FACTS ON SCHOOL PROPERTY TAX
This information on property taxes was compiled & written by TLC President, Jimmy Gaines
-Property taxes currently pay $20 billion of the estimated cost of $36 billion it takes to support public schools in Texas each year.
-Texas real estate produces approximately 2% of the annual profits in Texas, but pays 56% of the cost of Texas public schools in property taxes.
-Texas public schools are currently financed 56% from property taxes, 41% other state sources and 3% federal sources.
-The Texas Lottery contributes no more than 2.5% to the funding of public education.
-The Texas Constitution provides that an income tax can only be enacted with voter approval and can only be used to replace school property taxes. It is not likely that Texas voters would approve an income tax without a constitutional provision that neither the income tax nor property taxes could be increased thereafter without statewide voter approval.
-Increasing the sales tax will not produce enough money to take the burden off of property taxes. Industries that make approximately 80% of the income in Texas, are not always subject to sales tax. Most of the expenditures of manufacturing, service industries, wholesale and retail trade are not subject to sales tax because much of their profit is put in investments, which are not subject to sales tax.
-Many businesses in Texas already pay the Texas business income tax of 4.5%, otherwise knows as a franchise tax. Many businesses in Texas avoid the income tax by organizing as a limited partnership. If Texas had a personal income tax of 4.5% instead of the business income tax, it would produce $12 billion, which would decrease property taxes by 60%.
-In reality, the top six industries and professions (Manufacturing, Transportation, Communication, Utilities, Services, Wholesale and Retail Trade) annually produce approximately 86 times the income of all Texas real-estate, which reveals why funding public schools with property taxes is completely out of proportion with the Texas economy. Their school property taxes amount to little more than 2% of their profits, when real estate pays 56% of its profits to school property taxes.
-The Governor’s task force issued a proposal to help fund public schools. One item listed in the proposal is to create a 1% Gross Receipts Tax. A 1% Gross Receipts Tax will generate the same revenue for public schools as the current 4.5% business income tax, otherwise known as a franchise tax, which will be eliminated. The Gross Receipts Tax is unfair and it will not produce any additional tax money for Texas schools, therefore it will not reduce property taxes.
A tax on gross receipts is a tax that can force people to liquidate their assets because it can be owed when no profit is made, which is much more unfair than the federal income tax. Business owners are allowed to deduct either employee compensation or cost of goods, but not both. This also means that the percentage of net income paid to this Gross Receipts Tax will not be the same for all taxpayers, depending on factors such as the ratio of cost between employees and goods. Any tax that causes people to pay different percentages of their net income to taxes is unfair.
MYTHS CONCERNING “AG VALUATION”
The Texas Legislature has for years recognized that land used only for production of crops and livestock can not produce market value taxes, and has provided owners the alternative of appraising the land according to use and production. One myth is that “ag” valuation is being abused, and should not be available to owners whose primary occupation is not agriculture. Land subject to “ag” valuation is usually taxed a minimum of 15% of any net gain produced by the property whether from agricultural production, or the sale of the property. “Ag” evaluation is only applied to crop land, or pasture land. Houses and most other improvements on farms and ranches are taxed at full market value. The land not taxed at market value sends no children to school, and does not require public services. Such land costs tax payers nothing. On the contrary, it is an enormous benefit to the public as green space, wildlife habitat, and it produces low-cost food. If all “ag” land was taxed at full market value, which is what many law makers would like to see happen, most landowners would be forced to sell to developers or loose their land to foreclosure because the taxes would far exceed the income the land produces.
If the use of land appraised as agricultural is changed, and “ag” value is removed from the property, full market value taxes for the previous five years must be paid. This penalty has amounted to as much as $4,000 per acre and typically will be 15% of the net gain. Taxing according to production is the solution, not the problem.