Legal Topics

Recent Property Tax Cases

Posted by: Roy Armstrong on June 12, 2018

Last updated: June 11, 2018

Bosque Disposal Systems, LLC v. Parker County Appraisal District
2018 WL 23782810 (Tex., May 25, 2018)

Issues: Appraising property in component parts

Bosque owned land on which a saltwater disposal well was located. The well, used to dispose of waste water from oil and gas operations, included a well bore, down-hole tubing, surface pumps, pipes and tanks. Although there was no instrument that legally severed the well from the land, the appraisal district appraised the well separately. The well was appraised using an income approach, and the land we appraised using comparable sales. The appraised value of the well was much greater than the appraised value of the land. Bosque protested, claiming that the separate appraisals were a form of illegal double taxation. The ARB denied the protest, but the trial court effectively ruled that the well could not be taxed. The court of appeals reversed the trial court’s judgment and ruled that the well could be appraised separately. The Texas Supreme Court agreed to consider the case.

The Supreme Court affirmed the court of appeals’ judgment in favor of the district. The high Court reasoned that the well was a type of taxable real property. Some aspects of a real property can be appraised separately even though they are a part of the same surface tract and even though there has not been a legal severance. Section 25.02(a) of the Tax Code contemplates “separately taxable estates or interests in real property.” The Court acknowledged that it would be difficult to come up with one simple rule about when aspects of a property can be appraised separately. The issue really has to be decided case by case considering the individual characteristics of a particular property. “Market value is the touchstone of appraisal,” and the value that Bosque’s well contributed to the property could not be ignored. The Tax Code does not prohibit using different appraisal methods to appraise different components of a property. The Court went on to reject Bosque’s claim that the well was somehow intangible.

Although appraising components of a property separately is not improper as a matter of law, it might be possible for a property owner in a particular case to show that some value of its property had been included twice in an appraisal district’s appraisals. For that reason, the Supreme Court sent the case back to the trial court. The lower court will consider whether the district actually included the same value in its separate appraisals of Bosque’s land and its well.

Famsa, Inc. v. Bexar Appraisal District
2018 WL 2121083 (Tex. App. – San Antonio, May 9, 2018, no pet. hist.) (not reported)

Issue: Binding arbitration

Famsa appealed an ARB order by taking its appraisal complaint to binding arbitration. The arbitrator upheld the ARB’s order, and Famsa decided that it not want to be bound by the binding arbitration after all. It is possible to appeal an arbitrator’s decision to a court, but it isn’t easy. Famsa alleged in court that the arbitrator had incorrectly placed the burden of proof. The trial court entered a summary judgment for the appraisal district appealed.

The court of appeals explained that under the Texas Arbitration Act, a party challenging an arbitrator’s decision must show: that the arbitrator was biased or corrupt; that the arbitrator was guilty of willful misbehavior; or that the arbitrator exceeded his/her authority. A court will not disturb an arbitrator’s decision merely because the arbitrator made a mistake. Even if the arbitrator had made a mistake in placing the burden of proof on Famsa, that decision would not justify overturning his order. The court of appeals affirmed the summary judgment for the district.

Willacy County Appraisal District v. Sebastian Cotton & Grain, Ltd.
2018 WL 1974485 (Tex., April 27, 2018)

Issues: Correcting Appraisal rolls; agreements between property owners and appraisal districts

Sebastian owned grain-storage facilities. In 2009, it rendered grain, which the appraisal district listed in Sebastian’s name. Late that year, Sebastian filed a motion with the ARB under §25.25(c) of the Tax Code claiming that it did not own most of the grain because the grain had been sold to DeBruce prior to January 1, 2009. In a telephone call, the district agreed to change the appraisal roll under §25.25(b) and list DeBruce as the owner. DeBruce then filed a protest claiming that, under its contracts with Sebastian, it did not take ownership of the grain until after January 1. The district again corrected the roll under §25.25(b) to once again show Sebastian as the grain’s owner. Sebastian then protested the district’s action. The ARB denied Sebastian’s protest, and Sebastian sued the district.

