Property tax Glossary
Ad valorem tax – tax based upon the value
Administrative appeal – collectively refers to the informal hearing and appraisal review board (ARB) hearing during the property tax appeal process. The administrative appeals must be exhausted before a property owner can file a judicial appeal (lawsuit in state district court).
Appeal see protest
Appraisal – An opinion of value, typically provided by an independent third party. Texas appraisal districts develop an opinion of value for all real estate, business personal property, and minerals within the county at least every three years.
Appraisal review board (ARB) – the appraisal review board conducts property tax protest hearings for appeals not resolved at the informal hearing. In most counties, ARB hearings are conducted by three-member panels to prepare a recommendation for the full appraisal review board. The panel recommendations are formally affirmed at periodic meetings of a quorum of the appraisal review board. The appraisal review board is technically independent of the appraisal district. However, since the board of directors of the appraisal district hires appraisal review board members, the appraisal district pays and supervises ARB members, and an attorney controlled by the appraisal district guides the appraisal review board on legal matters, the appraisal review board is not completely independent of the appraisal district.
Appraised value – the value upon which property taxes are calculated. Both real property and business personal property can be partially or totally exempt. The homestead exemption is an example of a partial exemption for real property. The freeport exemption, which applies to inventory kept in the state for a limited period of time, is an example of a complete exemption.
Appraiser – one who values property. Appraisers value real estate, business personal property, art, jewelry, mineral interests and other types of property.
Assessment comparables – sometimes known as assessment comps are assessed values for properties that are comparable to the subject property. Factors that make a property comparable include property type, location, size, age, and condition.
Business personal property – tangible personal property used for the production of income. Business personal property is taxable at the same tax rate as real property in Texas. Examples of business personal property include inventory, office equipment, office furniture, heavy equipment, trucks and cars.
Central appraisal district (CAD) an organization that compiles an inventory of property within the county and values it periodically using mass appraisal. Types of property listed include real property, business personal property, and minerals. The central appraisal district is charged with maintaining detailed information for the and administering exemptions. Most appraisal districts do not send tax bills; their activities are limited to determining market values and appraised values that are submitted to tax entities who prepare and mail tax bills. Each Texas county has an appraisal district or the activity is outsourced to another appraisal district.
Chief appraiser – chief administrative officer of a central appraisal district.
Comparables – also known as comps. Information on properties that are similar with regard to factors such as property type, location, size, year built and condition. For property tax matters, comparable are used both for the sales comparison approach and unequal appraisal.
Cost approach – one of the three generally accepted approaches to valuing real estate. Preparing a cost approach for real estate involves estimating the replacement cost of the property, subtracting an allowance for all types of depreciation and adding the market value of the land. The sum of the depreciated replacement cost and land value is the indication of market value via the cost approach.
Homestead cap – a limitation on the increase in assessed value but not market value for homesteads. This limitation applies only to homesteads and not to second residences, homes owned for investment or any other type of real property, personal property or minerals. The limitation is 10% per year, times the number of years as the property was last reappraised, plus the market value of improvements added since the property was last appraised. (Improvements do not include maintenance.) For example, consider a home that was appraised last year at $100,000 and has been reappraised in the current year at $150,000. Since the home was appraised one year ago and no improvements have been made, the appraisal district can increase the market value to $150,000. However, the assessed value for the purposes of calculating property taxes can only be increased to a maximum of $110,000. Consider a second example: a home was last reappraised five years ago at $100,000. During the interim, the owner has made $20,000 in improvements (items other than maintenance). The appraisal district estimates the market value for the current year at $200,000. The assessed value is capped at $170,000 or (($100,000 X five years X 10%) + $100,000 + $20,000).
