Chandler’s List of Tax Code Problems and Solutions
- This document consists of problems (1st section) and solutions (2nd section)
- I began labeling which solutions resolve each problem, however I did not complete the process.
- The newest discovered problems will be listed at the top of the “Problems” section. The newest solutions will be listed at the bottom of the “Solutions” section
- New problems and proposed solutions are being discovered and will be posted here. Check this page periodically for updates.
- The system to elect appraisal district board members is flawed. Currently, the election process has very little transparency and oversight. Currently board members are elected by taxing units. Some taxing units never receive a list of the nominees, and many don’t receive any information about the nominees. There is no standardized process on how to cast votes, how to count votes, and little regulation to ensure the election process is free from conflicts of interest. Portions of the ballot and election process are transmitted via verbal communication only.
- The appraisal district board members and the chief appraiser are not accountable to the taxpayers. There are no term limits to any of these positions. If the appraisal district makes mistakes, there is no process for the public to vote someone out of office.
- There aren’t any laws to prevent directors and employees with a conflict of interest from holding a position with the appraisal district. For example, an employee or board member of the appraisal district is allowed to serve as a board member on a school board or city council. This is a conflict of interest because appraisal district board members have influence and control over appraisal district salaries. Taxing units vote to elect board members. If someone that serves as a voting member of a taxing unit and simultaneously holds a position at the appraisal district, they are essentially able to control their employer. Currently, this practice is not prohibited.
- In the voting process to elect appraisal district board members, the interests of smaller taxing units are not preserved. In many counties, the county itself can cast a vote that can sway the election to result in the victory of a candidate. The largest school district and largest city oftentimes have the same ability. Often times the largest taxing units share similar interests and can dominate an election by agreeing to vote for the same candidate. In an election with 40+ taxing units, this power structure does not adequately preserve the interest of the taxpayers.
- The timing of the voting process is also disenfranchises smaller taxing units. Units with large voting blocks will table their vote until the vote tallies for smaller units have been cast and counted. Larger units will then strategically place their votes on candidates to ensure victory for their choice candidates.
- Automatic Tax Increases: The system causes automatic taxes increases based on data (home values) derived from theory and is commonly accepted as having flaws - whose only check and balance is by invitation of protest by uneducated people
- The system protects taxing entities (isd, city, county) more protection than homeowners.
- Taxes are in proportion to net worth not cash flow
- No neutral ground: The ARB panel (ie jury) is employed by the ARB which is under the same roof as the CAD
- The CAD determines comp adjustments by an arbitrary method not consistent with USPAP guidelines, which the ARB panel receives as fact without question
- The CAD gets to propose a value first which is unfair unless additional compensating factors to favor the homeowner are implemented.
- CAD data is used to frame the protest. The protest becomes an effort to disprove CAD data rather than arrive at a fair number.
- The CAD has licensed appraisers arguing on their behalf. Being a quazi government entity creates perceived authority. Also, having appraisers argue on their behalf creates an environment where the CAD side has an unfair advantage over an emotional uneducated homeowner.
- The appraisal district has an army of licensed appraisers that get a ton of practice arguing tax values to defend the taxable value on their behalf.
- Currently, homeowners that rarely if ever get practice handling real estate matters, much less tax matters, are expected to learn the process, defend themselves, or pay an expert that does. Its not very easy to find a Realtor that understands property tax, and other property tax experts can charge huge fees (people don't realize how expensive 50% really is). It's not right to put an owner in a situation that they have to pay a tax expert just because they don't know all they need to do is submit their closing statement to ensure they're not getting taxed on more than they paid for their house.
- To make it an equal fight, the homeowner would need to employ an appraiser. Forced expenses to defend an already innocent person is wrong. In this system the homeowner is guilty until proven innocent.
- Sales History Ignored (Not 100% of Market Value). See Solution 1
- The code contradicts itself by saying that the property must be valued at 100% of market value, but when the property sells on the open market in an arms-length transaction (thereby establishing market value), the tax value isn't adjusted to match automatically even though the CAD is fully aware of the transaction. Instead, they propose a value based the same as all other properties that haven't sold recently. Their stance is to evaluate market value taking into account the sale of the subject property along with sales of every other property that fits the algorithm used by the mass appraisal system.
