THE BIG TEXAS PROPERTY TAX RIP-OFF
By Truman Dayon Godwin
Copyright © 2004 by Truman Dayon Godwin
Smashwords Edition 2012
Smashwords Edition, License Notes
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Table of Contents
Chapter 2: The Bureaucratic Property Tax Network
Chapter 3: The Appraisal Process
Chapter 7: Dishonesty in Taxation
Chapter 8: Honesty in Taxation
Chapter 9: The Case of Multiple Dilemmas
In August 1937, Americans were reading about the fierce fighting between the Chinese army and the Japanese navy in what was called the Sino-Japanese war. The roar of artillery and the rattle of machine guns near Shanghai kept the citizens there continuously unnerved, and daily reports of casualties caused great concern to the families of more than 4,000 Americans living and working in China. Another big concern was the fear that America would somehow be sucked into the war, a course most Americans resisted.
The terrible depression was not over. Unemployed hobos still roamed around and regularly hopped freight trains to get from town to town. Starvation was a factor that often ended in tragedy. The father of a family I knew was so despondent about not having a job and not being able to provide for his family that he poured gasoline on his two children, schoolmates of mine, and torched them. He ended his own life after killing his wife.
Although many sad and bitter effects of the depression lingered to remind people that times were still tough, there were some signs of improvement. Franklin Roosevelt and Congress continued working hard to keep the economy moving in a positive direction by introducing new programs. However, one of the lingering effects was a high rate of delinquent taxes. During the really bad days of the depression, it was practical for governments to be lax in collecting taxes: it was an exercise in futility to press for tax money from people who were broke. By 1937 the delinquent tax roll had grown enormously. This fact, and a recognizable improvement in the economy, led Texas Gov. James V. Allred to press for collection of delinquent taxes. The outcome of the effort was an amendment to the constitution, Article 8, Section 20, which in effect was a legal bribe to encourage payment. This was reported in an article in the Avalanche-Journal newspaper in August, 1937. According to the article, "Texas voters will have opportunity Aug. 23 to approve a proposed amendment to the state constitution authorizing a discount system for the prompt payment of ad valorem taxes . . . The purpose of this plan, applicable to taxes due the state government or its political subdivisions, would be to encourage payment before delinquency occurs. It is the latest out-cropping from long agitation over the amount of delinquent taxes outstanding which experts say is a staggering sum . . . Sponsors of the amendment hold its adoption would give taxpayers an attractive ‘business’ reason for paying before interest and penalty are incurred. They claim he could even afford to borrow money at a bank to pay taxes."
This amendment, which is the basis for our present property tax system, was voted on by electors on August 23, 1937. It passed by a vote of 77,058 to 30,194 out of approximately 900,000 eligible voters statewide. The hard times of the depression was undoubtedly a factor in the low voter turnout. The total number voting was only 11.92% of eligible voters, and the amendment was passed by a mere 8.56% of eligible voters.
From 1939 until 1982, property taxes were administered by a County Tax Assessor/Collector. Since 1982, when Appraisal Districts were implemented and the Tax Code changed, property owners have been victims of unreasonably high taxes that are arbitrarily escalated each year. It is a situation that gets worse as time goes by. People fuss about it, protest their high appraisals, and argue with Appraisal Review Boards, but nothing is ever done to permanently erase the abuses and corruption that are inherent to the system. Many people, including some government officials, see the system as an unfair, unworkable, and irreparable method, a system whose demise is long overdue. The time has come for the government to heed the cries of property owners and create an "honesty in taxation" approach.
The purpose of this book is to provide information to property owners and other interested parties in order for them to have a broader understanding of the problem. Hopefully, this will aid them in dealing more effectively with the present system, while it exists, and give them courage and knowledge to work for and support "honesty in taxation."
THE PROBLEM
The present version of the Texas Property Tax Code is approximately 700 pages in length. It is a complex document and contains the changes that became effective on January 1, 1982. This legislation established 254 county appraisal districts and the rules and procedures under which they must operate. The basis for these districts is Article 8, Section 18 of the Texas Constitution, which states, "A single appraisal within each county of all property subject to ad valorem taxation and all other taxing units located therein shall be provided by general law."
Creation of the districts was done to resolve inequities in the property taxing processes throughout the state. From this solution was born a costly and unnecessary bureaucratic network. The mind-boggling expansion that followed could have been prevented by using a more reasonable and less expensive system built around the properly elected Tax Assessor/Collector in each county. In fact, a dispute over a Tax Assessor-Collector’s right to appraise property in the county was clarified by the Supreme Court in Wilson v. Galveston County Appraisal District, 713 S.W. 2d 98 (Tex, 1986). The court ruled that it was the responsibility of appraisal districts to make the appraisals within each county rather than the Tax Assessor-Collector.
