Commercial Property Taxes in Texas and How They Work
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The commercial property tax system in Texas can be complicated, and the state is known for having some of the highest effective property tax burdens in the country. But why are property tax rates in Texas so high, and how are they determined?
One reason its property taxes are so high is that it requires more tax revenue each year to support economic and population growth. An expanding economy and a rapidly growing population mean that the state of Texas consistently experiences increased demand for schools, new roads, healthcare, and other public services and infrastructure. Because of this demand, commercial property owners’ taxes often increase each year.
In Texas, commercial property and real estate market valuations, contributing to the calculation of annual property taxes, are conducted by county appraisal districts once a year. Since property values tend to increase year over year, commercial property owners can anticipate a steady annual increase in their commercial tax bills. However, these valuation increases, which impact the property tax amount paid, are not always accurate.
Consequently, some commercial property owners end up paying more annual property taxes than they should. If you’re a property owner who believes your commercial real estate space has been inaccurately valued, you can request a review or arbitration by your local appraisal review board (ARB) or file a protest with the county appraisal district (CAD).
If you’re struggling with rising commercial property taxes in Texas, AFIC can provide property tax loans that give you the financial flexibility to protect your business. Explore your options by contacting us today.
Understanding How Commercial Property Taxes Work in Texas
All property taxes in Texas, both commercial and residential, are ad valorem taxes. This Latin phrase simply means “according to value.” It indicates that Texas commercial properties are to be taxed based on their market value. However, determining a property’s value is not always straightforward. CADs in Texas will use one of three different approaches to calculate property values. These approaches are the income, sales, and modified cost approaches. The choice of approach will depend on the type of property being assessed. Commercial property valuation is generally carried out using the income approach. The income approach uses the net operating income (NOI) that a commercial property generates as the primary factor determining its value. Valuators take the property’s NOI and divide it by the capitalization rate to arrive at an estimated value. The capitalization rate is the expected unlevered rate of return of a real estate investment property. The higher the capitalization rate, the lower the estimated property value. Conversely, a higher net income will raise the property value.
It’s important to understand the distinction between appraised value and assessed value. The appraised value is the CAD’s determination of your property’s market worth, i.e., what an independent buyer and seller would agree upon in an open transaction. In Texas, commercial property is generally assessed at its full appraised value. However, under current law, certain non-homestead properties may benefit from limits on year-over-year assessed value growth.
With this method, two similar properties could end up with vastly different assessment values. A high-end dental clinic and a thrift store could both occupy spaces of the same size, construction quality, age, and condition, and still end up with very different valuations each year due to their differing interior improvements. Once the CAD has completed its value calculations, it applies the current property tax rates to the assessed value. The appraised value and the assessed value, due to recent legislation, can differ based on the rate of increase in valuation from prior years.
Both commercial and residential property owners in Texas often face exorbitant collection fees, interest, and penalties if they fall behind on their tax payments. Penalties and interest will begin to accrue rapidly, so allowing a lapse of even a few months could lead to significantly higher bills.
The 20 Percent Cap on Assessed Value Growth for Non-Homestead Properties
Under current Texas law, qualifying non-homestead commercial properties are subject to a 20 percent cap on year-over-year assessed value growth, also known as “stabilizers.” Previously, only homestead properties enjoyed meaningful protection from runaway annual appraisal increases. Commercial property owners were fully exposed to whatever the market dictated.
Under this cap, even if the CAD determines that your commercial property’s appraised value has increased by 35 percent or 50 percent in a single year, the assessed value used to calculate your tax bill cannot rise by more than 20 percent over the prior year’s assessed value. This applies to non-homestead properties, including commercial real estate, rental properties, and land, valued at $5 million or less.
Because the cap acts on assessed value rather than appraised value, your property might carry a higher appraised value on paper while your taxable bill reflects a lower assessed figure. Over multiple years, however, the assessed value can “catch up” to the appraised value if the market continues rising, so this protection is best understood as a smoothing mechanism rather than a permanent ceiling.
What this means for commercial property owners:
- Annual tax bill increases are now more predictable, even in a hot real estate market.
- You may qualify for a lower assessed value than the appraised value shown on your Notice of Appraised Value.
- Properties valued above $5 million do not benefit from this cap and remain fully exposed to market-driven appraisal increases.
- Even with the cap in place, owners who miss the payment deadline still face the same penalties and interest. The cap only limits how fast assessed value grows, not the consequences of non-payment.
