Dallas County Property Tax Base Structure

Introduction

We continue our series on the property tax in 25 cities that are primarily in Dallas County. This week, we look at the structure of our cities’ tax bases. That is, how it is distributed in terms of residential and commercial tax base and the extent to which cities have exempted their tax bases for various policy reasons. We are presenting the data from before the start of the Great Recession, 2007. The structure of the tax base can have important impacts on the behavior of local governments. Next week we will look at how these cities’ tax bases changed since 2007 by adding in the data for 2016.

Market and Taxable Values

Taxable values are what counts for delivering local government revenue. Taxable value can differ from market value because of exemptions that local governments offer. These include homestead exemptions and tax freezes on single family residences and various economic development abatements on commercial property, among others. Because each city council sets these exemptions, we can expect the taxable share of property to differ from city to city. This is the case. Figure 1 summarizes the situation for the combined tax base of all 25 cities.

Figure 1. Taxable Share of Different Sectors Varies

When looked at individually, our cities have total taxable values, as a percent of total market value, that range from a low of 68 percent to a high of 93 percent. The average of the 25 cities is 85 percent and the median is a little higher at 87 percent. Figure 2 compares the taxable shares of market value for the 25 cities.

FIgure 2. Taxable Portion of Real Estate Varies by City

The property tax rolls are summarized into three broad categories of property: real commercial property and real residential property include land and improvements (buildings.) The third category is business personal property, which is other income-generating property.

Just as cities present different overall taxable shares, the fraction of property that is considered taxable across property types differs even more. For commercial real property, there is a very wide range. The low and high percentage that is taxable runs from 37 percent to 93 percent. The average taxable amount for commercial real property is 74 percent and the median is 79 percent.

For business personal property, the range is from a low of 53 percent to a high of 100 percent. The average and median percentages are 90 and 97 percent, respectively.

Finally, for residential real property, the share that is taxable varies from a low of 72 percent to a high of 98 percent. The average rate for all cities is 88 and the median is 91.

Share of Tax Base by Sector

Our cities tax bases show different concentrations of commercial and residential. This is because business and residential activity is not uniformly distributed across the region. There are major business centers in the county, such as downtown Dallas, Richardson and Irving. Cities without such a business center or that lack significant highway frontage will have relatively small business tax bases. This means that the residential segment of the market will have to shoulder the burden of supporting property taxes.

The share of commercial real property ranges from 5 percent to 68 percent. The average is quite low at 28 percent. The median share is 26 percent. Business personal property is roughly, but not perfectly, distributed where the commercial real property is located – with an 82 percent correlation between the two.  To get a truer comparison of residential and commercial tax burdens should combine commercial real and business personal property. When we do that, we see that the total share of the tax base in these combined sectors runs from 7 percent to 86 percent, quite a wide range. The average share for these two combined is 41 percent, with a median of 39 percent. So, in general, our cities have more of their tax base in residential property than in commercial property. Actually, only eight of the 25 cities have a majority of their property tax base in commercial property.

Necessarily, the residential tax base makes up what is left. The range runs from a low of 14 percent to a high of 93 percent. The average for all the cities is 59 percent. The median is 61 percent.

Figure 3 shows the share of taxable value that is commercial + business personal property and residential real.

Figure 3. Cities Differ in Their Commercial and Residential Mix

This is the tax base structure our 25 cities had on the eve of the Great Recession. This is what their management and councils had to work with as local property markets began several years of declines. In many cases, the local choices were influenced by these tax base differences. Next week we will see how these cities’ tax bases had changed by 2016 and several years of recovery.

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