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| Texas Legislative Issues to Watch |
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With the 81st Regular Session of the Texas Legislature under way, we wanted to provide an overview of the biggest issues for REALTORS® during these next few months. Many of them are issues that seem to recur each session, while others are new. For each issue, we have provided an easy summary of the issue and the position of TAR and HAR.
Appraisal Reform
Issue
Before central appraisal districts were created in 1982, thousands of taxing units appraised property and assessed taxes independently, resulting in wide disparities in values. As the state began to rely more on local property taxes to fund public schools and to use school district property values as a measure of wealth to calculate state aid to school districts, centralized local appraisal became necessary to ensure equal treatment of taxpayers. The resulting system of central appraisal districts has greatly improved equity in property taxation and school funding, though there are still wide disparities in the individual characteristics of central appraisal districts.
Many property owners in Texas perceive the current appraisal process to be unfair and not uniform across central appraisal districts. Many property owners also think the district works on behalf of the local taxing jurisdictions. Finally, the entire appraisal process, coupled with the local taxing jurisdictions budgeting process, has become increasingly difficult to understand.
Our position
The Texas Association of REALTORS®:
• Supports legislation repealing the Board of Tax Professionals and moving its functions to the Texas Comptroller of Public Accounts and the Texas Department of Licensing and Regulation;
• Supports the passage of a constitutional amendment to give the comptroller’s office or other state entity authority to enforce uniform standards among all appraisal districts in Texas;
• Supports efforts to change the order of certain performance reviews conducted by the comptroller’s office, so a methods and procedures review is conducted prior to a property valuation study;
• Supports legislation that changes how an effective tax rate is calculated to ensure no new revenue is realized by local taxing jurisdictions when local property values increase;
• Supports efforts to repeal the petition requirement before a rollback election for a city or county is held;
• Supports legislation requiring a re-appraisal of all real property in certain areas following a natural disaster.
Business Vehicle Exemption Form
Issue
During the last legislative session, HB 1022 and HJR 54, which permanently exempted from ad valorem taxation personally owned vehicles used for both personal and business purposes, were passed. Voters approved the resulting constitutional amendment in November 2007.
While HB 1022 clarified that these vehicles were exempt from taxation, the bill required an exemption form to be filed on an annual basis with appraisal districts in Texas. Most personally owned vehicles used for business change ownership every three years. Requiring annual exemption forms creates inefficiencies with the appraisal districts and places a burden on many small businesses.
Our Position
The Texas Association of REALTORS® supports legislation that will allow an exemption form to be filed once and is valid until that vehicle changes ownership. This process would mirror the current one for residential homestead exemptions.
Eminent Domain
Issue
The Texas Legislature in 2005 passed SB 7, which prohibits entities with the authority to use eminent domain from condemning private property for economic purposes. Despite this action, many related issues remain unresolved, such as who should have the burden of proof and how to define public use and public purpose.
The Texas Constitution limits the use of eminent domain by requiring adequate compensation for the land on which eminent domain is used. The exercise of this power, while considered a necessary tool of government by some, has been argued to have been expanded and used in improper ways by others. Reform of the power of eminent domain may be necessary to limit the possibilities for abuse.
Our Position
The Texas Association of REALTORS® supports legislation that provides for changes to various codes and provisions in Texas law in order to reform the limitations, process, and other aspects of the power of eminent domain and condemnation in this state. Other areas of support to enhance the rights of property owners as they relate to eminent domain proceedings for pipeline placement include:
• Property owners shall receive engineering reports, appraisals, and any other discovery reports performed by the condemning entity that are relative to value and have 45 days to prepare for the condemnation hearing;
• Attorney fees shall be reimbursed to a property owner if they prevail in a higher property value in a condemnation hearing;
• Easements are limited to the width, depth, and use specified by the condemning entity.
Mandatory sales-price disclosure
Mandatory Sales-Price Disclosure
Issue
Some appraisal districts, cities and counties have argued for sales-price disclosure for all real estate transactions to establish a true market value of real property in Texas and more accurate appraisals. However, the Texas comptroller of public accounts reported that real property in Texas is valued at 99% of market value.
In addition, testimony during hearings of the House Select Committee on Property Tax and Appraisals revealed that current sales information shared with appraisal districts in
Texas is being misused. Central appraisal districts (CADs) do not back out seller concessions, such as the seller paying for the buyer’s closing costs. Thus, CADs may use an inflated sales price on one property to justify raising values in a given neighborhood.
