August 25, 2014

Texas' race to the bottom on corporate property taxes

Saturday's Waco Trib has a good story about how a 1997 change in state law essentially lowered the bar for what it takes companies in Texas to challenge the appraised value of their property by the local appraisal district.

Result? Big businesses, which can more easily afford the amount of lawyering necessary to seek big cuts in appraisals, are winning the battle to pay less and less in property taxes.

Example 1:
This summer, Sandy Creek Energy Associates protested the value on its Riesel coal-fired power plant, which was completed in 2013 for $1.2 billion and was on MCAD’s books for $884.5 million. Sandy Creek asked the judicially appointed Appraisal Review Board to reduce the value by $631 million, citing unfavorable business conditions. The board upheld the MCAD appraisal, but Sandy Creek has until next month to appeal the value to district court. 
Not reduce the value TO $631M, which would itself be a 25 percent cut or so, but reduce it BY $631M, or approaching 75 percent less.

Example 2:
H-E-B this summer protested the value of the giant store it opened a year ago on Valley Mills Drive and Interstate 35. MCAD valued it at $20.2 million, close to what H-E-B officials announced they were investing in the project. H-E-B this summer argued that it was worth only $8.5 million. The review board rejected the claim, but a lawsuit is still possible.
Nice if you can win a 60 percent deduction. How do you avoid testifying against yourself, though?

Example 3:
Hollywood Theaters is in litigation to reduce a $7.1 million valuation on its Woodway theater. Its most recent settlement offer to the appraisal district was $4 million.
Beyond this shifting more of the corporate tax burden to small properties, it also shifts it to John and Jane Q. Taxpayer.

By this much:
In all, the appraisal district has spent $424,863 since 2010 defending legal challenges from taxpayers, an average of $85,000 a year.

The litigation costs helped drive MCAD’s request for a 24 percent budget increase this year, from $3.6 million to $4.4 million. The district is funded proportionally by the 44 taxing entities in McLennan County.

That said, the city of Waco, the biggest such entity except for Waco ISD, is fighting back, by expanding "clawback" provisions in economic development offers.
The new “clawback provision” states that companies that dispute their property tax appraisals at a level lower than originally predicted in the agreement could lose all of their tax incentives retroactively. The provision takes into account normal depreciation of equipment.
This all said, let's not blame Republicans for this. As noted, the bill that allowed this passed in 1997. The 75th Lege had a Democratic majority in the House and Democrat Bob Bullock as Lite Guv. Yet another example of too many conservative Democrats in this state (starting with Bullock being Shrub Bush's pre-presidential tutor) having contributed their own fair share to many of Texas' problems.

Anyway, the second half of the Trib's story has details about how the changes changed the playing field. And are continuing to do so.

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