MAXIMUS’s Ray Watson was a featured panelist during Estes & Gandhi P.C.’s 2012 Annual Property Tax Prospectus in January. The program, which was sponsored by Estes & Gandhi P.C., Colliers International, Comerica Bank, and Associa Title, included prominent business leaders, property tax attorneys, and real estate professionals from the North Texas area. The panel discussion featured viewpoints on Texas property tax specifically, the state tax structure in general, and its effect on economic development. Continue reading for a summary of that discussion.
A significant portion of the conversation centered on a comparison of Texas’ taxing system with those of other states. While all participants generally believe that Texas has one of the most favorable tax structures in the U.S., Watson pointed out that in his current work on a business relocation/incentives project involving a client’s choice between four different states, Texas stands in an enviable position. The lack of a state income tax and the tax system’s comparatively friendly attitude toward business gives state economic development officials a much better point from which to begin incentives negotiation. This is certainly one of the reasons why Texas has been consistently ranked among the top three states for corporate headquarters influx over the past six years.
In terms of property tax specifically, Texas differs from many other states in that it does not use commercial property valuation caps. The panelists agreed that caps are generally not in the best interests of property owners, mainly because they shift much of the tax burden to new owners (creating a disincentive to real estate purchases) while valuations on properties held for longer periods of time become out of sync with the rest of the real estate market.
In California, the passage of Proposition 13 in 1978 presented exactly this type of problem. The panelists agreed that many of California’s current fiscal difficulties can be traced to the enactment of this law (which severely constrained the growth of property tax revenue), while municipal and state spending was allowed to increase unabated. The resulting service deficiencies and governmental instability, combined with exceedingly high sales and income tax rates, has led to a mass exodus of corporate headquarters. As Watson pointed out, half to two-thirds of the headquarters relocations in the U.S. over the past four years have come out of California. Watson said a California-based company he spoke with two months ago about relocation specifically stipulated that they would look only at states with no income tax that were willing to make creative deals regarding property tax abatements.
With its income-tax-free environment and the degree to which its municipalities negotiate property tax abatements for businesses, Texas is an attractive option for companies looking to cut their costs. But the panel acknowledged that proposed property tax changes could negatively impact these advantages. The possibility of a statewide property tax has been discussed in the Texas Legislature and will likely be a key issue in future sessions. While the advantages of such a system are debatable, the disadvantages for economic development efforts are clear.
Watson referenced the Rackspace headquarters project he facilitated with the City of Windcrest in 2007, in which a multi-million dollar property tax abatement was negotiated as part of one of the largest incentives projects ever completed in the state. Now, Rackspace headquarters brings 3,000 employees daily to an area of Windcrest that previously stood vacant. This has stimulated retail development in the surrounding areas, which has allowed the City of Windcrest to benefit from sales tax and property tax revenues, boosting municipal services as well as the school district. If Texas moved to a statewide property tax system, municipalities would lose the ability to make these types of deals.
Aside from this particular point, the insights shared during the discussion pointed to a generally positive opinion and outlook for Texas and its tax structure – certainly in relation to other states.
MAXIMUS provides customized expansion, relocation, and retention solutions for companies seeking to take advantage of the cost-saving opportunities available via state and local incentives. We work with economic development and government officials to negotiate packages for our clients that are creative and beneficial to all parties.
MAXIMUS can also provide assistance with corporate property tax issues.
Please contact us for more information.
