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Texas Association of Appraisal Districts

Once again with how the property tax system is rigged

Your taxes are higher than they need to be so that large commercial properties can have lower taxes.

As property owners across Texas receive their notices this month of their tax values, appraisers are bracing for another round of appeals by hotels, office buildings and oil refineries making use of a 22-year-old law that has been wildly successful at knocking down their taxable values.

Over the years, appraisers say the law has increasingly shifted the state’s property tax burden onto homeowners, who now face the third-highest property tax rate in the nation.

“The only public policy reason behind it is to enrich commercial land owners at the expense of residential ratepayers,” said Jeff Branick, county judge in Jefferson County, where an appeal filed by owners of a huge industrial facility is creating a multimillion dollar hit on local government tax revenue. “If I had all properties being appraised at true fair market value, I could lower the tax rate.”

Protests and lawsuits related to the tax provision knocked a total of $44 billion off the tax rolls last year in the state’s five biggest counties: Harris, Bexar, Dallas, Tarrant and Travis, records from the Texas Comptroller’s Office show — an amount that equates to nearly $1 billion in tax revenue for local school districts and governments, according to a Hearst Newspapers analysis.

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Jim Popp, a prominent Austin tax attorney who drafted the 1997 law, says the tax provision is working. The change, he said, ensures taxpayers have a way to protest when their property is assigned a value that’s higher than similar ones.

“To me, fair means treating similar taxpayers similarly,” said Popp, with Popp Hutcheson PLLC. If some properties are reduced below their market value, the next year appraisal districts “can come back and correct it so everyone is treated fairly,” he said.

Any property owner can file an equity appeal, but big businesses with the financial means to file lawsuits year after year make the most use of the law.

Property owners in Harris County filed over 5,000 lawsuits in 2017 making an equity argument. Roughly 90 percent came from commercial owners and together wiped more than $5.8 billion from the tax rolls, data from the Harris County Appraisal District shows.

Equity appeals let owners reduce their property’s taxable value by simply showing it’s higher than the median of similar properties — without any regard for what the property would sell for in the open market, a traditional measure of value.

But with so few guidelines in the law, appraisers say owners can find a median by pointing to lesser properties that are not really similar, or that aren’t even located in the same county.

While properties must be “appropriately adjusted” to account for any differences, appraisers say it can be impossible for unique buildings.

“It’s like comparing a 15,000 square-foot residential mansion to a two bed, two bath, two car garage,” said Jeff Law, chief appraiser for the Tarrant Appraisal District. “How do you make adjustments for that? You don’t, because they aren’t comparable.”

Once one property’s taxable value is reduced, the median drops, too. As a result, property owners often try to be the last to protest, said Brent South, Chief Appraiser at Hunt County Appraisal District and a past president of the Texas Association of Appraisal Districts.

“Each time one of their competitors gets an adjustment, it drives that median down,” South said. “It’s a continual spiral effect.”

We’ve covered this before. Fixing this basic problem – which again was a cornerstone of Mike Collier’s campaign for Lt. Governor – should be the first order of business for a Lege that wants to at least slow the rate of property tax growth for homeowners. Doing so would impose a cost on big businesses, though, and the Republicans can’t accept that. So here we are, wasting time again with regressive and unpassable property-tax-for-sales-tax swaps. You can’t fix what’s broken if you’re not honest about what is broken and why it’s broken. As they have done time and time again, the Republicans are demonstrating that this session.

Compromise property tax appraisal bill signed

It’s better than nothing, though not by that much.

Gov. Greg Abbott has signed a bill that partially closes a loophole that allowed a powerful oil company to take back millions in tax dollars from Houston-area school districts while draining hundreds of millions more from local government coffers.

The measure that won final approval, HB 2083, from the Republican-controlled Legislature doesn’t go nearly as far in reforming the law as the Legislative Budget Board wanted. The board noted earlier this year that the law is costing the state $70 million to $80 million a year because Texas has to help maintain a certain level of funding at school districts, which are having to repay companies winning court cases based on a 1997 amendment to the state’s tax law.

When the measure takes effect in January next year, though, companies for the first time will be forced to use generally accepted appraisal methods in court cases challenging assessed values under the 18-year-old “equal and uniform” clause of the tax law.

The bill was pushed by county appraisal districts, who complained that often questionable methods were being used during tax appeals to arrive at appraisal values, said Charles Gilliland, a research economist at Texas A&M’s Real Estate Center at College Station.

“I think it will have some effect on it. How much … depends on how much unconscionable activity has been going on,” Gilliland said.

The new standard could give an advantage to appraisal districts, he said. “If they see the numbers being cooked, it gives them ammunition to raise that issue without going to district court,” Gilliland said.

