BRUSNIAK'S 2004 PROPERTY TAX CASE LAW DIGEST

UNITED STATES SUPREME COURT

FEDERAL TAX INJUNCTION ACT APPLIES ONLY WHEN TAXPAYERS ARE SEEKING TO AVOID PAYING TAXES OR ARE SEEKING RETROACTIVE RELIEF.

Hibbs v. Winn, 542 U.S. ___, 124 S. Ct. 2276 (2004). [OPINION]

Taxpayers sued the Director of the Arizona Department of Revenue alleging that an income-tax credit for payments to provide financial aid to children attending private schools was unconstitutional under the Establishment Clause of the United States Constitution. The lower courts barred the suit under the Tax Injunction Act which prohibits federal courts from restraining "the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State."

The United States Supreme Court reversed the lower courts' decisions holding that no violation of the statute had occurred since the taxpayers had not sought to enjoin the assessment of taxes on themselves. The Court reasoned that the act was intended to bar actions adversely affecting the state's ability to raise revenue, and the relief sought by the taxpayers would in factincreasefunds available for the public benefit.

TEXAS COURTS OF APPEALS

MISTAKE IN UTILIZING INACCURATE INTERNAL DOCUMENTS IN RENDERING PROPERTY DOES NOT CONSTITUTE A "CLERICAL ERROR."

Marubeni America Corp. v. Harris County Appraisal District, 168 S.W.3d 860 (Tex. App.-Houston [1^st Dist.] 2004, no pet.). [OPINION]

Taxpayer rendered its inventory of xylene based on internal reports. It later sought to correct the rendition under Section 25.25(c)(1) of the Texas Tax Code contending that the internal reports contained inadvertent errors as to both the quantity and value of the materials. The court held that these actions did not constitute a correctable clerical error since they did not constitute errors committed in "writing, copying, transcribing, entering or retrieving computer data, computing, or calculating." Rather, the error was based on the use of allegedly incorrect data, and as such did not qualify for correction under the statute.

TAX CODE REMEDIES ARE EXCLUSIVE AS TO BOTH TAXING UNITS AND TAXPAYERS; TAXING UNITS MAY NOT SUE TAXPAYERS DIRECTLY UNDER A FRAUD THEORY IN AN ATTEMPT TO RECOVER ALLEGEDLY UNDERPAID TAXES.

In re: Exxonmobil Corporation, 153 S.W.3d 605 (Tex. App. –Amarillo 2004, pet. denied).[OPINION]

Taxing units filed suit against oil and gas companies alleging fraud and conspiracy as to the manner in which oil and gas sale prices were reported to the Comptroller’s office causing the property tax valuations for those companies’ mineral interests to have been lower than they should have been and depriving the taxing units of property tax revenue which they would have otherwise received. The companies filed a plea to the jurisdiction alleging that the taxing units could not sue the companies directly, bypassing the provisions of the Tax Code. The taxing units responded that the Tax Code did not abrogate the common law rights which the taxing units possessed and that the Tax Code did not contain a provision limiting the rights and remedies of taxing units such as the provision in Section 42.09 which provides that Tax Code remedies are the exclusive means by which a taxpayer may challenge property tax issues. The court granted the plea to the jurisdiction, finding that the Tax Code was intended to be a comprehensive remedy for both taxpayers and taxing units. It held that the taxing units could utilize the tax challenge provisions, as well as the remedies contained in Chapter 43 of the Tax Code, to coerce the appraisal districts into pursuing the tax fraud claims as omitted property.

DELIVERY OF NOTICE TO A PERSON WHO IS NOT A PARTNER IN A JOINT VENTURE IS INEFFECTIVE.

