How Real Estate Property Tax Rates Are Set

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Our property tax consultants often get asked how taxing jurisdictions (counties, cities, ISDs and special districts) set each year’s tax rates that commercial real estate property owners eventually see on their property tax bills in the fall. There’s both a short and long answer.

The short answer: It’s a year-long process that begins on Jan. 1 every year – which is the actual assessment date for commercial, residential and business personal property (BPP) – and is ultimately determined by annual budgets set by each taxing jurisdiction.

The long answer: Each year, the Central Appraisal Districts (CADs) use Jan. 1 as the assessment date. This means prior year-end data – including comparable sales, rent rolls and income/expense reports for real estate, and balance sheets and depreciation schedules for BPP – are used to help assessors determine what the proposed assessed valuations will be. Once the proposed values have been determined by the assessors, the CADs mail out a Notice of Proposed Value to every commercial real estate property owner in late April or early May. The property owner or his consultant must file a written property tax appeal by May 31 – or 30 days after receipt of the notice, whichever is later – and then settle any contested value informally with an assessor, or formally before the Appraisal Review Board (ARB). The ARB will hear arguments from the property owner and the appraisal district and will then make their ruling. If the owner is not in agreement with the ARB ruling, he has anywhere between 45 days to file for arbitration or 60 days to file a lawsuit. Once all ARB hearings are complete, the CADs must certify their tax rolls on or before July 25 per Texas law. To certify, a minimum of 95% of the tax roll must have a final value, and upon certification, the CADs notify each taxing jurisdiction what the total value of all BPP and real estate property is within their boundaries.

At this point, the jurisdictions determine their annual budgets for the upcoming year based on overall value. The property tax rate is then established based on the amount of money the jurisdiction needs or wants to spend. In good economic times, when the value on the tax roll is increasing, the tax rate can be lowered to raise the same amount of money. However, when the value on the roll decreases in a declining economy, taxing entities must increase the tax rate to raise the same amount of revenue, or leave the tax rate alone but reduce their expenses. Once the tax rate is determined, property tax bills are printed and mailed to property owners starting in late September into October. Tax bills are due when the property owner receives them; however, they do not become delinquent until after January 31 of the upcoming year. At that point, the whole process begins anew.

If you saw our blog post on late correction property tax appeal in November, you know there’s still time (only a couple weeks!) to still save on your property taxes from last year. Head to our blog for a step-by-step real estate tax guide.

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