The Texas tax code historically has operated on a principle of fairness — that everyone pays their fair share of property taxes to finance such things as public schools and roadways. Certainly there were arguments over loopholes that favored one interest group or another. Similarly, there have been disagreements about the amount of taxes local jurisdictions should levy. In such a system, there have always been some winners, those who benefit at the expense of the rest. But such favoritism existed mostly within acceptable margins until a decade ago. Since then, there has been a huge shift that has regular homeowners paying more of the property tax tab and commercial properties paying less. It’s legal but nonetheless unfair.
Two things working in tandem are driving the trend: Texas is one of just a few states that do not require some form of disclosure of property sales prices. Without such data, it’s tough to assess high-dollar properties accurately. The second factor is the growth of equity appeals, brought to us in 2003 by the Legislature. The provision in the tax code permits property owners to protest their valuation based on the median appraisal values of comparable properties or so-called equity appeals.
The lack of transparency works to mask true market values of properties from appraisers so they often are flying in the dark in appraising high-dollar properties. It’s become a system in which the most expensive properties are appraised for less than what they are worth on the market. But even when assessors get wind of sales prices, equity appeals that use median valuations instead of sales prices result in generous markdowns. There is an incentive to protest property assessments, and those with means do. And as American-Statesman writer Brenda Bell reported recently, the practice pays off big time for protesters.
Take the example of Advanced Micro Devices, which for two years running has topped the list of 25 property owners who won the largest reductions from the Travis Central Appraisal District. Last year, AMD successfully protested the tax appraisal of its 59-acre office park on Southwest Parkway, Bell reported, which knocked about $13 million off the $111 million valuation of the property. And this year, AMD filed a lawsuit to again drop the appraised market value of its office park after the Travis Central Appraisal District raised the assessment to $127.5 million. Never mind that the company sold the office park for $164 million in April, about $37.5 million more than the taxable value that AMD is disputing.
Here are other examples: Two buildings at Research Park Plaza are currently valued on the tax rolls at $65.8 million; they sold for $103 million in August, Bell reported. A 20-story office building at 816 Congress Ave. valued at $82.5 million, sold for $102 million in April; and the owners of a luxury 502-apartment complex in the Steiner Ranch development recently sold it for $80 million, shortly after they got its tax value reduced to $59 million.
Those kind of gaping discrepancies between the value of property on the tax rolls and what it actually sells for are widespread. And because of equity appeals, it is self-perpetuating. The result is “a constant and growing erosion of the tax base,” said Travis chief appraiser Marya Crigler. She is right.
Bell reported that in 2000, single-family homeowners paid the biggest share of real property taxes that support the public schools — 45 percent — while commercial and industrial property owners paid 21 percent. (Other sectors, from oil and gas to personal property, make up the rest.) By 2012, the gap had widened even more. Commercial and industrial owners were paying less than 20 percent, but homeowners were paying 54 percent.
On paper, equity appeals apply to all taxpayers — industries, businesses, apartment complexes as well as homeowners. But in practice, they are making the tax system more unequal, shifting more of the tax burden to homeowners.
There are solutions. If the Legislature wants to live up to the spirit of the Texas Constitution that embraces equal taxation it should mandate that sales prices of real estate be publicly disclosed. That is the single most accurate way to pinpoint the true value of properties. It’s a recommendation that has bipartisan support. In 2004, the Legislative Budget Board endorsed it. That is not enough to propel it through the Republican-controlled Legislature.
State Sen. Wendy Davis, D-Fort Worth, introduced a bill this year that would have curtailed equity appeals for properties valued at more than $1 million. Even though appraisal districts, including Travis County’s, supported the bill it never got a hearing beyond a subcommittee.
Perhaps there are other solutions. We’d like to hear them. We urge the Legislature to restore balance so that all taxpayers are paying their fair share.