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The Texas Property Tax
Wednesday, June 10, 2009 • Posted June 10, 2009

What You Wish Your Constituents Knew

When it comes to explaining the property tax, logic may not be the best approach. Consider the seemingly logical questions posed by taxpayers:

1. The name of my appraisal district includes “county” (i.e. Ector County Appraisal District), my tax bill has the word county, so the county must be in charge of my property tax appraisal, right?

2. If my property value decreases, my taxes will automatically go down, right?

3. If the county, schools or city need more money to operate, then they just tell the appraisal district to raise taxable value, right?

4. If the county, city or school still doesn’t have enough money, the state will help, right?

Wrong, Wrong, Wrong and Wishful Thinking (No. 4).

The Texas Tax Code is comprised of 603 pages, not including an 88-page index. With that in mind, taxpayer confusion is probable, if not a bit logical, especially to those who do not understand county government and its forced dependence on the property tax.

When it comes down to it, maybe we need to use some logic of our own. For example, how can we expect constituents to understand county government and the property tax if we’ve never taken the time to explain it to them?

Perhaps it’s time for a primer.

Did You Know?

County Progress asked both a tax-assessor collector and a county commissioner to provide their definitions of the property tax.

Brazos County Tax Assessor-Collector Kristy Roe: The property tax is also referred to as an “ad valorem” tax, which simply means “according to value.” A property tax is a tax that is calculated based on the value of the real estate, mineral interest, standing timber, personal property used in the production of income, or manufactured home owned by an individual. In Texas, the value that is taxed is the “market value” of the property as of Jan. 1 of the tax year.

Parker County Commissioner John Roth: Property within the boundary of a taxing entity is taxed to provide funding for the services of that entity.

Counties are limited to property taxes as their main revenue source, said Oldham County Judge Don Allred.

However, just because the county is supported primarily by this tax doesn’t mean the county has a say in how much property is worth.

When it comes to the property tax, “the most common misperception that I see is that the commissioners court and the appraisal district work together to set property values at a higher rate each year to bring more income to the county,” said Ector County Judge Susan Redford.

Property appraisals are conducted by appraisal districts, which are charged with identifying and listing the value of all property in the county for taxation, said Denton County Tax Assessor-Collector Steve Mossman.

“The appraisal district is not part of the city, county or school district,” Mossman said. “The appraisal district is an independent government.”

While state law created “centralized” appraisal districts, many counties retain the word “county” in their title creating the perception that appraisal districts are part of county government. Some counties, such as Denton, use the term “central,” as in Denton Central Appraisal District versus Denton County Appraisal District.

“It is commonly believed that the commissioners court, school board, or city council can contact the appraisal district and instruct them to raise the taxable value of property to generate more tax revenue for their districts,” Roe said. In reality, the appraisal district must appraise property at the market value for that area in that year.

After identifying, listing and appraising all taxable property within the county, the appraisal district certifies the tax roll, Mossman said. When the roll is certified, it means the property value has been agreed to or has not been challenged by the property owner.

The commissioners court is not involved in any portion of the appraisal process. Rather, the role of the county judge and county commissioners is to approve the county budget and set the tax rate on the appraised properties to help fund the county budget and service any county debt.

The office of the county tax assessor-collector is a part of county government and is responsible for calculating the taxes, mailing out tax statements, accepting and processing certified changes to the tax roll(s), and collecting and remitting the current and any delinquent taxes.

Setting the Tax Rate

Commissioners courts must adhere to state law when setting the tax rate. According to the Texas Constitution, Article VIII, Section 9, the county cannot levy a tax rate in excess of $.80 per $100 of property value for the county’s general fund, permanent improvement fund, road and bridge fund and jury fund.

The county is authorized to levy a $.15 road and bridge tax and a $.30 farm-to-market road/flood control tax; however, these taxes are subject to voter approval. In addition, counties on the Gulf of Mexico can levy a special tax for construction of sea walls, breakwaters, or sanitary purposes, not to exceed $.50 per $100 valuation.

Counties are also authorized by several statutes to levy certain special purpose taxes. However, these taxes when combined with the general fund tax may not total more than $.80 per $100 assessed valuation.

