Real Estate Tax Rant

By The Banker | Blog Posts, Taxes, Texas
23 Mar 2015
  • Sumo
Not a lot of real agriculture  going on in this county.

Not a lot of real agriculture going on in this county.

Real-estate tax policy – incredibly important yet relatively unseen – shapes how and where we live.

I’ve ranted about estate tax policy as well as carried-interest tax policy here before, and now I’d like to rant about real-estate tax policy in my city.

As before, I don’t think it’s enough to say ‘I hate taxes,’ because taxes are a necessary evil. I don’t know about you, but I want to have adequately funded schools, parks, and public safety services.

If I have to pay taxes, however, I want to feel that everybody pays their fair share. The key to making peace with the evil of taxes is fairness. As before, I want to discuss real estate taxes in terms of what is ‘fair to me,’ and what is ‘fair to society.’

Fair to me

I recently toured (for the purposes of buying) a small fraction of a piece of undeveloped land in Southeastern Bexar County. The entire parcel of approximately 95 acres is located (for locals who care) inside the 1604 Loop, between Highways 281 and 37.

(I only looked to buy a fraction of the entire parcel, not the whole thing.)

The entire 95 acres might be worth, I don’t know, $500,000? Maybe more?

Would anyone like to guess what the 2014 taxes were for the 95 acres? Take a moment to guess.

Would you believe $170?

When I picked my jaw up off the floor I phoned the Bexar County Assessor’s office.

That’s when I learned about “Title 1-D-1” of the Texas Property Tax Code.

The 95 acres I toured are designated as a 1-D-1 ‘Agricultural Use’ – either cattle or timber. As a result Bexar County only taxes theoretical ‘agricultural income’ from that property, rather than the full ‘market value’ of the parcel.

The ‘market value’ of these 95 acres might be $500,000, but the actual ‘assessed value’ of the 95 acres is $6,780 – the estimated annual ‘agricultural value’ of the parcel.

As a prospective purchaser of a small fraction of this land, this tax code seemed very ‘fair to me.’

Fair to Society

But fair to society?

Holy cow, this is one of the least fair property tax rules I’ve ever come across.

If you own a house or any other non-agricultural property in San Antonio, you pay taxes as a percent of estimated value, typically around 2.7% of market value.

If I owned a big house in Bexar County worth say, $500,000, I should expect to pay 2.7% in taxes to the county, or $13,500 per year. Which, I don’t know about you, but seems like a lot me.

If I owned a big “1-D-1” parcel for 95 acres in Bexar County worth that same $500,000, however, I should expect to pay 2.7% of $6,780, or less than $200 in taxes per year. Which seems like very little to me.

Here’s where the unfairness hits: The “1-D-1” designations in Bexar County shift the burden of property taxes away from large landowners (like developers) and onto individual home owners.

I learned that a residential ‘market value’ property owner should expect to pay something like one hundred times more taxes than an ‘agricultural value’ property owner per year, according to Bexar County Deputy Chief Appraiser Mary Kieke.

Not about agriculture

I’m not saying I want poor farmers and poor ranchers to pay a lot more in taxes.

cowboy child

Mamas, don’t let your babies grow up to claim 1-D-1 Ag exemptions on their taxes

I can see why the State of Texas, as a whole, has decided to reward legitimate agricultural activity with favorable taxation, as a nod to its rural roots and a preservation of a certain way of life.

I don’t want to mess with that heritage. It’s not my personal gig, but I can understand the point of view.

What I am saying is that this 95-acre parcel I looked at isn’t agricultural in any real conceivable sense of the word. I mean, maybe they’ve run a couple of cows over it whenever a tax assessor is coming by? Maybe some people have cut down a few trees on the property there and reported a ‘timber use?’ I guess?

It’s land banking

Bexar County is mostly comprised of the City of San Antonio, and for the most part San Antonio has ceased to be an agricultural producer. That’s not preventing people from taking advantage of the tax code to land bank cheaply, however.

For the present owners, this parcel – as the small lots around it show – acts as a very low cost land-bank for future housing developments, either in 1-acre lots, or larger tracts.

When I expressed amazement to Appraiser Kieke, she agreed with me that “there are legitimate agricultural uses, of course, but, by and large, this [1-D-1 designation] has become a way for developers to hold land with very low taxes.”

In Bexar County

So how big is the effect in Bexar County? About $63 million per year in lost taxes.

The total difference in value between ‘agricultural’ and ‘market value’ property in Bexar County is $2,348,327,452, according to Kieke, and 2.7% of that amounts to approximately $63 million per year.

If you’re a homeowner in Bexar County you are subsidizing landowners with 1-D-1 exemptions to the tune of $63 million per year, money the county needs that has to come from your much higher homeowner appraisals.

The point here isn’t to increase tax collection by an additional $63 million. But homeowners have a very unfair deal compared to many land-banking owners with 1-D-1 exemptions in Bexar County.

 

Please see related posts

Adult conversation about tax policy

You prepare your own taxes???!!?

The good old days of taxes, 1948 edition

 

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3 Comments

  1. Burt Thomas says:

    That is pretty outrageous and I bet the subsidy is counterproductive, in that the holders would probably farm on it if they had to pay a tax bill that in any way resembled the real value.

    Not to diminish the inequity in taxes of the Lonestar State, I think the fact that commercial property owners get to fix their taxes at the purchase price (prop 13 which fixes taxes at 1% of the purchase price in perpetuity) in California might take the cake. Under the argument that old ladies shouldn’t be thrown out of their homes to pay a tax bill, california landlords have a serious way to hide assets from taxation with prop 13. I’ve read that prop 13 is perhaps the primary reason home prices are sooo far out of whack from incomes even in the highest paying parts of California. Incidentally, it may also be why I live in Oregon 🙂

  2. James says:

    I had heard of the agricultural land tax exemption, but didn’t know it was this egregious.

    What exactly is needed to claim the 1-D-1 exemption? Let cattle graze once a year?

    It does explain why I’ve seen corporate campuses of a certain large financial company with longhorn steer in the next field over. They bought a bunch of land to build the campus, but keeping the extra acreage defined as agricultural means less commercial taxes to pay.

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