Tax Rate Scares

The end of September marks two things: (1) the official start of “Spooky Season” and (2) the deadline for certain municipal taxing units to adopt a no-new-revenue tax rate for the current tax year.

Under Section 26.05(a) of the Tax Code, the governing body of a taxing unit must adopt a tax rate for the current tax year before September 30 or the 60th day after the date the certified appraisal roll is received by the taxing unit, whichever is later. (There are different deadlines and other requirements for taxing units adopting a tax rate exceeding the voter-approval tax rate. I won’t be particularly writing about those this go-around.)

But . . . What happens if you miss that deadline? Have you just become the main character in your – strangely specific – municipal horror movie nightmare?

It’s going to be okay. Section 26.05(c) of the Tax Code provides a safe harbor of sorts. By utilizing Section 26.05(c) of the Tax Code, taxing units can still adopt a tax rate even after the Tax Code’s statutory deadlines. There’s a catch, though.

Section 26.05(c) reads, in part:

“If the governing body of a taxing unit does not adopt a tax rate before the date required by Subsection (a), the tax rate for the taxing unit for that tax year is the lower of the no-new revenue tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year.”

So, even if the statutory deadlines for adopting a tax rate are missed, a municipal taxing unit’s tax rate will default to whatever is lower: this year’s no-new revenue tax rate or last year’s tax rate. A tax rate established by Section 26.05(c) is treated as an adopted tax rate.

But, to trigger this provision, the taxing unit must still ratify the applicable tax rate in the manner described in Section 26.05(b) of the Tax Code before the fifth day after the establishment of a tax rate under Section 26.05(c).

For no-new-revenue tax rates, the annual tax rate must be set by ordinance, resolution, or order, whatever method is prescribed by law for adoption of a law by the taxing unit’s governing body, even when established through Section 26.05(c) of the Tax Code.

Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our commercial and business litigation practice can be found here.