Sebastian argued that the district had no authority to put the grain back into its name because §25.25(b) does not allow an appraisal district to make changes that “increase the amount of tax liability.” Sebastian’s tax liability was increased when the district put the grain back under its name. It also argued that the district was bound by its earlier agreement to list the grain in DeBruce’s name. The district responded that the agreement was obtained by fraud on Sebastian’s part. The trial court ruled for the district, but the court of appeals ruled for Sebastian. The Texas Supreme Court then agreed to consider the case.

The high court ruled for the district on the key legal issues. The court explained that §25.25(b) allows an appraisal district to change the name of a property’s owner on an appraisal roll as long as it does not raise the value or otherwise increase the total amount of tax liability. The real owner of a property is liable for the taxes regardless of what the appraisal roll says. The district can change the roll to reflect that reality. The court next ruled that an appraisal district is generally bound by agreements with property owners, even, oral, unverifiable agreements. But, Sebastian was claiming that it was not the owner of the grain, and, without realizing it, was claiming that it could not enter a binding agreement with the district. Further, the ownership of a property is an objective fact that cannot be changed by an appraisal district’s agreement, and an agreement obtained by fraud is not binding on a district.

Sebastian also claimed attorneys’ fees on the grounds that it was appealing an ARB order issued under §25.25. It was incorrect, however, because the ARB proceeding had been Sebastian’s protest, not a motion under §25.25. The protest had not involved any issue that would allow Sebastian to claim attorneys’ fee for an appeal. The Supreme Court referred the case back to the court of appeals for consideration of other issues such as who actually owned the grain, whether Sebastian and the district actually had an agreement, and whether Sebastian had committed fraud.

Tarrant Appraisal District v. Tarrant Regional Water District
2018 WL 1865918 (Tex. App. – Fort Worth, April 19, 2018 (no pet. hist.) (to be published)

Issues: Public property exemption

The water district (TRWD) owned a tract of land overlooking the Trinity River. It leased approximately two acres of the land to River Shack, a for-profit company that opened a restaurant there. The appraisal district concluded that the restaurant did not qualify for a public-property exemption. After an unsuccessful protest before the ARB, the TRWD sued the district. The trial court entered a summary judgment exempting the restaurant, and the appraisal district appealed.

The Fort Worth Court of Appeals affirmed the trial court. The higher court stated that ordinarily constitutional provisions and statutes creating tax exemptions are construed strictly against granting the exemption. But when the property owner is a water district those provisions should be construed in its favor. The court then turned to Art. VIII, §2 of the Constitution and §11.11 of the Tax Code and concluded that those provisions exempted the restaurant. Neither of those laws required that property be used exclusively for public purposes in order to be exempt. In the court’s opinion, a property with some use for public purposes could qualify. Property is used for public purposes if “it is used primarily for the health, comfort, and welfare of the public.” The TRWD’s organic statute authorized it to develop “recreational facilities” and to “promote economic development.” Those were public purposes. The court also noted that the lease between the TRWD and River Shack said that the property was “intended for the use and enjoyment of the general public.”

Editor’s Comment: The Fort Worth Court of Appeals’ opinion is a dramatic departure from earlier opinions, including the court’s own opinions. The earlier opinions held that a publicly-owned property leased to a private business for its own business purposes could not receive an exemption even if the property were used to some extent for public purposes. The court overturned one of its own opinions that has been followed by other courts for more than thirty years.

Palma v. Harris County Appraisal District
2018 WL 1473792 (Tex. App. – March 27, 2018, no pet. hist.) (not reported)

Issues: Taxable situs

Palma was the beneficiary of a trust that owned a residence. After an unsuccessful protest of the 2015 appraisal, he sued the appraisal district. Palma claimed that because the property was residential, it was not taxable in Harris County. The district filed a motion for summary judgment accompanied by its account information and maps showing that the property was located within the territorial boundaries of Harris County and other taxing units. Palma responded by claiming that because the property did not generate income, it was not taxable. The trial court entered summary judgment for the district and Palma appealed.

The court of appeals affirmed the summary judgment for the district. The higher court explained that the district’s summary-judgement evidence was sufficient to prove that the property was real property located in Harris County.

