Texas Property Tax Appraisal Review Board Manual 2003

Types of Protests and Challenges
Over-appraisal

The law forbids appraising a property for tax purposes at more than its market value. If the property owner can prove the property is overvalued, the ARB should adjust the appraisal accordingly. Only the property owner may bring a claim of excessive appraisal on a specific property. A taxing unit may not challenge individual appraisals.

Most ARB actions concern market value. The Property Tax Code defines market value as “the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:

exposed for sale in the open market with a reasonable time for the seller to find a purchaser;

both the seller and purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use; and

both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the other.”

All taxable property must be appraised at its market value unless the law provides for a different value. The most common type of different value is productivity value. Property qualified for agricultural or timber appraisal is taxed on its productivity value rather than its market value.

The ARB does not have the authority to determine if the appraisal district uses the appropriate appraisal methods. It must nevertheless review the values that result from these methods.

Mass appraisal. An appraisal district must estimate the value of thousands of properties. The district doesn’t have the time or money to repeat the full appraisal process for each individual property. Instead, it uses an appraisal method known as “mass appraisal.”

If the appraisal district determines appraised values using mass appraisal standards, those standards must comply with the Uniform Standards of Professional Appraisal Practice (USPAP). Copies of these standards are available from The Appraisal Foundation for $30 by writing The Appraisal Foundation, Publication Department, P. O. Box 96734, Washington, D. C. 20090-6734 or by calling 1-800-805-7857 or 202/347-7722. The ARB may ask the appraisal district for a copy of these standards.

In a mass appraisal, the appraisal district first collects detailed descriptions of each taxable property in the district. It then classifies properties according to a variety of factors, such as size, use, and construction type. Using data from recent property sales, the district appraises the value of typical properties in each classification. Using modifiers to adjust for minor differences such as age or location, the district uses the typical property values to appraise all the properties in the classification. Computers often make the process more efficient. ARB members should become familiar with the district’s mass appraisal methods.

Methods of appraisal. The ARB members should be familiar with the three approaches to value — cost, income, and market — that the chief appraiser must consider in determining the market value of property. The chief appraiser must consider all three and use the method most appropriate in appraising a particular property.

Cost approach. When using the cost method of appraisal, the appraisers will:

use cost data obtained from generally accepted sources;

adjust appropriately for physical, functional, or economic obsolescence;

make available to the public on request, for a reasonable charge, cost data developed and used by the chief appraiser on properties within a property category;

state clearly the reason for any variation between generally accepted cost data and locally produced cost data, if the data vary by more than 10 percent; and

make available to a property owner on request all applicable market data that demonstrates the difference between an improvement’s replacement cost and the improvement’s depreciated value.

Income approach. When using the income method of appraisal, the appraisers will:

use rental income and expense data pertaining to the property, if possible and applicable;

project future rental income and expenses only from clear and appropriate evidence;

use data from generally accepted sources to determine an appropriate capitalization rate; and

determine a capitalization rate for income-producing property that includes a reasonable return on investment, taking into account the investment’s risk.

Market approach. When using the market data comparison method of appraisal, the appraisers will use comparable sales data and adjust the comparable sales to the subject property.

Additional information about the approaches to value may be found in appraisal textbooks. Appraisers usually determine the value of producing mineral deposits—such as oil, gas, and coal—by using the income approach to value. Most appraisal districts contract with consultants to appraise mineral properties. The chief appraiser can provide information concerning the method used to appraise mineral properties.

The Property Tax Code also requires appraisers to use special methods or principles for the following types of property:

Land qualifying for agricultural or timber appraisal (Chapter 23, subchapters C, D, E and H);

Deed-restricted land qualifying for recreational, park and scenic land appraisal, or as public access airport property (Chapter 23, subchapters F and G);

Inventory (Section 23.12);

Taxable leaseholds (Section 23.13);

Dealer’s motor vehicle inventory (Section 23.121);

Dealer’s vessel and outboard motor inventory (Section 23.124);

Dealer’s heavy equipment inventory (Section 23.1241);

Retailer’s manufactured housing inventory (Section 23.127);

Intangible assets, such as stock, of insurance companies and savings and loan associations (Sections 23.15 and 23.16);

Nonproducing mineral interests (Section 23.17); and

Property owned and used by members of a nonprofit homeowners’ association (Section 23.18).

Value limitations. The Property Tax Code also requires limiting values on certain properties.

Government restrictions. Property Tax Code Section 23.21 requires appraisers to consider the effect of government restrictions on the appraised value of private property (including a restriction to preserve wildlife habitat) to which the owner has not consented.

Low-income housing. Appraisers must adjust for property rented or leased to a low-income individual or family meeting income-eligibility standards established by a governmental entity. Section 23.22 requires the appraiser to account for that use and for the limit on rent or lease payments in the property’s appraisal.

Homesteads. Section 23.23 limits the increase on appraisals of homestead properties. The appraised value of a residence homestead for a tax year is limited to the lesser of either its market value or the sum of the market value of any new improvements and 110 percent of the appraised value for the preceding year. The allowance for an annual 10 percent increase is cumulative — that is, 10 percent times the number of years since the property was last appraised. Therefore, if a homestead increases in value by 20 percent or less in the two years since the last appraisal, all of the increase can be added to the appraisal roll.

When appraising a residence homestead, the chief appraiser must include in the appraisal records the home’s market value and limited appraised value. A limitation takes effect for a residence homestead on January 1 of the tax year following the first tax year the owner qualifies the property for the residence homestead exemption. The limitation expires on the January 1 of the first tax year that neither the owner nor the owner’s spouse or surviving spouse qualifies for the homestead exemptions.

