Commercial Property Taxes in Texas and How They Work
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The commercial property tax system in Texas can be complicated, and Texas is known for having some of the highest property tax rates in the country. But why are property tax rates in Texas so high, and how are they determined?
One reason property taxes in Texas are so high is that every year, the state requires more tax revenue to support economic and population growth. An expanding economy and a rapidly growing population mean that the state of Texas consistently experiences an increased demand for things like schools, new roads, healthcare, and other public services and infrastructure. Because of this demand, commercial property owners taxes often get more expensive every year. The increases can occur even if the rate doesn’t change, as the generally robust Texas economy increases market values on which property taxes are based.
In Texas, commercial property and real estate market valuations, contributing to the calculation of annual property taxes, are conducted by state tax assessors once a year. Since property values tend to increase year on year, commercial property owners can anticipate a steady annual increase in their commercial tax bills. However, these valuation increases, which impact the property tax percentage, are not always accurate. Consequently, some commercial property owners end up paying more annual property taxes than they should. If you’re a property owner who believes your commercial real estate space has been inaccurately valued, you can request a review or arbitration by your local appraisal review board (ARB) or file a protest with the county appraisal district(CAD).
Understanding How Commercial Property Taxes Work in Texas
All property taxes in Texas - both commercial and residential are - ad valorem taxes. This Latin phrase simply means “according to value.” It indicates that Texan commercial properties are to be taxed on the basis of their market value. However, determining the value of a property is not always straightforward. CADs in Texas will use one of three different approaches to calculate property values. These approaches are the income, sales and modified cost approaches. The choice of approach will depend on the type of property being assessed. Commercial property valuation is generally carried out using the income approach. The income approach uses the revenue that a commercial property generates as the primary factor determining its value. Valuators take the net operating income of the property and divide it by the capitalization rate in order to arrive at an estimated value. The capitalization rate is the expected rate of return of a real estate investment property or commercial property. The higher the capitalization rate, the lower the estimated property value. Conversely, a higher net income will raise the property value.
With this method, two identical properties could end up with vastly different assessment values. A high-end dental clinic and a thrift store could both occupy spaces of the same size, construction quality, age and condition and still end up with very different valuations each year. Once the CAD has completed its value calculations, it applies the current property tax rates to the full appraised value, i.e., the property is assessed at 100%.
Both commercial and residential property owners in Texas are often faced with exorbitant collection fees, interest, and penalties if they should fall behind on their tax payments. Penalties and interest will start to accrue rapidly, meaning that allowing a lapse of even a few months could lead to significantly higher bills.
How to Navigate Commercial Property Tax Increases in Texas
Commercial property owners in Texas have a responsibility to stay up to date regarding the latest tax rates, as well as the most recent valuations of their properties. They must also be aware of the times when their tax bills are set to arrive (usually from October onwards) and when payment is due (by January 31st each year). As mentioned above, failure to pay in time can result in heavy penalties and the accrual of interest, which can quickly become unmanageable.
Even before the bills are sent out, commercial property owners have plenty of time to consider the valuation of their properties and appeal to their local ARBs to reconsider it. In April of each year, Notices of Appraised Value are mailed to property owners. Between then and September, property owners can take their cases for incorrect valuation to their local district court, or through binding arbitration. If the property in question is valued at $1,000,000 or more, the owner can then take the matter to the State Office of Administrative Hearings (SOAH).
Sometimes, whether the valuation is correct or not, property owners may miss the payment deadline. Once the account becomes delinquent, they would need to act quickly to prevent the debt from spiralling out of control. The best way to respond in this situation is to apply for a property tax loan from a registered lender such as the American Finance and Investment., Inc. (AFIC).
At AFIC, we partner with commercial property owners across the state who need help paying their taxes. Struggling to keep up with taxes is something that nearly all business owners face at some point in time. Taking out a loan to pay property taxes can provide you with the much-needed financial flexibility to keep your business running and protect your livelihood.
We can assist with different aspects of property tax, such as tax exemptions, rendition forms, and delinquency taxes. We factor in various components such as local taxing units, school districts, production of income, personal property renditions, and business personal property taxes to ensure we provide our clients with tailored strategies ideal for their specific needs.
Get more information about property tax loans
If you need a commercial property tax loan in Texas or want to know what options are available to you, please give us a call today. Our team will be happy to discuss a range of potential solutions that fit your circumstances and your budget. Discover why so many people partner with us for assistance paying property tax in Texas. We look forward to hearing from you.