Tierra Sol Joint Venture v. City of El Paso, 155 S.W.3d 503 (Tex. App.-El Paso 2004, pet. denied). [OPINION]

City sued a joint venture to collect delinquent taxes. The joint venture claimed that it had never received notice of the delinquency, and as a result, the version of Section 33.04 of the Texas Tax Code which was in effect for tax years 1989 through 1995 mandated cancellation of penalties and interest for the taxing unit's failure to deliver the five-year notice of delinquency. The tax office had sent notice to the address which the appraisal district had on file and which had been purportedly given to it by one of the owners in the joint venture. However, the owners of the venture had been in dispute over the ownership of the property, and the party to whom notice had been delivered was not in control over the property. Neither the tax office nor the appraisal district was aware of the ownership dispute. The court held that the notices were not effective because they were not sent to the property owner, the joint venture, but to a person who was not proven to be a partner in the joint venture. Therefore, all penalties and interest were waived.

REDEMPTION OF PROPERTY BY OWNER AFTER TAX FORECLOSURE SALE RESTORES LIENS PREVIOUSLY IN PLACE ON PROPERTY.

Associates Home Equity Services Company, Inc. v. Hunt, 151 S.W.3d 559 (Tex. App.-Beaumont 2004, no pet.). [OPINION]

Taxpayers failed to pay the property taxes which were due on their residential homestead, title to the property was judicially foreclosed and the residence was sold at a sheriff's sale to a third party. Taxpayers redeemed the property from the third party purchaser in the manner specified by the Tax Code. Thereafter, the taxpayer's mortgage company commenced foreclosure proceedings against the residence, and the taxpayers sued to halt the mortgage foreclosure claiming that the tax foreclosure had terminated the mortgage company's lien interest in the property. (The mortgage company had been properly sued by the taxing authorities.) The appellate court disagreed, holding that the redemption restored the title to the property to what is was prior to the tax foreclosure, except with the tax lien discharged. As such, the original mortgage and all other junior liens were reinstated against the property.

TRIAL COURT MAY USE ITS DISCRETION IN DETERMINING WHETHER EVIDENCE CONTROVERTING GOVERNMENT'S PRIMA FACIE DELINQUENT TAX CASE IS SUFFICIENT.

National Medical Financial Services, Inc. v. Irving Independent School District, 150 S.W.3d 901 (Tex. App.-Dallas 2004, no pet.). [OPINION]

Taxing unit sued taxpayer for delinquent taxes for tax year 2000. At trial, the taxing unit offered its delinquent tax roll as evidence and rested. The taxpayer presented testimony from a corporate officer who testified that the property had been purchased "free and clear of all liens" from the bankruptcy court after January 1, 2000. It further offered a copy of the bankruptcy's court order, but the bankruptcy court order did not specify the property to which it applied and did not demonstrate whether the taxing unit had been served with notice of the bankruptcy proceedings. The trial court entered judgment against the taxpayer, and the taxpayer appealed claiming that the evidence was insufficient to support the judgment. The appellate court disagreed and ruled that the trial court had discretion in believing or not believing the underlying evidence and to resolve issues of credibility. It found that the evidence was sufficient to support the trial court's judgment notwithstanding the taxpayer's controverting testimony.

IN DELINQUENT TAX TRIAL, ONCE THE GOVERNMENT'S PRIMA FACIE CASE IS REBUTTED, ITS EVIDENCE REMAINS BUT IT WILL NOT BE ACCORDED GREATER WEIGHT BECAUSE OF THE STATUTORY PRESUMPTION.

Estates of Elkins and Elkins v. County of Dallas, 146 S.W.3d 826 (Tex. App.-Dallas 2004, no pet.). [OPINION]

County sued the independent executor and heirs of two estates claiming tax delinquencies. At trial, it presented no oral testimony, but relied instead on certified copies of tax notices, transaction histories and tax pay detail inquiries. Defendants countered with oral testimony as to payments, evidence of written instructions to the tax office as to how payments were to be allocated and charts detailing how penalties, interest and payments should have been allocated.. The appellate court found that the testimony offered by the defendants was sufficient to rebut the statutory prima facie case offered by the tax office. As a result, the statutory presumption disappeared, and it became the responsibility of tax office to offer evidence to contradict this evidence. Although the tax office's evidence did "not disappear" as a matter of law, it had to be considered in terms of its legal sufficiency. Given that the tax office failed to call any witnesses, that its documents failed to explain its codes and abbreviations or how the penalties, interest and fees were calculated, and how the payments were applied, the evidence presented by the government was legally insufficient to support a judgment of delinquency against the defendants.

