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It's January 1. Do You Know What Your Property Value Is?Property appraisal "season" began on January 1. The tax levy on a piece of property depends on who owns it, how it is used, and the market conditions on January 1 of a given year. These factors determine whether the property is taxed at all, who is responsible for the taxes, and the assessed value of the property. A Notice of Appraised Value is sent to the property owner between March and June. Once received, the property owner is given thirty (30) days after its receipt to file a protest of the appraised value. If the property owner misses the protest deadline, it loses its right to protest. If a protest is filed, a hearing before the appraisal review board is held within weeks of filing the protest. Appeals from the appraisal review board are taken directly to the District Court. A tax invoice is sent in November. The invoice will be based upon the value established by the appraisal review board. Even though the appraised value may be challenged in court, the tax must be paid before February 1 of the following year or penalties are assessed. While this all seems straightforward, the value of the property is actually a wild card. Why? Because each year local taxing entities — counties, cities, school districts, hospital districts, and other special districts — decide how much they will need to spend over the next budget year (and, thus, how much revenue they need to raise). Governmental entities must balance rising demands on their resources against citizens' demands to not raise taxes. So they don't raise taxes — at least not technically. Instead, they boost their tax revenues by boosting property values. Property tax collections in Texas alone have risen by 69% over the last two decades. In 1999, local governmental entities, including counties, cities, and school districts across the nation, collected an estimated $221 billion in property tax revenue. Texas ranks near the top in local property tax collections — in both per capita and per $1,000 of personal income — not surprisingly, since Texas is one of the few states without a state income tax. The local sales tax base grows at a slower rate than the property tax base. In fact, in real per capita terms, the average county sales tax base in Texas has actually declined over time. This has put pressure on local appraisal districts to increase revenue. In case there is any doubt where new property tax revenue comes from, only 19% comes from increases in the actual tax rate. The remaining 81% comes from increases in property valuation. Businesses can expect the gap between local tax collection and local government expenses to grow wider. Economic forecasts underlying state and local government budgets, developed in better economic times, have become useless as the economy has weakened. Look for a larger local tax bill. Increased tax bills are an unpleasant surprise for many of our clients. While it is tricky to protest an increase in property values to an appraisal review board, it can be done. (As former Texas Comptroller John Sharp pointed out, the various appraisal review boards are "appointed by the folks who get the money, not the folks who give the money.") In one case last year, our firm successfully protested an appraised value for a durable goods manufacturer to a review board in Tarrant County, Texas. The board found a more than $12.3 million — or 39% — reduction in favor of our client. The client walked away with nearly $600K in savings. The message is simple: Review your Notice of Appraised Value carefully. If you have any questions, please call us. For further information on this topic, please contact Steve Watten at steve.watten@strasburger.com or Beth Tiggelaar at beth.tiggelaar@strasburger.com.
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