Justice Kilgarlin dissented to the ruling and was joined by Justice Ray. In the dissent, Justice Kilgarlin wrote, in part, "I respectfully dissent. It is a tortured reading, at best, of the amendment to Texas Constitution Article 8, Section 18, to conclude that it strips from elected officials their constitutional obligation to ‘perform all the duties with respect to assessing property for the purpose of taxation . . . Further, I seriously doubt that Texans, with a strong tradition since Reconstruction of electing public servants, would have approved the 1980 amendment to article VIII, section 18, had they known that it would be subsequently interpreted to mean that the people’s duly elected tax assessor and collector would be substituted by appraisal boards insulated from public scrutiny."
In spite of its favorable court rulings, the Appraisal District system of taxation has probably produced far more inequities than is was meant to cure. During the course of its existence, the execution of this unpopular tax code has continually angered taxpayers, inspired numerous protests, and regularly prompted litigation. The original code has been changed many times by amendments and deletions, but those changes have not cured the basic faults that permit dishonest taxation. It is still a system of arbitrary values, arguable calculations, unscientific methods, unfair concepts, and discriminatory administration. There exists, by the system’s nature, a plethora of opportunities for abuse and corruption by unelected people in appraisal districts who have no accountability to the electorate of the counties wherein they work. For instance, the majority of money for school districts comes from property taxes generated by reappraisals, and former Texas Comptroller John Sharp said that "sometimes school district officials pressure appraisal district officials to reappraise property in the district and raise revenue."
Currently, angry and frustrated people are crying out to any who will hear.
"Why?" they are asking.
"Why was this system created in the first place?"
"Why does this mess with all its unfairness continue to exist?"
"Why can’t we do something about it?"
Their cries are effectively silenced by the defensive tactics and legal maneuvers of local and state officials who could do something, but don’t, and by the taxing entities whose constant theme is, "we need more money." Following is a list of reasons why this unfair and dishonest situation exists, and why it will continue to be used by the Legislature, state agencies, appraisal districts, and favorable court rulings to rip off Texas property owners.
THE REASONS
The factors that control this unfair system of property taxation are listed below.
The Law Factor.
The Texas Constitution, Article 8, Section 20 states: "No property of any kind in this State shall ever be assessed for ad valorem taxes at a greater value than its fair cash market value nor shall any Board of Equalization of any governmental or political subdivision or taxing district within this State fix the value of any property for tax purposes at more than its fair cash market value; provided that in order to encourage the prompt payment of taxes, the Legislature shall have the power to provide that the taxpayer shall be allowed by the State and all governmental and political subdivisions and taxing districts of the State a three percent (3%) discount on ad valorem taxes due the State or due any governmental or political subdivision or taxing district of the State if such taxes are paid sixty (60) days before said taxes would become delinquent; and the taxpayer shall be allowed a one per cent (1%) discount if said taxes are paid thirty (30) days before they would otherwise become delinquent. The Legislature shall pass necessary laws for the proper administration of this Section. (Added August 23, 1937; amended Nov. 2, 1999.)"
(Author’s note: Definition of ad valorem; In proportion to the value.)
The Texas Property Tax Code, 2004 Edition, Title 1, Subtitle A, Section 1.04, paragraph 7, states: "‘Market value’ means the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:
(A) exposed for sale in the open market with a reasonable time for the seller to find a purchaser;
(B) both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use; and
(C) both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other."
The Texas Property Tax Code, 2004 Edition, Title 1, Subtitle A, Section 1.04, paragraph 8, states:
"(8) ‘Appraised value’ means the value determined as provided by Chapter 23 of this code."
The Texas Property Tax Code, 2004 Edition, Title 1, Subtitle D, Section 23.01, paragraphs (a) and (b) state:
"(a) Except as otherwise provided by this chapter, all taxable property is appraised at its market value as of January 1."
"(b) The market value of property shall be determined by the application of generally accepted appraisal methods and techniques. If the appraisal district determines the appraised value of property using mass appraisal standards, the mass appraisal standards must comply with the Uniform Standards of Professional Appraisal Practice. The same or similar appraisal methods and techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon individual characteristics that affect the property’s market value."
The fact that Legislation on property taxes is driven by school finance adds more financial pressure on property owners in the sense that state level goals, desires, and authority generally supersede that of local taxing entities and practices.
The Hierarchy of Grateful Recipients Factor.
