Purpose
The rollback tax in Texas is a mechanism to ensure that landowners who benefit from agricultural exemptions pay the appropriate amount of taxes when the land’s use changes from agricultural to non-agricultural.
Key Facts
- Purpose: The rollback tax is designed to ensure that landowners who receive agricultural exemptions pay the appropriate amount of taxes when the land’s use changes from agricultural to non-agricultural.
- Calculation: The rollback tax is calculated based on the difference between the market value and the reduced agricultural assessed value of the land, plus a penalty of 5% per year for the last three years.
- Triggering events: The rollback tax is triggered when there is a change in the use of the land, such as when agricultural land is sold or diverted to a non-agricultural use.
- Tax liability: The amount of rollback taxes due can vary depending on factors such as the market value of the land, the duration of the agricultural exemption, and the tax rate in the jurisdiction where the property is located.
- Negotiability: The party responsible for paying the rollback taxes can be negotiated, but by default, it is generally the party that changes the use of the land, typically the buyer post-closing.
Calculation
The rollback tax is determined by calculating the difference between the market value of the land and its reduced agricultural assessed value. A penalty of 5% per year is then added for the last three years.
Triggering Events
The rollback tax is triggered when there is a change in the use of the land, such as when agricultural land is sold or diverted to a non-agricultural purpose.
Tax Liability
The amount of rollback taxes due depends on factors such as the market value of the land, the duration of the agricultural exemption, and the tax rate in the jurisdiction where the property is located.
Negotiability
The party responsible for paying the rollback taxes can be negotiated, but by default, it is generally the party that changes the use of the land, typically the buyer post-closing.
Sources
- Agricultural, Timberland and Wildlife Management Use Special Appraisal
- Agricultural Valuations and Rollback Taxes
- Texas’ Rollback Tax is a Potential Dealbreaker
FAQs
What is a rollback tax?
A rollback tax is a tax that is imposed when land that has been receiving an agricultural exemption is converted to a non-agricultural use. The rollback tax is designed to recapture the taxes that would have been paid if the land had not been receiving the agricultural exemption.
How is the rollback tax calculated?
The rollback tax is calculated by multiplying the difference between the market value of the land and its agricultural assessed value by the tax rate for the jurisdiction in which the land is located. A penalty of 5% per year is then added for the last three years.
When is the rollback tax due?
The rollback tax is due when the land is converted to a non-agricultural use.
Who is responsible for paying the rollback tax?
The party responsible for paying the rollback tax is generally the party that changes the use of the land, typically the buyer post-closing. However, the parties can negotiate who will be responsible for the tax.
Can the rollback tax be avoided?
There are a few exceptions to the rollback tax, such as when the land is transferred to a state or political subdivision or when the land is used for a public purpose.
How can I get more information about the rollback tax?
You can contact your local appraisal district or the Texas Comptroller of Public Accounts for more information about the rollback tax.
What are some tips for avoiding the rollback tax?
If you are planning to convert agricultural land to a non-agricultural use, you should be aware of the rollback tax and take steps to avoid it, such as selling the land to a state or political subdivision or using the land for a public purpose.