Property Tax Legislation 2023

The Texas Legislature has finally agreed upon a property tax reform bill. It took until a second special session, but it’s been unveiled and is expected to pass shortly with broad, bipartisan support.

While there are multiple facets to the group of bills that comprise the reform, two stand out above the rest. First, the homestead exemption for school district property taxes will increase from $40,000 to $100,000. So for properties that have a homestead exemption, the school district will reduce the appraised value by $100,000 before multiplying by the tax rate. For example, if you have a house with a $500,000 tax appraisal, your school district taxes will be based upon a value of $400,000. So how much money does this actually save you? Simply multiply your school tax rate by $60,000, which is the amount it has increased, and you’ve got your savings. This change must be approved by Texas voters so it will be on the November ballot. It will pass by a huge margin. Again, this is only for properties with a homestead exemption. In addition to the increase to $100,000, seniors and the disabled will get an extra $15,000 homestead exemption.

The other major facet is what we call tax compression. School districts will lower their tax rate by 10.7%. If you understand the difference between the two portions of school budgets, this compression is on the M&O side. This reduction in taxes impacts all properties so it’s a benefit for owners of commercial and investment properties, not just those who have a homestead exemption on their primary residence.

For both of these components, the state will send additional funds to the school districts to make up the amounts they will no longer receive from the property taxpayers. The estimated total cost of these two items is over $17 billion for the two year budget period. As a reminder, the whole reason we have property tax reform this session is because we have a surplus in excess of $33 billion for this two-year budget cycle. These provisions will take effect for the 2023 tax year. If you are wondering what the major sources are of tax revenue for the state of Texas, it’s things like sales tax, taxes on the production of oil and natural gas, and business taxes. Property taxes are generally a local tax that’s levied.

Another part that I’m very excited about is the addition of elected positions to County Appraisal Boards. Currently, the nine members of the county appraisal board are appointed by the major taxing entities of each county. That’s like the foxes running the hen house. Three of the board positions are now going to be elected by the general public. Yes, I understand that we’re in a situation where the taxing entities will still have control of the boards because they appoint six members, but I hope that the taxpayers will finally have a decent seat at the table, be able to voice opinions, and learn more about what goes on behind closed doors. Of course, these taxing entities are not going to go quietly so expect them to put up their chosen candidates and heavily fund them with lots of campaign money.

On to the portion I find the least likely to help anyone. This is a three-year pilot program to cap the amount of appraisal increase on non-homestead properties. That increase would be 20% per year if the property is appraised at $5 million or less (that amount will be adjusted for inflation). The $5 million threshold is meant to help smaller businesses, it’s not huge properties. Other than 2021, has there been a year in which values increased more than 20%? Not many, if any. I’ll confess that I haven’t been able to find a lot of information about this particular provision, but this is how I read the bill. I just don’t think it’s going to have a huge impact.Another component is raising the threshold at which Texas small businesses have to pay the franchise tax. Right now, the threshold for the tax is $1 million of annual revenue. That is rising to $2.47 million. Additionally, businesses will only need to file a tax report if they meet the threshold and owe taxes.

So that’s it in a nutshell. Again, there are some aspects that I haven’t been able to get full answers, but at least you know the primary points of the legislation. There had been a variety of other ideas tossed around by the legislature over the past few months, but this was the final agreement, these five components.

If you have any questions, feel free to comment or contact me directly.