Background. In Texas, property is taxed according to its value. Special valuations allow property owners to receive a tax break based on how they use their property. The land is valued significantly lower than normal based on its productivity value as opposed to its market value, resulting in lower property tax bills. This is to promote certain land uses Texas deems beneficial.
Currently, when land has been appraised with a special use valuation, such as timber or open-space land, and there is a change in the primary use of that land, the land is stripped of its special valuation and "rollback taxes” are assessed against the owner.
For years, the rollback taxes were calculated based on the difference between the reduced valuation and the market valuation for the previous five years, plus interest at an annual rate of seven percent calculated from the dates on which the differences would have become due.
(Difference in Value per Year) + (7% Interest) = Old Rollback Taxes
During the last legislative session in 2019, the legislature reduced the number of years for which rollback taxes were due – only for open-space and timber land – from five years to three. As a result, taking cows off your land would cost you three years' worth of backed taxes plus interest, instead of five years plus interest. However, other types of property were still subject to the 5-year rollback tax rule.
Taxpayers have complained that the interest due following a change in use is excessive for property owners. Rollback taxes, including the interest, is often a substantial consideration property owners face when deciding whether to sell their property. The legislature addressed this issue by drafting and passing House Bill 3833 in the 2021 session, which reduces this tax burden by eliminating the interest due on these rollback taxes.
Additionally, H.B. 3833 seeks to establish consistency in state law by mirroring the changes made in the 2019 session for land appraised as recreational, park, or scenic land; public access airport property; and restricted-use timber land.
Changes. H.B. 3833 amends the Tax Code to decrease the number of years used in calculating the rollback taxes from five years to three years as a result of a change in the use of land. This change applies to property appraised as recreational, park, or scenic land; public access airport property; or restricted-use timber land. The bill also eliminates interest due on rollback taxes. Therefore, when a change in use occurs, rollback taxes are only owed for the previous three years (instead of five), and no interest is imposed on the rollback taxes. The taxpayer only pays the difference in value for the past three years.
Difference in Value for Prior 3 Years = New Rollback Taxes
The effective date of the bill is June 15, 2021.