Property Tax Basics Which Office Owners Should Know
Office owners and managers should know that in Texas the second largest operating expense after debt service are property taxes. Additionally, since the majority of property taxes are generally passed through to the tenant it is extremely important to control them in today’s competitive market.
Texas tax rates are high due to the nature of our property tax system. Since we have no state income tax, property taxes is the primary financial resource for the operation of governmental entities in Texas. Annual valuations are determined by local appraisal districts and taxes are levied and collected by counties, cities and school districts.
Since tax valuations can be contested annually, property owners and managers should know that the Texas Constitution sets out five basic rights in regards to property taxation:
1. Taxation must be fair and equitable.
2. All tangible property must be taxed based on its current market value. The exceptions to this rule are properties receiving exemptions and agricultural valuations.
3. All property is taxable unless exempted by state and federal law.
4. Taxpayers have a right to reasonable notice of increases in the appraised value.
5. Each property in a county must have a single appraised value.
Although these five basic rules are very important, a building owner or manager should be aware and understand the meanings of fair and equitable taxation and the concept of market value for property tax purposes.Through court decisions and legislation the issue of fair and equal taxation, also known as uniform and equal appraisal, has been determined to mean that a taxpayer’s property should be assessed at the median level of appraisal in relation to other like and comparable properties. For example, if an office property sold and an appraisal district raises the property’s value up to the sales price, while leaving surrounding comparable properties at sustainably lower values, this would necessitate the filing of an appeal based on uniform and equal appraisal.
With the exception of a recent sale or a property under construction, the Market Value on office buildings is generally determined by using the income approach to value. Typically, a market pro-forma is used to determine market rental rates, vacancies, operating expenses and capitalization rates. Court rulings and the Texas Property Tax Code are very clear stating that current market information is to be used in this process not historical data. In-other-words, a single or multi-tenanted property with high historical rental rates are not to be utilized. Rather it should be based on current market rental rates. By using current market data the appraisal district and or the taxpayer will determine the property’s current Fee Simple Market Value which is required by the Texas Property Tax Code.When appealing a property valuation it should be understood that based on our current tax system a taxpayer is entitled to the lower of uniform and equal appraisal or market value. Owners and managers should also be aware of the four phases in the property tax process. The Texas Property Tax Calendar is divided into four sections:
January-May (1/1-5/15): The Appraisal Phase. · The appraisal district collects information to appraise properties for the current tax year.· Administer exemptions and special appraisals.· Update property records.· Taxpayers file personal property renditions and appraisal districts set valuations based on those filings.· Notices of appraised values are mailed to taxpayers.May-July (5/15-7/25): The Equalization Phase (The Administrative Remedy). The tax roll is submitted to the Appraisal Review Board (ARB).· Taxpayers file protests.· The informal and formal appeal process begins.· After the appeal hearings the ARB approves and certifies the tax roll on or about July 25.July-September (7/25-10/1): The Assessment Phase.· Taxing entities receive the certified tax rolls.· Local jurisdictions adopt budgets.· Tax rates are adopted.· Taxes statements are mailed to taxpayers.· Some taxpayers dispute their ARB rulings and appeal their appraised values to district court for Judicial Review.October-January (10/1-1/31): Current Collection Phase. Taxes are collected by local jurisdictions.· Taxes become delinquent 2/1.Generally speaking; filing a protest in Texas should be done on or before May 31 of the current tax year or after receipt of a Notice of Appraised Value from the appraisal district. All protests should be executed on protest forms provided by the appraisal district or those provided by the Texas Comptroller’s Property Tax Division. The forms distributed by appraisal districts and the Comptroller’s office allow the taxpayer to denote the reason for their appeal.In most Texas Counties the taxpayer and or the representative are allowed the opportunity to have an informal hearing with the appraisal district staff. If the taxpayer does not come to a resolution of their appeal with the staff, they are entitled to a hearing before the Appraisal Review Board (ARB). The ARB is made up citizens who are charged with the task of settling disputes between the taxpayer and the appraisal district.If a taxpayer disagrees with the ruling of the ARB they have three avenues of further appeals which they can pursue:· A taxpayer has the right to seek relief from Judicial Review (litigation). · In commercial cases with valuation at $1,000,000 or less the taxpayer has the right to file for a binding arbitration hearing which is substantially less costly than filing suit.· During the 2009 Texas Legislative Session was created a pilot program as an alternative to property tax litigation. The program gives taxpayers the right to appeal to the State Office of Administrative Hearings (SOAH). This new level of appeal is established for Bexar, Cameron, El Paso, Harris, Tarrant and Travis counties.