The Tax Code created a huge and mostly untouchable bureaucratic hierarchy of Appraisal Districts for the purpose of appraising property and administering the related jobs created by the Code. They are big recipients of the system, and their jobs possibly depend on the perpetuation of the supposedly "fair cash market value" approach to property taxes as stipulated in the constitution.
ARBs, Appraisal Review Boards, located in each district, are also recipients of the system. One of their functions is to hear protests by taxpayers and then work to resolve them. Members of Appraisal Review Boards are appointed by the appraisal district’s Board of Directors, a fact which many see as constituting a conflict of interest. This is a valid point since ARB members must make decisions for or against the entity that appoints them.
Other major recipients are taxing entities in each county, such as School Districts, Hospital Districts, Water Districts, etc. They receive most of the local tax money generated by appraisal districts, and they are always in need of—or just simply want—more money
The Political Factor.
Politicians have learned, but seldom admit, that the present system is not beyond the politics and unfair abuses it was intended to cure. Still, they avoid doing the right thing by abolishing this "legal" system and replacing it with an honest and fair one. Instead, they continue to do nothing other than to talk about it, although they sometimes make feeble attempts at simple fixes for a system that is basically irreparable.
In 1997, "the House approved a bill that would have lowered school property taxes by almost $5 billion over two years." However, the Senate had a different version that was less favorable to taxpayers and as a result, tax reform was not accomplished. Senator Greg Luna, D-San Antonio, a Senate Conferee, said, "The Irony is that neither the House version or the Senate versions were much better than current law, and that I lament."
Jumping forward seven years to 2004, we find that the unfair system still exists, political games are still being played, while property owners are still being ripped off. One such game-playing ploy was a four-point proposal by Governor Rick Perry. His proposal was met with a lot of criticism statewide. A critical opinion appearing in the Port Arthur News under the title Our Opinion, said, "Legislators should place Perry’s plan in the round file and let the governor know Texans are interested in fair taxation, not schemes to shift the tax burden of the state to those least able to pay . . . The American ideal is equality in taxation, and once government starts carving out artificial niches, which would be the result of the 3 percent cap, equality becomes distorted. In this instance the distortion would be to the benefit of the owners of the most expensive property . . . Shifting the tax burden to the poor, weakening representation for the smaller cities in counties with more than one large city, weakening representation for education and distorting equality in taxation is insurmountable problems with the governor’s property tax plan. We hope it is recognized as the bad plan with the pretty name that it is."
There are many more instances of attempted legislation over the years that could be cited, and which generally have ended in the same way: no relief for taxpayers. These puny attempts are indicative of the Legislature’s inability to do the right thing and can be interpreted as, perhaps, intentional sugar pills and delaying tactics to stifle taxpayer unrest and prolong the present rip-off system. This political game-playing is a detriment to taxpayers. It makes the voters wonder if the Legislature ever intends to replace this legal dishonest system with an honest tax package. There is a huge difference between something that is only legal and something that is both legal and honest.
The Disenfranchised Voter Factor.
With the creation of Appraisal Districts, the Legislature put the people who have the power to tax beyond the reach of taxpaying voters. Appraisal Districts are not staffed by elected officials, and according to the Tax Code, Chapter 6, Section 6.01(c) they are "political subdivisions of the state." This is an effective wall of separation between appraisers and taxpayer influence via voting power, and it partially explains why appraisers are not necessarily motivated to the same high level of service bona fide elected officials strive to attain. Their bureaucratic jobs are secure. They do not depend on the good will of a constituency that could fire them on election day. The immunity appraisal districts enjoy, their subservience to the state, and their reliance on "a myriad of numbers and Greek letters" and a "series of complicated mathematical formulas" translates into a "screw you" attitude toward taxpayers.
The Divided Taxpayer Factor.
Appraisal Districts operate in a discriminatory manner. During any taxing year some property owners receive small increases in their property values, while some are hit with big and often unreasonable increases that cannot be supported. Those with small increases are happy that they missed the big whammy suffered by others, so they have no reasons to file protests. Using this method of limiting the bigger increases, whether it is intended or not, allows appraisal districts to control the number of protests they expect each year. This gives legitimacy to the public declaration they often make that the number of protests they have received represents only a small percentage of the total taxpayers, and that such a small number is a normal consequence of the appraisal process. They can also use it as a tool to squelch the complaints of protestors by citing the figures and making a claim that they are right most of the time. This scenario usually occurs yearly, and it leaves the public with an illusion that a few mistakes were made, but otherwise the appraisal district’s performance was acceptable. The greater significance of this cover-up practice is that it keeps the taxpayers so divided that they do not join together in an aggressive campaign to change the system.