IMPROVEMENTS CONSTRUCTED ON EXEMPT GOVERNMENT LAND ARE ALSO EXEMPT FROM TAXATION UNLESS TITLE TO THE IMPROVEMENTS IS CLEARLY VESTED IN THE PRIVATE PARTY.

Travis Central Appraisal District v. Signature Flight Support Corp., 140 S.W.3d 833 (Tex.App.-Austin 2004, no pet..). [OPINION]

Taxpayer constructed a fixed based aircraft operations center on land leased at a municipally owned airport. Appraisal district sought to tax the improvements to the land to the lessee. The lease specifically provided that legal title to the improvements would be vested in the city at the completion of construction. The court held that the improvements were not taxable to the lessee because they had become part of the land and thus belonged to the exempt landowner. It further held that such improvements would be constructed as a part of the realty unless there was an understanding between the parties that the improvements were not to become permanently annexed to the land, or that there was other evidence demonstrating an intent on the part of the private party to keep the improvements as personal property with the right of removal. Because no such evidence existed and because the lessee did not hold equitable title or a beneficial title by which it could have compelled the city to turn over legal title to it, the court held that the city was the owner of both the land and improvements, and as a result the improvements were exempt from taxation.

TEN PERCENT ANNUAL RESIDENCE HOMESTEAD VALUATION INCREASE APPLIES TO COMBINED VALUE OF LAND AND IMPROVEMENTS.

Bader v. Dallas Central Appraisal District, 139 S.W.3d 778 (Tex.App.-Dallas 2004, pet. denied). [OPINION]

Taxpayer sued an appraisal district contending that the district's proposed increase of the taxable value of his residence homestead violated the 10 percent annual "cap" on valuation increases contained in Tex. Tax Code §23.23. Taxpayer argued that the "cap" should have been applied separately to the land and improvements. The court disagreed, ruling that the "cap" was intended to apply to "residential homesteads" as a unit and not to their underling components taken separately.

TAXPAYER'S DUE PROCESS RIGHTS TO NOTICE OF APPRAISED VALUE ARE NOT VIOLATED IF TAXPAYER HAS TIMELY ACTUAL NOTICE OF VALUATION PRIOR TO THE EXPIRATION OF TIME FOR FILING OF A TIMELY PROTEST FOR FAILURE TO DELIVER NOTICE UNDER SECTION 41.411 OF THE TAX CODE.

ABT Galveston Ltd. Partnership v. Galveston Central Appraisal District, 137 S.W.3d 146 (Tex.App.-Houston [1^st Dist.] 2004, no pet.). [OPINION]

Taxpayer defaulted on its obligations under a tax abatement agreement and sought to move the abated property out of the state of Texas. The tax assessor threatened to block the removal of the assets from the state, and the taxpayer paid the assessed taxes under protest prior to the delinquency date. Taxpayer claimed that the appraisal district had not informed it in writing of the removal of the exemption or of the appraised value of the property as required by the Texas Tax Code, but conceded that it had been informally notified of the valuations by a third party appraiser for the appraisal district and that it had received a timely tax bill. Taxpayer sued for a refund contending that its due process rights were violated. The court held that no such rights were violated because the taxpayer could have, on a timely basis, availed itself of the remedies for governmental failure to deliver notices provided by Section 41.411 of the Texas Tax Code.

INDIVIDUALLY OWNED TRACTS PARTICIPATING IN A WILDLIFE COOPERATIVE MUST SEPARATELY QUALIFY TO BE ELIGIBLE FOR WILDLIFE VALUATION; COOPERATIVE ACTIVITIES MAY BE USED TO SATISFY INTENSITY REQUIREMENTS, BUT NOT REQUIREMENTS AS TO WHETHER ACTIVITIES CONSTITUTE AGRICULTURE.

