Why Are Property Taxes So High in Texas?

Property taxes in Texas are often substantial, prompting many property owners to question their burden. Understanding property valuation and tax rate setting provides clarity on this financial aspect. This article explains factors contributing to the state’s property tax landscape, from how property values are determined to broader economic and governmental influences.

How Property Values Are Established

Property values are determined by appraisal districts in each county. These districts appraise all taxable property annually. Appraisers use mass appraisal techniques, relying on market data and comparable sales of similar properties.

The appraisal process considers a property’s size, age, condition, location, and improvements. These attributes are weighed against recent sales data to estimate the property’s market value as of January 1st each year. Property owners receive an appraisal notice detailing their assessed value, which they can protest if incorrect.

How Tax Rates Are Set

Numerous local taxing units set their own property tax rates, including cities, counties, school districts, and special purpose districts. Each entity independently determines its budget and calculates the tax rate needed to fund operations and services. This process involves public hearings where budgets and proposed tax rates are discussed.

Taxing units must publish an “effective tax rate,” which generates the same tax revenue as the previous year on the same properties. They also calculate a “voter-approval tax rate,” formerly the rollback rate, which is the maximum rate a taxing unit can adopt without triggering an election. If a taxing unit proposes a rate above the voter-approval rate, local voters can approve or reject the higher rate in an election.

The Role of Exemptions and Limitations

Property owners may be eligible for exemptions that reduce their property’s taxable value, lowering their tax bill. The most common is the homestead exemption, allowing homeowners to deduct a portion of their home’s appraised value from taxation for school district purposes. Additional exemptions are available for disabled veterans, individuals over 65, and those with disabilities.

A limitation on appraisal value increases applies to homestead properties. For a residence homestead, the appraised value for tax purposes cannot increase by more than 10% per year. This “appraisal cap” moderates the growth of taxable values, even if the property’s market value increases faster. While exemptions and the appraisal cap do not prevent tax increases entirely, they provide relief by limiting the portion of a property’s value subject to taxation.

Factors Contributing to High Tax Burdens

Texas’s absence of a state income tax leads to reliance on local property taxes for funding public services. Unlike many other states that use income tax revenue for state and local funding, Texas local governments largely generate their own revenue. This places a substantial burden on property taxes to finance essential services like public education, infrastructure, and public safety.

Public education funding is a component of the property tax burden. School districts receive a large portion of their operating funds directly from local property taxes. The state provides some funding, but local property values and tax rates heavily influence school financial resources. This decentralized funding model means local property owners bear responsibility for educational costs.

Rapid population growth and housing demand also contribute to increasing property values. As more people move to the state, housing demand rises, pushing up market prices and appraised values. Even with the 10% appraisal cap for homesteads, consistent annual increases accumulate to a substantial tax liability. The need to expand infrastructure and services for this growth often necessitates higher budgets for local taxing units, influencing tax rates.