America's Property Tax Advisor

Texas Tax Reform Debate Intensifies


As the Texas Legislature continues work on property tax reform, a new plan has been thrown into the mix. While bills making their way through the House and Senate propose holding the line on property tax revenue growth, Senate Bill 1086 would cap appraisal growth.


Appraisal Caps


Currently, there's a 10% cap on appraisal growth for residential properties with homestead exemptions. Property values of businesses, second homes, and rental properties have no cap. SB 1086 would cap the appraised value of all Texas properties at 5% a year.


Opponents say the plan would lead to distortions in the marketplace. For example, a new building constructed next to an existing building that has enjoyed several years of appraisal caps, will pay much higher property taxes than the older building. Critics believe appraisal growth is a good thing because it generates wealth for property owners, who benefit when they sell.


Revenue Limits Without Voter Approval


House Bill 2 and Senate Bill 2 prohibit the adoption of a tax rate that would yield more than 3.5% over the previous year without voter approval. Currently, cities, counties and other taxing units can raise 8% more property tax revenue than the prior year before taxpayers can petition for an election to roll back the increase.


When identical versions of the bill were filed in January, a trigger for a rollback election applied to cities, counties, and school districts. However, schools have since been eliminated from the tighter rollback rules.


In the latest versions of HB 2 and SB 2:


  • Cities, counties, and emergency service districts must hold an election if they wish to raise 3.5% more property tax revenue than the previous year.

  • Hospital districts, schools, and community colleges remain at an 8% election trigger

  • Homestead exemptions offered by local municipalities can be factored into the revenue growth calculations

  • A five-year carry-over provision lets taxing units bank unused revenue growth


Tax Swap


Gov. Greg Abbott, Lt. Gov. Dan Patrick, and House Speaker Dennis Bonnen have thrown their support behind a proposal to increase the sales tax by 1 percentage point in order to lower property taxes. But that's only if lawmakers agree to cap property tax increases. The proposal would raise the state's sales tax from 6.25% to 7.25%.


"We are introducing a sales tax proposal to buy down property tax rates for all Texas homeowners and businesses, once Senate Bill 2 or House Bill 2 is agreed to and passed by both Chambers. If the one-cent increase in the sales tax passes, it will result in billions of dollars in revenue to help drive down property taxes in the short and long term," said a joint statement from the three leaders.


Appraisal caps, limits on revenue growth before rollback elections occur, and a possible sales tax increase are all under consideration as lawmakers try and reform the state’s property tax system. The regular session of the Texas Legislature ends May 27th.