Appraiser testimony and evidence. Since appraisal often requires special knowledge and skills, appraisers are often key witnesses in ARB hearings. Remember that such testimony is informed opinion, not necessarily verifiable fact. The ARB should ask about an appraiser’s qualifications, and it should have access to the data the appraiser uses in making a value estimate. Finally, it should be aware of any misgivings the appraiser has in making an estimate.

There could be many reasons for over-appraisal. The property could have hidden flaws that the appraiser didn’t consider, such as a cracked foundation or asbestos insulation. Some key measurement of the property might be wrong. Some property data might have been incorrectly transcribed. Or, the market value of the property might have fallen since the last appraisal.

The most reliable indicators of market value are sales of comparable properties on or near the January 1 assessment date. Information about sales should be confirmed to be sure that it is reliable. Ideally, affidavits from parties to a sale would verify the terms of a comparable sale. Getting such affidavits isn’t always possible, but there should be some basis for believing sales information is correct.

Unequal appraisal

“Equal appraisal” means the district’s appraisal methods produce consistent results from property to property. To measure equality, the ARB will consider appraisal levels or ratios. To determine a property’s appraisal level, you divide the appraisal roll value by the property’s true market value. Usually, sales or independent appraisals establish the true market value. For example, if a property appraised by the appraisal district at $95,000 recently sold for $100,000, its appraisal level is $95,000/$100,000 or .95.

By computing the typical ratio for a sample of properties, appraisers can estimate the typical level of appraisal for a group of properties or for the appraisal district as a whole. Such a procedure is called a “ratio study.” Under Texas law, the median ratio of such a sample is used to estimate the overall level. The median is determined by saving the ratios in numerical order and choosing the middle ratio. If the sample has an even number of properties, the appraiser would average the two middle numbers.

Category challenge by taxing unit. A taxing unit may challenge the appraisal records when it believes the appraisal district has treated a group of properties unequally. The group must be either in a property category—such as properties with similar characteristics or uses—or in a particular territory within the district, such as a neighborhood or definable area.

In determining a challenge of appraisal level, the ARB should ask not only what is the median level of appraisal for a category, but what is the consistency in ratios for the category.

If the category is large, the taxing unit may present ratio study statistics from a sample of properties in the category rather than from the entire category. There are many ways to present ratio study evidence and a number of other valid statistical measures of appraisal level and consistency. The important point to remember is that additional appraisal work is needed both when the overall level is under market and when appraisals in the category are not reasonably consistent.

Individual property level protest. A property owner may file a protest on unequal appraisal. Where appraisals in a district are not consistent, a taxpayer may be penalized even though the property is appraised at or below market value.

Suppose that a property is appraised at $105,000, but worth only $100,000. The ARB should lower the value to $100,000 because the appraisal is excessive. Suppose, however, that a representative sample shows the median level of appraisal for the district is .85. The taxpayer has the right to a further reduction. To calculate the proper value, multiply the $100,000 market value by the median ratio ($100,000 x .85 = $85,000).

A taxpayer may use three different types of samples to show unequal appraisal:

a reasonable and representative sample of other properties in the appraisal district;

a sample of a reasonable number of properties in a similar location, or of the same general kind or character; or

a sample of a reasonable number of comparable properties appropriately adjusted.

A sample is used to determine if property appraisals are uniform and equal, including the appraisals of both sold and unsold properties. Selectively reappraising only sold properties may result in sold properties being appraised at a different level of appraisal than unsold properties. ARBs should ask in an unequal appraisal protest if all properties are treated equally.

Comptroller study. Each year the Comptroller of Public Accounts publishes a study of property appraisals for the preceding year in each appraisal district. The study estimates median appraisal levels and coefficients of dispersion for the previous year, not the current tax year.

Taxable situs

The word “situs” means location. The law links the taxability of property to its location. If a taxing unit can legally levy a tax on property, that property has taxable situs in the unit.

A taxing unit may challenge appraisal records that omit property it can tax. Similarly, a property owner may protest that the property should not be on the appraisal roll, either for the district or for a particular taxing unit.

Real property. Situs disputes rarely involve real property (land, improvements, mines, quarries, items fixed to land, and interests in real property). A taxing unit can tax the real property in its boundaries on January 1. Boundary disputes or property description problems create the most common real property situs problems.

Personal property. Most situs problems involve movable personal property (tangible items that aren’t real property). Personal property normally has situs at its January 1 location unless it was there only temporarily. This is the general rule. Commercial interstate air carriers are allowed to designate the tax situs of their aircraft that land in Texas as either the carrier’s principal office in Texas or that Texas airport from which the carrier has the highest number of departures. Personal property that stays in one taxing unit during the year creates no problems. Situs problems usually involve property that crosses boundary lines during the year.

Property crossing state boundary lines. Multi-state situs problems usually involve businesses that operate or move goods in more than one state. Goods or equipment gain taxable situs in Texas if present for more than a temporary period here. They also gain situs if continually used here. If they are temporarily outside the state on January 1, but their owner resides here, they still have situs here. (See Section 11.01, Property Tax Code.) Equipment used in several states may be partially taxed in some or all of the states. Goods shipped across a state may or may not be taxable.

Multi-state equipment. A business that uses equipment in more than one state on a regular basis may qualify for allocation of property value. The chief appraiser reduces the property’s value according to the percentage of time or mileage in this state compared with total use in all states that could tax the property. Comptroller Rule 9.4033 governs allocation procedures and sets out guidelines for determining whether property could be taxed in another state. The difficult issue here is that under federal court decisions, it doesn’t matter whether the other state actually taxes the property. What matters is whether the other state could tax the property without violating the federal constitution. One court decision involving a private business jet held that the taxpayer must show that the property has acquired situs either by being operated along fixed and regular routes or by being habitually used in the other state to acquire the right to allocation.

