Texas is known as being one of the most tax-friendly states in the United States. As of 2019, Texas is one of just seven states that have no personal income tax. And, according to industry experts the Tax Foundation, only Alaska, South Dakota, Wyoming, and Tennessee are thought to be more tax-friendly than Texas. The Tax Foundation also reports that Texas’s overall state and local tax burden was ranked 46th among all states in 2016 (the most recent year with comprehensive statistics and research available). In Texas, the tax burden falls at just 7.6 percent.
Recently, however, there have been two significant changes in the Texas property law that we think are important to understand, since it can have a direct impact on you, as an investor in commercial real estate. Recently, we told you about agriculture rollback taxes and how they can impact real estate investing. Now, we’d like to expand that thought and also tell you more about good faith tax payments in Texas, and how the changes to current tax code can impact you and your future property tax payments.
Good Faith Tax Payments
Although taxpayers have always been allowed to Good Faith tax payments in Texas, there were penalties and interests associated with any remaining balance after an appeal had been resolved.
The changes to the property tax code may eliminate the ability for the assessor/collectors to apply penalties and interest on remaining balances. If this holds true, then it will compel the local appraisal districts to settle litigation as soon as possible so that they can collect on any remaining balances. There is no longer any incentive (penalties/interest) for them to delay settlements.
Various assessor collectors may still attempt to collect penalties and interest, and there may be some court rulings clarifying the new code. Up until then, there will be no certainty. Nonetheless, the new code seems to benefit the taxpayers.
The updated Texas Tax Code 31.071 on Conditional Payments reads as follows:
(a) The collector of a taxing unit shall accept conditional payments of taxes before the delinquency date for property taxes that are subject to a pending challenge or protest.
(b) A property owner whose property is subject to a pending protest or challenge may pay the tax due on the amount of value of the property involved in the pending action that is not in dispute or the amount of tax paid on the property in the preceding year, whichever is greater, but not to exceed the amount of tax that would be due on the appraised value that is subject to protest or challenge. The collector of the taxing unit shall provide the property owner with a temporary receipt of taxes paid under this section.
(c) If the property is no longer subject to a challenge, protest, or appeal at any time before the delinquency date, the collector shall apply the amount paid by the property owner under this section to the tax imposed on the property and shall refund the remainder, if any, to the property owner. If the property is still subject to an appeal on the last working day before the delinquency date, or at an earlier date if so requested by the property owner, the collector shall apply the amount paid under this section to the payment required by Section 42.08(b) of this code and shall retain the remainder, if any, until the appeal is completed. When the appeal is completed, the collector shall apply any amount retained under this section to the tax ultimately imposed on the property that is not covered by the payment under Section 42.08(b) and shall refund the remainder, if any, to the property owner.
To learn more about Texas property taxes, as well as how Texas property taxes compare to other areas of the United States, check out the 50 State Property Tax Comparison Study, conducted by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence. This study takes an up-close look at various commercial property taxes, industrial property taxes, and apartment property taxes. The study also explains why property tax rates vary not only from state to state, but also across cities, as well
RETC helps sophisticated real estate investors gain a competitive edge by prioritizing the most impactful aspects of property tax services, allowing for material gains on deal and fund-level returns.