A Guide for Setting Tax Rates for Taxing Units Other Than School Districts
The Texas Constitution and Property Tax Code embody the concept of truth-in-taxation to require taxing units to comply with certain steps in adopting their tax rates. The truth-in-taxation laws have two purposes:
- to make taxpayers aware of tax rate proposals; and
- to allow taxpayers, in certain cases, to roll back or limit a tax increase.
The Texas Comptroller of Public Accounts is authorized to issue publications concerning the administration of the local property tax in Tax Code Section 5.05. This guide to tax rate setting – also known as "truth-in-taxation" – is prepared as a public service to the thousands of taxing units in the state that will hold public hearings, consider budgets and set rates to impose property taxes this year.
By publishing this guide and by conducting statewide seminars to instruct tax assessor-collectors, budget officers and elected officials, the Comptroller's office is providing technical assistance – not offering legal advice. Interpretations of law must be made by lawyers representing governmental entities. Questions about the meaning of the statutes, notice requirements and other matters that are unclear in the law and in this manual should be posed to lawyers and not to the Comptroller's technical assistance staff.
Some aspects of truth-in-taxation laws do not apply to every type of local government. This guide will identify those parts of the law and discuss their application to the appropriate taxing units. This publication incidentally mentions school district requirements for purposes of discussion.
There are four principles to truth-in-taxation:
- Property owners have the right to know about increases in their properties' appraised value and to be notified of the estimated taxes that could result from the new value.
- A taxing unit must publish its effective and rollback tax rates before adopting an actual tax rate.
- A taxing unit, other than water districts and small taxing units, with a rate of 50 cents or less per $100 of property value that raises $500,000 or less in property taxes, must publish special notices and hold two public hearings before adopting a tax rate that exceeds the lower of the rollback rate or the effective tax rate. A water district must publish a special notice of public hearing. Finally, a small taxing unit must publish a simplified notice.
- If a taxing unit adopts a rate that exceeds the rollback rate, voters may petition for an election to limit the rate to the rollback rate.
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.
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.
Each taxing unit, other than a water district or a small taxing unit, publishes the effective and rollback rates in a local newspaper, along with a list of the debts it must pay and the amount of money left over from the previous year.
If taxpayers believe the taxing unit has not calculated and published these rates or other required information in good faith, they may ask a district court to stop the taxing unit from adopting a tax rate until it complies with the law.
2008 Law Changes
Senate Bill 1405, 80th Texas Legislature, Regular Session, requires the chief appraiser to prepare and certify for each county, city and school district participating in the appraisal district an estimate of taxable value in the taxing unit by June 7 (June 9, 2008). The county or cities may notify the chief appraiser that they do not wish to receive the estimate. Prior laws only required the chief appraiser to furnish an estimate of taxable value to the school district.
House Bill (HB) 3630, 80th Texas Legislature, Regular Session changes the Notice of Public Hearing on Tax Increase to clarify that the unit will hold two public hearings. The notice no longer includes comparisons of a unit's proposed and prior year budgets, current and prior year's total and new property values or contains a stand-alone comparison of proposed and prior year's tax rates. Instead, the new notice shows the prior year's taxes on the average residence homestead and the current year's proposed taxes on the average residence homestead if the taxing unit adopts either the calculated effective tax rate or the proposed tax rate.
HB 3495 and HB 3630, 80th Texas Legislature, Regular Session changes the name of the Notice of Vote on Tax Rate to Notice of Tax Revenue Increase. In addition to listing the date, time and location (including mailing address) of the taxing unit's vote on the tax rate, the new notice shows total tax revenue raised last year and proposed tax revenue for the current year based on taxable values including and excluding new property.
HB 621, 80th Texas Legislature, Regular Session adds Section 11.253, Property Tax Code, allowing an exemption for "goods-in-transit." "Goods-in-transit" is defined as personal property acquired or imported into Texas and transported to another location in the state or outside of the state within 175 days of the date the property was acquired or imported into Texas. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and outboard motor, heavy equipment, and manufactured housing inventory. For 2008, taxing units will not include taxable value lost due to Section 11.253 in the effective tax rate calculation, Step 8, "taxable value lost because property first qualified for an exemption." Similar to the "freeport" exemption, taxing units currently do not include value lost from freeport exemptions and tax abatements in the first-time exemption adjustment.
HB 538, 80th Texas Legislature, Regular Session amended Section 41.12, Property Tax Code, allowing the board of directors of an appraisal district in a county with a population of at least one million to extend the deadline for the appraisal review board (ARB) to approve the appraisal records from July 20 to Aug. 30. Because of this change, taxing units in the largest counties could see later tax rate adoption dates.
HB 1010, 80th Texas Legislature, Regular Session changes appraisal district boundaries to cut along county lines. Tax assessor-collectors for taxing units located in two or more counties may receive appraisal and assessment data for calculating tax rates from more than one chief appraiser.
HB 3732, 80th Texas Legislature, Regular Session provides additional rollback protection to taxing units that raise tax rates for maintenance and operations to pay for pollution control devices, facilities or methods. The new law adds an extensive list of clean energy technologies to existing pollution control devices and methods listed in Section 26.045, Property Tax Code.
Texas Constitution Provisions
The Texas Constitution sets out the general requirements for truth-in-taxation. The Texas Legislature amended Chapter 26, Property Tax Code, to set out the specifics.
Article VIII, Section 21. Increase in Total Property Taxes; Notice and Hearing; Calculation.
- Subject to any exceptions prescribed by general law, the total amount of property taxes imposed by a political subdivision in any year may not exceed the total amount of property taxes imposed by that subdivision in the preceding year unless the governing body of the subdivision gives notice of its intent to consider an increase in taxes and holds a public hearing on the proposed increase before it increases those total taxes. The Legislature shall prescribe by law the form, content, timing and methods of giving the notice and the rules for the conduct of the hearing.
- In calculating the total amount of taxes imposed in the current year for the purposes of Subsection (a) of this section, the taxes on property in territory added to the political subdivision since the preceding year and on new improvements that were not taxable in the preceding year are excluded. In calculating the total amount of taxes imposed in the preceding year for the purposes of Subsection (a) of this section, the taxes imposed on real property that is not taxable by the subdivision in the current year are excluded.
- The Legislature by general law shall require that, subject to reasonable exceptions, a property owner be given notice of a revaluation of his property and a reasonable estimate of the amount of taxes that would be imposed on his property if the total amount of property taxes for the subdivision were not increased according to any law enacted pursuant to Subsection (a) of this section. The notice must be given before the procedures required in Subsection (a) are instituted.