Low Tax Rates & High Level of Services

The City of Sugar Land conducted a citizen satisfaction survey in the fall of 2015 that showed a high level of satisfaction with city services.

A Strategy 25 Years in the Making

Providing high-quality services while maintaining one of the state’s lowest tax rates is the result of a 25–year strategy. In the early 1990's, residents voted to approve the use of sales tax for property tax relief and economic development.

So how does this plan work? Learn more below.

Where does sales tax come from?

It may come as a surprise, but the majority of the City’s sales tax is generated by people who don’t live in Sugar Land. A recent sales tax analysis by Buxton, a company that specializes in growth strategies and customer analytics, showed that 34 percent of sales tax in the retail and food and entertainment sectors is spent by people living in Sugar Land and its extra-territorial jurisdiction -- that means 66 percent of this important funding comes from people who either visit or work in Sugar Land. When looking at all sectors, the percentage of sales tax from people who do not live in Sugar Land grows 74 percent.

Sales tax strategy

It’s clear that sales tax revenue primarily comes from businesses and people living outside of Sugar Land. The City’s low tax rate is a direct result of the sales taxes that are used to fund City services identified by residents, a strategy implemented in 1993. The City’s tax rate in 1993 was 50 cents. Since that time, the City lowered the tax rate 18.4 cents, which is 7.6 cents more than required.

Leveraging sales tax revenue to reduce property taxes is an intentional tool, though sales tax is an elastic revenue stream that can be impacted by economic conditions beyond the City’s control. The City recently addressed this risk to City operations in an update to its Financial Management Policy Statements. It was decided to reduce the maximum general fund operating budget supported by sales tax to 50 percent. The fiscal year 2017 proposed budget adheres to this requirement.

Sales Tax Sources & Uses

Where sales tax comes from and how it’s used is an important concept. Each time a taxable sale occurs within the City, the City receives a portion of that sales tax. The total sales tax collected on taxable purchases is 8.25 percent, but only 2 percent is retained by the City. The remaining 6.25 percent goes to the state of Texas. The 2 percent of sales tax collected by the City is further divided between economic development corporations approved by voters and the City. As you can see from the graph, the economic development corporations each receive 12.5 percent of the sales tax, with 25 percent going to property tax reduction.
Pie graph of sales tax sources and uses
Economic development sales tax is probably the most misunderstood type of sales tax, so we want to be sure our residents understand what it is and why is so vitally important for the City and its residents. Economic development activity is conducted by two types of corporations. These corporations are Type A and Type B corporations, and are created by cities with the authority of the state. The 12.5 percnet sales tax that each of these corporations collect have uses that are restricted by state law. For instance, Type A corporations’ funding is aimed at developing industries, while Type B corporations’ funding can be used to develop industries and cultivate communities. In both instances these corporations’ focus is on improving the quality of life to residents by bringing in job, visitors and amenities such as museums and sporting facilities, all of which have the added benefit of contributing to a low property tax rate for residents. This is highlighted by recent census data that shows that the City imports about 55,000 workers while exporting only about 33,000 workers. This means that 22,000 more workers come into Sugar Land every day. This translates into increases in commercial activity and sales tax. The increases in the day-time population aren’t created by random chance, rather they are the direct result of economic development activities targeted at stimulating commercial activity within the City.

Tax Cuts

The City uses a number of tools to reduce the property tax burden of residents. Aside from the utilization of sales tax, another major tool to address property valuations is the homestead exemption. The City must decide, even before the final tax roll has been certified by the appraisal district, the level at which it should set the homestead exemption. This year, the City estimated correctly that property values would be higher than the prior year and made the decision to increase the homestead exemption from 8 to 10 percent, which means that residents will receive an additional tax cut from the City. From the average homeowner’s perspective this means that the same City tax rate as last year will only increase their overall tax bills by about $36.