AUSTIN (KXAN) — The Texas House passed Senate Bill 2 on July 13, advancing the property tax relief bill to Gov. Greg Abbott for his approval.
KXAN received several questions about the bill from viewers on social media and by email, and tracked down answers to some of your frequently asked questions.
What is in Texas’ property tax proposal?
The bill provides for $12.7 billion in tax relief for property owners through four main avenues:
- Reducing school district property tax rates by subsidizing public education with an additional $12 billion;
- Raising the homestead exemption from $40,000 to $100,000;
- Limiting appraisal value increases to 20% per year for non-homesteaded properties under $5 million, as part of a 3-year pilot program; and,
- Exempting businesses with annual revenue of less than $2.47 million from the franchise tax, up from a $1.23 million exemption threshold.
The tax rates for each school district must be recalculated by the Commissioner of Education to provide at least a 10.7% reduction. The specific reduction could vary by district, but all must stay within 90% of each other.
In addition, it requires counties with 75,000 or more people to have an appraisal district board of directors with up to five directors appointed by the taxing units (a political unit that is authorized to impose ad valorem taxes on property), three directors elected by county voters and the county assessor-collector.
When does this take effect?
In Texas, any new law that impacts the state budget must have the consent of voters, who must pass an amendment to the state constitution.
If voters do not pass this amendment, then the state cannot enact many parts of the law; the Governor and Legislature only have the power to do what is in the state Constitution.
November’s election day ballot will ask voters whether or not they want the state to spend funds on property tax relief. What will appear on the ballot is below:
“The constitutional amendment to authorize the legislature to establish a temporary limit on the maximum appraised value of real property other than a residence homestead for ad valorem tax purposes; to increase the amount of the exemption from ad valorem taxation by a school district applicable to residence homesteads from $40,000 to $100,000; to adjust the amount of the limitation on school district ad valorem taxes imposed on the residence homesteads of the elderly or disabled to reflect increases in certain exemption amounts; to except certain appropriations to pay for ad valorem tax relief from the constitutional limitation on the rate of growth of appropriations; and to authorize the legislature to provide for a four-year term of office for a member of the board of directors of certain appraisal districts.”Texas House Joint Resolution No. 2
If a simple majority of voters approve this amendment, it immediately enables Articles 2 and 3 of S.B. 2. Article 4 takes effect at the start of 2024 if the amendment passes. These provide for the property tax relief described above.
Article 5, which concerns appraisal district board of directors, also requires voter approval. If it does, it will be fully implemented by July 2024.
Article 6, which makes provisions for property taxes due for 2023-2024, begins on October 12.
What does this mean for my 2023-2024 taxes?
Article 6 requires tax assessors to prepare this year’s taxes as though voters had approved the constitutional amendment. This means that your property tax bill on October 1 will be a “provisional tax bill.”
Your tax bill will include the following language:
“If the Texas Legislature had not enacted property tax relief legislation during the 2023 legislative session, your tax bill would have been $____. Because of action by the Texas Legislature, your tax bill has been lowered by $____, resulting in a lower tax bill of $____, contingent on the approval by the voters at an election to be held November 7, 2023, of the constitutional amendment proposed by H.J.R. 2, 88th Legislature, 2nd Called Session, 2023. If that constitutional amendment is not approved by the voters at the election, a supplemental tax bill in the amount of $____ will be mailed to you.”Senate Bill 2
However, if voters reject the amendment, you will be required to pay back those savings.
What does this mean for renters?
Very little — the bill passed by the Texas Legislature does not provide any direct relief to renters.
A proposal by State Rep. John Bryant, D-Dallas, would have provided a rebate to renters; however, it failed to pass the Texas House.
Rental housing, which typically operates as a for-profit enterprise, focuses to creating profit for property owners. Reducing expenses via property tax relief increases profit margin, but it is unlikely that it will cause a reduction in monthly rents.
SB 2 does not require landlords to limit rent increases or use their savings to provide relief to their renters.
Some renters, as part of a lease agreement, do pay property taxes on their rental property. They will see a reduction in those taxes under SB 2, but their monthly rent will not be effected.
What does this mean for schools?
According to the Legislative Budget Board, public school districts will receive less revenue to fund operations under this law. To make up the decreased revenue, the State of Texas will provide an additional $12 billion to its education budget.
Public education advocates tell KXAN they believe this to be unsustainable after the $12 billion is used, but Abbott and Lt. Gov. Dan Patrick both defend the bill as sustainable.
How does this affect small businesses?
Businesses with properties valued at under $5 million will get a “circuit breaker limitation” on appraisals in 2024. This also effects other non-homesteaded properties as well.
The law (if approved by voters) will cap any increase in appraisal value to 20% per year.
This is a limited time pilot program that will last between 2024-2027 as part of a pilot program.
For 2025 and 2026, the State Comptroller will determine any necessary adjustment to the amount that properties must be valued under in order to receive the limitation.
Also, businesses with an annual revenue of less than $2.47 million will be exempted from the franchise tax. This is increased from the previous exemption of $1.23 million. This tax rate is 0.375% for retail or wholesale businesses and 0.75% for all other businesses.
What does this mean for older adults?
Disabled homeowners and homeowners over 65 keep their supplemental $10,000 homestead exemption under the new law and will not need to reapply. It is provided in addition to the general homestead exemption.
School districts still cannot increase the property taxes rate on an older or disabled adult, capping that rate at where it was for the first year that the adult qualified. They can still lower that rate.
How did it take the legislature so long?
Thanks to a historic budget surplus, property tax relief was a priority for Abbott and Patrick. However, the two clashed over the specifics, leading Abbott to call two special sessions in June and July.
Hundreds of bills related to property tax were filed during the 88th regular legislative session, but very few advanced further than committees. The ones that were passed only effect niche cases.
The Texas Senate and House reached an agreement July 10. The Senate passed that version on July 12, and the House passed it on July 13.
Still have questions?
KXAN will update this article as we receive new questions. We may not be able to answer your question directly, but please send them in using the form below or by emailing ReportIt@kxan.com.
Please know that KXAN cannot provide answers specific to your situation, finances or taxes. Any such questions should be directed to your financial advisor.