As the summer unfolds, taxing entities such as counties, municipalities, colleges and school districts are undergoing the budget process for the upcoming fiscal year.
As they piece together their budgets, the entities wait for numbers that will allow them to provide solidified budgets to be approved within the coming months.
Those numbers are provided by the appraisal district which for local entities would be the Hockley County Appraisal District (HCAD).
The process begins with property taxes. Property taxes are assessed, collected, and used locally.
Individuals pay their property taxes to the local tax collector, who then distributes funds to the entities that have jurisdiction over your property (schools, cities, and other local governments). These entities spend the collected funds on schools, roads, hospitals, police departments, fire departments, and other programs.
Texas has no state property tax. The Texas Constitution and statutory law authorizes local governments to collect the tax. The state does not set tax rates, collect taxes or settle disputes between you and your local governments.
The local property tax system has several main components.
The property owner, whether residential or business, is responsible for paying taxes.
An appraisal district in each county, administered by a chief appraiser, appraises the value of a taxpayer’s property each year. For more information about the local appraisal process, contact the county appraisal district. The appraisal district can answer questions about exemptions and how an appraised value was determined.
An appraisal review board (ARB) is a board of local citizens that hears disagreements between property owners and the appraisal district about the taxability and value of property.
In counties with a population of 120,000 or more, members of the ARB are appointed by the local administrative district judge in the county in which the appraisal district is located. The board of directors appoints ARB members in all other counties.
Local taxing units, including the school districts, counties, cities, junior colleges and special districts, decide how much money they must spend to provide public services.
Property tax rates are set according to taxing unit budgets. Some taxing units have access to other revenue sources, such as a local sales tax. School districts must rely on the local property tax, in addition to state and federal funds.
In many counties, taxing units’ contract with the county tax assessor-collector to collect all property taxes due in that county. The assessor-collector then transfers the appropriate amounts to each taxing unit. Although some taxing units may contract with an appraisal district to collect their taxes, the appraisal district does not levy a property tax.
A unique caveat for school districts is state and federal funding is affected greatly by the comptroller’s office.
The role of the Comptroller’s Property Tax Assistance Division (PTAD) is primarily limited to monitoring responsibilities. PTAD conducts a biennial Property Value Study (PVS) for each school district for state funding purposes.
The PVS, an independent estimate mandated by the Texas Legislature, ensures that property values within a school district are at or near market value for equitable school funding.
The Comptroller’s values do not directly affect local values or property taxes, which are determined locally.
PTAD also performs Methods and Assistance Program (MAP) reviews of all appraisal districts every two years.
The reviews address four issues: governance, taxpayer assistance, operating standards and appraisal standards, procedures and methodologies.
PTAD reviews approximately half of all appraisal districts each year. School districts located in counties that do not receive a MAP review in a year will be subject to a PVS in that year.
While that process is ongoing, the taxing units begin the process of adopting a budget. Truth-in-taxation is a concept embodied in the Texas Constitution that requires local taxing units to make taxpayers aware of tax rate proposals and to afford taxpayers the opportunity to limit tax increases.
This is accomplished through several steps: 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.
Creating a budget and adopting a property tax rate to support that budget are major functions of a taxing unit’s governing body. This is accomplished by following Truth-In-Taxation requirements to ensure the public is informed of any increases. The type of taxing unit determines its applicable Truth-In-Taxation requirements.
Appraisal districts and local taxing units must publish detailed information at Texas.gov/ PropertyTaxes to assist residents with understanding proposed budgets and tax rates if certain taxing units fail to comply with the hearing, notice or tax rate adopting process in good faith, a property owner in the taxing unit may seek an injunction to stop the taxing unit from sending tax bills until it convinces the district court that it has complied with the law.
A property owner must act to enjoin collections before the taxing unit delivers substantially all of its tax bills.
This injunction process does not apply to taxing units with low levies or water districts.
By providing the following information, the comptroller’s office provides technical assistance and not legal advice.
Taxing units should consult legal counsel for questions about the meaning of statutes, notice and hearing requirements and other matters that are unclear in the law.
It is required of most taxing units to calculate two rates after receiving a certified appraisal roll from the chief appraiser — the nonew- revenue tax rate and the voter-approval tax rate.
The type of taxing entity determines which steps apply. Cities, counties and hospital districts may levy a sales tax specifically to reduce property taxes.
These taxing entities reduce the no-new-revenue tax rate in the first year only and voter-approval tax rates every year thereafter to account for the property tax reduction paid for by the expected sales tax revenue.
Any taxing entity may increase its voter-approval tax rate for maintenance and operations (M&O) funds used to pay for a facility, device or method for the control of air, water or land pollution.
The entity must provide its tax assessor with a copy of a determination letter from the Texas Commission on Environmental Quality (TCEQ) stating the portion of the cost of the installation for pollution control.