In addition, the court must follow a mandated process called “truth in taxation.” According to the Office of the Texas Comptroller, this process is designed to:

· make taxpayers aware of tax rate proposals; and

· allow taxpayers, in certain cases, to roll back or limit a tax increase.

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.

Effective tax rate. 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 year before on properties taxed in both years. If property values rise, the effective tax rate will go down and vice versa.

“The effective tax rate is a place to start,” Roe said. Commissioners courts review how much money they required the previous year and determine if they need more or less.

Rollback tax rate. The rollback rate is a calculated maximum rate allowed by law without voter approval. The rollback rate provides the taxing unit with about the same amount of tax revenue it spent the previous year for day-to-day operations, plus an extra 8 percent increase for those operations, in addition to sufficient funds to pay debts in the coming year. If a unit adopts a tax rate 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.

Actual tax rate. Commissioners courts set the tax rate based on how much money they will need to fund the county budget and service any county debt. In some cases, this may be the calculated effective tax rate or the rollback rate, but not necessarily so.

Truth in taxation requires the taxing entity to post proposed tax rates and hold two hearings if the proposed rate brings in any additional revenue to the entity, Roe said.

County government is a unit of the State of Texas, and the structures and duties of county government are set forth in the Texas Constitution. County government responsibilities are mandated by law and must be funded by the county budget. These mandated services include:

Ø Conduct elections

Ø Process and maintain voter registration

Ø Maintain and construct county roads and bridges

Ø Provide for public safety

Ø Maintain and operate the court system including provision for indigent legal defense

Ø Provide medical care for indigent county citizens

Ø Facilitate the issuance and recording of public documents

Ø Process motor vehicle registration and title transfers

Ø Collect and remit state motor vehicle taxes

Ø Provide local support for state agencies such as Texas Department of Mental Health and Mental Retardation, Department of Public Safety, Texas Parks & Wildlife, and the Alcoholic Beverage Commission

Counties also strive to provide discretionary services, often called “quality-of-life services,” such as community centers, health departments and libraries.

The commissioners court makes its decisions based on the services the county must provide as required by law. However, constituents do not always automatically equate their taxes with these services. Often times when appraisals go down, taxpayers expect an automatic deduction in taxes.

“If the appraised value across the jurisdiction goes down, the tax rate set by the governing board may have to be raised because the county or the school district or the city still has to pay their bills,” Mossman said. “The dollar value has to remain pretty much the same.”

Or, Mossman continued, officials could ask taxpayers, “Without changing your appraised value, I can lower your tax rate. What services do you want me to eliminate? Police? Fire?”

Another assumption involves new values to the tax roll, such as construction or newly discovered mineral sources. Taxpayers often assume this additional value will automatically pump new revenue into county coffers. However, this is not always the case, Roth said. Again, it all depends on the adopted tax rate. If the effective tax rate is adopted, there will be no increase in tax revenue to the county because the county will adjust the tax rate to bring in the same revenue as the previous year. Mineral owners will be assuming a larger portion of the tax pie, and others on the tax roll will see a reduction in the taxes they pay. If the county adopts a tax rate higher than the effective tax rate, then county coffers will grow.

Tough Choices

Many taxpayers do not understand the stress and strain on counties across the Lone Star State that are inching closer and closer to the maximum tax rate of $.80 per $100 of property value. As costs continue to increase, counties face the growing concern that they will have to focus solely on mandated expenditures and abandon existing discretionary programs. In the meantime, the State of Texas continues its age-old habit of issuing mandates without funding to support the required service.

Allred explained the plight of many struggling counties as follows:

v County budgets are driven by the laws that are implemented in Austin by the Texas Legislature.

v Counties are limited to property taxes for their main revenue source.

v Taxes, for the most part, are determined by mandates put on the county by the State Legislature.

v Discretionary spending for local services is the first to be cut because spending for state-mandated services is just that, mandated.

v If the state would fund the laws that they adopt, then our property taxes could be more closely tied to local services and therefore could legitimately be used by local taxpayers and local governments to indicate the need for higher or lower taxes based on their desire for services.

v As things stand today, local governments tend to be the state’s scapegoat to blame for higher property taxes, when in reality higher budgets are, more often than not, the result of the state’s unfunded, mandated programs and services.

v When this happens local officials must either raise taxes, cut local spending, and/or both. Local taxpayers see higher taxes and fewer services, leading to frustration.

v The State of Texas, by our Constitution, is prohibited from having a state property tax; however, the ability to require counties to spend local property taxes on state programs allows the state to circumvent this prohibition.

v If we are ever to have complete truth in taxation, the state should fund the programs and services they require by mandate. This will allow local property taxes to be used for local programs and services, the purpose for which they were designed.

