Gov. Greg Abbott, left, fields questions about property taxes from the media during a public safety bill signing ceremony in his press conference room at the Texas State Capitol on June 6, 2023.
Lt. Gov. Dan Patrick speaks a press conference about property tax reform in Houston on June 16, 2023.
A diverse group of organizations and individuals gather for the "Resistance Rally and Day of Action" in the rotunda of the state capitol on July 18, 2017.
Gov. Greg Abbott, Lt. Gov. Dan Patrick and former Speaker Dennis Bonnen as well as chairmen for committees charged with studying property tax reforms spoke to the news media during a press conference Thursday, Jan. 31, 2019, about tax reform in Texas.
Homeowners scored $3.5 billion in property tax relief thanks to the Legislature last year, the first actual reduction in a long time, but businesses saved only $600 million and are paying a higher proportion of the state’s budget, a new study revealed.
Despite a constitutional ban on a personal income tax, Texas has never been a low-tax state, but recent property tax changes are placing a higher burden on businesses. Property rights activists believe companies should pay more, but officials looking to attract new investments fear it makes Texas look bad.
Meanwhile, low- and middle-income families still pay more than their fair share.
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Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Dade Phelan spent much of last year bickering about how to cut property taxes, the sixth highest in the nation, according to a 2021 report by the Tax Foundation. High property taxes more than made up for Texans not paying a state income tax.
Since property taxes are levied by school districts and local authorities, not the state, the Legislature had to get creative. In July, lawmakers settled on giving $12 billion to school districts in return for a reduced tax rate, a higher homestead exemption on 5.7 million personal homes to $100,000 from $40,000, and a limit on how fast appraised values can rise on other properties.
Past attempts to cut didn’t show up on Texans’ tax bills because higher appraisals offset any savings. The higher homestead tax exemption took $1.1 trillion in property value off the tax rolls, a report from the Texas Taxpayers and Research Association showed.
“Consequently, 57% of the total market value of homesteads in the state was not subject to a school district property tax in 2023 (70% of single-family homes are homesteads),” the group calculated. “Only 43% of the total market value of homestead property statewide was subject to school district property tax in 2023, in contrast to 93% of the market value of business property.”
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Homeowners saw actual savings of $3.5 billion, but businesses saved only $600 million, the association report said. A spokeswoman for the association, backed by the state’s largest business property owners, declined an interview request, but the report implies businesses need tax relief, too.
Real estate developers, for example, saw their property taxes rise 12% last year, the association’s data showed. Industrial equipment tax collections rose 4% while oil, gas and mineral property taxes rose 3%.
Texas businesses paid 60% of all property taxes before the 2023 tax overhaul, a study by the Council of State Taxation calculated. They will pay an even higher percentage now.
Schools and local authorities rely on property taxes, but the state relies on the sales tax, the 13th highest in the country per capita, the Tax Foundation calculated. The Legislature used sales tax revenue to pay school districts to cut their property taxes.
Texas businesses pay about half of Texas sales taxes, the Texas Taxpayers and Research Association said last year in a report titled “The Partial Myth of Texas as a Low Tax State.” Businesses don’t really pay taxes; they are passed on to consumers, deducted from profits or reflected in lower employee salaries.
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Sales taxes also punish lower- and middle-income people. No income tax means people do not pay based on their earnings but on their spending. The lower the wages, the larger the percentage of income they spend on sales or property taxes.
Texas is a great place if you are a high-income doctor or lawyer; it’s a lousy place if you don’t earn a lot or your business owns taxable property.
The state’s tax system also creates extreme volatility in how much money lawmakers have to spend. Taxes paid by the oil and gas industry swing wildly based on energy prices.
High oil and gas prices in 2022-2023 provided the Legislature with the $12.5 billion in revenue to buy down property taxes in 2024-2025. But prices have dropped, and so have tax revenues.
Texas Comptroller Glenn Hegar reported sales tax collections from October to December 2023 rose only 2.2% from the year before, well below the inflation rate. In January, collections were down 2% because of lower oil and gas activity, while year-over-year inflation rose 3%.
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If the trend persists, the Legislature won’t have the money to keep paying school districts to keep property taxes low. Until lawmakers diversify the tax code, Texas will ride the energy roller coaster, and the low taxes will remain a myth.
Award-winning opinion writer Chris Tomlinson writes commentary about money, politics and life in Texas. Sign up for his “Tomlinson’s Take” newsletter at houstonhchronicle.com/tomlinsonnewsletter or expressnews.com/tomlinsonnewsletter.
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