A $12.7 billion package of property tax cuts goes before voters later this year, promising to deliver savings to millions of property owners in Texas suffering from skyrocketing tax bills.
Gov. Greg Abbott signed the legislation creating the cuts last weekend, officially closing months of negotiations among the state’s top Republicans. But before they can go into effect, Texas voters will first have to decide in a constitutional election on Nov. 7 whether to allow the state to spend billions in taxpayer money — mainly collected from Texans during the past two years — to pay for the massive cuts. If approved, an outcome that seems likely given voters’ support of tax cuts in the past, the changes would be applied for the 2023 tax bills due in January.
Here’s what you need to know to make your decision.
What are we voting on?
Earlier this month, during the second special session of the 88th Legislature, lawmakers passed three bills to spend $13.3 billion of a historic state surplus to rein in Texas property taxes, which are among the highest in the nation. The extra cash in the state coffers was attributed largely to record sales tax collections — which every person pays when making purchases in Texas — when inflation soared nationally after the pandemic. Added to $5.3 billion budgeted in 2019 to lower school tax rates, a total of $18.6 billion in tax cuts would go to property owners this year.
Senate Bill 2, at a cost of $12.7 billion, details the proposed property tax cuts, while Senate Bill 3, which costs about $600 million, adds cuts to the franchise taxes some businesses have to pay. Both were authored by state Sen. Paul Bettencourt, a Houston Republican.
These measures will not appear on the ballot. House Joint Resolution 2, by state Rep. Will Metcalf, R-Conroe, is the constitutional amendment that will go before voters in November and would authorize the state to enact the cuts in those two bills.
Proponents of the package wanted a constitutional amendment so that any changes that lawmakers might want to make to certain parts of the bill in the future would have to be approved by voters first. The amendment is also needed so that the cost of all of the tax cuts this year won’t count against spending limits imposed by voters and lawmakers on the $321.3 billion state budget for the next two years.
How would the changes affect homeowners under 65?
Some 5.7 million households in Texas are homesteads, the tax-friendly word for a home that serves as its owner’s primary residence. These can be single-family homes, duplexes or even a condo.
Policy analysts and lawmakers project that the expanded homestead exemption and lower school tax rate would reduce a Texas homeowner’s property taxes by an average of 41.5%, or about $1,300 per year for a $350,000 home.
The expanded franchise tax exemption and 20% appraisal cap do not apply to property that already gets the homestead exemption. But the current 10% appraisal cap for homesteaders will remain in place.
Let’s look at a few examples. The value of a Corpus Christi homeowner’s sprawling property near the waterfront was $650,000 last year, and under the current $40,000 homestead exemption, she paid taxes on $610,000 of that property’s value. This year, the home’s property assessment was capped at $715,000. Under the proposed $100,000 exemption, the homeowner would pay taxes on $615,000 of her property’s value — instead of paying taxes on $691,000 under the current exemption. Based on current tax rates, she’d likely save more than $100 per month on her tax bill.
Meanwhile, the owner of a home in the Panhandle city of Amarillo valued at $315,000 this year would get savings of about $80 per month. And the owner of a million-dollar home in Spring, near Houston, might save about $150 per month.
How would the changes affect senior homeowners and those with disabilities?
In addition to the new $100,000 exemption, Texas homesteaders with disabilities and those 65 and older will continue to qualify for the extra $10,000 exemption they are already allowed to receive — for a total exemption of $110,000.
The new law also addresses an issue that cropped up when the exemption was raised from $25,000 to $40,000 in May 2022.
Texans 65 and older and those with disabilities, many of whom are on fixed or limited incomes, have had their school property taxes frozen for many years to protect them from rising tax rates and property values. But because of the way the $40,000 exemption increase was written, those homesteaders did not benefit from the higher exemption when voters approved it last year.
If the constitutional amendment passes, it would provide money for those homeowners who lost out on tax savings last year due to their frozen taxes and it would ensure they benefit from any future exemption increases that might lower those taxes.
These groups of homeowners would also see their school taxes decrease. The school tax rate reduction and the $110,000 homestead exemption are expected to lower property taxes for senior and disabled homeowners by about $1,450 per year on a $330,000 home, Bettencourt said.
How would the changes affect small businesses?
If voters approve the new cuts, entrepreneurs who own the property their businesses occupy would see their school M&O taxes decrease by 10.7 cents per $100 valuation.
In addition, commercial properties valued at less than $5 million would be protected from excessive year-over-year value upsurges with a 20% cap on how much a property’s appraisal can go up. The cap would be in place for the next three years until lawmakers and voters decide whether to renew it.
It wouldn’t be necessary for a business to be headquartered in Texas in order to get the property tax breaks; any land it owns within the state would qualify to receive the benefits if it doesn’t exceed the value limit.
Here’s an example. A businessman in Corpus Christi saw the value of his office on a prime parcel of waterfront downtown increase by 18% from 2021 to 2022 — and then by 48% from 2022 to 2023, according to tax records. In fact, since 2019, his property has nearly doubled in value.
Whether he chooses to pass the savings along to his renters is his decision and not a requirement in the bill.
Now let’s look at a commercial landlord. In Brenham, the Mars & Space Investment LLC owns a 1.3-acre property that has a laundromat, a tax services group, a pest-control business, a gas station and convenience store and a donut shop on Alamo Street near downtown.
The value of the strip, with the land and buildings, shot up from $373,000 in 2021 to $770,000 in 2022 — a whopping 106% increase. It was valued at $972,430 this year, a 26% increase over 2022.
The company would be able to benefit some from the 20% cap if the property’s appraisal, which is currently being protested by the owners, doesn’t decrease.
How would the changes affect residential renters?
People who pay rent to a landlord for their home are not guaranteed any tax cuts from the new property tax package unless their rent is tied at least in part to tax rates, which is rare in residential leases.
The proposed law does not require landlords to pass along any savings from property taxes to the occupants of the property. Democratic lawmakers tried to add a provision allowing renters to claim tax rebates tied to their incomes, but the effort failed.
Supporters of the package say that the appraisal cap on small business properties would allow landlords to avoid increasing rents at the pace they’ve been rising in recent years, and that the market resulting from lower appraisals would help drive down prices through competition.
But critics of this argument say that the housing crisis in Texas is driving rent costs more than property taxes, so whether renters would ultimately benefit from the tax cuts remains unclear.
Correction, : An earlier version of this story incorrectly named state Rep. Morgan Meyer, R-University Park, as the lead author of House Joint Resolution 2 during this year’s second special legislative session. The author of the resolution was state Rep. Will Metcalf, R-Conroe.
Correction, : An earlier version of this story incorrectly reported that Senate Bill 3 allocates $600,000 to pay for cuts to the state’s franchise tax. The amount is $600 million.
Correction, : This story has been updated to note that under the proposed property tax-cuts plan, homeowners who live in a residence they own would continue to benefit from the state’s current 10% cap on annual property appraisal increases.
Source: Texas Tribune BY KAREN BROOKS HARPER
Photo: Credit: Michael Gonzalez/The Texas Tribune
