COVID-19 and Property Tax May 29, 2020 Update
The last ten weeks have been a whirlwind of news, rumors, and a continued state of emergency due to COVID-19. Unfortunately, and to the dismay of property owners, the area of property tax has not enjoyed immunity from this unprecedented disaster. At the beginning of the pandemic, property owners held out hope that governmental relief would extend all the way to their property tax bills, but that has not happened yet. This update will briefly discuss the difficulties involved in granting property tax relief, efforts thus far, and future opportunities.
Property Tax is Fundamentally Different Than Other Forms of Tax
Unlike many other taxes, property tax does not change based on an owner’s ability to pay. Because governments assess it based on the value of a property independent from the personal circumstances endured (or enjoyed) by the owner, the market value of a property may not be reflected by the profitability to the current owner. In a bad situation, even though an owner may be losing money every day that the property remains standing, that property may still be worth a significant sum. The converse is also true in that it is often possible that the current owner is more profitable than a potential purchaser would be if that purchaser took the building independent of the current owner’s business relationships. This is fundamentally different than most other common types of taxation. For example, one only pays sales tax upon choosing to purchase goods, and one only owes income tax if one’s business produces a profit.
The current pandemic situation has exacerbated these problems due to the timing. Although many commercial property owners were aware of and preparing for the spread of the Coronavirus on January 1, 2020, few knew that the response would be so disruptive to normal business operations that cash flow would be reduced by up to 95%. This is important since the property tax bill that will become due by January 31, 2021 is calculated based on the market value of the property as of January 1, 2020. This means that Appraisal Districts have been informed not to consider the impact of COVID-19 when valuing the property for this tax year. It also means that relief is unlikely to come without intervention that changes the normal operation of the Texas property tax system.
Avenues for Property Tax Relief
Several governmental entities administer the property taxation system in Texas. Appraisal Districts (CADs) determine the value of each piece of property as of January 1 of each year. The Appraisal Review Board (ARB) determines the protests filed by owners. The Texas Comptroller trains the ARB members and reviews the work of the CADs. Local taxing entities such as cities, counties, school districts, hospital districts, and others create their budgets and set the tax rates that will be charged against the values of the properties. And finally, the tax assessor-collectors calculate the tax bills and collect the money. The Texas Tax Code expressly describes how each of these key players will carry out its function, however it grants little discretion to unilaterally grant relief in a situation like this.
Several ideas for relief have surfaced during this crisis. A group of CADs asked for permission to forego re-appraisals for 2020 (and a few actually went through with this plan). This idea was largely rejected on the basis that it was unfair, unconstitutional, and would cause the loss of significant amounts of property tax. Then, several parties questioned whether a temporary disaster exemption could be granted under Section 11.35. This may still offer relief, although the Attorney General has issued an opinion stating that he does not think it applies to this pandemic. Finally, some taxpayers (both property tax and other types) have requested deferrals of taxes without incurring penalties and interest. Unfortunately, tax offices have uniformly dismissed these requests as they relate to property tax based on the fact that the Tax Code does not give them the discretion to grant such relief outside of a governor’s order.
Significant Relief Will Require Legislative Action
As outlined in the preceding section, the Tax Code offers limited relief opportunities for property tax. Meaningful relief could include expressly allowing the temporary disaster relief exemption or allowing the deferral of tax payments for a certain amount of time (six months, for example). However, each of these would require a modification of the Tax Code, and that would require the action of the Texas Legislature. While it is possible for the governor to call a special session to address a specific issue such as property tax relief, there are no indications that this will happen before the legislature meets in 2021. Therefore, the legislature will not convene until January2021, which may be too little and too late for many property owners.