A county may increase its no-new-revenue M&O rate, and therefore its voter-approval tax rate, for funds used to pay for the state criminal justice mandate, indigent health care, indigent defense and a county hospital. Other taxing units that pay for indigent health care may also increase their no-new-revenue M&O rate.
The comptroller’s office prescribes the tax rate calculation forms taxing units are required to use in determining tax rates.
The taxing entities designated officer or employee may not submit the no-new-revenue tax rate and the voter-approval tax rate to the governing body of the taxing entity and the taxing entity may not adopt a tax rate until the designated officer or employee certifies on the tax rate calculation forms that the designated officer or employee has accurately calculated the tax rates and has used the same values as the values shown in the taxing unit’s certified appraisal roll in performing the calculations.
Most taxing entities calculate two rates after receiving a certified appraisal roll or certified estimate of taxable value from the chief appraiser - the no-new-revenue tax rate and the voter-approval tax rate.
The no-new-revenue tax rate enables the public to evaluate the relationship between taxes for the prior year and for the current year, based on a tax rate that would produce the same amount of taxes if applied to the same properties taxed in both years.
Although the actual calculation is more complicated, a taxing unit’s no-new-revenue tax rate is generally equal to the last year’s taxes divided by the current taxable value of properties that were also on the tax roll last year. The resulting tax rate, used for comparison only, shows the relation between the last year’s revenue and the current year’s values.
The voter-approval tax rate is a calculated maximum rate allowed by law without voter approval. Most taxing units calculate a voter-approval tax rate that divides the overall property taxes into two categories - M&O and debt service.
The voter-approval tax rate provides cities and counties with about the same amount of tax revenue it spent the previous year for day-to-day operations plus an extra three and a half percent for operations and sufficient funds to pay debts in the coming year.
For special taxing units, junior college districts and hospital districts, the voter-approval tax rate provides an extra eight percent increase for operations and sufficient funds to pay debts in the coming year.
The school district’s voterapproval rate is equal to the district’s maximum compressed rate plus the greater of the previous year’s enrichment rate or five cents per $100 of taxable value.
They then add the debt rate to get the final voter-approval tax rate. School districts should consult the Texas Education Agency for guidance on compression rates.
For all taxing units, the debt rate portion of the voter-approval tax rate is the current year’s debt payments divided by the current year’s property values. The debt rate may rise as high as necessary to cover debt expenses.
Most taxing units are required to publish their calculated nonew- revenue and voter-approval tax rates on the home page of the taxing unit’s website.
Most taxing units are required to file one notice before adoption of a tax rate in compliance with Tax Code requirements.
School districts must comply with notice requirements in the Education Code, local government taxing units and special districts must comply with notice requirements in the Property Tax Code and water districts must comply with requirements defined in the Water Code.
All notices provide details on the no-new-revenue tax rate, voter-approval tax rate and proposed tax rate. The notice includes the date and time of the meeting to adopt a tax rate.
Generally, if the proposed rate is higher than the voterapproval rate, the notice will also include information about the next uniform election date when voters would have to vote on the tax rate.
After the taxing unit publishes the required notice, taxpayers must have the opportunity to express their views on tax increases at hearings. The type of taxing unit determines the hearing requirements.
Small taxing units have no public hearing requirement. All other taxing units hold one public hearing. A quorum of the governing body must be present at all hearings. All public hearings and public meetings must be open to the public and follow Texas Open Meetings Act requirements.
A taxing unit other than a water district must adopt its tax rate before Sept. 30 or by the 60 days after the taxing unit receives the certified appraisal roll.
The taxing unit is required to hold an election to approve the tax rate on the next uniform election date if it adopts a tax rate that exceeds the voter-approval rate. In this case, the Tax Code requires the governing body to adopt the tax rate no later than the 71st day before the next uniform election date.
If a taxing unit misses the deadline, the governing body must ratify either the no-newrevenue tax rate or last year’s tax rate, whichever is lower, as the adopted tax rate before the fifth day after establishing that tax rate.
Another term individuals may hear is the “de minimis” rate. The de minimis rate is a tax rate calculation designed to give smaller taxing units, including cities with a population of less than 30,000, some flexibility to budget for extraordinary costs that may not be possible under the three and a half percent voterapproval tax rate.
The de minimis rate is the sum of a taxing unit’s nonewrevenue M&O rate; the rate that, when applied to a taxing unit’s current total value, will impose an amount of taxes equal to $500,000; and a taxing unit’s current debt rate.
Voters may petition to hold a tax approval election if the de minimis rate exceeds the voterapproval tax rate and the adopted tax rate is equal to or lower than the de minimis rate but higher than the voter-approval tax rate.
The voter-approval tax rate in this instance may be calculated in one of two ways, depending on the qualifications of the taxing unit.
These voter-approval tax rate calculations are either a three and half percent increase to maintenance and operations plus the unused increment plus debt or if a city were also a special taxing unit with an eight percent rate increase to maintenance and operations plus debt.
As the taxing units move along through their budget timelines, budgets will be proposed, public hearings will be set and tax rates will be adopted.