Finally, two other general rules are important. Aircraft that fly over the state without landing in the state doesn’t become taxable here. Also, property outside the state on January 1 and for the entire preceding year is not taxable here. (See Section 11.01(e), Property Tax Code.)

Goods in interstate transit. Items that cross Texas in transit from one state to another (e.g. from New Mexico to Arkansas) don’t become taxable here. However, the transit must be unbroken. If the property stops in Texas for some business purpose unrelated to safe and efficient transportation, it becomes taxable here.

Property crossing taxing unit lines. In most cases, property has situs in the taxing unit where it was located on January 1, unless the evidence shows that it moves during the tax year. A property has only one taxable situs in Texas; there is no allocation of property value for property moving among Texas taxing units. Property that moves among taxing units is taxable in one unit if:

it is located in that unit for more than a temporary period on January 1;

it is temporarily somewhere else on January 1 but is normally located in the unit;

it normally returns to that unit between uses elsewhere; or

the owner resides or maintains a principal place of business in the unit and the property has no other situs under any of the preceding circumstances.

To disprove situs in a unit where property is located on January 1, the property owner must prove that the property was there only temporarily. The owner must also show neither the owner nor the property has any continuing contact with the unit. To disprove any situs in the district at all, the property owner must show either that the property has taxable situs in some other appraisal district or that the property is not taxable in this state. If the property owner proves the property has situs in another appraisal district, the Property Tax Code directs the chief appraiser to notify the chief appraiser of the other district of the fact.

ARB members may consider time spent in various units in determining whether property is in one or another for more than a temporary period. Neither the Property Tax Code nor the courts have defined “temporary” or “more than temporary.” The most difficult problem arises when property spends considerable time in two or more units. For example, a truck divides its time nearly equally between two school districts during the tax year. There is no provision in the law for dividing the value of the truck. The ARB must decide on the basis of the evidence and the rules just outlined which district has the greater ties with the property.

Exemptions

Both property owners and taxing units may appeal the chief appraiser’s exemption determinations. Property is taxable unless the owner shows clearly that it meets all legal requirements for an exemption. Requirements are strictly construed. If it appears questionable that property is exempt, then the ARB must deny an exemption.

A partial exemption removes a percentage or a fixed dollar amount of a property’s value from taxation. An absolute exemption excludes the entire property from taxation.

In most cases, the law requires the property owner to apply for the exemption. If a property owner fails to file a required application on time, the owner usually forfeits the right to the exemption, and the ARB has no authority to grant it. Timely exemption applications ask for most of the information ARB members need to decide an exemption issue. Remember that the requirements for exemptions are extensive and detailed. Unless the facts of the case clearly show eligibility for an exemption, the ARB should not grant it.

Most exemption cases will depend on one or more of three issues:

The owner’s qualifications,

The property’s qualifications, or

The property’s use.

Owner qualifications. With some exceptions, January 1 is the date for determining an owner’s qualifications for a specific exemption. January 1 is the date for determining an owner’s qualifications for the general and disabled homestead exemptions. Property receiving exemptions for freeport, abatement, pollution control, historic or archeological site, solar and wind-powered energy devices, offshore drilling rigs, water conservation initiatives, and disabled veterans must qualify on January 1.

Homeowners who turn 65 during a tax year, however, will qualify immediately for an over-65 exemption as if the homeowner qualified on January 1 of the tax year. In addition, surviving spouses age 55 or older may qualify for an over-65 exemption if the spouse dies in the year he or she turns 65. Homeowners must file the application for the exemption within one year of the date the person turns 65

When the state, a political subdivision, and other qualifying organizations acquire property, the chief appraiser determines the property’s exemption qualifications as of the acquisition date. Organizations qualifying for immediate exemption include cemeteries, charitable organizations, religious organizations, private schools, community housing development organizations, youth development associations, non-profit water and wastewater supply corporations, veterans organizations, and other non-profit organizations.

Charitable organizations improving property for low-income housing and community housing development associations must file the application for exemption within 30 days of acquiring the property. Other organizations must file for exemption within one year of acquiring the property.

Ownership requirements vary by exemption. Exemptions such as those for individuals or families (homestead or disabled veterans’ exemptions) may require evidence of age, physical condition or disability, military service, family relationship, or other factors.

Exemptions for schools, charitable organizations, religious organizations, youth development organizations, and water supply and wastewater service corporations require the property owner to have a charter or bylaws dedicating property to particular purposes. Special charter provisions must provide for disposition of property upon dissolution. Finally, the organization must operate as a non-profit organization.

In some instances, an organization’s charter and by laws will be necessary evidence. In others, evidence about the way the organization or business operates will be needed.

Finally, some exemptions require that property belong to a particular type of owner, such as a family, a farmer or rancher, or a non-profit corporation.

An individual property owner may not challenge the grant of an exemption to another property owner, according to the ruling of the Fort Worth Court of Appeals. The court found that Section 41.03, Property Tax Code, provides that only a taxing unit may challenge before the ARB the exemption of property from the appraisal records.

Kind of property. Many exemptions apply only to specific classes of property. Homestead exemptions, for example, do not apply to personal property other than a mobile home. Religious exemptions apply only to worship places and clergy residences. The property owner must list all property subject to the exemption and demonstrate to the ARB that each property meets exemption requirements.

Property use. How and when the property owner uses the property is critical in determining exemption cases. An important factor is whether a property’s use is exclusive, primary, or incidental.

