Business property taxes ‘are out of control’
AUSTIN — Business at Texas German Autohaus has dropped off over the last three years following the collapse of oil prices, but that hasn’t stopped the taxes it has to pay from doubling.
The repair shop’s problem is that Texas taxes property, not income, and its location on Edloe Steet is more valuable than ever.
“Property taxes are out of control,” said Hans Richter, who with a partner bought the lot in 1994. “When taxes grow faster than the economy, that’s not sustainable.”
Lawmakers have placed limits on how fast taxes can rise on senior citizens and homeowners, but there are no protections for businesses. As a result, the burden has shifted onto businesses, which have seen tax bills skyrocket.
“The man hearing my appeal at the appraisal office said I should just sell the land and move my business,” Richter said. “But I would have to move so far away that I would lose all of my customers.”
Property taxes are why so many historic small businesses
end up shuttering, not because they don’t make money, but because taxes are going up too fast.
“Our property tax on business is much worse than what it is in other states,” said Dale Craymer, president of the Texas Taxpayers and Research Association. “We think the only effective way to control the amount of property taxes that people pay is to control the total levy.”
Gov. Greg Abbott has asked the Texas Legislature to limit how fast cities and counties can increase property taxes without a referendum. Currently the limit is 8 percent, and several Republicansponsored bills propose lowering it to between 4 percent and 6 percent.
Democrats and local officials oppose raising the maximum rate because it would force them to get permission from a weary electorate to raise taxes for critical needs. But allowing property taxes to keep growing is unacceptable.
The problem with the Republican proposal is that it does not lower taxes, it only limits their growth. And the proposed legislation only addresses property taxes imposed by cities, counties and special purpose districts, which only account for 45 percent of the bill.
The Legislature is doing nothing to limit school district property taxes, which account for the other 55 percent of the tax bill. Lawmakers instead are counting on school districts to collect more tax revenue so they don’t have to allocate as much from the state budget.
What Texans really need is a property tax cut.
“The only reasonable way the state has of cutting property taxes is by tackling school finance and to substitute state dollars for local dollars,” Craymer said.
This is where a doomed proposal by state Rep. Andrew Murr, R-Kerrville, gets interesting. His HB 285 would eliminate the property tax levied by schools for maintenance and operations and pay for schools using the state sales tax, which is currently 6.25 percent.
The proposal would cut property taxes in half but raise the state sales tax to 12 percent. Local authorities could still add on another 2 percent as they do now. So Texans in most cities would have to pay a 14 percent sales tax. The highest sales tax in the country, by the way, is California’s at 7.25 percent.
That sales tax rate is outrageous, but Texas’ fundamental problem is that state finances rest on a two-legged stool. Most states have a three-legged stool that includes a tax on income.
Imposing three taxes is wiser because they balance the tax burden between those who make a lot, own a lot and spend a lot. Today most of the tax burden falls on people who make capital investments, and the average Texans who spend a larger portion of their income in stores than wealthy people.
High earners can avoid paying state taxes if they avoid real estate investments in Texas and minimize spending here.
Most Texans, though, are proud that we don’t have an income tax. They believe the myth that Texas is a low tax state despite paying crazy-high property taxes. But as those taxes rise, they are beginning to see how the current system benefits some groups while punishing others.
“If you are a manufacturing plant, then Texas is not a great place for you to invest because you get to pay all of those property taxes,” Craymer said. “If you are a law firm, Texas is a great place because you’re not going to have that big of a property tax bill ... and you’re also not going to pay a personal income tax.”
Lawmakers are trying to gauge how much longer will Texans put up with the current property tax system, and how they might feel about paying a higher sales tax in exchange for a property tax cut.
The conversation we need to have is how to introduce a smart income tax that would not raise revenues, but better balance the tax burden and spur economic development. Unfortunately, that’s a politically impossible proposal at the moment, and sadly, Texans will suffer as a result.