Types of Property Owner Protests
Most protests concern market value. The law forbids appraising a property at more than its market or appraised value. The law defines market value as follows:
...the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:
(A) exposed for sale in the open market with a reasonable time for the seller to find a purchaser;
(B) 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
(C) 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. Productivity value is the most common type of value different from market value. Property qualified for agricultural or timber appraisal is taxed on its productivity value rather than its market value. Productivity valuation is an appraised value, as are other special appraisals. The Tax Code provides the following:
The market value of property shall be determined by the application of generally accepted appraisal methods and techniques. If the appraisal district determines the appraised value of the property using mass appraisal standards, the mass appraisal standards must comply with the Uniform Standards of Professional Appraisal Practice. The same or similar appraisal methods and techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon the individual characteristics that affect the property's market value, and all available evidence that is specific to the value of the property shall be taken into account in determining the property's value.
The information that follows provides a brief description of market value concepts.
Appraisal districts must estimate the value of thousands of properties. They neither have the time nor money to repeat the full appraisal process for each individual property. Instead, they use mass appraisal standards. Copies of USPAP are available from The Appraisal Foundation at www.appraisalfoundation.org.
In a mass appraisal, the appraisal district first collects detailed descriptions of each taxable property in the appraisal 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 appraisal district appraises the value of typical properties in each classification. Using modifiers to adjust for minor differences such as age or location, the appraisal district uses the typical property values to appraise all the properties in the classification. Computers often make the process more efficient. Mass appraisal techniques estimate market values of properties.
When using the cost method of appraisal, the appraisers do the following:
- 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.
When using the income method of appraisal, the appraisers will do the following:
- 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
- base projections of future rent or income potential and expenses on reasonably clear and appropriate evidence.
When using the market data comparison method of appraisal, appraisers use comparable sales and adjust the comparable sales to the subject property. A sale is not considered to be comparable unless it occurred within 24 months of the date for which value is determined.
If enough comparable properties did not sell in this period, however, other sales may be considered to constitute a reasonable sample. Sales prices must be appropriately adjusted for time differences. Whether a property is comparable to the subject property must be determined based on similarities regarding location, square footage of the lot and improvements, property age, property condition, property access, amenities, views, income, operating expenses, occupancy and the existence of easements, deed restrictions or other legal burdens affecting market.
The Tax Code also requires specific appraisal methods or the use of certain information or procedures in valuing certain types of property, including the following:
- land qualifying for agricultural, timber or wildlife management appraisal;
- deed-restricted land qualifying for recreational, park and scenic land or as public access airport property;
- taxable leaseholds;
- dealer's motor vehicle inventory;
- dealer's vessel, outboard motor and trailer inventory;
- dealer's heavy equipment inventory;
- retailer's manufactured housing inventory;
- intangible assets, such as stock, of insurance companies and savings and loan associations;
- non-producing mineral interests; and
- property owned and used by members of a nonprofit homeowners' association.
Value limitations or other provisions
The Tax Code also requires limiting values on certain properties or addressing the following special situations:
- Appraisers must 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.
- Appraisers must adjust for property rented or leased to a low-income individual or a family meeting the income-eligibility standard established by a governmental entity; the appraiser must account for that use and for the limit on rent or lease payments in the property's appraisal.
- The law 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.
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 Jan. 1 of the tax year following the first tax year the owner qualifies that property for the residence homestead exemption. The limitation expires on Jan. 1 of the first tax year that neither the owner nor the owner's spouse or surviving spouse qualifies for the homestead exemption.
The limited homestead value may increase for any new improvement to the homestead. A new improvement, however, does not include ordinary maintenance of the existing structure, 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.
To measure equality, the ARB considers appraisal ratios or median appraised values. To determine a property's appraisal ratio, you divide the appraisal roll value by the property's market value. Usually, sales or independent appraisals establish the 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 averages the two middle numbers.
