Property taxes: The fifth time's a charm

Finally, after one regular and four special sessions over the last three years, the Texas legislature has revamped the state's tax system in regard to funding public schools. It was action that was sorely needed on both the school and tax fronts.

The marathon effort began five years ago when a group of Texas schools sued the state over its financing system. When it finally went to trial in 2004, more than 300 school districts had joined the action.

The districts argued that since they had to levy the maximum property tax rate to maintain equitable and adequate school services, the local property tax had essentially become a state ad valorem tax, which is prohibited by the state's constitution. The Texas Supreme Court agreed last November and gave the lawmakers a June 1 deadline to remedy the situation.

The upshot of the new plan: Over the next two years, homeowners should see a one-third cut in property tax rates for school operations. Since other taxes will help cover school costs (a $1.41 per pack cigarette tax and new business taxes), the school districts will no longer have to levy the highest possible local property tax rate. Of course, such flexibility could also lead some districts to nudge up rates so homeowners would see their newly cut property taxes inch back up a bit.

In the short term, however, most Texas homeowners are happy to get a break. I know the hubby and I are. Last year when we got our property tax bill, we were a bit stunned, as I recounted here. The dollar amount shock was compounded by the fact that since we don't escrow (item #3 in this entry) these taxes with our mortgage payments, we had to come up with the BIG checks to the country and school district collectors ourselves.

While the legislature was wrapping up its tax-rewriting tasks, 2006 appraisals started showing up in mailboxes. I'm happy to report that our latest assessment is a little less because our homestead exemption kicked in this year. By the time we bought the house in mid-2005, the deadline to file for the break had passed.

Property tax exemptions are something to keep in mind when you move. Most jurisdictions offer at least one and usually several, based on things like age, income or even former military service. Check out the possibilities in your area and find out when and how to apply for them. Trust me, they do help cut your tax bill.

Up, up and away: Texas is definitely not alone when it comes to escalating property taxes.

These taxes are figured using your tax rate and your home's assessed value. Some jurisdictions charge the maximum rate allowed (a la the Texas school districts pre tax system change), so that sends bills higher.

But the bigger contributor in the last few years has been skyrocketing real estate prices.

According to this Christian Science Monitor story from March:

• A tin-roofed cabin in Orford, N.H., worth $10,000 was assessed at $200,000 because of its mountain view, sending taxes on the cabin and its outhouse sky high.
• In the Lake Tahoe area, property taxes have shot up 135 percent in the past four years.
• Residents of Beaufort, S.C., pay $17 million more in property taxes today than in 2000.

Similar situations are prompting tax revolts nationwide. The same newspaper article cites legislative and public advocacy actions in Idaho, South Carolina, Georgia, Nevada and Connecticut.

Filing a formal protest: You don't necessarily have to wait for formal state action, however, if you think your property taxes are too high. You can protest what you believe is an erroneous assessment your property's value.

The National Taxpayers Union estimates that as much as 60 percent of taxable property is over assessed. But, say experts, only about half of homeowners protest their assessments.

Why not? It takes time. The process can be intimidating. You have specific deadlines to meet. And you need to gather sufficient documentation to convince the appeal board that the appraiser's number is incorrect.

You can support your claim of a too-high assessment by providing data on housing prices and comparable sales in your area. If you're willing to spend a few bucks to save more on your taxes, get a current independent appraisal of your own.

Did the county appraiser make a mistake, such as an incorrect description or measurement of your property? If so, this could help you get the number down.

Also, this is one time when you want to downplay your property. If you have any evidence of defects in your home or other conditions (e.g., an unimproved lot adjacent to your home) that would diminish its value, tell the review board.

You also could hire a professional to help you fight for a lower tax bill. On the heels of our appraisal information were numerous solicitations from firms specializing in property tax appeals. Or you could purchase the NTU book, "How to Fight Property Taxes," for $6.95.

Understanding where your taxes go: Of course, even when appraisals are accurate, taxpayers still complain about their tax bills.

Tacoma, Wash., city manager Eric Anderson thinks the national aversion to property taxes could be eased if we paid for our local services such as police, fire and libraries once a month, just like a water or gas bill.

Anderson told 13th Floor, the blog of Governing magazine, that citizens tend not to understand what services their property taxes actually pay for. Not only that, but Anderson finds that when he asks people how much they're paying in property tax, they don't know the answer since most blend their tax with their monthly mortgage payments.

"The connection between the tax you pay and the service you get is obscured," Anderson said. "It undermines the legitimacy of the property tax."

Anderson's idea is worth investigating. That's essentially what we're doing now since we don't escrow our property taxes with our mortgage company.

Each month, I try to send 1/12 of our expected annual levy to an interest-earning account. I don't get the service detail Anderson's plan would provide, but since I'm not paying an official bill, I do get the luxury of skipping a "payment" if a month's cash flow situation demands it.

You can read more about Anderson's monthly property tax bill idea here.

Comments

[Vlad Stojanovski]

Now the school districts have a fresh ceiling to keep raising taxes! And what's with the cigarette tax? Why don't we just put confiscatory taxes on every profitable business, like oil for example? That way we, the little guys, won't have to pay a cent! Oh, wait ... it is the consumer who pays for all this anyway ... so it all comes out of the same pot. Except the pot is smaller because some businesses will go under and other will move out to a more business-friendly state.