Cordillera Ranch, Ltd. v. Kendall County Appraisal District, 136 S.W.3d 249 (Tex. App.-San Antonio 2004, no pet.). [OPINION]

Taxpayers formed a wildlife management cooperative under rules promulgated by the Texas Parks and Wildlife Department and sought open space land valuation. Taxpayers conceded that each individual tract did not meet the statute's requirements that "three of the seven wildlife management activities be performed" on the property, but argued that they should qualify for the valuation if the activities occurred within the boundaries of the cooperative. The court disagreed finding that the statute specifically required each owner-applicant's land to qualify. It held that any agency rules to the contrary would not be given effect. It held that "the requirement that 'three of seven qualifying activities' requirement must be met to satisfy the agricultural use requirement not the intensity requirement." The Texas Parks & Wildlife guidelines could be used to demonstrate that the property was used to the level of intensity which was required but not to satisfy the underlying proof as to agricultural activity.

TAXPAYERS CHALLENGING CONSTITUTIONALITY OF APPRAISAL DISTRICT CONDUCT NEED NOT EXHAUST ADMINISTRATIVE REMEDIES; TRAVEL TRAILERS DO NOT CONSTITUTE TAXABLE MANUFACTURED HOMES EVEN IF THEY ARE PERMANENTLY AFFIXED TO REALTY; APPRAISAL DISTRICT CANNOT REDEFINE TERMS DEFINED BY THE LEGISLATURE; APPRAISAL DISTRICT MAY NOT CONTEST THE CONSTITUTIONALITY OF A STATUTE UNDER WHICH IT HAS SOUGHT TO APPRAISE PROPERTY.

Rourk v. Cameron Appraisal District, 135 S.W.3d 285 (Tex. App. - Corpus Christi 2004, pet. filed). [OPINION]

Appraisal District defined the term "manufactured home" as encompassing travel trailers. Plaintiffs filed a class-action lawsuit claiming that the appraisal district's actions violated the constitution. Appraisal District sought dismissal of the lawsuit because some of the Plaintiffs had failed to exhaust administrative remedies. The appellate court disagreed finding that no exhaustion of administrative remedies was required when the constitutionality of an appraisal district's actions was an issue. The court further held that travel trailers are not encompassed within the definition of "manufactured homes" regardless of whether they are affixed to realty or not. The appraisal district could not undertake to redefine legislative terms without unconstitutionally usurping the power of the Texas Legislature and further held that the appraisal district could not contest the constitutionality of the statute since it had availed itself of the statute in attempting to tax the taxpayers.

CLAIM TO EXCESS PROCEEDS FROM TAX SALE MUST BE FILED WITHIN TWO YEARS OF DATE OF SALE; THE CLAIM NEED NOT BE DETERMINED WITHIN THE TWO YEAR PERIOD

Franks v. Woodville Independent School District 132 S.W.3d 167 (Tex.App.-Beaumont 2004, no pet.). [OPINION]

Taxpayer's property was sold to satisfy a delinquent tax judgment. Excess proceeds were paid into the registry of the court. Taxpayer filed a claim for disbursal of the excess proceeds within two years of the date of sale, but did not obtain an order from the court ordering disbursement of the funds within the two years. Relying on Section 34.03(b) of the Texas Tax Code which provides that the district clerk shall automatically disburse such exceeds proceeds to the taxing units "if no claimant establishes entitlement to the proceeds" within two years, the district court ordered the excess proceeds distributed to the taxing units. The court of appeals reversed this ruling noting that Section 34.03 (a) of the Texas Tax Code provides that excess proceeds shall be kept in the registry of the court for two years after the date of the sale "unless otherwise ordered by the court." The appellate court held that this provision superceded the clerk's ministerial function of funds disbursal and required a court ruling on all claims brought within the two year limitations period even if such determinations would be made after the expiration of the two year period.

TAXPAYER WHO HAS OBTAINED AN ORDER DETERMINING PROTEST MAY APPEAL TO DISTRICT COURT; TAX CODE DOES NOT REQUIRE TIMELY ADMINISTRATIVE FILINGS FOR JUDICIAL JURISDICTION; CONSTRUCTIVE NOTICE OF APPRAISAL REVIEW BOARD ORDER WILL NOT BE CONSIDERED WHERE PROOF OF ACTUAL DELIVERY EXISTS.