To hold mass appraisal guidelines above actual market results is in error if the goal is to value the property at 100% of market value. As an analogy, it would be like deciding whichever horse had the best odds was actually the winner despite the real results of the race.
If the subject property sold within the past 12 months, the CAD will allow the homeowner to show a copy of their closing statement or MLS print out, then the CAD will adjust the market value to match the sales price. The property tax code allows (or forces) the CAD to value it incorrectly but then allows them to correct it. The problem is they know the correct value from the start.
- Exemptions are automatically removed. See Solution 2
- They can (and often do) AUTOMATICALLY remove your homestead exemption if your mail is returned, if you change your mailing address, if you refinance, if you add your spouse that has been owner from day 1 but just wasn't on the deed, if you remove a deceased or divorced spouse, if you put your home into a trust, and many other circumstances.Currently, there is no automatic process to add a homestead despite the fact that they know when the property sells, who buys it, and whether or not the person receives mail at the same address they just purchased (indicating this is their primary residence). Also, if they remove your homestead exemption, they know full well that your mailing address may not be good. How do they notify you? There currently isn't an email, text, phone, or fax notification system set up.
- Automatic increases but not automatic decreases (See solution 3)
- The CAD often automatically increases the value of your property if you pull a permit in the city, park a roll-off dumpster outside your house, or do other activities that they wrongly assume might result in adding value to your property. The CAD assumes the construction is being used to upgrade not to fix issues that may have depressed the value below what it was already assessed at.
- There is also no automatic process in place watching news stories for events such as house fires, crimes that are known to cause devaluation, nearby zoning changes etc that would devalue nearby properties. If construction of your home was due to fixing issues instead of upgrading.
- Costly cosmetic issues that reduce market value aren’t given merit
- The CAD doesn’t account for the cost to repair or effect of cosmetic issues even though their valuations are supposed to reflect 100% of market value. Bad paint and carpet can cause a house to sell for thousands less than recently sold properties that were cosmetically completely prepared for the market. Industry estimates suggest the cost to prepare virtually any house to acheive full market value is 1% of the value of the home. Minimal carpet and paint could cost as much as $5,000-$10,000 on the average North Texas home.
- Devastating annual increases (See solution 16)
- If a CAD mistakenly values a property too low for many years then corrects the mistake and the tax value jump as much as 100% in one year causing the owner devastating financial burden, especially if there is no homestead on the property. Example: http://www.tad.org/property-data-sheet-residential?objId=4538579 ). If they don't have a homestead exemption, they could end up getting taxed beyond what they can afford.
- Senior’s tax out of retirement (see solution 19)
- Some senior citizens plan on using income from rental property for retirement. If values increase too much, they don't have the protection of exemptions on their investment properties. They can get taxed out of retirement.
- Tenants taxed into eviction (see solution 19)
- Some tenants have been in place for years. Without the protection of exemptions, their landlord may be forced to increase rent beyond what the tenant can afford. They can get taxed out of a home.
- Homeowners force into foreclosure (see solution 19)
- When a homeowner needs to sell but can’t afford to pay closing costs because they don’t have enough equity, sometimes they are forced to rent it out. If they ever purchase another house as a primary residence, they now appear to be investors, however that was never their intention. These owners often don't have any disposable income. It isn’t fair to tax these owners as if they are a typical landlord that may have a surplus of equity. They are at a risk of getting taxed into a foreclosure situation.
- Poor use of terminology
- In Tarrant County the terminology used to describe the Market Value and Appraised value is very confusing.
- Inaccurate valuation by separating land and improvement values
- It is impossible to determine the value of the land and improvement separately. This is a theoretical valuation that could only be validated if enough unimproved land of comparable size to the subject property or improvement structures separated from the land were being sold on a regular basis.
- Unable to reduce payments after a successful protest.
