Will Covid-19 impact 2020 tax valuations in Texas?

Travis County commercial property owners may have been expecting a break on their 2020 tax liability as a result of Covid-19, but many are finding themselves disappointed.

While Covid-19 is hitting the real estate market, Texas property owners aren’t expected to get a break on their taxes, at least not this year.

There are two reasons. First, appraisal districts set property values on Jan. 1, 2020, before the novel coronavirus had reached pandemic status. And second, Texas Attorney General Ken Paxton issued an influential written opinion stating that purely economic damage caused by the Covid-19 disaster does not qualify for the kind of tax exemptions offered in cases of physical disasters, such as hurricanes or tornados. This means property owners who filed protests of their valuations this year are doing so based on a pre-Covid-19 real estate market.

Yet, many commercial property owners in Texas, like their counterparts worldwide, are feeling the financial ramifications of the ongoing outbreak. Multi-family property owners, for example, may have tenants who can’t pay their rent because of a job loss. Retail and entertainment properties may have tenants dealing with forced closures and capacity restrictions, which hurts their revenue and has them requesting rent adjustments. Office property owners face tenants that are re-evaluating their need for large in-person teams. The cost of managing property is also increasing to accommodate enhanced cleaning protocols, more controlled access points and other health and safety measures.

Planning ahead

Property owners who expect these challenges to be reflected in their appraised value next year should start preparing now to make that case, said Sean Bukowski of Bukowski Law Firm in Austin. The preparation should include the usual types of documentation, such as photos of deferred maintenance or information about comparable property sales and any new, extraordinary building expenses and modifications.

 “You want to be able to show anything that negatively affects the value of the property,” Bukowski said. “If you have income-producing properties, you have to have your financials in order.”

 Without documentation, property owners are unlikely to succeed at reducing the assessed value of a property due to Covid-19. Appraisal districts have access to more data to back up their valuations than ever before, making it harder for property owners to protest successfully.

 “If you are well-prepared and you go in there with solid analysis, you have a really good shot at getting at least some reduction,” said Bukowski, who recommends all property owners get into the habit of protesting their appraised value every year. “If you’re just sort of off-the-cuffing your protest, it’s probably going to be difficult. The appraisal district is prepared. They know what they’re doing, and they have data to back it up.”

 Many property owners who opted to protest their valuations this year are still in the midst of that process. Protests were due on May 15 or 30 days after receipt of the assessed value, whichever came later. There are three steps to the protest process. First, the appraisal district holds an informal hearing with the property owner to see if they can reach an agreement on the value. If they don’t come to a resolution, the protest moves to a formal hearing which is a three-person panel appointed by a local judge. Finally, if the property owner is unhappy with the results of the formal hearing, they can file a lawsuit against the appraisal district. Covid-19 has affected this process as well. Bukowski said all of his firm’s informal hearings were done over the phone or by email, and the formal hearings are delayed, with most set for August or early September.

Several state lawmakers have indicated they will take up the issues of economic recovery from the pandemic in the next legislative session, which is scheduled to begin Jan. 21, 2021, and property taxes may well be a part of the mix. But rising property tax bills have been an issue for years in Texas, particularly in fast-growing cities, such as Austin.

In 2019, Gov. Greg Abbott signed into law a property tax reform measure designed to offer some relief. Starting in 2021, the new law caps the revenue increase a taxing district can collect at 3.5% without holding an election and gaining voter approval, replacing the prior 8% cap. Yet, while the new rule caps the total receipts a taxing entity can bring in, it doesn’t limit the increase any one individual taxpayer can face.

“The expectation is that there’s more of a cap than there really is,” Bukowski said. “On an individual tax-on-a-property basis, it could be no relief at all.”