Homestead exemption – a partial exemption of property taxes in Texas for owners of a residence. Qualifications include owning the house on January 1 and living in the house on January 1 of the tax year in question. In many jurisdictions, the benefit of a homestead exemption is property taxes are reduced by approximately 20%. However, homestead exemptions vary from tax entity to tax entity. Homeowners must apply for a homestead exemption. It is not necessary to apply annually once the homestead exemption has been approved. However, if the chief appraiser requests a new application, the homeowner must respond to maintain their homestead exemption.
Income analysis – the process of performing the income approach or a summary of the research and calculations performed during the income approach to value real estate.
Income approach – one of the three generally accepted approaches to valuing real estate. The income approach can be performed using either a direct capitalization approach or a discounted cash flow analysis. The direct capitalization approach is most frequently applied during property tax appeals for income properties in Texas. Income properties would include apartments, office buildings, retail centers, and industrial properties which are totally or partially leased to third parties to produce income. Steps in the income approach include estimating market rent, market vacancy, other income, operating expenses, and a capitalization rate. Effective gross income is defined as a gross possible rent for all space at market rent, less vacancy, plus other income. Effective gross income minus operating expenses equals net operating income. Net operating income (NOI) divided by the capitalization rate (cap rate) is the indication of value for the property via the income approach.
Income statement – a summary of the revenues, operating expenses, depreciation, interest and net operating income for a business or parcel of real estate.
Informal hearing – the first step of the property tax protest process. The administrative hearings collectively include the informal hearing and an appraisal review board hearing. During the informal hearing, the property owner or property tax consultant meet with an appraiser employed by the central appraisal district. The owner/consultant and the appraiser trade information and attempt to negotiate a settlement. If the informal hearing results in an agreement, there is no appraisal review board hearing for the property and the assessed value is final for the year.
Intangible personal property – a property that is neither the real property nor tangible personal property. Intangible personal property can’t be seen, felt, weighed, or measured. Includes items such as contracts, stocks, bonds, patents, digital recordings, business enterprise value for an operating business, and accounts receivable.
Judicial appeal – property owners may file a judicial appeal, or a lawsuit in state district court if they are not satisfied with the result obtained at the appraisal review board hearing.
Market value – the amount of money, in US dollars, which could be obtained for property exposed to the market for a reasonable period of time, where both parties are knowledgeable regarding all possible uses and defects with the property and neither party is under duress to consummate a transaction.
Mass appraisal – a process used to value real estate when it is not possible to perform an individual appraisal for each property. The process usually involves compiling data regarding the physical characteristics of the property and market data such as rental rates, vacancy rates, expense rates, other income, capitalization rates, cost data, and comparable sales data. Valuations are calculated using data for each subject property with the market data. Statistical processes including regression analysis are performed to develop an estimate of value for each property. This is the process typically used by appraisal districts in Texas to estimate the market value for real estate.
P & L – profit and loss statement. See the income statement.
Personal property – which is tangible yet is not real property. In Texas, the typical basis for differentiating between real property and personal property is whether it is attached to the real property. For example, a refrigerator is not typically considered attached to real estate. However, a light fixture, plumbing fixture, carpet or vinyl tile would typically be considered attached to the real estate. Examples of personal property include automobiles, boats, guns, clothes, household items, tools, office supplies, office furniture, office equipment, and inventory. Personal property used for the production of income is taxable in Texas, at the same tax rate applied to real estate. Personal property not used in the production of income is not taxable in Texas
Property tax – the tax calculated by multiplying the appraised value times the tax rate for a tax entity. The appraised value may be different from the market value of the item is partially or totally exempt or subject to a homestead cap.
Property tax consultant – one who represents property owners in property tax matters, generally regarding market value disputes. Other services performed by tax consultants include renditions of business personal property, exemptions and combining or separating tax accounts.
