Texas Property Tax Appraisal Review Board Manual 2005

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 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. You may also purchase a copy from their Web site at www.appraisalfoundation.org. 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. 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:

analyze comparable rental data available to the chief appraiser or the potential earnings capacity of the property, or both, to estimate the gross income potential of the property;

analyze comparable operating expense data available to the chief appraiser to estimate the operating expenses of the property;

analyze comparable data available to the chief appraiser to estimate rates of capitalization or rates of discount; and

analyze base projections of future rent or income potential and expenses on reasonably clear and appropriate evidence.

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 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, outboard motor and trailer 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);

non-producing mineral interests (Section 23.17); and

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

Value limitations or other provisions. The Tax Code also requires limiting values on certain properties or addressing special situations.

Government restrictions. Section 23.22 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. Sections 23.21 and 23.215 require 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 or caps 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 that 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.

The limited homestead value may increase for any new improvement to the homestead. New improvement, however, does not include ordinary maintenance of the existing structure or the grounds or another feature of the homestead. A new improvement also does not include a replacement structure for a structure that was rendered uninhabitable or unusable by a casualty or by mold or water damage.

Appraiser testimony and evidence. Since appraisal often requires special knowledge and skills, appraisers are usually 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 used in the appraisal. Finally, it should be aware of any misgivings the appraiser has about the appraisal.

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 appraisal date. Information about sales should be confirmed for reliability. 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 determining if 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 0.95.

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 listing 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 also 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 necessary 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 that owner’s 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 0.85. 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 0.85) for an $85,000 value.

In a protest of unequal appraisal, the ARB must determine a protest in favor of the protesting party unless the appraisal district establishes:

the property’s appraisal ratio is equal to or less than the median level of appraisal of a reasonable and representative sample of other properties in the appraisal district;

the property’s appraisal ratio is equal to or less than the median level of appraisal of a sample of properties, consisting of a reasonable number of other properties similarly situated to or of the same general kind or character; or

the property’s appraised value is equal to or less than the median appraised value of a reasonable number of comparable properties appropriately adjusted.

A taxpayer may rebut the appraisal district’s evidence above. The taxpayer may use different types of samples to show unequal appraisal.

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 Texas 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. The median appraisal level measures how close a CAD’s typical appraisal is to market value. The coefficient of dispersion measures appraisal uniformity, whether properties are being appraised at an equal percentage of market value. The study may be used as an indicator of overall appraisal performance, but not as evidence concerning a specific property.

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 because it does not move. Real property includes land, improvements, mines, quarries, items fixed to land and interests in real property such as minerals in place. A mineral in place includes oil or gas reserves or coal. 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, or 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 Tax Code Section 11.01. 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).

Goods in interstate transit. Items that cross Texas in transit from one state to another (for example, 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 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 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 school 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. Most exemption cases will depend on one or more of three issues:

owner’s qualifications;

property’s qualifications; or

property’s use.

Owner’s qualifications. With some exceptions, January 1 is the date for determining qualifications for a specific exemption. January 1 is the date for determining an owner’s qualifications for general 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 or who become disabled during a tax year, however, will qualify immediately for an age-65 and older or disability 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 age-65 and older 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, nonprofit water and wastewater supply corporations, veterans organizations and other nonprofit 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 nonprofit 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, an individual property owner may not challenge the grant of an exemption to another property owner. Tax Code Section 41.03 provides that only a taxing unit may challenge before the ARB the exemption of property from the appraisal records.

Property’s qualifications. Many exemptions apply only to specific classes of property. Homestead exemptions, for example, do not apply to personal property other than a mobile home located on land not owned by the homeowner. 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’s 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. 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 that is privately owned is property used for public purposes if it is located on land owned by the Texas Department of Criminal Justice, leased and used by the department and subject to a lease-purchase agreement providing that legal title to the improvement will pass to the department at the end of the lease term.

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 30 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.

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 override state tax laws.

Section 11.13. Residence Homestead.
Most residential exemption cases concern the owner’s qualifications for the exemption; whether the exemption covers specific improvements or amounts of land; or 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 ownership interest in the property and uses the property as the owner’s principal residence.

To qualify for the age-65 and older exemptions, the owner must be 65 or older and live in the house. If the age-65 and older homeowner dies, the surviving spouse may continue to receive the exemption if the surviving spouse is 55 years of age or older at the time of death and lives in and owns the home.

A 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.

A homeowner does not have to meet the definition of disabled or age 65 on the date of January 1 of the tax year, but may qualify as disabled or age 65 at any time during the tax year. The exemption applies to the entire tax year as if the person was disabled or 65 on January 1.

The trustor of a qualifying trust 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.

Section 11.26 places a ceiling on school taxes for residence homesteads owned by persons 65 and older or disabled. The tax ceiling continues for over-55 surviving spouses of age 65 and older owners 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.

Section 11.261 allows a county, city or junior college district to offer a tax limitation on homesteads of taxpayers disabled or 65 years of age or older. The taxing unit’s governing body may adopt the limitation, or citizens in the taxing unit by petition and election may adopt the limitation. Once adopted, Section 11.261 provides for the tax ceiling for disabled and age 65 and older homeowners and their right to transfer to another homestead in that taxing unit the same benefit of that tax ceiling. It also provides for surviving spouses age 55 or older to retain the tax ceiling.

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 qualified homeowner does not lose his or her homestead exemption if the homeowner does not establish a different principal residence, intends to return and occupy the residence and is temporarily absent for a period of less than two years. The law provides that homeowners in military service or in a facility providing services related to health, infirmity or aging may be away from the home longer than two years and still keep the homestead exemption.