Cooke County Tax Appraisal District v. Teel, 129 S.W.3d 724 (Tex. App. - Fort Worth 2004, no pet.). [OPINION]

In December 1999, taxpayer purchased property which carried agricultural use valuation; however, the effective date on the deed was January 6, 2000. An appraisal district employee entered the conveyance into the appraisal district records, failed to note the effective date of the deed, removed the agricultural valuation for the 2000 tax year and notified the taxpayer that he needed to reapply for agricultural use valuation for the 2000 tax year. Taxpayer claimed he did not reside at the address to which the notice had been sent and did not receive the notice until after the deadline for filing the application. After the tax bills had been sent for the 2000 tax year and after all deadlines for applying for agricultural valuation had passed, taxpayer filed an application claiming agricultural use which was denied by the appraisal district. The taxpayer filed a notice of protest claiming clerical error under Section 25.25(c)(1) of the Texas Property Tax Code which the appraisal review board rejected; however, the board noted that it had jurisdiction over the protest. On appeal, the appraisal district claimed that the trial court lacked jurisdiction due to the fact that all statutory deadlines had elapsed. The appellate court disagreed, pointing out that the appraisal review board had found that it had jurisdiction over the claim and that the tax code did not contain any "requirement regarding a timely valuation application or protest." The court further found that the taxpayer had filed his notice of protest within forty-five days of the date of delivery of the review board order and that as a result the trial court had jurisdiction to hear the case. The appraisal district argued that the taxpayer had constructive notice of the appraisal review board order four months prior to the actual delivery due to the repeated attempts of the post office to deliver the letter. The court found that the taxpayer had moved from the address to which the appraisal district had attempted to deliver the appraisal review board order and that the date of actual delivery to the attorney for the taxpayer had not been disputed. It thereby rejected the claim of constructive notice.

TEXAS ATTORNEY GENERAL OPINIONS

CHIEF APPRAISERS IN OVERLAPPING TAXING DISTRICTS ARE REQUIRED TO ENTER THE LOWEST MARKET VALUE AND THE LOWEST APPRAISED VALUE ON THEIR APPRAISAL ROLLS.

Op. Tex. Att'y Gen. GA-0283 (2004). [OPINION]

In circumstances where property is appraised by more than one appraisal district, Section 6.025(d) of the Texas Property Tax Code requires that the chief appraiser of each appraisal district to enter on that appraisal district's records both the lowest market value determined for the property and the lowest appraised value determined for the property (if such valuations are different).

THE TERMINATION DATE ESTABLISHED FOR A TAX INCREMENT FINANCING ZONE MAY NOT BE EXTENDED.

Op. Tex. Att'y Gen. GA-0276 (2004). [OPINION]

No statutory authority exists for the extension of the termination date of a tax increment financing zone.

A TAXING UNIT WHICH HAS CONTRACTED WITH ANOTHER UNIT TO COLLECT ITS TAXES MAY NOT OFFER AN EARLY PAYMENT DISCOUNT IF THE COLLECTING UNIT DOES NOT OFFER ONE.

Op. Tex. Att'y Gen. GA-0225 (2004). [OPINION]

A taxing unit may not offer an early payment discount to its taxpayers if it has contracted with another taxing unit for tax collections services and the collecting taxing unit does not offer early payment discounts for its own taxes.

A MUNICIPAL TAX FREEZE MAY BE ADOPTED BY EITHER A VOTE OF THE CITY COUNCIL OR BY A VOTE OF THE CITIZENS; ONCE A TAX FREEZE IS ADOPTED BY A CITY, IT MAY NOT BE REPEALED BY VOTE OF THE CITIZENS; A GOVERNMENTAL ENTITY MAY NOT USE A BASE YEAR PRIOR TO THE CURRENT YEAR TO ESTABLISH THE YEAR OF THE FREEZE.

