Property Tax Overview

Property taxes are taxes assessed by Texas on individuals or entities that own real property (land and buildings) in the state. This tax is also levied on certain tangible property owned by businesses including office furniture, machinery, and inventory. These taxes provide a very large revenue stream in Texas for local governments, and are in fact assessed, levied, and collected by local governmental jurisdictions (counties, school districts, cities). Funds from property tax are used to provide many services that benefit residents and visitors alike including emergency services, schools, road services, etc. If you are a visitor and do not own property in Texas, then you are not responsible for remitting property tax. However, if you own property in Texas at the end of the year, you will generally owe property tax in Texas. This applies to Texas residents and non-residents alike, and is true even if you go the entire year without visiting or using your property.

Calculating Property Tax Due in Texas

Property tax is calculated using the following formula:
Property Tax Rate x Property Value = Property Tax Due

The property tax rate is set by the local taxing unit. While there are certain limitations imposed, generally speaking, the local taxing unit is able to set the property tax rate they believe to be appropriate given the revenue needs of their jurisdiction. Prior to the rate being set, the taxing unit will hold open meetings to discuss the tax rate and revenue needs. The public is open to come to many of these meetings and voice their opinion on what the rate should be. However, once the property tax rate has been set, it is not typically subject to appeal. As such, the tax rate doesn’t normally get a significant amount of attention from taxpayers questioning their tax due.
The property value is determined by an officially appointed property assessor. Determining the property value is not always straightforward and the assigned value is open to appeal. As such, this value may be scrutinized and questioned by taxpayers. Property value is calculated by authorized assessors who generally use one of the following three methods:

1) Fair Market Value – The property value equals what an owner could expect a buyer to pay for the property on January 1. This valuation technique is most often used for residential property.
2) Income Approach – The property value equals what an investor would be expected to pay for the anticipated future earnings of the property. This valuation technique is most often used for property used in the generation of income such as offices, hotels, and retail centers.
3) Cost Approach – The property value approach equals what it would cost to replace the property with one of equal utility. This valuation technique is most often used for property under construction or property types that are not frequently sold.

The state suggests (and in some cases requires) that property owners submit a rendition form after each taxable year. This form allows a taxpayer to document what they believe to be the appropriate value for all property they own that is subject to property tax. While these values are not binding on the state, in the event that you do decide to appeal the official value assigned to your property, it is a good to have this documentation showing what you believe your property to be worth.
In addition to utilizing the basic formula for calculating property tax, taxpayers should note there are multiple tax exemptions available to property owners. These exemptions could significantly reduce the amount of tax owed. For instance, residents of Texas are entitled to use the “Homestead” tax exemption if the residence being taxed is a residence owned and occupied by the taxpayer on January 1. An exhaustive listing of exemptions can be accessed from the Texas Comptroller’s website.
Finally, you should note property tax liabilities create a lien against the property. This lien travels with the property. As such, even though you might not owe additional property tax on your property, there could still be tax due associated with your property. The state can take any number of measures to try and collect this tax due including foreclosing on the property. As such, prior to purchasing property, it is a good idea to obtain a tax certificate for all jurisdictions that tax the property. The tax certificate will show if there are any delinquent taxes associated with the property.

Remitting Property Tax in Texas

Property tax collections typically begin around October 1 and generally go through January 31. Taxing units are required to send notice of the tax due, and are required to give the taxpayer at least 21 days to pay the tax. If the tax due is appealed by the taxpayer, the taxpayer must still pay tax on the portion that is not under appeal. It is very common for taxpayers to pay this tax prior to the end of the year so they can include this payment when determining the amount of United States Federal Income Tax they owe.

A Final Thought

Texas is a great place to own property. However, it is important to do your homework prior to purchasing property in Texas. There are a number of considerations that you must take into account. While these go far beyond understanding the property tax associated with the property, this topic should definitely be included in your preparation.