Understanding Truth in Taxation
Music.
“Taxes. Haha. Taxes. Beautiful Lovely Taxes. Ah ha. Ah ha.”
Music.
“So You Think You’re Overtaxed Eh?”
Music.
Are you frustrated by ever rising property taxes and you don’t know who to call? Well you don’t have to grab a pitchfork and charge the palace gates. Texas law is clear about where responsibility lies for property taxes.
Hi, I’m Ron Wright, Tarrant County Tax Assessor-Collector. With me today is Elisa Hand, Property Tax Director for Tarrant County.
Thank you Ron. It’s great to be here to help taxpayers understand what is meant by the term Truth in Taxation. Let’s begin with the basic tax cycle. As you can see from this graphic, we recently completed the appraisal phase when property owners received their notice of appraised value from the appraisal district. We then moved into the equalization phase which is pretty noneventful for taxpayers unless they protest their property value. We are now in the assessment phase which involves tax rate setting.
A vital key to understanding property taxes is coming your way. Every year, local taxing units (cities, counties, school districts, special districts) will publish tax notices in the newspaper to comply with the Truth in Taxation law.
“You want Answers?”
“I Want the Truth!”
TheTruth in Taxation notice will include their effective tax rates and rollback rates. Both are critical pieces of information to taxpayers.
Basically, the effective rate is the rate necessary to generate the same amount of revenue as the previous year on the same properties taxed the previous year that are still on the tax roll. It is important to note that it excludes new construction and new properties, and it adjusts for lost value.
This diagram and formula may help you understand it better:
The formula is simply: L = Levy, V = Value, R = Rate; and then Levy divided by Value = Rate.
The rollback rate is the rate that if exceeded would allow qualified voters in cities, counties, and water districts to petition for a rollback election. It’s also referred to as the “limiting rate”. Currently in Texas the rollback rate isthe effective rate plus 8%, not including debt. For school districts, a ratification election is already mandatory.
Truth in Taxation dispelsone of the most persistent myths of our property tax system. It’s the myth that says the benchmark for taxes is the previous year’s tax rate. Further, if local taxing units adopt a tax rate that does not exceed the previous year’s rate, they are not raising taxes. This narrative, however pervasive, is false.
That’s right. There is no relation between adopted tax rates from year to year. To adopt the same tax rate as the year before is irrelevant to the calculation of taxes. The only way it would be relevant would be if all factors remained the same as the year before, but they never do.
Every tax year starts over with a differentset of data. The taxing units will consider a different budget, a different effective rate, and a different set of taxable values.
Adopting the same tax rate as the year before is merely applying an old rate to a new set of numbers. Apart from that, it is meaningless.
The benchmark for property taxes is not last year’s tax rate; the benchmark is this year’s effective rate. A tax rate higher than the effective rate will result in an increase in taxes. That is why the effective rate is so importantand why taxing units are required by law to publish it every year in the newspaper. Most publish this information in August before new budgets and tax rates are adopted.
And, Ron, I would like to add that the effective tax rate will change every year as the taxable value of property changes.
In a normal growth economy the effective rate is usually lower than the previous year’s adopted rate. In a stagnant economy, “Ew!”such as a deep recession in which values retract, the effective rate may be higher than the previous year’s adopted rate. However, it is important to remember that the effective rate is still the benchmark, no matter what market conditions are.
Budgets drive tax rates. Typically, a budget that increases spending will require a rate that increases taxes and, therefore, a rate that exceeds the effective rate.
Although value is an important factor in the calculation of property taxes, it is not, as many seem to believe, the primary driver. Government spending drives taxes. The more government spends, the more revenue it must have. That is true at the federal level, at the state level, and, in particular, at the local level.
So, taxpayers concerned about rising property taxes should contact their local officials. Call, write, email, text, utilize social media, attend budget and tax rate hearings.
That’s right, Elisa. Your locally elected officials control the last step of the process – adoption of a spending budget and a tax rate – that determines how much property taxes you will have to pay. Remember, don’t be a screaming goat. Arm yourself with the truth. Give them the benefit of your opinion.
Thank you for listening today. We hope this helps you understandTruth in Taxation.
###