By: Wojciech Kic
Ad valorem tax, commonly known as property tax, is one of the largest operating expenses for any Houston (Harris County) area property owner. On average, in Harris and surrounding counties, the property tax rate is about 3 percent.Thus, an owner of a rental property worth about $150,000 can expect a $4,500 annual property bill.
An owner who claims the property as a primary residence is entitled to a homestead exemption which will reduce the tax bill by about 20%. Other exemptions may be available based on, for example, age, or disability.
The benefits of property taxes to the local community are incalculable in scope.
To begin with, property taxes pay for educating children, for funding a fire department, and supporting a police force.The investments in the local physical infrastructure result in street improvements which in turn reduce residents commuting time leaving more time for participation in the economy and leisure.
The local property tax investment, due to the local control of the funds, yields the right level of local community investment, just when and where needed. Local government officials, subject to short office terms and recall, are elected based on the discovery of the local needs.The officials who lose offices fail to appreciate these changing needs.
Among many cities in the United States, Houston is the single, best example of the utilization of the local proper ty tax revenues. To begin with, in Houston, the only U.S. city with out zoning, all real estate—subjected to highest and best use— creates maximum market values. Maximum market values create a competitively priced property market which in turn reduces the local cost of housing and increases the quality of living.
The low cost of housing provides property owners with excess savings that permit generous community self investment. Regardless of the actual level of funding, local utility projects are consistently “optimized” because the highest and best use of real estate yields the highest “optimal” local property tax revenues. Subsequently, the market value of each property is then supported by the utility projects created by the conglomeration of market decisions regarding their overall use.
The property tax rate is regulated by local utility needs and it is consistently maximized relative to other economic forces at play. For example, when the taxpayers expect inflation, the local property tax rate declines; when the taxpayers expect deflation, the local property tax rate increases.
Once adapted, the property tax payers further affect the property tax rate, and the level of local community investment, by approving and disapproving various bond issues. The wonder of approval and disapproval of the bond issues by the local property taxpayers is the economy’s ultimate balancing act of injecting and withdrawing monies from the economy just when and where needed.
Locally, the Harris County Appraisal District has the annual responsibility for identifying and appraising all local real and personal property subject to a property tax at their current market value.With nearly 1.5 million accounts it is an enormous undertaking that HCAD does exceedingly well. But the sheer volume or appraisals makes the appraisal process imperfect for many property taxpayers. As a result nearly 10 percent of property owners filed property tax appeal in 2006.
While many property tax appeals fail to change the appraised value, many others do. The reasons for changes in the appraised value vary but they include over appraisal relative to the market values or to the appraisal of neighboring properties.
Among property owners who do not appeal property taxes are owners whose properties are, both, under appraised and over appraised. While the reason for not appealing a property tax when the property is under appraised is clear enough, the reason for not appealing a property tax when the property is over appraised is not.
The cited reason for overlooking the option of a property tax appeal includes the fear that the reduction in property’s appraised value reduces its resale value. But the appraisal of the property by the local appraisal district is established to create the current property value solely for the property tax purposes in uniformity with appraisal of similar properties.
The appeal of property tax is a fair and an open process that includes a detailed review of the market activity and the condition of the property.The resulting property tax value consistently produces a fair tax assessment of the property.
Since the local level of community investment is regulated by the property tax payers, and its impact has far reaching overall economic consequences, the accuracy of the tax revenues is of primary importance to the community. Just as the precision of a highly contested political vote increases with an increasing number of voters, the increasing scrutiny of individual property tax values increases the accuracy of the impact of the economic lever that property tax revenues provide.
Therefore, it appears that the property tax appeal, which results in the review of the property tax values and not necessarily the change of it, becomes property owners’ ultimate responsibility.
As Adam Smith remarked it is not through benevolence of the butcher that we have a meat supply. Likewise, a property owner’s self interest in lowering a property tax invoice ultimately becomes service to others, resulting in the right level of local community investment, exactly when and where needed.
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