Understanding Property Tax in Texas: A Guide for Entrepreneurs

If you’re an entrepreneur in Texas, or considering setting up shop in the Lone Star State, it’s essential to understand the local tax landscape. While Texas is known for not having a state income tax, it does have property taxes that can impact businesses. Here’s what you need to know.

What is the Texas Property Tax?

Texas does not have a state property tax. Instead, local governments, including counties, cities, school districts, and special taxing districts, levy property taxes on real and tangible personal property. This means that if you own property or lease equipment in Texas, you’ll likely be subject to these local property taxes.

Who Needs to Pay?

Any business entity that owns real property (like land or buildings) or tangible personal property (like equipment, vehicles, or even computer software) in Texas is subject to property tax. If you’re leasing equipment, it’s essential to check your lease agreement to see who’s responsible for the property tax – the lessor or the lessee.

How is the Tax Rate Determined?

Each local taxing unit sets its own tax rate. This rate is a combination of the maintenance and operations rate (M&O) and the debt rate. The total of these two rates is what’s applied to your property’s assessed value to determine your tax bill. Because there are multiple taxing units in any given area (county, city, school district, etc.), you’ll need to consider the combined tax rate for all these entities.

Appraisals and Exemptions

The value of your property is determined by the local county appraisal district. They assess the value of all property within the county each year. If you believe your property’s assessed value is too high, you have the right to protest the valuation.

Additionally, Texas offers various exemptions that can reduce your property’s taxable value. While many of these are for homeowners, there are some for businesses, like the Freeport exemption for goods in transit. It’s worth checking with your local appraisal district or a tax professional to see if you qualify for any exemptions.

When is it Due?

Property taxes are due on January 31 of the year following the year the tax was imposed. For example, taxes imposed in 2022 are due on January 31, 2023. If you don’t pay by the due date, penalties and interest begin accruing on February 1.

Final Thoughts

Owning or leasing property in Texas comes with the responsibility of understanding and paying local property taxes. For entrepreneurs, this can be a significant expense, but with proper planning and understanding of the system, you can ensure you’re not paying more than necessary.

For a deeper dive into property taxes in Texas, consider visiting the Texas Comptroller’s website on Property Tax.

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