“Exclusive use” means use of a property for one and only one specific purpose. Other uses of the property, unless incidental, invalidate the exemption. “Primary use” means that the required use is the most frequent or predominant use of the property. “Incidental use” means occasional use of the property that does not interfere with its main use.

Types of exemptions. Property Tax Code exemption requirements are extensive. ARB members should read applicable statutes carefully. The Comptroller’s annotated Property Tax Code contains the text of the law and notes on significant court cases. Following is a short summary of the most important exemption provisions.

Section 11.11. Public Property.
To qualify for the public property exemption, the State of Texas or a political subdivision of the state must own the property. Political subdivisions must use it for public purposes–primarily for the health, comfort, and welfare of the public. Property owned by the state must also meet the general public-purpose test.

State-owned property is taxable if it is rented to a private business that uses it for something inconsistent with the agency’s duties. The property may not be used to provide housing to the public other than students or agency employees. However, if an educational institution uses the property primarily for instructional purposes and secondarily for residences, the property is exempt. Additionally, property held (as opposed to used) for the benefit of a state junior college, college, or university is exempt under the same conditions.

Property of a higher education development foundation or an alumni association located on land owned by the state for the support, maintenance, or benefit of a state institution of higher education is exempt provided that the foundation or organization meets the requirement of Section 11.18(e) and (f). The organization must also be organized exclusively to operate programs or perform activities for the benefit of institutions of higher education. Finally, the property must be used exclusively in those programs or activities.

An improvement owned by private persons is property used for public purposes if it is (1) located on land owned by the Texas Department of Criminal Justice, (2) leased and used by the department, and (3) subject to a lease-purchase agreement providing that legal title to the improvement will pass to the department when the lease ends. No application is necessary.

Tangible personal property leased to the state or a political subdivision is exempt if the property is subject to a lease-purchase agreement providing that the state or political subdivision takes legal title to the property at the end of the lease term. The exemption ends thirty days after the lease terminates if the state or political subdivision does not take title to the personal property.

Section 11.11(i) exempts as public property real and personal property owned by a nonprofit corporation engaged exclusively in providing chilled water and steam to certain health related facilities, as defined in Health and Safety Code Section 301.031. The corporation’s property would be considered as if owned by the state and used for health and education purposes.

Section 11.111. Public Property Used To Provide Transitional Housing for the Indigent.
This section exempts property owned by the United States or a federal agency and used to provide transitional housing to the poor under a program operated by the U. S. Department of Housing and Urban Development. The property is exempt by ordinance or order of the taxing units in which the property is located. The exemption requirements include an annual application.

Section 11.12. Federal Exemptions.
Property owned by the federal government is usually exempt from property taxes unless federal law specifically makes the property taxable. In addition, federal law exemptions sometime override state tax laws. The major issues under this section are either (1) whether the owner is a federal agency or (2) whether some federal statute or case law exempts the property. Unlike the public property exemption, the property’s use is not usually important. No application is needed.

Section 11.13. Residence Homestead.
Most residential exemption cases concern either (1) the owner’s qualifications for the exemption; (2) whether the exemption covers specific improvements or amounts of land; or (3) whether the property is the principal residence of the owner.
Owner qualifications: There are no specific owner qualifications for the general homestead exemption other than that the owner has an interest in the property and use the property as the principal residence. To qualify for the over-65 exemptions, the owner must be 65 or older and live in the house. If the over-65 homeowner dies, the surviving spouse may continue to receive the exemptions if the surviving spouse is 55 years of age or older at the time of death and lives in and owns the home.

The most detailed qualifications relate to the exemption for disabled persons. “Disabled” has a specific meaning. The disabled person must meet the definition of disabled for the purpose of receiving disability insurance benefits under Federal Old-Age, Survivors and Disability Insurance Act. To qualify for the exemption, the person need not actually receive these benefits.

The beneficiary of some trusts may qualify for the residence homestead exemption. A residence owned by an individual through an interest in a qualifying beneficial trust and occupied by such individual as a trustor may qualify.

Note that Section 11.26 places a ceiling on school taxes for residence homesteads owned by persons 65 and over. A constitutional amendment continues the tax ceiling for over-55 surviving spouses of persons who die while qualified for the tax ceiling. These homeowners may also transfer the percent of tax paid, based on their ceiling, when they purchase another home and use it as their principal residence.

Exemption coverage: Normally the exemption applies to those portions of the house actually used for residential, as opposed to business, purposes. The homestead includes up to 20 acres of land used for residential purposes (yard, garden, driveway, etc.) and any additional improvements used for residential purposes.

Principal residence: The home must be the principal residence of the applicant. A common problem occurs when the applicant leaves the house “temporarily.” Normally, if the owner intends to return and does not establish a different principal residence, the property may receive the exemption.

In Opinion No. JC-0415, the Texas Attorney General held that a residence homeowner’s rental of a part of the residence to another person disqualifies that part of the home for homestead exemptions. He concluded, however, that this rental provision did not apply when the homeowner rents the entire residence to another and is absent from the homestead. The items to consider to determine the exempt status when rental of the entire home include whether the owner’s absence is temporary, whether the owner has established a different principal residence, and whether the owner intends to return and occupy the property as the principal residence.

Mobile homes may qualify for homestead exemptions. Owners of certain mobile homes must provide a copy of the title to the home or a verified copy of the purchase contract with their homestead exemption applications. Note that land and outbuildings are exempt only if the owner of the mobile home also owns and uses them for residential purposes.

A property owner may also receive a homestead exemption for cooperative housing. Co-op housing structures are owned by a corporation, not an individual. The shareholders have the right to occupy an apartment in the structure. Upon application by the co-op, the chief appraiser must separately appraise and list each individual stockholder’s interest. Each stockholder whose interest is separately appraised may protest and appeal the appraisal like any other property owner.

