This month, the state legislature passed a measure that would expand the homestead exemption to $100,000, cut school tax rates, and set an appraisal cap on both residential and commercial properties. However, constitutional amendments require voter approval.

Millions of Texans who have seen their property tax bills climb consistently over the past few years will soon have the opportunity to vote on a $12.7 billion package of Dispute Property Taxes.

Governor Greg Abbott signed the bill instituting the cuts over the weekend, capping months of negotiations among the state's top Republican leaders. On November 7 Texans will be asked to vote on a constitutional amendment that would allow the state to use billions in tax income (mainly earned from Texans over the past two years) to fund the drastic cuts. If the bill passes (which seems likely given the long-standing support for tax cuts), the new regulations would go into force for tax returns filed in January 2024.

As you think about your choices, think about the following.

Where do our votes actually go?

In Texas, the present focus revolves around Property Tax Reduction. State lawmakers passed sweeping legislation to reduce property taxes by $13.3 billion after realizing the state has one of the highest property tax burdens in the country. Strong sales tax collections during the national inflation increase contributed to this excess, which will result in substantial savings for property owners.

To the tune of $12.7 billion, Senate Bill 2 proposes a reduction in property taxes, while Senate Bill 3 proposes a reduction in franchise taxes for select businesses to the tune of roughly $600 million. These proposals, authored by Republican State Senator Paul Bettencourt of Houston, are not appearing on the ballot in their current form. House Joint Resolution 2, proposed by Republican state representative Will Metcalf of Conroe, will instead be on the ballot in November.

This amendment ensures that any future changes to these laws will need voter approval, which is essential for enacting the proposed tax reductions. It also prevents the impending $321.3 billion state budget from being negatively impacted by the cost of these tax cuts over the following two years.

Voters in Texas will be asked if they support a constitutional change that would reduce property taxes by an unprecedented amount.

Give me the lowdown on the plan, would you!

There are five main parts to the tax cut program.

Bettencourt has proposed a plan to condense school levies by providing around $7.1 billion to school districts in Texas. When applied to school districts, this procedure, known as "compression," would result in a decrease of 10.7 cents per $100 of assessed value in the maintenance and operations property tax rate. The M&O tax is the largest portion of most homeowners' tax bills, and it goes toward funding public education costs including teacher salaries and infrastructure upkeep. more

Costing an estimated $5.6 billion, a homestead exemption of $100,000 would more than double the current exemption for property taxes for all Texans who own a home that serves as their principal residence (which is $40,000. When computing their taxable property value, homeowners can subtract their homestead exemption. For instance, under the current exemption for most homeowners, the owner of a $350,000 home is only paying taxes of $310,000. The same house would only be exempt from taxes on the first $250,000 of its worth under this year's homestead exemption law.

Under the proposed law, properties valued at less than $5 million (including commercial, mining, and residential properties) would be subject to a temporary 20% appraisal cap. The appraisal districts in the counties of Texas could not increase the taxable value of these properties by more than 20% per year for the next three years. Unless legislators and voters take action, the program will end in 2026.

Not a reduction in property taxes, but nevertheless included: a doubling of exemptions from the state's franchise tax, paid on bigger corporations doing business in Texas. The present limit is $1.24 million, but with this proposal it will rise to $2.47 million. Furthermore, businesses with annual revenues below the modified threshold would be exempt from filing franchise tax returns.

Certified appraisers: 

County appraisal districts currently have an appointed board with a size between five and nine members. Under the new rules, each appraisal district must have three directors who are elected at large in the county and serve staggered four-year terms. Lawmakers argued that the new mandate would hold supervisors of appraisers more accountable to property owners whose values were affected by the supervisors' decisions.

If I am eligible for rebates, how would I get them?

Most homes won't need to do anything to get ready for the proposed changes to the tax code to take effect if they are approved by voters.

In other words, no further action is required for tax bills to reflect the 20% appraisal cap and the M&O tax rate compression.

Owner-occupied properties that presently enjoy a homestead exemption would likewise see that benefit immediately increase from $40,000 to $100,000 with no action required.