Viper S.W.D. LLC v. Jackson County Appraisal District
2018 WL 1325780 (Tex. App. – Corpus Christi-Edinberg, March 15, 2018, no pet. hist.) (not reported)

Issues: Tax payment required for appeal; time for filing appeal

This opinion is unclear about several points, but we will try to make sense of it. Viper leased land where it operated a saltwater disposal well. Its bpp was appraised by Capital Appraisal Group beginning in 2008. Viper sued the appraisal district, challenging the appraised values for the bpp in 2008 and 2009, claiming that the property was not adequately described on the appraisal rolls and claiming that the appraisals included real property not owned by Viper. In mid-2015, just before the trial, it filed an amended petition adding the 2010 year. The district pointed out that Viper had not paid any taxes on the property, but the trial court refused to dismiss the suit on those grounds. After the trial, the trial court entered judgment for the district and viper appealed.

On appeal, the district argued that the case should have been dismissed as a result of Viper’s failure to pay taxes. The court of appeals noted that under §42.08 of the Tax Code, a property owner has the option of paying the amount of taxes imposed on the property in the preceding tax year. Because the property was not taxed at all in 2007, Viper had the option of not paying anything for 2008. The higher court also allowed Viper to get away without paying anything for 2009, but it did not explain why. The court then proceeded to dismiss Viper’s claims for 2010 because Viper had not added that year to its suit within sixty days after it received its ARB order.

The court of appeals found that the evidence on the substantive issues was sufficient to support the judgment. The court noted that a property description need only be sufficient to give a property owner notice of what property was included in a tax account. Capital’s description satisfied that requirement. Testimony from Capital’s appraiser supported the trial court’s finding that only Viper’s bpp had been included in the appraisal. The Court of Appeals affirmed the judgment for the district for the years 2008 and 2009.

EXLP Leasing, LLC v. Galveston Central Appraisal District
2018 WL 1122363 (Tex., March 2, 2018)

Issues: Heavy equipment appraisal

EXLP owned compressors used to push natural gas into and through pipelines. The compressors were leased to the companies that operated the pipelines. EXLP managed its business in the area from Washington County, but the compressors were located in Galveston County for years at a time. EXLP claimed that under §23.1241 of the Tax Code the compressors had to be appraised at one-twelfth of the rental income that they produced in a year. It also claimed that the compressors were taxable in Washington County. The appraisal district refused to apply §23.1241, asserting that the statute was unconstitutional because it yielded values that were far below the actual market values of the compressors. The district appraised the compressors in Galveston County and at their market values. After an unsuccessful protest, EXLP sued the district. The trial court entered a summary judgement for the district. On appeal, the court of appeals ruled that the compressors were taxable in Galveston County but that there was not enough evidence to support a summary judgment invalidating §23.1241. Both sides asked the Texas Supreme Court to consider the case, and the Court agreed.

The Supreme Court ruled for EXLP down the line. The Court noted Art. VIII, §1(b) of the Texas Constitution, which provides, “All real property and tangible personal property in this State . . . shall be taxed in proportion to its value, which shall be ascertained as may be provided by law.” In previous opinions, issued over the course of many decades, Texas courts have interpreted this provision to require that property be taxed based upon its market value. But the Supreme Court changed that. It rejected the very notion that the Constitution requires taxation based upon market values. The term value, as used in Art. VIII, §1(b) doesn’t mean market value; it means whatever the legislature wants it to mean. It does not matter whether the valuation method prescribed by §23.1241 yields market value because market value is not required by the Constitution.

The Court also considered whether the statute violated the equal-and-uniform-taxation clause found in Art. VIII, §1(a) of the Constitution and concluded that it did not. Identical compressors doing the same job might be subjected to widely disparate taxes depending on whether they were owned by leasing companies or owned by the pipeline companies that actually used them. But the legislature can classify properties “so long as the classifications are not unreasonable, arbitrary or capricious. . . . Those who own compressors for their own use and those who own them to lease out are both compressor owners, but they are in different tax classes.”