Sections 11.14 -11.15. Tangible Personal Property Not Used to Produce Income and Family Supplies.
Generally these provisions provide that all tangible personal property, other than manufactured homes, that is not held or used for production of income is exempt from property taxes. However, the governing body of a taxing unit may by official action continue to tax property other than family supplies, household goods, or personal effects. No application is needed for these exemptions.

Sections 11.142. Travel Trailers.
A taxing unit, other than a school district, may exempt travel trailers not held or used for the production of income. Travel trailer is defined as a house trailer-type vehicle or a camper trailer, regardless of whether the vehicle is affixed to real property, that: 1) is less than 400 square feet in area, and 2) is designed primarily for use as temporary living quarters in connection with recreational, camping, travel, or seasonal use and not as a permanent dwelling.

Sections 11.145 - 11.146. Income-Producing Tangible Personal Property and Mineral Interest Property Having Value of Less Than $500.
These two sections exempt income-producing personal property and mineral interest property valued at less than $500. An owner’s personal property used to produce income is aggregated to determine if the owner’s total taxable value in each separate taxing unit is less than $500 and, thus, exempt from taxation. The taxable value of a property owner’s mineral interests is aggregated to determine if the taxable value within each taxing unit is less than $500. No form is necessary to claim these exemptions.

Section 11.16. Farm Products.
This section exempts livestock, poultry, agricultural products, and some nursery products when they are still in the hands of the person who raised them. Common problems involve definitions: whether the item is livestock, poultry, or a farm product. Nursery products are only exempt if they are still growing on January 1. Agricultural products held for sale by a cooperative marketing association are still considered exempt if owned by members of the co-op. Livestock and poultry must be owned by the person who is paying for their care on January 1. Farm products include standing timber or timber that has been harvested and on January 1 is located on the real property on which it was produced and is under the ownership of the person who owned the timber when it was standing. No application is needed.

Section 11.161. Implements of Husbandry.
This section exempts items primarily designed and used for farming, ranching, and timber production. The exemption applies only to movable personal property, including poly houses. Barns, silos, and other items fixed to the land do not qualify. No application is needed.

Section 11.17. Cemeteries.
This section exempts cemetery property. The property must be used exclusively for human burial. The property may not be held for profit.

Section 11.18. Charitable Organizations.
This section exempts property owned by qualified charitable organizations.

An organization must meet stringent requirements regarding how it is organized, what it does, and how it uses its property. Special problem areas of this exemption frequently concern whether the organization’s bylaws meet the requirements of Section 11.18. Under Section 11.18, the bylaws must limit the organization to charitable activities. The bylaws must pledge the group’s properties to charitable purposes. They must prevent anyone from realizing a profit out of the organization’s activities. In some cases, particularly involving medical care facilities, children’s homes, and nursing homes, questions will involve whether the institution serves people who can’t pay for services as well as those who can.

The exemption applies to any property owned by the charitable organization. The property must be used exclusively by the organization or other equally qualified organizations. If part of the property is leased to or used by a non-qualified person or business, the other use must be limited to activities that benefit the people the organization serves.

Section 11.181. Charitable Organization Improving Property for Low-Income Housing.
This section provides an exemption for a charitable organization improving property for low-income housing. The charitable organization must meet Section 11.18 (e) and (f) requirements. It must use volunteer labor to build or repair housing for sale without profit to a low-income individual or family. Each property may be exempt for a maximum of three years after the property’s acquisition date. If the organization sells the property to an individual or family that is not low income, the chief appraiser enters a penalty in the appraisal records and notifies the organization and the buyer. The penalty is equal to the taxes that would have been imposed in each year the property was exempt.

Section 11.182. Community Housing Development Organizations Improving Property for Low-Income and Moderate-Income Housing.
This section provides an exemption for an organization improving property for low and moderate-income housing. The organization must be organized as a community housing development organization and meet Section 11.18(d) to (g) requirements. It must build or repair housing on property to sell or rent without profit to a low or moderate-income individual or family satisfying the organization’s eligibility requirements. Each property may be exempt for a maximum of three years after the date the property is acquired, unless the property is rented or offered for rent to individuals or families satisfying the organization’s eligibility requirements. The organization’s administrative offices and personal property used for administrative purposes may be granted an exemption if the property is used exclusively by the organization for activities incidental to the organization’s use and that benefit the organization’s beneficiaries.

Section 11.183. Charitable Associations Providing Assistance to Ambulatory Health Care Centers.
This section provides an exemption for an organization that assists ambulatory health care centers. The charitable organization must be exempt from federal income tax; be funded by a grant under Section 330, Federal Public Health Service; and not perform abortions or abortion services. An application is required.

Section 11.184. Primarily Charity Organizations.
This section exempts real and personal property owned by organizations engaged primarily in performing charitable functions listed in Section 11.18(d). An exemption may not be granted unless the governing body of a taxing unit or a majority vote at an election called by the governing body (based on a petition of at least 20 percent of the qualified voters at the last taxing unit election) approves the exemption. Before applying for an exemption, an organization must obtain from the Comptroller a determination letter stating the organization is engaged primarily in performing charitable functions. The chief appraiser must accept a Comptroller determination letter as conclusive evidence that the organization engages primarily in performing charitable functions and is eligible for exemption. The chief appraiser determines if the organization uses its property for its charitable purposes. An organization is required to obtain a new Comptroller determination letter every fifth year after the exemption is granted. To implement the determination process, the Comptroller has adopted rules and prescribed a form for applying for a determination letter.

