Commercial Property Taxation in Texas



By Tom Wolfe, February 5, 2022




Commercial property is a broad category. Like residential property, commercial property includes so-called “real property,” which consists of land and buildings. To qualify as “commercial,” land and buildings must—unsurprisingly—be used for business activities. But commercial property also includes tangible personal property used in business. For example, vehicles used by a trucking company, drilling equipment used by an oil and gas company, and a laptop computer used by a retailer all qualify as commercial property and are subject to annual property taxes. As with residential property, commercial property is subject to the M&O and I&S taxes levied by local taxing units.


The total value of commercial property in Texas, like that of residential property, has increased dramatically in recent years. According to the Comptroller, property classified as commercial real property (which is just a subset of commercial property) grew from about $274 billion in 2011 to about $510 billion in 2019.[i] That’s an increase of 86 percent in just eight years! Of course, as property values rise, property taxes do as well.


Because commercial property taxes in Texas apply to personal property used in business, businesses that use a lot of physical equipment are hit particularly hard by taxes. This is one of the conceptual flaws of property taxes; they effectively discriminate in favor of certain businesses whose property is wrapped up in intangible assets and/or whose focus is providing personal services (law firms, for example). Texas not only has relatively high property tax rates, it also has a commercial property tax with a broader base than most states. As of 2019, Texas was one of only eight states that fully taxed inventory.[ii]


As noted earlier in this series, policymakers have at least taken steps to address high residential property taxes in Texas. These steps include increasing the homestead exemption from school district property taxes and implementing a 10 percent cap on annual increases in the appraised value of homesteads. There have been attempts to ameliorate the commercial property tax burden in the state as well. In 2021, the Legislature passed Senate Bill 1449, which increased the property tax exemption for commercial personal property from $500 to $2,500. This is still a low exemption figure compared to many states. Indeed, some states have exemptions of $10,000, $15,000, or even $100,000.[iii] Nevertheless, it was a key improvement and its benefit to business owners may be more in saved time than in saved dollars. An unpleasant aspect of commercial property taxes on personal property is that the owner must report the value of the property; a business must determine the value of its tangible assets in preparing its rendition statement to the applicable appraisal district. Even a small business may have dozens of items for which a value must be reported, and determining the value of an item can involve significant research or record-keeping by the taxpayer. Of course, the business owner must be prepared to defend the reported values of his or her property if they are challenged.


Also in 2021, the Legislature declined to renew the Texas Economic Development Act, sometimes referred to as “Chapter 313.” This provision in the law is scheduled to expire at the end of 2022. Chapter 313 was a well-intentioned effort to ease the property tax burdens of businesses that relocate to Texas, create high-paying jobs, and make significant capital investments in the state. The program has several flaws, and many of the property tax breaks granted under Chapter 313 did not advance the original goals of the statute.


Businesses will experience some relief from escalating property taxes as a result of the reforms passed in 2019. However, businesses in Texas are still subject to high property taxes, and the scope of these taxes hits capital-intensive businesses particularly hard. Providing commercial property tax relief as well as residential property tax relief should be a focus of policymakers. They should examine previous efforts to do so in order to avoid the shortcomings in those previous attempts.

[i] Comptroller, Biennial Property Tax Reports (for 2018 and 2019, and for 2010 and 2011). [ii] Garrett Watson, Tax Foundation, “States Should Continue to Reform Taxes on Tangible Personal Property,” (Aug. 2019), available at https://files.taxfoundation.org/20190807085823/TaxFoundation_FF668.pdf [iii] Id.