Understanding Rural Property Taxes in Texas

Two longhorns

 

During my five year tenure on the Williamson County Appraisal Review Board, it became very apparent that many people don’t understand the Texas property taxing process, particularly of rural lands. Although the Texas Comptroller of Public Accounts has published several well-written publications on property taxes, the process is not easily understood unless you have been involved with it.

Property taxes are assessed and collected under the authority dictated by the Texas Property Tax Code which was developed and enacted by the State Legislature. Overall responsibility for administrating the Texas Property Tax Code was delegated by the Legislature to the Texas Comptroller of Public Accounts.

Taxes are assessed on two types of property, real and tangible personal. Real property includes:

  • single-family and multi-family residential
  • vacant platted lots
  • agricultural open-space land
  • commercial/industrial
  • pipelines
  • minerals
  • farm improvements

Tangible personal property is business or manufacturer inventory, furniture, fixtures and equipment. Intangible personal property, such as goodwill, patents, bonds, copyrights, contracts and brand names, is not taxed. The primary focus of this article is the taxing of agricultural open-space land.

THE SYSTEM

As explained in 2012 Property Tax Basics published by the Texas Comptroller of Public Accounts, “Each Texas County is served by an appraisal district that determines the value of all of the county’s taxable property. Generally local government that collects property taxes, such as the county, cities and school districts, is a member of the appraisal district. A board of directors appointed by the member governments presides over the appraisal district.”

The appraisal district board of directors hires a chief appraiser, approves contracts, sets policy, names members of the appraisal review board and confirms members of the agricultural advisory board. In larger counties, it also names a taxpayer liaison that works directly under the board and fields taxpayer questions.

Each year before appraisals begin, the appraisal district compiles a list of taxable property in the county. The listing for each property contains a property description and the owner’s name and address. The appraisal district must appraise each piece of property within the county at least once every three years.
Qualified agricultural land appraisals are based on the land’s capacity to produce agricultural products, including timber, rather than its market value. Two different provisions of the Texas Constitution address qualifications for agricultural appraisal. Article VIII, Section 1-d, defining agricultural use, requires you to show farming or ranching as your primary occupation and source of income. Very few property owners qualify under this provision. Nearly all land receiving agricultural appraisal falls under Article VIII, Section 1-d-1, also known as open-space valuation.

OPEN-SPACE LAND APPRAISAL

According to the Texas Comptroller of Public Accounts, “property owners may qualify for open-space valuation if land meets the following criteria:

  • The land must be devoted principally to agricultural use, including crop production, livestock, poultry, fish or cover crops. Land can also be left idle for a government program or for normal crop or livestock rotation. Land used for raising certain exotic animals to produce human food or other items of commercial value qualifies. Cutting wood for use in fences or structures on adjacent agricultural land qualifies as well.
  • Agricultural land must be devoted to production at a level of intensity that is common in the local area.
  • The land must have been devoted to agricultural or timber production for at least five of the past seven years.

Production level intensities for each county are recommended by the appraisal district’s agricultural advisory board. One of the agricultural advisory board members must be a representative of the United States Department of Agriculture’s Farm Service Agency. The rest of the members must own land within the district that qualifies for an agricultural appraisal and have been a resident of the district for at least five years.

When buying land for agricultural purposes, it is very important to determine whether the current owner has an active agricultural appraisal on the property. This information can be verified by contacting the appropriate appraisal district.

If a piece of land is purchased with an agricultural appraisal, the buyer should go to the appraisal district and have the appraisal transferred to the new owner. The necessary use intensity has to be continued by the new owner to maintain the agricultural appraisal. Field checks are made periodically by district appraisers to ensure that the property remains in compliance.

AGRICULTURAL LAND USED FOR WILDLIFE MANAGEMENT

For land to be eligible for special wildlife assessments, it must be appraised for agricultural use during the year prior to changing to wildlife management. To qualify for wildlife management appraisal, a wildlife management plan must be completed, approved by the appraisal district and in the first stages of execution before converting from agricultural production to wildlife management.

Most appraisal districts require that the plan be submitted on forms supplied by the Texas Parks and Wildlife Department or contain the information requested on the forms. The plan must include information such as the property’s history and current use, specific species targeted for wildlife management activities; landowner goals for the property; and selected wildlife and habitat management activities and practices that support the species being managed.

