Austin Real Estate Scene

(May 30, 2006) —   Texans are about to get some much-needed tax relief thanks to the largest property tax cut in state's history, which lower tax bills by 11 percent this year and 33 percent in 2007.

Until recently, the annual property tax for a home valued at $189,000 in Houston was $6,020 compared with $876 for a similar property in Davenport, Fla., and $1,831 for a comparable Mt. Vernon, Ind., home.

The tax cut plan, which passed the legislature in May, will not only lower property taxes but also increases statewide education spending by $1.8 billion. To compensate for lost revenue, the state instituted a new business tax and increased the tax on cigarettes by $1 a pack.

"Texas has the highest property taxes in the country," says John Gormley, vice president of communications and marking at the Texas Association of REALTORS®. "And it ranks 44th in home ownership. We wanted to do something that would alleviate the high cost and make home ownership a possibility for more people."

Suggested alternatives to property tax revenue included a property transfer tax, which the Texas association says would burden home owners and constrain affordability. Also, under consideration was an increase in sales taxes and an expansion of the tax to include service businesses such a real estate.

Instead, the legislature instituted a new low-rate, broad-based business margins tax that replaces the current franchise tax and closes a loophole that allowed 15 out of 16 Texas businesses to avoid paying taxes, according to Gormley, who says the new tax also doesn't place an undue burden on real estate practitioners.

To generate support for property tax reform, which was ordered when the Texas Supreme Court declared the state's school funding system unconstitutional because it relied too heavily on property taxes, the Texas Association of REALTORS® created a Web site [http://www.truthabouttexastaxes.org] to educate voters.

In addition to tax cuts, the reform package gives some school districts their first relief from the 1993 Robin Hood law, which required wealthier school districts to remit a portion of their revenues to the state for redistribution, after Texas along with 17 other states was ordered to equalize education funding between rich and poor communities.

Of the 17 states, New Hampshire and Vermont both adopted a statewide property tax that required municipalities to remit a portion of property tax revenue to the state for redistribution to poorer school districts. Michigan tied a cut in property taxes to an additional 1 percent statewide sales tax.

Property taxes are becoming a hot issue in some states, including Pennsylvania and Florida, for this year's in mid-term elections.

-By Camilla McLaughlin for REALTOR® Magazine Online