Guest Editorial
By Rahul Patel
Guest Editorial
By Rahul Patel
Every year, headlines focus on rising property taxes and frustrated homeowners. But a quieter, more consequential problem hides in plain sight: Texas’ commercial property tax system is fundamentally broken – and it affects everyone.
In representing commercial property owners across the state, I routinely litigate inflated and unequal valuations. These cases reveal a system producing numbers that cannot withstand scrutiny. Policymakers often focus on symptoms – tax rates or rising values – rather than the root cause: the mass appraisal process.
Commercial real estate is generally valued using one of three approaches: cost, income, or sales comparison. In a traditional, property-specific appraisal, these methods work well. In a mass appraisal environment, they often break down.
Income-based models frequently rely on hypothetical “best-case” assumptions rather than real-world conditions. That creates a dangerous drift. Property taxes should be based on the value of land and physical improvements – not on how much a business earns or might earn under ideal circumstances.
When appraisal districts prioritize projected income over actual property characteristics, they blur the line between property tax and income tax. Rising expenses, declining occupancy, and shifting markets are often slow to be reflected, leaving owners with taxable values detached from economic reality.
The results are telling. In 2024, approximately 64 percent of commercial properties that filed protests received reduced valuations. Nearly two out of three commercial taxpayers who challenged their assessments proved they were overvalued. That is not widespread abuse; it is systemic inaccuracy.
Consider Collin County, where the Appraisal Review Board granted nearly $8 billion in commercial value reductions. In Bexar County, a major hotel property saw its valuation reduced by almost $10 million in a single year. Across Texas, thousands of similar cases confirm the pattern.
Overvaluation does not just burden individual owners. It creates cascading consequences for entire communities:
Budget instability: Local governments build budgets on inflated tax bases that are later reduced through protests and litigation, creating fiscal uncertainty.
Wasted resources: Appraisal districts devote substantial public funds defending valuations that collapse under review.
Stalled development: Excessive carrying costs discourage renovations, safety upgrades, and redevelopment.
Ironically, the very improvements cities seek – revitalized corridors, upgraded infrastructure, energy-efficient buildings – require capital that is drained by over-taxation.
The broader economic impact is clear. When the tax system makes it harder to do business, it becomes harder to attract investment, create jobs, and sustain growth. Businesses and workers alike bear the cost.
The system also creates a contradiction in public policy. Sustainable construction and energy-efficient retrofits require significant upfront investment. Yet when those improvements reduce operating costs, income-based models often translate that efficiency into higher projected income – and higher taxable values. The system captures the upside while ignoring the risk and capital cost.
Critics sometimes argue that the high volume of appeals demonstrates manipulation by property owners. The opposite is true. Appeals exist because accuracy is lacking. When independent review boards repeatedly grant substantial reductions, it confirms original assessments were not grounded in defensible methodology.
Reform does not mean eliminating property taxes or undermining public services. It means returning to first principles.
Assessments should refocus on land and physical improvements rather than speculative income projections. Appraisal districts must rely on clearer data, realistic assumptions, and faster recognition of economic disruption. Greater transparency and predictability would benefit both taxing authorities and taxpayers.
Property taxes fund essential services. But for the system to endure, it must be credible and fair. Restoring confidence in commercial property taxation requires correcting a process that has drifted from its purpose. Until these foundational flaws are addressed, volatility will persist – and Texans will continue to pay the price.
About Rahul Patel
Rahul Patel is a San Antonio-based attorney whose firm represents more than $18 billion in commercial properties spanning more than 30 counties across Texas.
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