Instead of “Pay it Forward”, it’s “Owe it Backward” in Texas

Consider this scenario.  You go to your favorite restaurant, sit in your favorite booth and order your favorite meal.  After enjoying that meal and paying the bill, you receive an additional bill.  You’re confused!?!  The manager explains that the additional bill is to make up the difference for prior customers who sat in the booth and received discounts.  Senior discounts, child discounts, reductions from coupons.  In fact, not only does he want you to pay the difference between what their bill would have been and what it was with the discount, he has also added interest.  That sounds crazy, right?

A company recently purchased land in Texas for a restaurant they were planning to build.  Shortly after completing the purchase, they received a property tax bill for 5 years of “back taxes”.  The jurisdiction explained that the land had been considered agricultural when the prior owner had it.  The company had changed the land use to commercial when they purchased it.  Commercial land is taxed at a higher level than agricultural.  Therefore, the company was responsible for paying the difference in property taxes between agricultural and commercial use for the previous 5 years, even though they didn’t own the land during that time.  On top of that the jurisdiction charged 7% interest over the 5 year period, as if these additional property taxes should have been paid.  That sounds crazy too, right?

It turns out that Texas Property Tax Code §23.55 actually allows this:  “If the use of land that has been appraised as provided by this subchapter changes, an additional tax is imposed on the land equal to the difference between the taxes imposed on the land for each of the five years preceding the year in which the change of use occurs that the land was appraised as provided by this subchapter and the tax that would have been imposed had the land been taxed on the basis of market value in each of those years, plus an interest at an annual rate of seven percent.”

That doesn’t seem fair at all!  I think we all understand the concept of “Pay it Forward” but this sounds more like “Owe it Backward”.

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