- After a successful protest, the owner doesn’t receive any notice of estimated taxes until they receive the tax bill in October. This leaves the homeowner unable to provide the necessary documentation to the mortgage company so that their payments are adjusted appropriately.
- Many builders, landowners, and commercial property owners are utilizing many loopholes to avoid having to pay their fair share of property tax which is placing the tax paying burden unfairly on residential property owners.(See solution 11, 12, 13)
- Land owners buy a small amount of cattle and rotate them from property to property so that they can qualify for the agricultural exemption and pay a small fraction of what normally would be owed on the property. People that aren’t legitimately using the property for agricultural purposes as the exemption intends are avoiding paying what they should owe in property taxes.
- Builders, even with just 1 property can qualify for the “Builder’s Inventory” exemption and avoid paying property taxes. This minimum number allows people that aren’t legitimately actively engaged in building and selling homes to avoid paying property taxes.
- Owners of commercial property aren’t required to disclose purchase prices and, unlike residential, there isn’t a centralized MLS system that the appraisal district can utilize to verify the value of the sale. As a result multimillion dollar properties are being taxed as if they are only worth a few hundred thousand dollars. This unfairly burdens residential owners with a tax that commercial owners should be paying.
The Property Tax Code should add protections that may appear to favor the owner more than the CAD, but in reality the CAD will always have the advantage. When you consider that the CAD gets to propose the value initially, and understand that most owners just won't fight anything, even with giving owners additional protections, the CAD will win the big picture even if some policies seem to favor the owner more. This is fair.
Limiting the amount of tax increase isn't a tax reduction. If you implemented every idea I have, the taxing entities would still get a tax increase every single year (without a vote). Nobody is lowering the amount that owners are already paying. We would just be limiting the amount they can increase in the future.
List of solutions:
- Automatically reduce, but not raise, the assessed value if the property sold for less than proposed value within the past 12 months and meets certain criteria such as, wasn’t a foreclosure, the sale was recorded on mls, the sale was arms-length, etc.
- A less fair alternative would be to send a notice to all residents with a sale in the past year that showing the sales history, current proposed value, and explain that they likely can get their value decreased to the sales price just by submitting their closing statement. This could be sent via email to avoid postage and paper cost.
- If the subject property sold for more than assessed value, use the process currently in place which considers the sale as just another comp along with all other sales.
- Improve communication
- Require email and text notifications of property value increases and changes to exemptions
- Automatically notify and offer every owner whose mailing address and property address match an invitation to file a homestead.
- Require appraisal districts to take additional measures prior to removing an exemption.
- Implement text and email notifications prior to exemption cancellations
- Allow a window of time to reinstate old exemptions and provide notice to give the owner an opportunity to correct
- Make automatic monitoring fair
- Provide notification that informs the homeowner what circumstances triggered value to be added and by how much. Invite the homeowner to contest it providing easy to implement instructions.
- Notify property owners to nearby zoning changed areas that their value may be affected due to zoning changes.
- Possibly discontinue all automatic monitoring that would favor CAD so that owners and the CAD are treated equally.
- Automatic 1% devaluation for cosmetic issues
- Automatically reduce the taxable value to all houses by 1% to account for cosmetic issues.
- Allow homeowners to use cosmetic repair estimates as valid evidence in their protests. The CAD would still win in this scenario because the resulting effect of cosmetic issues on market value often exceeds the cost of the repair.
- Provide representation or resources to homeowners
- Require every CAD to facilitate the creation of a volunteer owner advocacy group where local Realtors, appraisers, and tax agents that are willing to volunteer their services for free are compiled and provided to every homeowner along with their notice to protest.
- Provide owner representation. Outsource this to qualified third party companies or staff the owner representative thought a different department.
- Limit increases across the board
- There should be a tax increase limit of 10% for all properties, not just ones with exemptions. Homestead properties should have a limit off 5% gain per year.
- Use descriptive terminology
- In Tarrant County the term “Appraised value” should be called taxable value.
- The term “Market Value” should be called “Assessed Value”
- Land and Improvement Value Itemization
- Land and improvement value shouldn’t be seperated.