To compute median appraised values, the appraiser chooses a reasonable number of comparable properties as a sample. The appraiser than adjusts their appraised values to reflect property size, condition and other individual characteristics. Finally, the appraiser lists the properties in value order, and determines the median appraised value.
The appraisal district must establish that the property under protest was appraised equally. If the appraisal district does not prove equality and uniformity of appraisal, the protest must be determined in favor of the property owner. This is true even if the appraised or market value as determined by the appraisal district is correct. The legal standard is described in the Burden of Proof section discussed earlier in this manual.
As an example, suppose that both unequal and excessive appraisal protests are brought on the same property. The issues must be determined separately at the protest hearing. The property is appraised at $105,000, and evidence indicates that the market value is $100,000. The ARB should lower the market value to $100,000 because the appraisal is excessive. Next, the unequal appraisal protest must be considered. If the appraisal district's evidence is not more convincing than the property owner's evidence and the property owner's evidence shows that the median level of appraisal is 0.85, the value should be reduced to $85,000. The ARB order should reflect the unequal appraisal protest determination, in addition to the appraised or market value determination.
While the law does not require the ARB to include two determinations of value in an order determining protest, it may be preferable to do so when the protest concerns more than one issue. It is preferable to have a determination on appraised or market value and another on equal appraisal because the appraisal record would reflect accurately what the ARB ordered in the event of a taxpayer request for binding arbitration or an appeal to district court.
At least once every two years, the Comptroller's office publishes a ratio study of property appraisals for the preceding year in each appraisal district. The study may be used as an indicator of overall appraisal performance for the prior year, but not as evidence concerning a specific property.
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 an appraisal district'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.
For purposes of establishing the median level of appraisal in a lawsuit dealing with unequal appraisal, the appraisal district's median level of appraisal determined by the Comptroller's ratio study is admissible as evidence.
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.
The discussion of certain issues related to situs that follows is not intended to be complete and comprehensive. The issues in this area are often complex and technical. The ARB should always consult its legal advisor when questions of legal interpretations arise.
To disprove any situs in the appraisal district, 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. Exceptions exist for certain portable drilling rigs located in Texas. 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. 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.
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 Jan. 1. Boundary disputes or property description disagreements create the most common real property situs problems.
Most situs problems involve movable personal property, or tangible items that are not real property. The general rule is personal property has situs at its Jan. 1 location unless it was there only temporarily. Movable property is taxable in the taxing unit when:
- it is located in that unit for more than a temporary period on Jan. 1;
- it is temporarily somewhere else on Jan. 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.
Property crossing state boundary lines
Multi-state situs problems usually involve businesses that operate or move goods in more than one state. Goods and equipment gain taxable situs in Texas if they are present in the state for more than a temporary period. They also gain situs if continually used in Texas.
If they are temporarily outside the state on Jan. 1, but their owner resides here, they still have situs here. Equipment used in several states may be partially taxed in some or all of the states.
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.
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 the 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.
Goods in interstate transit
Items that cross Texas in transit from one state to another do not become taxable in Texas. However, the transit must be unbroken.
If the property stops in Texas for some business purpose unrelated to safe and efficient transportation, it could become taxable in Texas.
Property crossing taxing unit lines
In most cases, property has situs in the taxing unit where it was located on Jan. 1. A property has only one taxable situs in Texas as there is no allocation of property value for property moving among Texas taxing units.
Taxation of business personal property used to produce income
The ARB may deal with issues concerning rendered property, such as business personal property. Tax Code Chapter 22 includes mandatory rendition requirements. A rendition identifies, describes and gives the location of taxable property on Jan. 1. Property owners must render annually to appraisal districts all tangible personal property used for the production of income in Texas. At their option, owners may render other types of property.
Rendition statements filed by property owners include the following:
- owner's name and address;
- general property description by type or category;
- if classified as inventory – description and general estimate of quantity and property's physical location or taxable situs; and
- owner's good faith estimate of the property's market value or, at the owner's option, historical cost when new and the year of the property's acquisition.