Finally, Florida repealed their 20-year-old sales-price disclosure law in 2008 because the information obtained was deemed “insufficient, incomplete, or too inaccurate to provide a reliable and credible source of information on real property transactions.” Florida concluded that other and more reliable resources are available for the county appraisers, such as the appraiser contacting the buyer or seller directly or using the multiple listing service. Texas CADs currently contact the buyer through a sale- price questionnaire and use information contained in the MLS.
Our position
The Texas Association of REALTORS® opposes all efforts to require the disclosure of sales-price information.
Property-tax Appraisal Caps
Issue
A limit on property-tax appraisals was enacted by the Texas Legislature in 1997 and was fully implemented for the 1998 tax year. The cap on appraised values is currently applicable only to residential homesteads. While the political pressure may be great to lower the cap percentage, there are consequences for doing so. Appraisal caps are discriminatory, ill-advised, and controversial.
Taxpayers’ gripes with any taxing system are usually rooted in the belief that they are paying a disproportionate share of a tax. While capping property-tax appraisals is attractive to many, the consequence of doing so causes more taxpayer resentment toward the taxing structure.
Lowering the property-appraisal cap creates havoc within the appraisal system, and experience and research back up our claim. The Real Estate Center at Texas A&M University published a report outlining the detrimental impacts various tax plans would have on the Texas economy. The report stated that lowering the property-tax cap “would work to distort housing-purchase decisions by keeping property taxes low for long-term residents. … These measures threaten to impact the marketability of new homes and retard demand for new development by increasing the burden of purchasing new homes or even moving to another existing home. As time passes that impediment would continue to grow into a sizable distortion of the housing market.”
Our Position
The Texas Association of REALTORS® opposes efforts to reduce the property-tax appraisal cap from its current level of 10%.
Real Estate Transfer Tax
Issue
A real estate transfer tax is a tax assessed when ownership of property is transferred from one party to another. Some states also assess such a tax on long-term leases. This type of tax typically comes in the form of a percentage of the value of the property.
The National Association of REALTORS® commissioned a study to analyze the effects of a transfer tax on real estate. The report assumed a tax rate of 0.5% and a $125,000 purchase price. Based on these assumptions, the cost of buying a home would increase by about $600, and home sales would decline by almost 3%.
In addition, the Real Estate Center at Texas A&M University concluded that the creation of a transfer tax on real estate may create more problems than it solves. This type of tax could cost Texas $955.5 million in lost economic activity with 11,575 jobs lost.
Our position
The Texas Association of REALTORS® opposes efforts to create a transfer tax on real estate. Real estate transfer taxes and fees are an unnecessary burden to buyers and sellers, and negatively affect housing costs and economic development.
Because of their volatility, these taxes are a poor revenue source for governments.
Taxing Professional Services
Issue
Some discussions related to funding public schools have included expanding the state sales-tax base to include professional services. All services, including real estate services, would be taxed.
The National Association of REALTORS® studied the effects of expanding sales-tax bases to include real estate services. The report assumed a 6% sales tax rate and included the most common services associated with the purchase of residential property. Based on the preliminary results, homebuyers would experience a $621 increase in the cost of buying a home. Using the 6.25% sales-tax rate in Texas brings that increase to $775. If the local option of 2% was added, the cost of purchasing a home would increase by $1,022.
According to the report, home sales in Texas would decline by 3% when real estate services are taxed at a rate of 6%. In addition, the Real Estate Center at Texas A&M University concluded in a similar report that expanding the sales-tax base to include professional services would cause irreparable harm to the real estate industry and the Texas economy.
Our Position
The Texas Association of REALTORS® opposes efforts to expand the state sales-tax base to include professional services. Such an action may quickly increase revenue; however, the effect of a sales tax on real estate services is likely to hinder economic recovery.
In addition to these issues, TAR and HAR have positions on binding arbitration, county rulemaking authority, professional liability insurance, green power and energy efficiency, homeowners associations, mortgage fraud, the Texas Real Estate Commission, transportation and windstorm insurance.
Click here to read the complete positions for all of the issues.
This session will be unlike any before it, as the legislature grapples with declining tax revenues and a shaky economy. We need to stand strong together more than ever before to protect private property owners’ rights and to support legislation that will support the real estate industry. If you are unaware of who your elected officials are, you may visit www.har.com/ElectedOfficials/ to find out. Do your part by contacting your legislators now and telling them you support each of these vital issues.
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