Management practices and activities listed in the management plan must include at least three of the seven listed below:

  • Habitat Control (Habitat Management)
  • Erosion Control
  • Predator Control
  • Providing Supplemental Supplies of Water
  • Providing Supplemental Supplies of Food
  • Providing Shelter
  • Making Census Counts to Determine Population
ROLLBACK TAX

The Texas Comptroller of Public Accounts states, “If land receiving an agricultural appraisal changes to a non-agricultural use, the property owner who changes the use will owe a rollback tax. The rollback tax is due for each of the previous five years in which the land got the lower appraisal and is the difference between the taxes paid on the land’s agricultural value and the taxes paid if the land had been taxed on its higher market value. A seven percent interest is also assessed for each year from the date that the taxes would have been due. For example, the fifth year of rollback taxes may include as much as 35 percent interest, depending on the date the use changed.”

AGRICULTURAL APPRAISAL CONTINUANCE

Almost during every Texas Legislature session someone introduces a bill to repeal the current agricultural appraisal system. Until now the bills have failed, but it is certain that urbanites will continue to fight. Landowners and people involved in agriculture and wildlife management must to do a better job of defense and education in order to preserve the current appraisal system.

We must be more careful with our terminology to avoid creating public concepts that agricultural and wildlife lands are not taxed. Special evaluations are often incorrectly referred to as 1-d-1 exemptions, agricultural exemptions or wildlife exemptions. The word, “exemption” in these titles is a misnomer. Appraisal of land for agricultural use does not provide a tax exemption. Values of these lands are assessed on what they are capable of producing rather than what they are worth, which is a more equitable evaluation. Appraisal districts have options to evaluate businesses and rental property on income rather than market value as well.

The public needs to be made aware that special wildlife assessments are not a reduction of expenses to the landowner. It is true that property taxes are assessed at a lower rate, but the required wildlife and habitat management practices are very expensive to execute. The practices often include brush clearing with heavy equipment and/or herbicides, installation of watering systems, planting of food plots and terracing highly erosive slopes. In addition to these expenses, it is often necessary to hire a wildlife biologist consultant to help achieve the desired results.

Unfortunately there are people who try to cheat in obtaining agricultural and wildlife use evaluations and these actions jeopardize retention of the special assessments. I saw several cases of land use misrepresentation while sitting on the appraisal review board. Some examples were:

  • A young man had five red deer on three acres of property that had been part of a farm during the past five years. He requested a wildlife assessment with no wildlife management plan. When asked for his income statement, he quickly answered that he would never sell one of them. They were his babies. The young man had pets not wildlife management property.
  • A developer had five cows and no bull on 200 acres purchased the previous year from a rancher. He was asking to transfer the agricultural use assessment from the previous owner to his company. We denied his request because he was not producing at the level of intensity common to the area and the intended use of the property was a housing development and not agriculture.
  • It was common for manufacturing companies to ask for agricultural assessments because they pasture two or three longhorns on their sites. This does not qualify the land as agricultural use.

Agricultural and wildlife property assessments are important to promote food and fiber production and the conservation of wildlife and their habitat. Let’s educate ourselves on the property assessment methodology and then do our part in educating the public.

Field with Hay Bales


This article was originally published in the Spring 2013 Issue of Lands of Texas Magazine, a Lands of America print publication. Subscribe here today!

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  • Carl Sterling

    What a well written article. Could you give a real life example of tax amount for those of us considering purchasing land? Let’s say 10 acres purchased in your county for the 2016 tax year. What would the general taxes be? If the land was agricultural? With a wildlife plan? How many cattle or how many bales of hay would need to be produced to qualify? Does it need to be 5.1 acres out of the 10 dedicated to agriculture? Does the size of the home affect the determination? Thanks.

  • Carl Sterling

    Also, what is the purpose of the 5 year waiting period? If a young person is getting into agriculture, they buy some cheap, uncleared land, and make it agriculture, they have to wait 5 full years to apply for the exemption? Are they then refunded from the previous 5 years general taxes difference with interest (the reversal of losing agricultural tax status)? Thanks.

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