Section 11.19. Youth Spiritual, Mental and Physical Development Associations.
This section exempts the property of “three-fold purpose” youth development groups. Like the charitable exemption, the exemption for youth development organizations imposes detailed requirements beyond the scope of this pamphlet. Special concerns with this exemption involve whether the applicant is affiliated with a state or national organization and whether the applicant’s primary concern is youth development. A recent court case noted that an organization whose primary purpose was religious in nature could not qualify its property under Section 11.19 because its primary concern was not youth development. A youth development association may use its property in performing its functions or the functions of another youth development organization.

Section 11.20. Religious Organizations.
This section exempts worship places and clergy residences owned by qualified religious groups. The requirements for the religious organization exemption are also extremely detailed. Religious organizations must be organized and operated primarily for religious worship or the spiritual welfare of individuals. The religious organization must meet requirements similar to those imposed on charitable and youth organizations. Generally, if an organization qualifies under this section, it may exempt property of the following types: actual places of religious worship, personal property used at the place of worship, residences for clergy, and personal property used at the residences. In all cases, the organization must actually own the property. A place leased for worship is not exempt. A religious organization may use its assets in performing its functions or the functions of another religious organization.

Two special problems arise frequently. They concern the scope of the term “actual place of religious worship” and the kinds of property to which the exemption applies. Both the terms “worship” and “actual place of religious worship” are somewhat vaguely defined. The code defines worship as “individual or group ceremony or meditation, education, and fellowship, the purpose of which is to manifest or develop reverence, homage and commitment in behalf of a religious faith.” An actual place of religious worship need not be a traditional church building. However, “worship” must be the primary use of the building and must take place regularly.

The exemption also applies to partially complete improvements that will be used for worship or for physical preparation. The improvement must be under active construction on January 1 and designed as a place of religious worship. The exemption for incomplete improvements only lasts three years.

The religious organization exemption applies for property under physical preparation, too. “Physical preparation” means architectural or engineering work, soil testing, land clearing activities, site improvement, or beginning any environmental or land use study relating to constructing an improvement.

Section 11.21. Private Schools.
The private school exemption exempts property used for school purposes. As with charitable, youth and religious organizations, the school must use its assets in performing its function or the function of another educational organization.

Section 11.22. Veterans’ Exemptions.
The law provides tax exemptions for veterans who are disabled, spouses and survivors of deceased disabled veterans, and spouses and survivors of military personnel who died on active duty. The amount of exemption is determined according to percentage of service-connected disability.

Section 11.23. Miscellaneous Exemptions.
Section 11.23 lists a number of exemptions that, with one exception, have no specific constitutional authorization. Attorney General opinions suggest an organization may qualify for one of the exemptions under this section if it meets the constitutional tests for a public charity.

The exemption for property owned by a veterans’ organization set out in Section 11.23 has constitutional authorization. Qualified veterans' organizations are defined as non-profit organizations composed primarily of members or former members of the armed forces of the United States or its allies and that are chartered or incorporated by the U. S. Congress.

Section 11.24. Historic or Archeological Sites.
To qualify for the historic or archeological site exemption in a given taxing unit, a structure must be designated a historic building or archeological site, and the taxing unit must vote to grant an exemption. The structure must be designated as a Recorded Texas Historic Landmark by the Texas Historic Commission or the taxing unit must designate it as historically significant and in need of tax relief. The taxing unit decides the amount of the exemption. An annual application is required.

Section 11.25. Marine Cargo Containers Used Exclusively in International Commerce.
Marine cargo containers used exclusively in international commerce are exempt. A marine cargo container is a container used to transport goods by ship, readily handled without reloading to transfer from one mode of transport to another, and used repeatedly. The definition also includes a container that is fully or partially enclosed, has an open top suitable for loading, or consists of a flat rack suitable for securing goods onto the container. The exemption is limited to property owned by a citizen or entity of a foreign country and taxed in a foreign country. No application is needed.

Section 11.251. Goods Exported from Texas.
Section 11.251 provides for a “freeport” exemption to implement Art. VIII, Sec. 1-j of the Texas Constitution. The “freeport” exemption applies to goods, wares, ores, and merchandise other than oil, gas, and petroleum products (defined as liquid and gaseous materials immediately derived from refining petroleum or natural gas) and to aircraft or repair parts used by a certificated air carrier. The “freeport goods” qualify if they leave Texas within 175 days of the date they are brought into or acquired in the state. An annual application is required to qualify for the freeport exemption.

However, for cotton stored in a warehouse to qualify for the freeport exemption, Section 11.436 provides that the warehouse operator may file a one-time application for the exemption. Property qualifies as freeport goods whether or not the person who transports it out of the state was the person who owned the property on January 1.

Section 11.252. Leased Vehicles for Personal Use.
This section exempts motor vehicles (passenger cars or trucks with a shipping weight of not more than 9,000 pounds) leased for personal use. “Personal use” means using the vehicle more than 50 percent of its use (based on mileage) for activities that do not involve the production of income. The Comptroller by rule has established exemption application requirements and procedures to determine whether a vehicle qualifies. The lessee completes a Comptroller adopted form certifying under oath that the vehicle is not primarily used for the production of income. The owner (lessor) maintains the lessee executed forms for inspection and copying by the appraisal district. The owner renders non-exempt vehicles for taxation and provides the chief appraiser with an additional list of all leased vehicles. The exemption applies only to vehicles subject to a lease entered into on or after January 2, 2001. A city, by ordinance adopted before January 1, 2002, may tax personal leased vehicles.

Section 11.27. Solar and Wind-Powered Devices.
People who install a solar or wind-powered device to produce energy are entitled to exempt the amount of value the device contributes to their property.