How to Navigate Commercial Property Tax Increases in Texas
Commercial property owners in Texas have a responsibility to stay up to date on the latest tax rates and the most recent valuations of their properties. They must also be aware of the times when their tax bills are scheduled to arrive (usually from October onwards) and when payment is due (by the following January 31 each year).
Even before the bills are sent out, commercial property owners have plenty of time to consider their properties’ valuations and appeal to their local ARBs to reconsider them. In April of each year, notices of appraised value are mailed to property owners. Between then and September, property owners can take their cases for incorrect valuation to their local appraisal district, appraisal review board, and then district court or through binding arbitration. If the property in question is valued at $1,000,000 or more, the owner can then take the matter to the State Office of Administrative Hearings (SOAH).
Sometimes, even if the valuation is correct, property owners may still miss the payment deadline. Once the account becomes delinquent, they would need to act quickly to prevent the debt from spiralling out of control. One option for resolving delinquent commercial property taxes is to work with a registered property tax lender such as American Finance & Investment Co., Inc. (AFIC).
At AFIC, we partner with commercial property owners across the state who need help paying their taxes. Taking out a loan to pay property taxes can provide you with the much-needed financial flexibility to keep your business running and protect your livelihood.
Whether you’re facing a delinquent balance today or simply want to plan ahead before your next bill arrives, the earlier you reach out, the more options you’ll have. Many of our clients are surprised by how straightforward the process is and how quickly we can help them move from uncertainty to a clear, manageable payment plan.
Get More Information About Commercial Property Tax Loans from AFIC
AFIC can provide you with an instant quote by completing the form on our homepage. For qualifying properties, we can help you pay off your delinquent taxes and offer you the following benefits:
- Quick and completely online process
- No money down
- No credit check
- Free 30-day rate match
- Match competitors and beat their rate by 1%
- Avoid high penalties and foreclosure
We pride ourselves on finding solutions to suit the unique needs of our clients. If you would like to discuss our property tax loans, please contact our experienced team at AFIC today.
Frequently Asked Questions
The Texas property tax system is governed by the Texas Constitution and the Tax Code. Each county’s appraisal district assesses property at fair market value annually. Local taxing entities, such as cities, school districts, and special districts, then apply tax rates to those values to fund public services, such as education, infrastructure, and emergency response.
Your total commercial property tax is based on: * The appraised value of your property * Tax rates set by each local taxing unit * Applicable exemptions or abatements * The effect of the “stabilizers” For income-producing properties, valuation is often determined using the income approach, which factors in net operating income and market capitalization rates.
If you believe your commercial property was overvalued, you have the right to file a protest with your County Appraisal District (CAD). This can lead to a hearing before the Appraisal Review Board (ARB). For properties valued over $1 million, you may also escalate to binding arbitration or the State Office of Administrative Hearings (SOAH).
Texas commercial property taxes tend to increase due to: * Rising property values in a strong real estate market * Local government budget increases * Lack of a state income tax, which places more burden on property taxes
Local governments—such as counties, cities, school districts, and special-purpose districts—set individual tax rates based on budget needs. The total tax rate applied to your property is the combined rate from all relevant taxing units.
Tax bills are typically issued in October, and payment is due by January 31st of the following year. Failure to pay by the deadline results in penalties, interest, and potential tax lien foreclosure. If your account becomes delinquent, the total amount owed can grow incredibly quickly.
You may be able to reduce your property tax bill by: * Protesting overvalued appraisals * Applying for available exemptions (e.g., pollution control, freeport exemptions) * Taking advantage of the 20% non-homestead cap if your property qualifies
Appraisal districts often use the income approach to value commercial properties. This method calculates market value based on the net operating income your property generates. It can result in different valuations for similar-looking properties if their income differs significantly.
While Texas does not impose a state-level property tax, the Legislature sets the framework for how local property taxes are assessed, collected, and appealed. Recent legislative changes have included caps on annual tax increases, including the 20% non-homestead cap, and adjustments to transparency requirements for taxing entities.
If you miss the January 31 deadline, your account becomes delinquent, and penalties and interest begin accruing immediately. The longer the debt goes unresolved, the more expensive it becomes. AFIC specializes in helping commercial property owners in situations like this. We can pay off the delinquent tax on your behalf and set up a loan with terms designed to fit your cash flow. Contact us as soon as possible to explore your options.
