"While Texas remains one of the best places in the nation to do business, the property tax burden here is substantial. Careful planning of new investment in the state can considerably mitigate property taxes for a significant period of time..."

By Sebastian Rodrigano, as published by Texas Real Estate Business, April 2012

The idea that Texas offers a favorable business climate is deeply rooted in the business community, but a business must monitor its property tax burden or risk paying unnecessarily high tax bills.

It's understandable that many Texas businesses downplay the impact of property taxes on their bottom line. Late last summer, a survey by Development Counselors International rated Texas as having the best business climate in the nation for the 12th consecutive year. Survey respondents cited the tax climate, pro-business environment and economic development incentives as the top reasons for favoring the state.

As a 20-year Texas resident, I considered Texas' business climate supremacy to be indisputable. When a client requested a quick check of property tax projections to evaluate locations for a new facility, however, I had trouble reconciling the data with my beliefs about the competitiveness of Texas in attracting new business.

BIG TAXES IN TEXAS: Across a 20-year period, property taxes on four hypothetical commercial buildings, all valued at $200,000 in the first year, would be nearly four times higher in Texas than in many other states.

The client was trying to decide where to build a $200 million facility, assuming that every available property tax exemption would be granted in each of the states considered. Over a 20-year period, the estimated property taxes in Texas were close to four times those of the nearest competitor.

This result seemed incongruous, to say the least, with Texas' top national ranking in the "tax climate" category. A number of business representatives have assured me that in spite of a disproportionate property tax load carried by businesses, the overall tax picture is more beneficial in Texas than in most other states. Yet the magnitude of a business' property tax burden in this state demands significant attention and prudent management.

For existing infrastructure, much can be done to minimize taxes by ensuring that properties are properly and equitably valued. When dealing with new construction, a number of incentives and exemptions are available to help alleviate the property tax burden. Here are a few options for properties old and new.

Tax Abatement Agreements. Chapter 312 of the Texas Property Tax Code allows taxing entities to enter into agreements with taxpayers to exempt all or some of the value of real and/or tangible personal property from taxation for a period not to exceed 10 years. School districts may not enter into tax abatements. Generally, the agreement must be approved before construction begins.

Value Limitation and Tax Credit Agreements. A school district may agree to limit the taxable value of new property for up to 8 years under Chapter 313 of the Texas Property Tax Code. The limitation applies only to school district maintenance and operations taxes applicable to the property. These exemptions are commonly referred to as House Bill 1200 limitations and can be used in conjunction with a tax abatement agreement.

Economic Development Refund. Chapter 111 of the Property Tax Code provides for state tax refunds to qualified property owners that entered into chapter 312 tax abatement agreements after Jan. 1, 1996, without the benefit of a Chapter 313 value limitation.

Freeport Exemption. The Freeport exemption includes a total tax exemption for personal property (excluding petroleum products) that is detained in the state for less than 175 days for assembling, storing, manufacturing, processing or fabrication purposes. Each taxing jurisdiction must elect to participate. In some instances taxing jurisdictions that previously had not granted an exemption for a Freeport zone have opted into the exemption to incentivize business development. This exemption is described in Section 11.251 of the Property Tax Code.

While Texas remains one of the best places in the nation to do business, the property tax burden here is substantial. Careful planning of new investment in the state can considerably mitigate property taxes for a significant period of time, and a watchful eye over assessments will allow for a less costly experience while doing business in Texas.

Sebastian Rodrigano is a principal at the Texas law firm of Popp, Gray and Hutcheson, PLLC. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Rodrigano can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

"The assessor's mistake was failing to apply a consistent use to the property's land and improvements. While the land value suggested a high-density use, the existing improvements could not support that value..."

By Kevin Sullivan, as published by Commercial Property Executive Blog, October 2011

Property owners often assume that an assessor has valued their asset under the correct use, but performing a highest-and-best-use analysis can prepare the owner with data to recognize and dispute an over assessment.

"The Appraisal of Real Estate, 13th Edition" describes four tests which must be performed sequentially: Is the use legally permissible, physically possible, financially feasible, and maximally productive?

In a recent case in Texas, an assessor valuing a historic home operating as a bed and breakfast treated the property as a single-family residence. Tax counsel discovered that the property was zoned for commercial use and legally could not be a single family residence.

Having failed to meet the first test for highest and best use, the assessor incorrectly appraised the property at double its market value. Using the income approach and valuing the property under the correct highest and best use, as a bed and breakfast, lowered the assessment.

In another example, an assessor applied an appropriate land value to a high-rise condo development, but then applied the same per-square-foot value to the land under a nearby, free-standing retail building, inflating the latter property's value. The principle of consistent use states that the land and improvements on one property must be valued based on the same use.

The assessor's mistake was failing to apply a consistent use to the property's land and improvements. While the land value suggested a high-density use, the existing improvements could not support that value. The property was not under an interim use, therefore the highest and best use was a free-standing retail building, requiring a lower land value.

A highest-and-best-use analysis can clearly demonstrate where deficiencies may exist in an assessor's valuation. Performing this analysis can give you the tools you need to reduce your property tax liability.

Kevin Sullivan is an Appraiser and Tax Consultant with the Austin, Texas, law firm Popp, Gray & Hutcheson. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Sullivan can be reached atThis email address is being protected from spambots. You need JavaScript enabled to view it.

"First compare your 2010 value to what you think the fair market value should be."

