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Editor’s Note: This article is the second installment in a three-part series from The Texas Tribune regarding Texas’s proposed property tax laws. It was originally published as one article titled “Billions in property tax cuts need Texas voters’ approval before taking effect. Here’s what you need to know.”
A $12.7 billion package of property tax cuts goes before voters later this year, promising to deliver savings to millions of property owners in Texas suffering from skyrocketing tax bills.
Gov. Greg Abbott signed the legislation creating the cuts last month, officially closing months of negotiations among the state’s top Republicans. But before they can go into effect, Texas voters will first have to decide in a constitutional election on Nov. 7 whether to allow the state to spend billions in taxpayer money — mainly collected from Texans during the past two years — to pay for the massive cuts. If approved, an outcome that seems likely given voters’ support of tax cuts in the past, the changes would be applied for the 2023 tax bills due in January.
Here’s what you need to know to make your decision.
How would the changes affect large businesses?
Large businesses and corporations that own property in Texas, whether they are headquartered in the state or not, would qualify for the across-theboard decrease in school taxes.
Their business properties would also qualify for the 20% cap on appraised value increases each year as long as no individual property is worth more than $5 million. Eligibility would be based on the value of each parcel of property — not the entire land portfolio owned by a single business.
However, several types of businesses wouldn’t qualify for these benefits, including those with a public access airport or whose land is dedicated for agricultural use; timber production; individual or group sporting activities; parkland or camping; development of historical, archaeological, or scientific sites; or the conservation and preservation of scenic areas.
How would the changes affect residential and commercial landlords?
Landlords would qualify for the reduction in school property taxes.
Rental properties valued under $5 million each also would qualify for the year-over-year 20% cap on appraisal values for the next three years.
Here’s an example of how this would work for a residential landlord. The owner of several duplexes in a high-demand neighborhood on Austin’s central eastside saw one of his properties jump in value by 54%, from $359,000 in 2021 to $554,000 in 2022. This year, the property’s value actually decreased slightly, which means he wouldn’t need the 20% appraisal cap.
But his school taxes in the Austin Independent School District would still drop by 10.7 cents per $100 of property valuation, potentially saving him close to $600 per year in property taxes.
Whether he chooses to pass the savings along to his renters is his decision and not a requirement in the bill.
Now let’s look at a commercial landlord. In Brenham, the Mars & Space Investment LLC owns a 1.3-acre property that has a laundromat, a tax services group, a pest-control business, a gas station and convenience store and a donut shop on Alamo Street near downtown.
The value of the strip, with the land and buildings, shot up from $373,000 in 2021 to $770,000 in 2022 — a whopping 106% increase. It was valued at $972,430 this year, a 26% increase over 2022.
The company would be able to benefit some from the 20% cap if the property’s appraisal, which is currently being protested by the owners, doesn’t decrease.
How would the changes affect residential renters?
People who pay rent to a landlord for their home are not guaranteed any tax cuts from the new property tax package unless their rent is tied at least in part to tax rates, which is rare in residential leases.
The proposed law does not require landlords to pass along any savings from property taxes to the occupants of the property. Democratic lawmakers tried to add a provision allowing renters to claim tax rebates tied to their incomes, but the effort failed.
Supporters of the package say that the appraisal cap on small business properties would allow landlords to avoid increasing rents at the pace they’ve been rising in recent years, and that the market resulting from lower appraisals would help drive down prices through competition.
But critics of this argument say that the housing crisis in Texas is driving rent costs more than property taxes, so whether renters would ultimately benefit from the tax cuts remains unclear.