Section 11.271. Offshore Drilling Rigs.
Offshore drilling rigs that are stored in a county bordering the Gulf of Mexico, or a bay, or other body of water immediately adjacent to the gulf are exempt. Drilling rigs are exempt only if they are stored for a purpose other than repair and are not used for drilling. They must be designed for offshore drilling. An annual application is required.

Section 11.28. Tax Abatement.
Chapter 312, Tax Code, allows cities, counties, and other taxing units to designate redevelopment zones and grant tax abatement exemptions by agreement with property owners in those zones. A person who has entered into a valid agreement is entitled to an exemption according to the terms of the agreement. An annual application is required for a tax abatement exemption.

Section 11.29. Dredge Disposal Sites.
Section 11.29 exempts land used to dump sludge from dredging the main channel of the Gulf Intracoastal Waterway. The dredging must be done under state or federal direction, and the land must be dedicated for sludge disposal by a recorded easement. In Opinion No. DM-301, the Texas Attorney General ruled this section unconstitutional since there was no constitutional authority for the tax exemption.

Section 11.30. Non-profit Water Supply or Wastewater Service Corporation.
Property owned and reasonably necessary for a non-profit water supply or wastewater service corporation’s functions is exempt.

Section 11.31. Pollution Control.
Property acquired after January 1, 1994, and used for pollution control may receive an exemption. The exemption applies to all or part of real and personal property used solely or partly as a facility, device, or method to control air, water, or land pollution. Property not eligible for the exemption include residential; park or scenic land; vehicles; property subject to a tax abatement agreement before January 1, 1994; and property owned by a person or company that manufactures pollution control property or provides pollution control services.

To qualify for a use determination, the person or company must apply to the Texas Natural Resource Conservation Commission (TNRCC) (now called the Texas Commission on Environmental Quality - TCEQ) for a permit or permit exemption. TCEQ notifies the chief appraiser about the application and determines the proportion of the property that is used for pollution control. Then, TCEQ issues a determination letter to the applicant. The property owner includes the letter with the exemption application to the appraisal district. The chief appraiser must accept the letter’s determination as conclusive evidence for the exemption. The owner must file the one-time exemption application by April 30 of the tax year.

A person seeking a pollution control exemption or the chief appraiser may appeal before the TCEQ an executive director's determination that a facility, device, or method is used wholly or partly to control pollution. The TCEQ must adopt standards through rule adoption to ensure that pollution control determinations are uniform and equal and that property used for the production of goods and services are not determined to be exempt.

Section 11.32. Certain Water Conservation Initiatives.
Section 11.32 exempts property designated by a taxing unit as property upon which approved initiatives have been implemented. The taxing unit may exempt part or all of the value of property with approved water conservation, desalination, or brush control initiatives. The taxing unit’s governing body must designate approved initiatives, by adopting an ordinance or other law. An annual application is required.

Section 11.33. Raw Cocoa and Green Coffee Held in Harris County.
This section exempts raw cocoa and green coffee held in Harris County. The owner need not claim the exemption, once granted, in subsequent years. The exemption will apply to all raw cocoa and green coffee the applicant holds in Harris County.

Agricultural and timber appraisal

A property owner is required to submit a one-time application to qualify for agricultural or timber appraisal, also called 1-d-1 agricultural appraisal or 1-d-1 timber appraisal. Land qualified for 1-d-1 appraisal is taxed on the basis of its productivity value—what typical land in its category can produce. It is not taxed on market value, which is usually higher than the land’s productivity value. Although the land is not taxed on its market value, the chief appraiser is required to determine market value. The ARB should review both values.

An owner may protest to the ARB if the chief appraiser denies an application for any reason. An owner may protest the chief appraiser’s appraisal, including the market value. An additional penalty applies, called the rollback tax, when an owner of land qualified for 1-d-1 appraisal changes the use of the land to a non-agricultural or non-timber use. An owner subject to the rollback tax may protest the chief appraiser’s determination that the use has changed.

Converting part of qualified agricultural land to the property owner’s residence homestead does not trigger the rollback tax. Qualified agricultural land obtained by a religious organization is not subject to the rollback tax if the organization converts the land to an eligible religious use provided by Section 11.20, Property Tax Code, within five years.

Qualified agricultural land transferred to the state or a political subdivision to be used for a public purpose is not subject to the rollback tax. In addition, the chief appraiser may not consider the period during which land is owned by the state in determining whether land has been diverted to a nonagricultural use for triggering a rollback tax

The Texas Supreme Court ruled that Section 23.56(3), Property Tax Code, is unconstitutional. Section 23.56(3) provided that land owned by a foreign corporation is ineligible for open-space land appraisal.

The rules for qualifying agricultural and timber land are explained in three agency publications: Manual for the Appraisal of Agricultural Land, Guidelines for Qualification of Agricultural Land in Wildlife Management Use, and Guidelines for the Appraisal of Timberlands. These publications also discuss in detail deadlines for applying for the appraisal. Members should be familiar with these rules because the chief appraiser is required to follow them in qualifying and appraising agricultural and timberlands.

For tax year 2002 forward, Section 23.521 transferred from the Comptroller to the Texas Parks and Wildlife Department (TPWD) the responsibility to develop standards for the qualification of open space land used for wildlife management. The Comptroller adopts the TPWD standards, and these standards are binding on the chief appraiser and ARB. The standards may require that a tract of land be a specific size to qualify as wildlife management land, taking into consideration: 1) the wildlife management activities listed in Section 23.51(7); 2) the type of animal population; 3) the land’s location; and 4) any other factor TPWD determines is relevant. The standards also include specifications for a written management plan to be developed by a landowner, if the landowner receives a request for a written management plan from the chief appraiser.

The Comptroller also publishes booklets explaining how to qualify for two other types of specially appraised properties: deed-restricted airport property and recreational-park-scenic land.