However, for property with an aggregate value of less than $20,000, the owner's rendition is required to contain only the owner's name and address, general property description by type or category and the property's physical location or taxable situs.
Rendition forms may permit a property owner to furnish other information not specifically required. For example, a property owner who is not required to give an estimate of value may, at the owner's option, provide that opinion. Rendition forms allow the owner to check a box on the form indicating that the information in the previous year's rendition filed by the owner is still accurate.
The chief appraiser may request a statement from the owner of property valued at $20,000 or more to explain how the owner arrived at the good faith estimate of market value for the subject property. The statement must summarize the following information to:
- identify the property, including physical and economic characteristics and source of information;
- specify the effective date of the value estimate; and
- explain the basis of the rendered value. If the business owner has 50 employees or less, the owner may base the estimate on depreciation schedules used for income tax purposes.
The property owner or owner's agent must deliver the statement in writing or electronically within 21 days of the chief appraiser's request. The statement is inadmissible in an administrative or judicial proceeding, except to determine the following:
- compliance with the Tax Code;
- any effort at tax evasion; or
- the owner's protest before an ARB.
The statement is confidential, and the chief appraiser may only disclose it as provided in the Texas Code.
The statutory deadline to file a rendition is April 15. A property owner may file a written request on or before April 15 to request an extension of that due date. The chief appraiser must extend that owner's deadline to May 15. The chief appraiser also may extend the May 15 deadline another 15 days if the property owner shows good cause in writing.
When a third party, such as an appraisal firm under contract with an appraisal district, appraises the property and the property owner provides substantially equivalent information to this third party, then the owner does not have to file the rendition with the appraisal district. An owner of property regulated by the Public Utility Commission, Texas Railroad Commission, Surface Transportation Board or Federal Energy Regulatory Commission complies with rendition requirements by submitting a copy of the property's annual regulatory report and sufficient allocation information. The chief appraiser must make a written request first for that report and information.
Property owners do not have to render exempt property, such as a church's personal property or implements of husbandry used for farm, ranch and timber production.
The chief appraiser shall impose a penalty of 10 percent of the total amount of the taxes on a person who fails to timely file a rendition statement. The chief appraiser can waive any penalty dealing with a rendition. The owner first must send the chief appraiser a written request to waive any penalty and provide any appropriate supporting documentation within 30 days of being notified of the penalty. The chief appraiser must then determine whether or not to waive the penalty, considering the property owner's compliance history; type, nature and taxability of the property involved; type of business involved; completeness of records; owner's reliance on appraisal district advice; changes in district policies affecting renditions; and any other relevant factor. The chief appraiser may waive the penalty if the appraiser determines that the property owner exercised reasonable diligence to comply or has substantially complied with rendition requirements. If the chief appraiser refuses to waive the penalty, then the owner may protest that decision to the ARB.
Property owners and taxing units may appeal the chief appraiser's exemption determinations. An individual property owner may not, however, challenge the grant of an exemption to another property owner. If the chief appraiser denies an exemption application the owner must render the property within 30 days of the exemption denial. Only a taxing unit may challenge before the ARB the exemption of property from the appraisal records. Property is taxable unless the owner shows that it meets all legal requirements for 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 the following three issues: the owner's qualifications; the property's qualifications; or the property's use.
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.
With some exceptions, Jan. 1 is the date for determining qualifications for a specific exemption. Jan. 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 Jan. 1.
Homeowners who turn 65 or who become disabled during a tax year, however, will qualify immediately for the 65-and-older or disability exemption as if the homeowner qualified on Jan. 1 of the tax year. In addition, surviving spouses 55 or older may qualify for a 65-and-older exemption if their spouse dies in the year he or she turns 65.
When the state, a political subdivision of the state and other qualifying organizations acquire property used for public purposes, 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, veteran's organizations and other nonprofit organizations.
The general deadline for filing an exemption application is before May 1. 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. Certain other organizations must file for exemption within one year of acquiring the property.