Manufactured homes may qualify for homestead exemptions. Owners of manufactured homes may provide a copy of the statement of ownership and location, 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 manufactured home also owns and uses them for residential purposes. An owner may file the statement of ownership and location at the county clerk’s office with the county records to reflect that the manufactured home and land be treated as real property and as one account. Otherwise, the appraisal district lists the manufactured home separately from the land.

A property owner may also receive a homestead exemption for cooperative housing. Upon receiving an application from 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.

Section 11.14 also provides that a structure that is substantially affixed to real estate and is used or occupied as a residential dwelling is taxable.

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.

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. 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.

Section 11.161. Implements of Husbandry.
This section exempts items primarily designed and primarily used for farming, ranching and timber production. The exemption applies only to movable personal property.

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 requirements regarding how it is organized, what it does and how it uses its property. The bylaws must limit the organization to charitable activities, must pledge the group’s properties to charitable purposes and 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.

The exemption also applies to partially complete improvements or for physical preparation. The exemption for incomplete improvements only lasts for five (rather than three) years, beginning in 2003. In 2006, the time period reverts back to three years. “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 11.181. 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 and 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.

Sections 11.182, 11.1825 and 11.1826. Community Housing Development Organizations for Low-Income Housing.
These sections provide an exemption for organizations improving or constructing property for low and moderate-income housing. Beginning in 2004, Section 11.182 is for those organizations that currently have an exemption for low-income and moderate-income housing. Sections 11.1825 applies to all new construction and exemption applications for community housing projects for 2004 and future tax years. Except for counties with populations of 1.4 million or more, the qualifying property will receive a 50 percent exemption. In the larger counties, each taxing unit’s governing body by official action must determine whether to permit the exemption and at what percentage amount. In these larger counties, the property owner must submit a written request to the governing body.

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.

Section 11.184. Primarily Charitable 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.

The exemption also applies to partially complete improvements or for physical preparation. The exemption for incomplete improvements only lasts for five (rather than three) years, beginning in 2003. In 2006, the time period reverts back to three years. “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 11.19. Youth Spiritual, Mental and Physical Development Associations.
This section exempts the property of youth development groups affiliated with a state or national organization. A youth development association may use its property in performing its functions or the functions of another youth development organization.

The exemption also applies to partially complete improvements or for physical preparation. The exemption for incomplete improvements only lasts for five (rather than three) years, beginning in 2003. In 2006, the time period reverts back to three years. “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 11.20. Religious Organizations.
This section exempts worship places and clergy residences owned by qualified religious groups. 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.

Public property owned by the state or a taxing unit and leased to a religious organization may receive the religious organization exemption if the property is used as a place of regular religious worship and meets the other requirements of Section 11.20. The religious organization applies and takes other action relating to the exemption as if the organization owned the property. Other actions would include providing additional information to the appraisal district at the district’s request, notifying the appraisal district in writing if entitlement to the exemption ends and completing a new application sent by the appraisal district.

A property owned by a religious organization and leased for use as a school may be exempt as a school under Section 11.21.

A religious organization’s land held for expanding or constructing a place of worship may be exempt, so long as the land produces no revenue during the holding period. The land exemption has a limit of six years for contiguous property and three years for non-contiguous property.

The exemption also applies to partially complete improvements or for physical preparation. The exemption for incomplete improvements only lasts for five (rather than three) years, beginning in 2003. In 2006, the time period reverts back to three years. “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. A property owned by a religious organization and leased for use as a school may be exempt as a school.

The exemption also applies to partially complete improvements or for physical preparation. The exemption for incomplete improvements only lasts for five (rather than three) years, beginning in 2003. In 2006, the time period reverts back to three years. “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 11.22. 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.

The miscellaneous exemption also applies to partially complete improvements or for physical preparation. The exemption for incomplete improvements only lasts for five (rather than three) years, beginning in 2003. In 2006, the time period reverts back to three years. “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 11.24. 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.

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.

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.

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.

Section 11.28. Tax Abatement.
Chapter 312, Tax Code, allows cities, counties and other taxing units, except school districts, 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.

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.

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

The exemption also applies to partially complete improvements or for physical preparation. The exemption for incomplete improvements only lasts for five (rather than three) years, beginning in 2003. In 2006, the time period reverts back to three years. “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 11.31. 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 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.

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.

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

Land qualified as agricultural or timber land is appraised on the basis of its productivity value—what typical land in its category can produce. It is also appraised at its market value, which is usually higher than the land’s productivity value.

An owner may protest to the ARB if the chief appraiser denies the application for any reason. An owner may protest the chief appraiser’s appraisal, including the market value and the productivity value.

Once allowed, applications are not required in subsequent years. However, the chief appraiser may require the property owner to reapply if the appraiser believes the land’s eligibility has ended. The appraiser will send the property owner a notice that a new application is required, along with the application. The property owner is also required to notify the appraisal office in writing before May 1 after eligibility of the land ends or after a change in the category of agricultural use.

An additional penalty applies, called the rollback tax based on the difference in market and productivity values for the previous five years, 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.

Some changes to a nonagricultural use, however, do not trigger the rollback tax. 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 within five years. Also, there is no rollback tax for qualified land that is owned by a charitable organization under Section 11.18 for providing housing and related services to persons 62 years of age or older in a retirement community and exempt or that purpose 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 rules for qualifying agricultural and timber land are explained in three Comptroller 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. ARBs should be familiar with these rules because the chief appraiser is required to follow them in qualifying and appraising agricultural and timberland.

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.

Dealer’s motor vehicle inventory

Tax Code Section 23.121 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

Tax Code 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

Tax Code 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

Tax Code 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

Tax Code Section 23.12 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.

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 term “property owner” in Tax Code Chapters 41 and 42 includes the January 1 owner, the new owner or both.

Other adverse actions

A chief appraiser may take other actions that adversely affect the property owner, such as canceling an exemption, back assessment or appraising a property, 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.