By Raymond Gray, Esq., as published by Commercial Property Executive Blog - January 2011

It may seem odd to be thinking about commercial property tax appeals in January. Yet now is the best time to begin, particularly in Texas, which has an annual reassessment cycle and where the system works quickly and rewards those who prepare early. No matter where you are, however, advance preparation will usually pay off.

First compare your 2010 value to what you think the fair market value should be. This will give you an idea of what to expect for 2011. Review appraisal district records and determine whether assessors are using the income, cost, or sales comparison approach to value.

Follow these key points to keep your review on target.

Seven Simple Steps:

1. Know the deadlines for administrative appeals, litigation and payment of taxes.
2. Verify that the taxing records for your property are correct (square footage, net rentable, classification, zoning, etc.)
3. Diligently reconstruct the income and expense statement to remove non-realty income. This will insure that non-taxable intangible assets, such as business value, are not part of your taxable value.
4. Do not assume that the purchase price is equal to property tax value, whether for a new acquisition, or when reviewing the assessor's comparable sales.
5. Determine whether your property is being taxed fairly in comparison to the competition. Newly purchased or recently constructed properties often are taxed at a higher value than the competition.
6. Consider whether your annual operating statement reflects the market as of the valuation date. Most states value property as of a certain date.
7. Consistently review the performance of your property tax consultant.

The sooner this work is completed the more options you will have available. Start now and you have the time to hire the right tax counsel — and they'll have the time to do a great job.

RGray Raymond Gray is a partner with the Austin, Texas, law firm of Popp, Gray & Hutcheson L.L.P., which focuses on property tax disputes and is the Texas member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

The taxing units that impose and collect the tariff do not value property; an appraisal district is set up solely for this purpose.

"A recent review of the 30 states with the largest property tax indicates that Texans enjoy one of the most efficient systems. The Texas method clearly illustrates five significant characteristics that make for a taxpayer-friendly process."

By Jim Popp, Esq., as published by Real Estate Forum, January 2007

Some states tilt their tax systems toward fairness to the taxpayer and others tend to favor the taxing unit. Fairness of the system and to taxpayers depends on each state's legislature. Since property tax is levied primarily on real estate, many of the favorable taxpayer systems are a result of a commercial real estate community's involvement with the legislative process.

A recent review of the 30 states with the largest property tax indicates that Texans enjoy one of the most efficient systems. The Texas method clearly illustrates five significant characteristics that make for a taxpayer-friendly process.

The state separates the valuation method from the levy and collection process. The taxing units that impose and collect the tariff do not value property; rather, an appraisal district is set up solely for this purpose. This removes valuation from any appearance of political influence. It also promotes taxpayer understanding because a single value is established on a property for use by all taxing units. An effective check-and-balance system is provided by an appraisal district board of directors appointed by the taxing units and a state ratio study review of appraisal district performance. The ratio study compares the market value of commercial assets to the appraisal district tax value for a sample of properties. It is a means to encourage valuation at 100% of market value.

Second, a fundamental goal of any fair property tax system is to place a value on property that is equal in comparison to others and accurate compared to an understandable standard. The valuation of an asset based on 100% of market value each year accomplishes both of these goals. It is equal because the same standard applies to all and is understandable because property owners are familiar with market value. Systems with appraisal ratios (valuation at a percentage of market value for different properties) or appraisal limitation caps (an artificial limitation on yearly value increases) invariably create a sense of unfairness among taxpayers.

Providing meaningful information about and access to the process is also important. In Texas, a single notice is mailed for each property if the value increases above the prior year. A statewide uniform challenge deadline is applicable to all local appraisal entities. An owner can challenge the valuation of the asset by filing a simple form without any reason for or evidence in support of the challenge. Hearings at the administrative level are informal. Finally, taxpayers have the ability to vote to rollback tax increases over 8%.

The state also provides for equality of value among various types of commercial properties. Owners frequently comment that they just want to be treated fairly. For example, an investor purchases an office building for $100 per sf, resulting in $100-per-sf tax value, but competitive office properties remain at $80 a foot. An equal and uniform statute allows comparison between the tax value of the $100-per-sf property and the value of comparable assets. Thus, the tax for that property would be reduced to $80 per sf in order to conform to the equal and uniform statute.

Finally, it's essential to maintain a level playing field. All remedies encourage the tax authorities to negotiate in good faith but not be so one-sided as to affect overall fairness. Taxpayers are entitled to attorney's fees if they prevail in a lawsuit. This encourages the settlement process. The appeal process consists of an informal administrative first step in which many problems are resolved. Then a formal appeal to district court is filed. Lastly, taxing units possess limited opportunities to initiate challenges to taxpayers' valuations.

In reality the life of an industrial building may be much shorter and should result in a reduction of the assessor's value. In addition, costs for maintenance, which simply keep a building productive, should not be used by the assessor to reduce the age of the plant, thereby, increasing the assessed value.

Owners bear a burden of unfair taxation in states where the tax system doesn't include the five characteristics discussed above. Legislators welcome information from informed individuals like commercial real estate owners who often know a lot about property taxes. In states where the commercial real estate community took an active role in the education of legislators about property taxes, the property tax systems have proven to be the most taxpayer friendly.

The views expressed in this article are those of the author and not Real Estate Media or its publications.

Jim Popp is a partner with the law firm of Popp, Gray & Hutcheson, an Austin, TX-based member of American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..