Op. Tex. Att'y Gen. GA-0222 (2004). [OPINION]

A municipality has the option of adopting a tax freeze by vote of its city council or by direct vote of the citizens of the city. Once a freeze is adopted by a city, there is no provision authorizing the removal of the freeze by vote of the citizens. The Constitution does not permit the use of a base year prior to the year of the adoption of the tax freeze.

STATUTORY AMENDMENTS REDEFINING HOMESTEAD EXEMPTION QUALIFICATIONS ARE NOT RETROACTIVE.

Op. Tex. Att'y Gen. GA-0148 (2004). [OPINION]

The legislature adopted restrictions on the qualifications for a residential homestead exemption effective June 18, 2003. Appraisal district sought to impose the restrictions effective as of January 1 of that same year. The attorney general ruled that the new restrictions could not be imposed retroactively without an express indication by the legislature of its intent to make the statute retrospective.

PROCEDURAL ASPECTS OF TAX WARRANTS FOR REAL AND PERSONAL PROPERTY.

Op. Tex. Att'y Gen. GA-0140 (2004). [OPINION]

Tax warrants for delinquent personal property taxes may be served and executed by any peace officer authorized in Section 2.12 of the Texas Code of Criminal Procedure. Tax warrants for delinquent real property taxes may be served and executed only the sheriff or constable. Seizure of the property requires the officer executing the warrant to take possession or control of the property in such a fashion as to interfere with the owner's possessory interest in the property. Unless the terms of the tax warrant direct otherwise, a peace officer is not required to turn over seized personal property to the tax assessor; however, the peace officer elect to do so. A peace officer is required to turn over seized real property to the tax assessor. A peace officer seizing personal property is required to prepare an inventory of the seized property. Except in counties with a population in excess of 3,000,000, seized personal property may only be sold by a peace officer. In counties with a population in excess of 3,000,000, seized personal property may be sold by either the peace officer or tax assessor as specified in the tax warrant. In such counties, the property may be sold by an auctioneer or internet service provider. Seized real property may be sold by either a peace officer or tax assessor as directed by the tax warrant. Seized real property must be sold on the first Tuesday of the month at the courthouse door between the hours of 10:00 a.m. and 4:00 p.m. Seized personal property may be sold at any time unless the tax warrant directs otherwise. The Tax Code provisions authorizing the tax assessor to sell seized property are constitutional.

PRIVATE ROADS SUBJECT TO A PUBLIC EASEMENT, WHOSE DEDICATION TO THE GOVERNMENT HAS NOT BEEN ACCEPTED, ARE TAXABLE.

Op. Tex. Att'y Gen. GA-0139 (2004). [OPINION]

A privately owned road, which is subject to a public easement, but whose dedication for public purpose has not been accepted by the government is taxable. Only publically-owned roads are exempt from taxation.

THE TERMS OF A TAX ABATEMENT AGREEMENT MAY NOT BE RETROACTIVELY AMENDED SO AS TO REDUCE A TAX WHICH HAS BEEN ASSESSED.

Op. Tex. Att'y Gen. GA-0134 (2004). [OPINION]

The government may not retroactively amend a tax abatement agreement to qualify property for exemption. Exemption qualifications are determined as of January 1 of the tax year in question and post facto alterations of the qualifications are not contemplated by the statute. Additionally, altering an abatement agreement after taxes have been assessed violates the prohibition in Article III, section 55 of the Texas Constitution against releasing or extinguishing taxes.

STATE BAR ETHICS OPINION

IT IS A VIOLATION OF THE TEXAS DISCIPLINARY RULES FOR A LAWYER TO USE AS AN EXPERT WITNESS AN EMPLOYEE OF A BUSINESS WHICH HAS A CONTINGENT FEE INTEREST IN THE OUTCOME OF THE CASE.

Tex. Professional Ethics Comm. Op. No. 553 (2004). [OPINION]

A Texas attorney may not utilize as an expert witness at a property tax trial a registered licensed real estate appraiser who is an employee of a property tax consulting company if that company is being compensated on a contingent fee basis by the taxpayer. Such use would violate Rule 3.04 of the Texas Disciplinary Rules of Professional Responsibility.