Property tax valuation date – January 1 is the relevant date for valuing property for property tax purposes in most circumstances. This is meaningful if a property suffers either physical or economic damage just before or just after January 1. For example, a fire that substantially damages a building on December 30 will allow the owner a substantial reduction in the subsequent year’s property taxes. However, a fire on January 2 would not affect the current year’s value for property tax purposes. Market or property-specific forces could cause economic losses. For example, if the price of oil fell to $10 per barrel prior to January 1, it would clearly have an effect on the value of a real estate in Houston on January 1. Similarly, if a real estate owner learned in mid-December that the tenant who occupies 80% of an office building has filed for bankruptcy and will be leaving in several months, the market value of the building is materially impacted.
Protest – property owner’s right to appeal or object to an action of the chief appraiser, appraisal district or appraisal review board that applies to or adversely affects the property owner. Most property tax protests relate to the market value determined by the appraisal district. Other protests are filed regarding an unequal appraisal, exemptions, agricultural valuation and a variety of other issues. Property owners can appeal annually on market value and unequal appraisal regardless of whether the appraisal district changes the market value.
Protest deadline – May 31 is the typical deadline for filing a property tax appeal in Texas. However, the deadline is technically the later of May 31 or 30 days after the appraisal district mails a notice of appraised value. (It is 30 days after the date the appraisal districts mails the notice of appraised value. It is not 30 days after the property owner receives the notice.) If the property tax protest deadline falls upon a holiday or weekend, the deadline is extended until the following workday. Property tax protests are considered timely filed if mailed by first-class mail deposited in the mail on the deadline day.
Real estate – land, improvements to the land (buildings), a mine or quarry, minerals, standing timber and any estate or interest in the previously mentioned property.
Rent roll – a summary of the tenants for a real estate property. Most rent rolls include fields of data such as the name of the tenant, amount of rent, amount of space, suite number, lease start date, lease termination date, and other income if applicable.
Sales comparison approach – one of the three generally accepted methods to valuing real estate. The first step is to compile information on sales of comparable properties, sometimes referred to as comps. The appraiser considers factors such as date of sale, property type, size, age, condition, and location when determining which comparable sales to utilizing. After selecting comparable sales, the appraiser makes adjustments for factors such as changes in market condition, conditions of sale (i.e. distress sale), property rights conveyed, age, size, location, and condition. The final step is to determine an indication of value for the subject property using the adjusted values calculated for the comparable sales.
Sales comparables – are also known as sales comps. Data regarding sales of properties similar to the subject property. Fields of data compiled include factors such as date of sale, property address, seller, buyer, sale price, square feet, year built, condition and notes. See also sales comparison approach
Share-CAD – terminology used to describe a property that is valued by two appraisal districts. This occurs when a property lies within the boundaries of a tax entity that straddles a county line and the tax entity has chosen the central appraisal district (CAD) outside of the subject property county to value parcels within the tax entity. Appraisal districts are required to accept the lowest assessed value established in any of the appraisal districts for a share-CAD property. The lowest assessed value can be generated by its notice value, an informal hearing, an appraisal review board hearing or a judicial appeal.
The subject property – the real estate, business personal property or mineral interests being valued or reviewed for unequal appraisal
Taxing entity – a city, county, school district, hospital district or any other political unit of the state authorized to impose property taxes.
Tax rate – the proportion of the appraised value which must be paid to taxing entities annually. The appraised value may be lower than the market value because of either exemptions or the homestead property tax cap. Many properties are subject to taxes from five to 10 tax entities. Customary practice is to refer to the total tax rate for all tax entities as “the tax rate”. Consider the following example: a homestead has a market value of $100,000, a homestead exemption totaling $20,000 and a 3% tax rate. Annual property taxes would be $2,400 or (($100,000-$20,000) X 3%).
Unequal appraisal – occurs when the market value for property exceeds the market value established by the appraisal district for comparable properties after making reasonable adjustments. Unequal appraisal sometimes occurs when properties are selectively reappraised following their acquisition. In other cases, it occurs because the appraisal district has inaccurate data for a property or submarket. It can also occur when the appraisal district reappraises the market value for only a portion of properties in an area. Property owners can appeal both market value and unequal appraisal annually in Texas.