An Insider Look at Truth in Taxation in Texas
In This Article
Truth in Taxation in Texas:
A Guide for Counties, Cities,
and Appraisal Districts
Texas Taxpayers have a say on their tax increases. Learn more about the Texas Property Tax Reform and Transparency Act (or SB 2) and how it impacts property owners, local taxing units, and appraisal districts.
What Is Texas’s Truth In Taxation Law?
In 2019, Texas legislators passed the Texas Property Tax Reform and Transparency Act, which requires local appraisal districts and other taxing units to publish detailed information about proposed tax increases above 3.5% and gain voter approval to move forward.
What Truth In Taxation Means for Taxpayers:
SB 2 means taxing units must inform taxpayers of proposed tax rate changes. Depending on the proposed increase of their local property taxes, they will have the opportunity to vote to approve or reject the proposed rate. The governing body must notify by posting a notice on their website, mailing it to taxpayers home address, or publishing it in a newspaper. They are also required to hold a public hearing where taxpayers can attend and vote on the property tax rate proposals.
What Truth In Taxation Means for Property Owners:
Property owners need to be able to understand their property values, property tax burden, and any increases in the property tax rate. SB 2 allows more involvement for property owners in the amount of taxes they will owe. Property owners are required to be notified under Truth in Taxation. Looking ahead at what the taxing authority has earmarked as a property tax increase for the coming year, and having an opportunity to voice your opinion gives taxpayers and property owners more control over the taxation process. Truth In Taxation does not mean your property taxes are going up or down necessarily, it is a way of communicating any year-over-year change clearly to the public.
What Truth in Taxation Means for Local Taxing Units:
SB 2 applies to any political entity within a state that has the authority to impose taxes on property. This includes counties, cities, school districts, and special districts like hospitals, junior colleges, and municipal utility districts. For these local taxing units, Truth in Taxation requires advanced notice during the tax rate adoption process and voter approval on increases above 3.5% to property taxes.
What Truth in Taxation Means for Appraisal Districts (CADs):
Central Appraisal Districts (CADs) are required to share a notice of increases above 3.5% annually on property taxes. CADs seeking an annual increase above the cap need to provide notice to property owners and hold public hearings where voters can approve or reject the proposed increase.
What is Truth in Taxation and How Does it Work?
As a taxing unit looks at the next fiscal year to assess tax rates, it may choose to keep them the same, raise them by an allowed amount, or raise them enough to require a hearing. The max annual increase without a hearing is 3.5% year-over-year. If your proposed rate is more than that, you are required to send notice by mailing it to property owners in your district and posting it online. In some instances, it is also required to be published in the local newspaper. These notices need to include the proposed amount of your local taxes along with the date, time, and location of the hearing to vote on it. If a majority of property owners at the hearing vote against the proposed tax rate, it cannot be implemented and must reduce it to a lower allowed limit (3.5% or less).
Understanding Your Updated Tax Rates
SB2 lays out several paths to calculate and propose new tax rates each year:
No-New-Revenue Tax Rate: This is a tax rate that would produce essentially the same revenue amount as the previous year. To calculate this amount, local officials are taking last year’s tax revenue and the current year’s revenue and adjusting to remove any new properties. What is left is an effective tax rate that brings in about the same revenue and can be passed without voter approval.
No-New-M&O Tax Rate: M&O, or Maintenance and Operations, is a rate specific to school districts and other special districts to adjust their staffing, overhead, and utility costs to keep the same level. The rates for the no-new-revenue M&O rate and the no-new-revenue debt service rate should be calculated separately and then added together for the total No-New-Revenue Tax Rate.
Voter-Approval Tax Rate: This rate is the maximum allowed increase before voter approval is required. A combination of the No-New-Revenue M&O Rate, Unused Increment Rate, and a Debt Service Rate. Debt service is comprised of the interest and principal on bonds and other debts secured by property tax revenues. This rate is typically higher than the No-New-Revenue Tax Rate, but shifts in debt may cause this to be higher in some years.
Unused Increment Tax Rate: If a taxing unit does not use its full 3.5% increase in a given year, it can “save” the amount they don’t use for up to 3 years. This rate is the sum of the prior three-year forgone revenue amounts divided by the current taxable value.
Notification Guidelines
When the calculations are complete and a taxing unit is ready to propose a new rate, there are several ways the public must be notified. If the tax rate proposed does not require voter approval, it should be posted:
- Prominently on the Taxing Unit Website
If the amount requires a public hearing, postings notifying the public about that hearing date and time need to be shared to:
- The Taxing Unit Website
AND
- Mailed to Property Owners
- Newspaper Placement
- TV Free-Access if Applicable
The full notification guidelines can be found on the Comptroller’s website.
How BIS Consultants Can Help
Maintaining compliance with laws like SB2 can be challenging for local taxing units. BIS Consultants specializes in helping counties, cities, and other special taxing units stay compliant with changing laws and publication requirements. From websites for county appraisal districts that offer public feedback forms to making sure your notice is featured on your homepage– BIS can step in to fill the gap on your staff and keep constituents informed about rate changes.
Turn Taxpayer Transparency into a Winning Relationship with Your Constituents
The goal of Truth in Taxation is to give property owners more transparency about their taxes. As a local taxing unit, you can earn their trust by meeting these requirements and showing how and why you’ve landed upon the new tax rate. Doing so properly, holding the public hearings, and listening to constituent feedback can help build trust with your residents. Contact BIS for Truth in Taxation support today!
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