Next, the Court ruled that the compressors were taxable in Washington County despite their long-term physical presence in Galveston County and despite the fact that §23.1241 says nothing about the taxable situs of compressors or other heavy equipment. It reasoned that the statute focuses on the income from an inventory considered as a whole rather than individual units of equipment. The legislature, according to the Court, intended to “fix the situs for heavy equipment at the business location where the dealer maintains its inventory, not the myriad locations where units of the inventory are physically present at any given time.” Because EXLP “assigned” the compressors to its Washington County location, that’s where they were taxable.

National Church Residences of Alief, Texas v. Harris County Appraisal District
539 S.W.3d 460 (Tex. App. – Houston [1st Dist.], December 12, 2017, no pet. hist.)

Issues: Charitable exemptions

NCR owned an apartment complex and rented apartments to elderly tenants. It applied for an exemption for the complex under §11.18 of the Tax Code on the grounds that it provided permanent housing and related social, health care, and educational facilities for persons who are 62 years of age or older without regard to the residents' ability to pay. NCR sued the appraisal district after the district denied the exemption application. The trial court entered a summary judgment for the district, and NCR appealed.

The court of appeals reversed the trial court’s judgment and actually entered a summary judgment for NCR. Reviewing the evidence, the higher court noted NCR was incorporated as a nonprofit corporation. Its tenants had to be at least sixty-two years old and fall into the “very-low” or “extremely-low” income brackets established by HUD. NCR did not have any minimum income requirements. It required a refundable security deposit of $50 or more from each tenant. A deposit could be paid from sources other than a tenant’s own income. No one had been denied an apartment because he could not pay the deposit. The apartments were rented at market rental rates. Each tenant paid a portion of his monthly rent based on his income, with the rest being provided by the federal government. NCR had two conflicting policies concerning tenants who did not pay: one provided for evictions, but the other said that if a tenant were unable to pay his share of the rent, NCR would help him find governmental or charitable assistance. No tenant had been evicted for not paying. NCR used its revenues to support the operation of the complex. NCR provided tenants with allowances to help them pay utility bills.

Based on these facts, the court of appeals concluded that NCR and the complex met the requirements for exemption under Art. VIII, §2 of the Texas Constitution, i.e.: 1) an organization must be nonprofit; 2) it must be organized to accomplish ends wholly benevolent by engaging in humanitarian services maintained to care for the physical or mental well-being of its recipients; and 3) it must assume to a material extent a burden that would otherwise fall to the state or the community. The court also concluded that NCR and the complex satisfied the requirement of §11.18 of the Tax Code, i.e., it provided permanent housing and related social, health-care and educational facilities for people sixty-two or older without regard to their ability to pay.

One judge dissented and explained that the evidence did not resolve the issues completely enough to support a summary judgment for either party.

Kilgore Independent School District v. Axberg
535 S.W.3d 21 (Tex. App – Texarkana, October 12, 2017, no pet.)

Issues: Governmental immunity

When the legislature increased the general school-tax homestead exemption in 2015, the bill, S.B. 1 included a provision prohibiting a school district from repealing or reducing an existing percentage homestead exemption until 2020. But the Kilgore ISD’s Board of Trustees repealed the district’s percentage exemption before S.B. 1 took effect. Axberg sued the district, each trustee and the superintendent claiming that the repeal was illegal and void. She sought a declaratory judgment and an injunction to undo the board’s action. She also sought to have her 2015 taxes recalculated with the percentage exemption and a refund of the extra amount paid. The Attorney General intervened in the case, siding with Axberg. The defendants sought to have the case dismissed for reasons including immunity, failure to exhaust administrative remedies and a rule in the Government Code that generally prohibits a plaintiff from suing both a governmental entity and its employees on the same grounds. The trial court refused to dismiss the case, and the defendants appealed.

The court of appeals reversed the trial court’s order in part, dismissing the claims against the trustees and the superintendent. The higher court, however, allowed the claims against the district to go forward. The court explained that governmental officials are generally immune from suit unless the suit concerns ultra vires actions. An official acts ultra vires if he acts with no legal authority or if he fails to perform a purely ministerial act, an act that the law requires him to perform. An official exercising discretion in the performance of his duties is immune. The superintendent did not act ultra vires. She didn’t even vote on the repeal of the exemption. She simply did her job by implementing the decision of the board. No trustee acted ultra vires. Each of them merely did his/her duty by voting on a proposal before the board. They were immune from the suit.