When it comes to the property tax, I wish taxpayers realized…

Fannin County Commissioner Pat Hilliard: I wish the taxpayers knew how the money is spent after being collected, and I wish they understood unequal evaluations and how to protest. The next thing I would like them to know are the true costs of assessment and collection, which include the costs of delinquent tax collections…in other words, all the costs involved with property taxes.

San Patricio County Judge Terry Simpson: The taxpayer gets information from the state that leads them to believe that the counties and cities are to blame for high taxes when in fact it’s the state’s inability to correct the school funding that has the largest impact on the taxpayer.       

CJCAT General Counsel Jim Allison: I wish that the taxpayers knew and understood that the State Legislature has pre-empted the discretion of local governments, such as counties, by dictating mandated services and determining appraisals through state statutes. Most of the county budget is consumed by expenditures to meet state mandates. On the appraisals, the Texas Legislature has granted exemptions and special under-valuations to certain interests, like oil and gas, which result in higher taxes for homeowners and small businesses.

Oldham County Judge Don Allred: Local governments tend to be the state’s scapegoat to blame for higher property taxes, when in reality higher budgets are, more often than not, the result of state unfunded mandated programs and services. When this happens local officials must either raise taxes, cut local spending, and/or both. Local taxpayers see higher taxes and fewer services, leading to frustration.

Ward County Judge Greg Holly: At least in the oil patch, I think a common misunderstanding is the confusion between the “tax rate” and the “tax levy.”  The overall tax levy is the number that tells us what it costs to operate our government, the rate at which government is growing, etc.  However, most people look only at the tax rate (the rate they pay), which in an area like ours is determined more by mineral valuations than any other factor.

Tax Assessor-Collector Kristy Roe: It would be great if taxpayers understood their rights and would participate in the tax rate process as it develops each year. They have an opportunity to look at their appraised value and if necessary question it before it is certified to the taxing jurisdictions. They have an opportunity to ask questions of their governing body members before the tax rate is set. It is frustrating for the taxpayer and for those responsible for collecting the tax if they wait until they receive their tax bill to find out what their rights and responsibilities are. The entire point of truth in taxation is to let the public know what is going on and encourage participation at that time. They have a voice in the process, but if they wait for the tax bill, they have often waited too long to use it.

The Property Tax and County Government - Common Misperceptions

Incorrect: The county conducts appraisals.

Correct: Central appraisal districts, which are not part of county government, conduct appraisals.

Incorrect: Taxpayers should contact the commissioners court if they have problems with their appraisal values.

Correct: Taxpayers should contact their central appraisal district.

Incorrect: If the appraised value of my property goes down, then my taxes will automatically go down.

Correct: If the county adopts the calculated effective tax rate, then the tax rate will be adjusted to bring in the same amount of money for the coming year that was on the tax roll in the last year. In this case, even though the appraised value went down, taxes would go up in order to bring in the same amount of revenue as the previous year.

Incorrect: An increase in appraisal values is an automatic windfall for counties and other taxing jurisdictions.

Correct: An increase in value is offset by an automatic lowering of the tax rate that the county must begin with, which is the effective tax rate.

Incorrect: Counties can raise taxes as high as they want.

Correct: The amount of taxes needed depends on how much the county needs to fund its budget, comprised mainly of services mandated by the State of Texas; service any county debt; and provide discretionary services if possible. If appraised values go down but budget needs go up, the tax rate will be adjusted to reflect this need.

The county property tax rate is capped by law at $.80 per $100 of property value. Taxing jurisdictions must publish notices notifying the taxpayers of their proposed tax rates and conduct public hearings to allow the taxpayers to hear the reasons for any increase and have the opportunity to address governing boards before the tax rate is adopted.

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