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 bylaws may be adequate evidence. In others, evidence about the way the organization or business operates may be needed.
Property's qualifications and use
Many exemptions apply only to specific classes of property. The property owner must list all property subject to the exemption and demonstrate to the ARB that each property meets exemption requirements.
How and when the property owner uses the property is often critical in determining exemption cases. An important factor is whether a property's use is exclusive, primary or incidental. The ARB should consult with legal counsel in interpreting these matters.
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.
The following is a short summary of selected exemption provisions for public property, residence homesteads, charities and religious organizations. A chart listing other exemptions is found at the end of this section (Exhibit 21).
Public property exemption
To qualify for the public property exemption, the state of Texas or a political subdivision of the state must own the property. The property must be used for public purposes such as the health, comfort and welfare of the public. 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 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. 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 is considered owned by the state and 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.
Real and personal property owned by a nonprofit corporation engaged primarily in providing chilled water and steam to certain health related facilities is exempt. The corporation's property would be considered as if owned by the state and used for health and education purposes. Certain facilities related to transportation leased to a private entity to provide transportation or for utility purposes are also exempt.
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.
There are no specific 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 age 65 or older and live in the house. If the 65-and-older homeowner dies, the surviving spouse may continue to receive the exemption if the surviving spouse is 55 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 the Federal Old-Age, Survivors and Disability Insurance Act. A homeowner does not have to meet the definition of disabled or age 65 or older on Jan. 1 of the tax year, but may qualify as disabled or age 65 or older at any time during the tax year. The exemption applies to the entire tax year as if the person was disabled or age 65 on Jan. 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. A beneficiary of a court-ordered trust may also qualify.
The Tax Code places a ceiling on school taxes for residence homesteads owned by persons who are age 65 and older or disabled. The tax ceiling continues for 55-or-older 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.
A county, city or junior college district can offer a tax limitation on homesteads of taxpayers disabled or age 65 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, the Tax Code 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 55 or older to retain the tax ceiling.
Normally the exemption applies to those portions of the house actually used as a residence, as opposed to business or other use. The homestead includes up to 20 acres of land and any improvements used for residential purposes.
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 outside the United States 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. For a manufactured home to qualify as a residential homestead, the owner must follow the detailed provisions concerning statements of location and ownership.
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.
If a qualified residential structure for which the owner receives an exemption is rendered uninhabitable or unusable by a casualty or by wind or water damage, the owner may continue to receive the exemption. The exemption for the structure and the land and improvements used in the residential occupancy of the structure while the owner constructs a replacement qualified residential structure on the land is applicable if the owner does not establish a different principal residence for which the owner receives an exemption during that period and intends to return and occupy the structure as the owner's principal residence. To continue to receive the exemption, the owner must begin active construction of the replacement qualified residential structure or other physical preparation of the site on which the structure is to be located not later than one year after the owner ceases to occupy the former qualified residential structure as the owner 's principal residence. The owner may not receive the exemption for that property under the circumstances described by this subsection for more than two years.
The site of a replacement qualified residential structure is considered under physical preparation if the owner has engaged in architectural or engineering work, soil testing, land clearing activities or site improvement work necessary for the construction of the structure or has conducted an environmental or land use study relating to the construction of the structure.
The law provides partial exemptions for any property owned by 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.
A disabled veteran who receives from the United States Department of Veterans Affairs or its successor 100 percent disability compensation due to a service-connected disability and a rating of 100 percent disabled or of individual unemployability is entitled to an exemption from taxation of the total appraised value of the veteran's residence homestead.
Property owned by a veterans' organization is exempt. 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.
Charitable organizations generally
Property owned by qualified charitable organizations is exempt. 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 from the organization's activities. In some cases, particularly involving medical care facilities, children's homes and nursing homes, questions may involve whether the institution serves people who cannot 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 miscellaneous exemption also applies to partially complete improvements or for physical preparation. The exemption for incomplete improvements lasts for three years.
