Property tax in Texas is the single largest source of revenue that local governments use to pay for schools, police, public health care, and many other vital services. Texas property tax is collected and used locally, not at the state level.
The valuation and assessment of property tax must be equal and uniform. Current market value information is used to properly assess property and each property has a single appraised value on an annual basis. No single taxpayer should pay more than their fair share.
How Do Property Taxes Work in Texas?
With no state property tax in Texas, local governments instead set tax rates and collect property taxes to provide local services. Property valuation is done by local county appraisal districts and property taxes are assessed at the local taxing jurisdiction level—county and city school districts, junior college districts, hospital districts, and other special taxing units.
Local appraisal districts are the political subdivision that handles all valuations for each county. An appraisal district has the same boundary as the county it serves, and there’s one in each county in the state. However, an appraisal district is governed by its own board of directors and management and isn’t part of the county or local government.
Is Real Estate Tax the Same as Property Tax?
Not entirely. Texas property tax refers to assessing both real property (meaning land, buildings or structures, land improvements, and growing improvements like vines or orchards) and business personal property, like tangible assets and business-owned inventory used to produce income.
How Are Property Tax Values Determined in Texas?
The assessment date for all property tax in Texas, regardless of property type, is January 1, each year. Learn how business personal property and real property tax values are determined below.
Business Personal Property
Business assets subject to business personal property assessment in Texas would include fixed assets, including machinery and equipment, office furniture and IT equipment, farm and vineyard supplies, molds, tools, and leased equipment.
Merchandise inventory, finished goods, raw materials, goods in process, supplies, and registered vehicles are also considered business personal property assets and are assessed. Assets generally not subject to business personal property tax in Texas would include leasehold or tenant improvements, computer software, permits or fees, intangible costs, financing fees, and items related to real property.
Texas requires filing an annual business personal property tax return that lists all assessable personal property owned by a business as of January 1. The return is due by April 15 each year to the local appraisal district. Currently, all business personal property, regardless of amount and cost, is required to be filed.
After the business personal property tax return is received by the appraisal district, the appraisal district will issue an assessed value notice, generally sent out to the property owner between May 15 and June 15. Upon receipt of the notice, a review of the proposed assessment is needed to verify accuracy of the assessment based on the business personal property tax return as filed.
The basis for valuation by the appraisal district is to value the assets filed on the annual return based on a county-specific depreciation factor schedule. Percent good factors are multiplied by the original cost amounts reported on the annual return.
As needed, an appeal of the business personal property assessment may be filed to challenge the proposed assessment. The appeal filing due date is 30 days from the issuance of the assessed value notice. If the proposed assessment shown on the assessed value notice is correct, no additional steps happen, and the assessment is considered final.
Real Property
Real property valuation in Texas is accomplished by one of three methods of appraisal valuation, the market or sales comparison approach, the income approach, or the cost approach, as further detailed below.
- Market or sales comparison approach. For single-family homes, and most used as information for typical mortgage appraisals
- Income approach. For properties with income potential, including office buildings with tenants, or apartment buildings
- Cost approach. For commercial properties that don’t produce income, were recently completed or drastically remodeled
As is done for business personal property tax assessments, the appraisal district will issue an assessed value notice for real property in the same manner, generally sent out to the property owner between April 1 and May 15.
Upon receipt of the notice, a review of the proposed assessment is needed to verify accuracy of the assessment based on the attributes of the property and the appraisal valuation method used. As needed, an appeal of the real property assessment may be filed to challenge the proposed assessment.
The appeal filing due date is 30 days from the issuance of the assessed value notice. If the proposed assessment shown on the assessed value notice is correct, no additional steps happen, and the assessment is considered final.
Are There Tax Exemptions and Abatements in Texas?
There are a variety of partial or total property tax exemptions and abatements in Texas. Many depend on specific criteria of the taxpayer, and many can be flexible to accommodate certain property owners.
In all cases below, exemptions and abatements require the filing of one-time or annual applications. Generally, the due date for all exemption and abatement applications is May 1. Local appraisal district chief appraisers are solely responsible for determining whether property qualifies for an exemption or abatement.
Residential
When considering residential homes, there are exemptions for primary homesteads, people over age 65, disabled veterans and surviving spouses of disabled veterans, and surviving spouses of first responders killed in the line of duty, among others.
Business
For businesses, there are few exemptions, the most robust being the Freeport exemption, which is based on the amount of inventory shipped out of state during the year.
Additionally, there are special-use exemptions that will limit or reduce the valuation of property, such as agricultural exemptions for farmland, cattle grazing land, and temporary exemptions like property damaged during natural disasters.
Property Tax Abatements and Exclusions
Regarding property tax abatements or exclusions, there are exclusions of wind and solar energy installations, fire-safety equipment, and pollution control equipment. Also, there are taxpayer-specific abatements based on economic development agreements that can fully or partially exclude property from being assessed.
Property Tax Compliance Best Practices
The best practices for Texas business personal property tax compliance, like all tax compliance, is to be accurate, timely, and to pay very close attention to the varying appeal deadlines to maximize all tax savings opportunities. The life cycle of business personal property tax compliance in Texas can be summarized as follows:
- Obtain the fixed asset listing(s), trial balance(s), and related financial information as of January 1 for the situs location to be filed.
- Review and analyze the fixed asset classification(s) based on the appropriate taxing jurisdictions classifications and the calculation of reportable supplies and inventory.
- Monitor the preparation and delivery of the actual business personal property tax return(s) via the appropriate method, either electronic or paper filing. While the preparation of returns can be done manually, a property tax software that produces returns acceptable by all appraisal districts can save time and improve accuracy.
- File timely. File the annual business personal property tax returns by April 15 or apply for a 30-day extension through written request to the local appraisal district. If a return is filed late or goes unfiled completely, a 10% penalty is automatically added to the assessment.
We’re Here to Help
For guidance on property tax in Texas, contact your Moss Adams professional. You can also visit our Property Tax Services page for additional resources.