The district itself, however was not immune. A governmental entity is not immune from a suit challenging the validity of an enactment if the suit seeks only a declaratory judgment or an injunction. A plaintiff cannot sue for money damages but may sue for the refund of an allegedly illegal tax if the plaintiff paid the tax under duress. Axberg was not required to take her claim before the ARB because there were no disputed facts and the issues she raised were purely legal. Section 101.106 of the Government Code sometimes forces a plaintiff to choose between suing a governmental employee and suing the governmental entity if the claims against them are the same. But Axberg’s claims against the superintendent were not the same as her claims against the district. Thus, her mistaken claims against the superintendent did not prevent her from suing the district. The court of appeals sent the case back to the trial court for consideration of claims against the district.

Almeter v. Bastrop Central Appraisal District
2017 WL 4478217 (Tex. App. – Austin, October 5, 2017, pet. denied) (not reported)

Issues: Agricultural appraisal

Almeter applied for open-space agricultural appraisal of her fifty-two acres of land in 2015. The appraisal district denied her application, and the ARB denied her protest. She filed suit. She claimed that her land should qualify for ag appraisal even though it did not meet the district’s guidelines for native pasture because the guidelines were invalid. The guidelines said that a livestock operation should have at least seven animal units on the property year-round with a stocking rate of one animal unit per five to eight acres. Before the case could be tried, Almeter amended her pleadings to add claims for 2016. The district filed a motion for summary judgment concerning 2015. The evidence showed that in the first half of 2015, Almeter built some fences, dug two wells and had electricity connected to run a water pump. In September, a lessee placed four head of cattle on the land, but they soon broke through the fence and spent the remainder of 2015 and all of 2016 on a neighbor’s land. The trial court granted the district’s motion for both 2015 and 2016 and Almeter appealed.

The court of appeals affirmed the summary judgment for 2015. The higher court found no evidence that the district’s guidelines violated the Tax Code or the comptroller’s Ag Manual. An appraisal district’s chief appraiser has the authority to adopt degree-of-intensity standards as long as the standards are reasonable and do not contradict the Tax Code. The evidence did not raise a genuine issue of material fact about whether Almeter’s land was used for agriculture to the degree of intensity generally accepted in the area. The court of appeals explained, however, that the trial court should not have entered a summary judgment for 2016, because the district’s motion addressed only 2015. The court of appeals sent the case back to the trial court for consideration of 2016.

Vitol, Inc. v. Harris County Appraisal District
529 SW3d 159 (Tex. App. – Houston [14th Dist.], August 3, 2017, no pet.)

Issues: Delivery of notices; exhaustion of remedies

Vitol claimed that approximately $15 million worth of gasoline was not taxable in Harris County in 2014 because the gasoline was in interstate commerce. On June 20, the appraisal district sent Vitol a notice of appraised value showing that the gasoline was taxable and not subject to any exemptions. Vitol did not file a timely protest, but it did engage in some informal communications with the district concerning the taxability of the gasoline. In late September, the district sent Vitol an e-mail explaining that its interstate-commerce claim had been denied and that Vitol had been notified of that fact in the notice of appraised value. Vitol then filed a failure-to-deliver-notice protest with the ARB under §41.411 of the Tax Code claiming that the district owed it another notice concerning the denial of its interstate-commerce claim. The ARB denied the protest, and Vitol then sued the district. At the district’s request, the trial court dismissed the case, and Vitol appealed.

The court of appeals affirmed the dismissal of the case. The court of appeals explained that under §41.44, Vitol’s deadline for protesting the appraisal of its gasoline was thirty days after the district sent the notice of appraised value. Vitol did not file a timely protest. Vitol could not avoid or extend that deadline by filing a failure-to-deliver-notice protest because the notice of appraised value gave it the necessary information about the appraisal of the gasoline. Because Vitol did not protest within thirty days of the delivery of that notice, it lost its right to complain about the interstate-commerce issue.