The tax code section at issue gained attention after the Valero oil company forced the Port Arthur school district to refund about $30 million in taxes and other fees, and the Texas City school district about $5 million.

“I think the law was so bad that anything they could do was an improvement,” said Harris County chief appraiser Sands Stiefer, whose county school districts lost $685 million from 2011 to 2014 because of the loophole.

Stiefer, who took part in negotiations over the bill, said the measure leaves much to be desired. He said the issue will be revisited next legislative session. “We would like to see more done,” he said.

See here for the background, and here for a reminder of just how badly the current system is rigged. This bill will help a little, and that’s a good thing. Real Value$ for Texas calls it a “step forward”. I would agree with that and I appreciate the hard work they did to get that step forward taken. My concern is that now that we have taken this step, the perception in Austin will be that the problem is solved, and there will be no appetite to do anything further. I hope I’m wrong and that this is indeed just a first step. Be that as it may, I’m glad to see us get this far. It will make things a little fairer, and that’s never bad news.

Compromise bill to reform property tax appraisals

Better than nothing, I guess, but not clear to me yet how much better.

State lawmakers are looking to partly close a tax loophole that has allowed big companies to drain tens of millions of dollars from local government coffers in recent years, but any reforms that pass may still not end the legal battles that have been driving down appraisals on industrial and commercial properties.

Several reform bills were filed this year as counties began putting pressure on legislators to do something about an increasing number of lawsuits by major companies trying to take advantage of the loophole, which allows property owners to avoid the traditional fair-market system of appraisals.

School districts have been among those hardest hit. Valero Energy Corp. used the loophole to force the Texas City school district to refund about $5 million, while two other lawsuits by the company compelled the Port Arthur school district to pay $32 million in refunds and other charges. The company has new lawsuits pending that could mean even more tax refunds from the two school districts.

The loophole is also costing the state an estimated $70 million to $80 million a year in six counties, according to a January report by the nonpartisan Legislative Budget Board that called for sweeping reforms. The state must pay its share of tax revenue lost by school districts.

Although several reform measures have been introduced, the one that appears to have the broadest support in the GOP-controlled legislature is a measure introduced jointly by state Rep. Drew Darby, R-San Angelo, and state Sen. Kelly Hancock, R-Richland Hills, a Fort Worth suburb.

The compromise bill would require that property values used in court cases be arrived at using generally accepted appraisal methods instead of arbitrary estimates arrived at, in the words of the budget board, “independently of the market values of those properties or the appraisal district in which they are located.”

The measure also addresses the board’s concern that the law now allows commercial and industrial property owners challenging their tax assessments to compare their properties with dissimilar ones in other appraisal districts, or even other states. The bill requires that the comparisons be made within the same county unless there are no comparable properties there.

Alvin Lankford, Williamson County’s chief appraiser, said owners of large apartment buildings in his county typically search for such properties in neighboring Travis County to make comparisons rather than use apartment buildings on the same street. “They are able to pick these properties and get the answer they want,” he said.

Many appraisers, citizens’ groups and officials in affected counties wanted a bill that included more of the reforms recommended by the budget board. However, some of the attorneys, consultants, real estate firms and big businesses that benefit tremendously from the loophole refused to negotiate, said Ed Nolan, Dallas County’s chief appraiser and the chairman of the Texas Association of Appraisal Districts’ legislative committee.

“We didn’t get as much as we wanted,” Nolan said. “But it’s a start.”

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In Houston, property owners concerned about having to shoulder higher property taxes because of tax reductions on industrial and commercial property formed Real Value$ for Texas, which has chapters statewide. The group found that from 2009 to 2013, owners of large commercial properties in Texas’ six largest counties shed $5.6 billion in property taxes that were made up for through higher taxes paid by homeowners.

“It’s unfair, it’s bad public policy and it needs to be changed,” said state Sen. Rodney Ellis, D-Houston, in announcing his own reform bill this month. He said large commercial property owners are using the loophole to “exploit the appeals process to drive down the appraised values of their properties to well below the market value.”

Ellis’ bill was the most ambitious of six reform bills, four by Democrats and two by Republicans. The compromise bill that emerged calls for the most modest changes. It also has the imprimatur of state Rep. Dennis Bonnen, R-Angleton, chairman of the powerful House Ways and Means Committee.

I support Sen. Ellis’ bill, and would like to know what he and groups like Real Value$ for Texas think before I decide how I feel about these compromise bills. They may represent a step forward, but they may also represent a point at which the forces who like things the way they are can say “we’ve already addressed this” and block further progress. The fact that Jim Popp, who may be the single biggest individual profiteer off the current system, appears to have signed off on the Darby/Hancock bills is the surest sign that there’s a lot more that could be done. I don’t think he’s complaining enough for these bills to do enough, but this may be the best we can do for now.