Property taxes have been a part of the state of Texas since its inception. Over the years, the property tax system has undergone many changes, yet nearly two centuries after its creation, it remains a vital source of revenue for local governments in Texas.
Property taxes in Texas are collected by local governments to fund a variety of services, including schools, roads, police, and fire protection. These taxes are used specifically to support local communities and do not contribute to state revenue. However, this has not always been the case. The history of property taxes in Texas is worth exploring to better understand their current role in the state.
After Texas joined the United States in 1846, property tax revenue was used to support both local and state governments. The population grew, and the poorly managed property tax system became significantly more difficult to enforce, which left various parts of the state and local governments struggling – especially during the reconstruction era.
The lack of proper property tax management throughout the Civil War and Reconstruction left the property tax assessment, collection, and fund utilization processes in Texas in disarray. The disorganized and chaotic administration was largely attributed to Texas’s uniquely decentralized system at the time. This system saw local officials taking responsibility for much of the tax administration without sufficient guidance and oversight. This was highlighted in the 1868 Comptroller report, which found corruption and incompetence from many local tax assessors.
Data from an 1880 U.S. census showed that the value of taxable properties in the state was more than double the value presented on the state’s tax roll. This is just one of the examples of the widespread underreporting of property values.
To top it all off, shortly after the end of the Civil War, nearly a third of all the counties in Texas didn’t even have a tax assessor-collector.
The end of the 19th century was the start of change for property taxes in Texas. State lawmakers began implementing new tax policies and more diligent collections procedures. However, the Great Depression unraveled much of this progress, with more than 20 percent of the state’s property tax levy being marked as delinquent in 1933. It was only in the mid-1940s that the delinquency rates returned to the pre-depression levels of approximately 6 percent.
The World War II era showed that the undervaluation of properties would not be a short-lived issue. Despite the delinquency rates returning to normal, properties were frequently and continually undervalued, and by 1945, the state auditor reported that only a mere 7 counties in Texas were complying with the statutory requirements. These requirements outlined that all properties should be assessed at 100 percent of their market value; however, the average assessed value only accounted for 47 percent of the true value of real properties in Texas. As a result, a considerable portion of the tax’s potential returns was lost due to uneven assessments.
To add insult to injury, the Legislator then approved several laws that allowed for remitting portions of the state’s general revenue property tax collections to various local governments. At the time, the state levied three property taxes, one for the Available School Fund, one for paying the pensions of Confederate veterans, and one for general revenue. The large wartime revenue surpluses and restrictions on state spending in the mid-1940s resulted in the state not even collecting property taxes for general revenue in 1946, and in 1948, the general revenue portion of property taxes was done away with altogether.
In the 1950s, 60s, and 70s, the state of Texas began repealing more and more elements of its property tax, including the state-wide school tax. In 1982, the state completely abolished all forms of state property tax and instead shifted the responsibility for assessing and collecting property taxes to local governments.
In 1979, the Peveto bill was passed, establishing a system that is still in use today where county central appraisal districts were tasked to manage the assessment and collection of property taxes on a local level.
Peveto bill was partly the result of a landmark Supreme Court case that was decided six years earlier in 1973: San Antonio Independent School District v. Rodriguez. This case highlighted how Texas’ school finance system at the time, which was heavily reliant on property tax revenue, resulted in serious inequities in the distribution of state aid to school districts. However, the court did not rule that the system violated the equal protection clause of the U.S. Constitution, as it did not consider education to be a “fundamental” right.
The widely varying appraisal practices used throughout the state hampered efforts by state legislators to address the inequality in the school finance system. Peveto’s reforms aimed to address this issue. Even though the Supreme Court stated that the U.S. Constitution does not recognize public education as a fundamental right, the Texas Constitution states that Texans are entitled to a system of free public schools for the “general diffusion of knowledge.” As a result, efforts to reform the school finance system in Texas have turned to state courts since the Rodriguez case.
After the Peveto bill was passed and formed the foundation of the property tax system still being used today and throughout the 1980s and 1990s, the current appraisal and collections policies being used throughout Texas were developed. As the property tax rates continued to rise and the need for payment assistance became more prevalent, tax relief amendments, including homestead exemptions, were developed.
Texas property taxes continued to increase, and according to the U.S. Census Bureau, Texas property taxes accounted for an average of 4.4 percent of the annual income of property owners in the state, making it the 9th highest property tax to income ratio in the U.S. at the time. This prompted the Texas Supreme Court to review the property tax assessment and collection system, leading to a ruling in 2006 that the school finance system was unconstitutional.
This legislation required Texas school districts to reduce their maintenance and operations budgets by one-third over the next two years. Despite these reforms in the early 2000s, recent increases in property taxes have caused difficulties for property owners, with school taxes making up more than 50 percent of the tax increases.
Over the years, various bills have been brought before the Legislation to reduce the property tax burden on Texas residents. It is expected that there will be further changes to the Texas property tax system in the coming years to provide relief to homeowners and businesses.
While property tax relief measures are consistently being investigated, homeowners in the Lone Star State still need to pay their annual property tax bill to avoid delinquency and its ramifications.
A property tax loan from AFIC can help homeowners settle their property tax bills and avoid the interest, penalties, and possible foreclosure proceedings that come with delinquency.
American Finance & Investment Co., Inc. (AFIC) offers our clients an affordable, hassle-free way to manage their Texas property taxes and avoid crippling penalties and interest. We can ensure that your account with the local government tax office is paid in full and will work out a manageable repayment plan for you. AFIC can provide you with an instant quote by completing the form on our homepage. For qualifying properties, we can help you pay off your delinquent taxes and offer you the following benefits:
Rates as Low as 8.0% (8.51% APR*) $25,000 loan,
$750 in Closing Costs, 120 Monthly Payments of $303.32
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APR between 8.0% and 25.0% for loan terms between 12 and 120 months. For example 8.5% APR, $25,000 loan, $750 in Closing Costs, 120 Monthly Payments of $303.32.
YOUR TAX OFFICE MAY OFFER DELINQUENT TAX INSTALLMENT PLANS THAT MAY BE LESS COSTLY TO YOU. YOU CAN REQUEST INFORMATION ABOUT THE AVAILABILITY OF THESE PLANS FROM THE TAX OFFICE.
If you are over 64 or disabled, don’t get a property tax loan, contact your tax office about a deferral.
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