Primarily charitable organizations
Real and personal property owned by organizations engaged primarily in performing charitable functions is exempt. Before applying for an exemption with the appraisal district, an organization must obtain from the Comptroller's office a determination letter stating the organization is engaged primarily in performing charitable functions. The chief appraiser must accept a Comptroller's office 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's office determination letter every fifth year after the exemption is granted. To implement the determination process, the Comptroller's office 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 lasts only for three years.
Places of religious worship and clergy residences owned by qualified religious groups are exempt. 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. 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 the Tax Code. The religious organization applies and takes other action relating to the exemption as if the organization owned the property.
A property owned by a religious organization and leased for use as a school may be exempt as a school. 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 lasts for three years.
The school exemption applies to property used for school purposes. As with charitable 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 lasts for three years.
Exhibit 21 summarizes other exemptions permitted by the Tax Code, Chapter 11.
Other Exemptions Summaries
Other Exemptions Summaries
Other Exemptions Summaries
Agricultural and timber appraisal
Land qualified as agricultural or timber land can be 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.
Wildlife management use also qualifies property for productivity valuation. However, to qualify for wildlife management use, the property must be qualified for agricultural appraisal at the time the owner changes to wildlife management use. In certain circumstances, an exception exists for land used to protect federally endangered species under a federal permit. Such land qualifies for special use appraisal regardless of its use in prior years.
An owner may protest the chief appraiser's appraisal including the market value and the productivity value. An owner may also protest to the ARB if the chief appraiser denies the application for any reason.
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.
The rollback tax, which is based on the difference in market and productivity values for the previous five years, is an additional penalty that applies when an owner of land qualified as "open-space land devoted to farm, ranch, or wildlife management purposes on the basis of its productive capacity" 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, within five years, the organization converts the land to an eligible religious use provided by Section 11.20. 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 for that purpose within five years. A change of use from timber to use by religious organizations and certain cemeteries, as well as residential homestead use, also will not trigger the rollback tax.
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 Timber Lands. 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 timber land.
The Comptroller also publishes manuals 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
The 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 Feb. 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.
Excluded from this process are fleet sales, transactions between dealers and subsequent sales. In addition, dealers are required to make monthly reports and prepayments based on 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
The Tax Code provides a method for the appraisal of vessels, outboard motors and trailers inventory. A vessel does not include those more than 65 feet in length (excluding sheer) and canoes, kayaks, punts, rowboats, rubber rafts or other vessels less than 14 feet in length when paddled, poled, oared or windblown.
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 Feb. 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. In addition, dealers are required to make monthly reports and prepayments based on sales.
Dealer's heavy equipment inventory
The Tax Code affords 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 Feb. 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. In addition, dealers are required to make monthly reports and prepayments based on 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
A method for the appraisal of manufactured housing inventory is also included in the Tax Code. Manufactured housing retailers must file the Comptroller's Retail Manufactured Housing Inventory Declaration on or before Feb. 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.
Manufactured housing inventory involved in transactions between retailers and subsequent sales is excluded from this process. In addition, dealers are required to make monthly reports and prepayments based on sales. Property owners may protest to the ARB any action by the appraisal district that applies to and adversely affects the retailer.
Sept. 1 Appraisal
A business owner may have his or her inventory appraised at its value on Sept. 1 of the previous year, four months before the normal Jan. 1 date. The owner must file a request before Aug. 1 of the previous year to qualify. Since inventories are valued according to the quantity of goods present on the appraisal date, a Sept. 1 appraisal can benefit a property owner who has lower inventory levels in September than in January. Sept. 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.
An affected person may protest the appraisal district's determination of a property's ownership. Jan. 1 is the date for determining ownership and tax liability for a tax year. The person who owns property on Jan. 1 is liable for the year's taxes.
Administrative policy regarding recording property transfers and ownership interests after Jan. 1 varies among appraisal districts. Some appraisal districts "freeze" the ownership records as of Jan. 1 and maintain a separate file of subsequent transfers for the next Jan. 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 may include the Jan. 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.