The Tax Code also provides for special appraisal of Restricted Use Timberland. To receive appraisal under Subchapter H, Chapter 23, Tax Code, the property owner must apply for this special appraisal. If qualified as restricted use timberland, the land is appraised at one-half of the appraised value as determined under current methods for timberland.

Dealer’s motor vehicle inventory

Section 23.121, Property Tax Code, provides a method for the appraisal of motor vehicle inventory. Owners of a motor vehicle inventory must file the Comptroller’s Dealer’s Motor Vehicle Inventory Declaration on or before February 1 of each year with the chief appraiser. The declaration includes the market value of the dealer’s inventory for the current year, based on the prior year’s inventory sales divided by 12. Some motor vehicle inventory is excluded from this new process: fleet sales, transactions between dealers and subsequent sales. Property owners may protest to the ARB any action by the appraisal district that applies to and adversely affects the dealer.

Dealer’s vessel, outboard motor, and trailer inventory

Section 23.123 provides a method for the appraisal of vessels, outboard motors, and trailers inventory. Section 31.003, Parks and Wildlife Code, defines vessels and does not include those more than 65 feet in length (excluding sheer) and canoes, kayaks, punts, rowboats, rubber rafts, or other vessels under 14 feet in length when paddled, poled, oared, or windblown. An outboard motor has the meaning in Section 31.003, Parks and Wildlife Code.

Owners of vessels, outboard motors, and trailers inventory must file the Comptroller’s Dealer’s Vessel, Trailer, and Outboard Motor Inventory Declaration on or before February 1 of each year with the chief appraiser. The declaration includes the market value of the vessel, outboard motor, and trailer inventory for the current year, based on the prior year’s inventory sales divided by 12. Some inventory is not part of this process: fleet sales, transactions between dealers, and subsequent sales. Property owners may protest to the ARB any action by the appraisal district that applies to and adversely affects the dealer.

Dealer’s heavy equipment inventory

Section 23.1241 provides a method for the appraisal of heavy equipment inventory. Heavy equipment is self-propelled, self-powered, or pull-type equipment, including farm equipment or a diesel engine, that weighs at least 3,000 pounds and is intended for agricultural, construction, industrial, maritime, mining, or forestry use.

Owners of heavy equipment must file the Comptroller’s Dealer’s Heavy Equipment Inventory Declaration on or before February 1 of each year with the chief appraiser. The declaration includes the market value of the heavy equipment inventory for the current year, based on the prior year’s inventory sales divided by 12. Some heavy equipment inventory is excluded from this process: fleet sales, transactions between dealers, and subsequent sales. Property owners may protest to the ARB any action by the appraisal district that applies to and adversely affects the dealer.

Retail manufactured housing inventory

Section 23.127 provides a method for the appraisal of manufactured housing inventory. Manufactured housing retailers must file the Comptroller’s Retail Manufactured Housing Inventory Declaration on or before February 1 of each year with the chief appraiser. The declaration includes the market value of the manufactured housing inventory for the current year, based on the prior year’s inventory sales divided by 12. Some manufactured housing inventory is excluded from this process: transactions between retailers, and subsequent sales. Property owners may protest to the ARB any action by the appraisal district that applies to and adversely affects the retailer.

September 1 appraisal

Section 23.12, Property Tax Code, allows a business owner to have the owner’s inventory appraised at its value on September 1 of the prior year, four months before the normal January 1 date. The owner must file a request before August 1 of the prior year to qualify. Since inventories are valued according to the quantity of goods present on the appraisal date, September 1 appraisal can benefit a property owner who has lower inventory levels in September than in January. September 1 inventory is not available to a business with an inventory subject to the motor vehicle; vessel, outboard motor and trailer; heavy equipment; or manufactured housing inventory appraisal described above.

The Texas Supreme Court has ruled this provision constitutional.

Ownership issues

A property owner may protest the appraisal district’s determination of a property’s ownership. January 1 is the date for determining ownership and tax liability for a tax year. The person who owns property on January 1 is personally liable for the year’s taxes.

Administrative policy regarding recording property transfers and ownership splits after January 1 varies among appraisal districts. Some appraisal districts “freeze” the ownership records as of January 1 and maintain a separate file of subsequent transfers for the next January 1. Others continue to update ownership changes on the appraisal records until the ARB receives them.

The Corpus Christi Court of Appeals looked at the issue of which property owner may protest or continue a protest when property ownership changes —the January 1 owner, the new owner, or both owners. The court ruled that the term “property owner” in Chapters 41 and 42, Property Tax Code, includes both owners. Either owner or both owners may proceed with a protest to the ARB or with an appeal to district court.

Ownership problems can arise when (1) the appraisal district records do not reflect a property transfer and still list the previous owner, (2) more than one person owns an estate in the property, or (3) the property’s title is in dispute.

Generally, it is not difficult for a person to prove the sale of real property or loss of title. Real estate transfer documents are typical evidence in these hearings. Chapter 25 of the Property Tax Code contains specific guidelines on listing separate estates in real property. The chapter addresses undivided interests, life estates, improvements, condominiums, mineral interest, and other types of multiple ownership.

Personal property ownership is more difficult to prove because no formal title transfer provisions affect it, except for automobiles. A property owner may submit evidence such as accounting records or inventory lists in business personal property protests.

Other adverse actions

A chief appraiser may take other actions that adversely affect the property owner, such as canceling an exemption, back assessment, or imposing a penalty for late agricultural or timber land appraisal application. The property owner has a right to be notified of these actions and to protest them before the ARB. The chief appraiser must send notices modifying or denying an exemption or denying an application for special appraisal by certified mail.