- Provide new tax estimates upon a successful protest
- Provide a way for the owner to go online and download a copy of the new estimated tax amount.
- Tighten loophole for ag exemption - rotating cattle.
- Require more cattle to be on the property for longer periods of time. Possibly require a minimum measurable benefit to society to qualify for the exemption. For instance, for every acre a certain number of pounds of beef must be harvested.
- Tighten the loophole for builders’ inventory.
- Require builders to have a minimum of 5 houses in inventory.
- Make commercial sales public
- Mandate term limits for the chief appraiser and appraisal district board members
- Outlaw employees and board members of the appraisal district from serving as an employee or voting member of any taxing unit
- Create a tiered voting system. If the taxing unit’s number of votes exceeds 10% of the total number of votes from all taxing units, then the taxing unit’s votes should be reduced by a certain percentage. For instance, out of 5000 total votes, if 1 taxing unit has more than 500 votes, the taxing unit would be subject for tiered voting. For every 10 votes above 500, the unit only gets to cast 5 votes.
- Require a third party administrator to conduct the election for appraisal district board members
- Require the election administrator to deliver ballots and presentation material from all candidates by a certain deadline so that the taxing units may meet twice to review and discuss the merits of candidates.
- One thing that currently works well is that all voting takes place at publicly held meetings. We must preserve this. If we could mandate that all voting take place on the same day, that would solve the problem. This isn’t possible though because all taxing units hold public meetings at different times and at different frequencies. What we need to change is how the votes are tallied and how that information is disclosed. Vote tallies must be held as confidential until a specified date when the tallies are then released to everybody at the same time, including the public.
- Provide a forum with a specified location and date for all candidates to present themselves to the public and all voting taxing units.
Additional thoughts and response to anticipated rebuttal:
Sale Chasing: It seems sales chasing rules are to prevent a CAD from justifying a value increase by the use of only basing their conclusion on only 1 sale. The spirit of the rule (as I imagine it) is good. The rule itself disenfranchised the owner. I propose this rule only be in effect on value increases, not decreases. Or: The sale chasing rule should only affect counties with populations under 120,000, and and the rule should be amended to state that the value be adjusted to the sale price.
- Giving the home owners perceived control will provide peace of mind. I need to brainstorm on how to further achieve this
- Transparency will create the illusion of fairness.
- Taxes paid as pct. of income: 7.6%
- Income per capita: $46,274 (25th highest)
- Income tax collections per capita: $0 (tied — the lowest)
- Property tax collections per capita: $1,635 (14th highest)
- General sales tax collections per capita: $1,226 (6th highest)
- Problem: If the CAD values property incorrectly then taxing jurisdictions miss out on millions in revenue. What happens? Do people and school districts etc just suffer? What are the consequences, just bad press? People should get fired and they shouldn’t just miss out on the funding. There should be a redo system or safety net in place. Can we have 2-3 private companies play a part in the valuation process then go with what's most accurate? Or at least have a system of 2 strikes and you lose the govt contract?... This all just puts more burden on residential owners. Commercial owners don't get burdened
- I bring in detailed reports showing all details of every property. TAD only shows amounts with adjustments with no info on how they arrived at certain figures. We don’t know how they arrived at quality and condition figures. We also don’t know if high sales are properties that include granite counters etc.
- Their adjustment values are based off of quality and condition classifications. If I go into a hearing with different adjustment amounts then TAD, the ARB panel looks at me like I made an error or I’m trying to cheat, but this is not fair. I did not have access to quality or condition classifications prior to the hearing so I could not have known what the adjustment values that TAD is using should have been. The bigger issue ist hat TAD’s data is seen as fact by the board where my in scrutinized.
- Land value adjustments should not be done based on a number that we are protesting.
- What happens if an owner files a protest prior to getting a notice? If the vast majority get notices on April 1, but some do not. Those that do are in 2 categories - those that won’t receive a notice, and those that will but haven’t yet. How is the owner to know if they will or won’t receive a notice? They should be allowed to file a protest after a certain date even without receiving their notice.