Will Texas Actually Reform Property Taxes?

Will Texas actually reform property taxes?

It’s no secret to any hotel owner or homeowner that property taxes are high in Texas. 

Commercial income-producing properties such as hotels bear a particularly heavy property tax burden due to how hotels are valued and because commercial properties do not benefit from exemptions such as the residential homestead exemption.

With a record $33 billion state budget surplus, hotel owners are rightfully asking: What does the State of Texas plan to do to ease their property tax burden? 

First, the basics:

Two factors affect how much a property owner must pay in property taxes:  The taxable appraised value of the property, and the tax rate. Both of these factors change every year, so a property owner rarely pays the same amount in property taxes two years in a row.

When looking at the estimated property tax bill, most hotel owners focus on the taxable appraised value of the property, and they then work hard to get that taxable value lower by using a property tax agent. 

Taxable appraised values are important when it comes to reducing property taxes, but they are not the whole story

In 2019, THLA supported important property tax reform legislation that was aimed at reducing the tax rate component of property tax bills. That legislation essentially caps the amount of tax revenue that cities, counties, and school districts may collect year-over-year. 

Cities and counties may not collect more than a 3.5 percent increase in total property tax revenue over the previous year without holding an election to approve a larger increase. And school districts must reduce their tax rates when property values increase beyond a 2.5 percent threshold over the prior year. 

This means that while property owners have seen rapid growth in their property’s appraised value in recent years, the actual amount of property tax owed has not grown as quickly.

What do property taxes fund? 

In Texas, property tax revenues entirely fund local government functions such as the city, the county, and the public school district.  While the State of Texas regulates how property taxes are levied, the State treasury does not take in property tax revenue.  The largest component of nearly every property tax bill is the portion for the local independent school district, with the remaining component of the property tax bill split between the city, the county, and special districts.  In addition to receiving local property tax revenue, school districts also receive some funding directly from the State of Texas, and the State has a constitutional duty to ensure a minimum level of funding for all public schools.

The Governor, the Lieutenant Governor, and the Speaker seem to be disagreeing with how to address property taxes right now

What are the differences among the various approaches?  Republican leaders agree that the State of Texas needs to do more to address property taxes, and the Legislature appropriated over $17 billion for property tax relief in the recently passed state budget.  However, there are differences in the various approaches to providing relief to property owners. And some are better than others for commercial properties. 

The 2023 Regular Legislative Session ended on May 29th without the Legislature reaching an agreement on how to reduce property tax burdens

The Texas House was primarily focusing on limiting properties’ year-over-year appraised values and also forcing down school district taxes through tax rate compression, while the Texas Senate was primarily focused on increasing the residential homestead exemption and the senior citizen exemption, with a smaller amount of tax rate compression.  While both approaches would reduce property tax bills, THLA and other business groups more strongly support focusing on tax rate compression, since commercial property owners do not benefit from homestead or senior citizen exemptions. 

Without a property tax relief bill passing the Legislature, Governor Abbott immediately called the first 30-day Special Legislative Session and directed the Legislature to pass legislation aimed at reducing property taxes solely through tax rate compression. 

Tax rate compression reduces property tax bills by appropriating more state tax revenue to public schools and forcing down local school district property tax rates.  Tax rate compression benefits commercial properties and residential properties alike, since all property owners pay school district property taxes and public education is the largest portion of nearly every property tax bill.


The Texas House immediately followed the Governor’s direction and quickly passed HB 1

This rate compression-only property tax bill would send $12.3 billion in state money to school districts to lower school district property tax rates. 

The House then adjourned the special session sine die, leaving the Texas Senate with “take it or leave it” property tax relief legislation. The Texas Senate did not take the House’s property tax relief bill and instead passed SB 1, a property tax relief bill of its own. 

The Senate, which is presided over by Lieutenant Governor Dan Patrick, passed a property tax relief bill that contains a combination of approaches. First, the Senate plan would increase the residential homestead exemption from $70 thousand to $100 thousand. Second, the Senate plan would further restrict how much school districts’ property tax revenue can grow each year from 2.5% to 1.75%, forcing districts to lower their tax rates. And third, the Senate plan would expand the state franchise tax exemption from $1 million in annual revenue to $2.47 million in annual revenue. 

The franchise tax component of the Senate plan was particularly surprising since franchise taxes had not been a part of the discussion.

However, with the House adjourned sine die, the Senate bill will not pass this Special Session, and the Lieutenant Governor indicated the Senate will not take up the House bill.

What happens now?  

What happens now is anyone’s guess.  The first special session ended on June 27th and Governor Abbott immpedately called a second special special session to take up property tax reform.  The Governor put tax compression into the call, but also left room to consider other property tax relief ideas.  What we do not yet know is how the House and the Senate will resolve the impasse regarding each approach. 

Stay tuned

Justin Bragiel, THLA General Counsel and Legislative Director


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