Come and Tax It

There are few states in America as unique as Texas, and you would be hard-pressed to find any true Texan that would disagree. There is a fiercely independent nature to its residents, policies, and approach to everything from barbecue to property rights. In fact, it was a piece of unreturned property (in this case, a cannon) that led to the adoption of the “Come and Take It” battle cry. So, as one would expect, even the way the state assesses real estate for property tax purposes is unique. Which is why we propose a new battle cry for property owners across the state: “Come and Tax It.”

It’s important to know that in the world of real estate transactions, Texas is a non-disclosure state. This means that what someone pays for a piece of real estate is not usually publicly recorded, which matters when it comes to assessments for commercial properties. Because of the non-disclosure status, assessors throughout the state rarely have access to abundant sales transaction information for commercial properties during the property valuation process and don’t regularly use sales studies to drive assessments. We should note that residential properties (i.e., single family homes, condos, townhouses) are a bit different, as most residential sales are reported on MLS by agents and brokers. This means any appraiser with access to MLS would be able to identify sales of residential properties and use that for assessment and valuation purposes.

We should also note that appealing assessments in Texas is big business. It has been anecdotally reported that there are more professionals offering real estate tax appeal services per capita in Texas than in any other state in the country. There are possibly two reasons for this.

1. Because Texas doesn’t have an income tax, more than half of the tax revenue generated throughout the state comes from property. In fact, Texas counties have a higher effective real estate tax rate than most other areas of the country. Most real estate tax appeal work is performed on contingency meaning higher tax rates result in higher fees, all other things being equal.
2. Because of the current assessment methodology employed, the ability to reduce an assessment upon appeal, especially absent qualified sales information, creates fertile fields and abundant opportunities to reduce assessments.

Now, let’s dive into the current assessment methodology statutes and appeal strategies to understand why appeals are so common in Texas.

Texas state law mandates that assessments must be uniform and equal. In a nutshell this means that two comparable properties in the same area should not differ that much in their nominal values. This uniform and equalized approach is what drives many of the successful appeal opportunities.

According to statute, there are three primary ways to achieve a successful appeal outcome in Texas. A taxpayer must show that:

1. The appraisal ratio of the property exceeds by at least 10 percent the median level of appraisal of a reasonable and representative sample of other properties in the appraisal district;
2. The appraisal ratio of the property exceeds by at least 10 percent the median level of appraisal of a sample of properties in the appraisal district consisting of a reasonable number of other properties similarly situated to, or of the same general kind or character as, the property subject to the appeal; or
3. The appraised value of the property exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted.

The first two “studies” are relatively inaccessible to produce by the average taxpayer or tax professional given the quantity of data and technology required. Therefore, they are not used during a typical appeal process. However, as advancements in technology and data analytics have progressed in recent years, accurately producing these studies is now possible, resulting in far greater opportunities to level the playing field for taxpayers.   

Absent access to large data sets and algorithms designed to mine data similar to what we have designed in our own Taxonics products, the third strategy listed above is the default approach for appeals. This strategy allows for more subjectivity in the comparability of a subject assessment to other comparable properties. As anyone that works in real estate will tell you, the value a buyer or seller ascribed to their commercial property is merely an opinion, and opinions vary. And that variation in opinion is what affords taxpayers and consultants the liberty to justify lower assessments and win appeals.

Conversely, given the subjectivity of this approach, many assessment protests vary in their efficacy. This makes the entire process more art than science – and this is where the opportunity lies for companies like ours.

As any good trial lawyer will tell you, it is far better to have case law that clearly illustrates support for your position than to rely on a subjective interpretation of the law or the whims of a jury’s interpretation of loosely corroborated facts. Black and white (and less gray) always wins the day.

Accordingly, if we revisit the first two approaches to appeal, we see an opportunity to support an assessment reduction through a much more effective and efficient approach. An approach based on a proper examination of large quantities of assessment data. A black-and-white approach. And when state law mandates equal and uniform assessments, using technology to mine public data to draw clear distinctions and a measurable difference in how comparable properties are valued, we can successfully employ this compelling scientific approach to supersede artistic interpretation.

So, while Texas may do things differently, its reliance on mass appraisal through uniformity and equalization provides a huge opportunity for taxpayers to fight back and keep unreasonably high assessments at bay through the use of data and technology. Cavalry is at the forefront of that fight, daring jurisdictions across the state to “Come and Tax It.”

BACK TO ARTICLES