your taxable value may be different in each. The taxable value is used by the Tax Assessor/Collector to determine your Tax Liability once the property tax rates have been set. Now that you know the value of your home, if you know what your County, City, ISD, and special district tax rates are, you can predict your tax bill.
THE RATES
“NO NEW REVENUE” TAX RATE
The no-new-revenue tax rate is a calculated rate that would provide the taxing unit with approximately the same amount of revenue it received in the previous year on properties taxed in both years. Essentially, the taxing board is asking, “What rate will generate the same amount of revenue as last year, given that home values have increased?” This is much like determining a new monthly payment when the same car loan is distributed over a different time period; the total loan amount is the same but the monthly rate may decrease if it is spread over more months. The “No New Revenue” tax rate may or may not mean you pay the same amount of taxes on your individual property, since it is related to all properties within the district.
This process is repeated each year using the prior year’s revenue and the current year’s values.
VOTER APPROVAL TAX RATE
The voter-approval tax rate is a rate level that allows the taxing jurisdiction to collect more taxes, not including debt repayment, than the previous year. This is calculated by applying a growth factor to the no-new-revenue tax rate, such that the overall revenue collected by the taxing unit is allowed to increase over the prior year. Most large cities and all counties are allowed to increase their revenue by 3.5 percent without triggering an election to “rollback” the taxes. The Voter Approval tax rate allows for moderate increases in local government budgets. If the local government needs more than a 3.5 percent increase in revenue, it must be put to a taxpayer vote. If voters do not approve of the tax increase, the tax rate is automatically set at the no-new-revenue tax rate for that year.
KEY TAKEAWAYS
Rep. Wilson says, “You can play an important role in the process of setting the budget and tax rate by attending public hearings of your local government. You can also register your opinion of proposed tax rates, starting this fall, on WilliamsonPropertyTaxes.org. You can also appeal the market value of your home with your local ARB.” He also suggests those who wish to challenge their future home value appraisals should visit the Williamson County Appraisal District website (WCAD.org) for more information.
WHAT IF I DISAGREE WITH MY TAX APPRAISAL?
A property owner may present objections about the property’s value, exemptions, and special appraisal in a hearing to a local Appraisal Review Board (ARB). The usual deadline for filing a protest is May 1. If the appraisal district mails a notice of appraised value, the deadline is 30 days from the delivery date of the notice. Click for assistance from the Texas Comptroller.
Next month, we will look at how ISD taxes are set, how they affect your bottom line, what they pay for, and what the legislature has done to help ISDs reduce their property tax rates while increasing funding for education.