Homeowners who live on the property but do not have a homestead exemption must submit an application to their county's appraisal district office. In most cases, the exemption period can be as long as two years back in the past. As long as the homeowner resides at the address, the exemption will remain in effect without the need for annual renewal.

What effect would the revisions have on local companies?

Voters are being asked to accept a reduction in school M&O taxes of 10.7 cents per $100 of valuation, which would benefit company owners who also own the property on which their companies are located.

A 20% annual cap on the increase in a property's assessment would also protect commercial assets with values below $5 million from wild volatility. After three years, lawmakers and voters may decide if they wanted to retain the cap in place.

Any land a firm owns in Texas that doesn't exceed the valuation limit would be eligible for the advantages even if the company's main office is located elsewhere.

Consider this illustration. A downtown Corpus Christi businessman saw an 18% gain in value for his waterfront office property between 2022 and 2023, and another 48% increase between 2023 and 2024, according to government data. Since 2019, the value of his home has risen by more than 100%.

The rise in price reached $638,000. With a property value of less than $5 million, his annual assessment would be lowered by the proposed appraisal cap by $123,000.

There will be no payout from the cap if your property's value doesn't increase by more than 20% this year.

Unless the rent is pegged to the property tax rate, a business whose space is rented cannot take advantage of the planned school tax savings or the 20% appraisal cap.

Franchise tax benefits are available to businesses regardless of whether or not they own the land on which they operate.

Under the new plan, businesses with annual revenues over $2.47 million would be required to start paying franchise taxes, up from the current threshold of $1.24 million. About 67,000 additional small and medium-sized businesses would no longer be required to pay franchise taxes as a result of this modification.

For firms that previously had to file tax returns declaring zero dollars, the increased threshold for franchise taxes will be a welcome relief.

Frequently Asked Questions (FAQs) - Texas Property Tax Relief Amendment

Q1: What does the Texas Property Tax Relief Amendment propose?

A1: The amendment proposes a significant package of property tax cuts, including an expansion of the homestead exemption to $100,000, a reduction in school tax rates, and a cap on appraisals for residential and commercial properties. The total relief amounts to $12.7 billion.

Q2: When will Texans have the opportunity to vote on this property tax relief package?

A2: The vote on the constitutional amendment is scheduled for November 7. If approved, the new regulations would take effect for tax returns filed in January 2024.

Q3: Why is voter approval necessary for this property tax relief?

A3: Constitutional amendments in Texas require voter approval. In this case, voters will decide whether the state can use billions in tax income to fund the proposed property tax cuts.

Q4: What are the main components of the property tax relief plan?

A4: The plan includes a reduction in school levies, a homestead exemption increase to $100,000, a temporary 20% appraisal cap on properties valued at less than $5 million, a doubling of exemptions from the state's franchise tax, and changes in the structure of certified appraisers.

Q5: How does the homestead exemption increase benefit homeowners?

A5: The homestead exemption increase to $100,000 would more than double the current exemption, providing significant property tax savings for homeowners.

Q6: What is the purpose of the 20% appraisal cap on certain properties?

A6: The temporary 20% appraisal cap aims to limit the annual increase in taxable value for properties valued at less than $5 million, offering stability and protection from rapid valuation changes.

Q7: How will businesses be affected by the property tax relief plan?

A7: Businesses, especially small and medium-sized ones, could benefit from a doubling of exemptions from the state's franchise tax and an increased threshold for franchise taxes. The plan aims to provide relief to a significant number of businesses.

Q8: What actions do homeowners need to take if the amendment is approved?

A8: Most homeowners won't need to take any additional actions. The 20% appraisal cap and the school tax rate compression would automatically reflect in tax bills. For those with a homestead exemption, the benefit would increase from $40,000 to $100,000 without any action required.

Q9: How does the amendment impact property assessments for commercial assets?

A9: Commercial properties with values below $5 million would be subject to the 20% appraisal cap, offering stability in assessment values and protecting against wild volatility.

Q10: Are there benefits for businesses renting their space?

A10: Businesses renting space may not directly benefit from the school tax savings or the 20% appraisal cap unless their lease terms are linked to property tax rates. However, franchise tax benefits are applicable to businesses, regardless of whether they own or rent their property.