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Seven Opinions Address Property Taxes
Texas Attorney General John Cornyn issued seven opinions that addressed questions dealing with the Property Tax Code. The topics included the Board of Tax Professional Examiners, travel trailers, a hospital district building, a heavy equipment dealer's inventory tax escrow account, a business locating omitted taxable property, a possible county development district property tax, and an agricultural rollback tax.Registering with BTPE
In Opinion No. JC-0273, issued August 29, General Cornyn ruled that a county tax assessor collector who does not perform property tax functions is waived from registering with the Board of Tax Professional Examiners (BTPE). He found that the interlocal contract between an assessor-collector and an appraisal district or other taxing unit requires the appraisal district or taxing unit to collect all taxes, including the motor vehicle inventory tax.Travel trailersHale County Attorney Chris D. Prentice asked for an opinion on whether a county tax assessor-collector collecting the motor vehicle inventory tax must register with the BPTE. In this case, the county commissioners, with the approval of county tax assessor-collector, have an interlocal contract under Tax Code Section 6.24(b) for the appraisal district to collect the county's property taxes. The county tax assessor-collector, however, receives the motor vehicle inventory tax reports and payments mandated by Tax Code Section 23.121 and 23.122. The BTPE registration requirements – Article 8885, Vernon Texas Civil Statutes – contain Section 11B to exempt a county tax assessor-collector from registration if a Tax Code Section 6.24(b) contract exists.
The opinion reviewed the history of Article 8885 and the registration exemption for county tax assessor-collectors with Section 6.24(b) contracts. In reviewing the 1999 legislation that added Section 11B to Article 8885, General Cornyn noted a statement in the legislative intent of Senate Bill 674: "The purpose of the section is to waive the registration requirements for county assessor-collectors who do not perform property tax functions" (emphasis added in opinion).
General Cornyn also looked at Attorney General Letter Opinion L0-98-085 that addressed a county assessor-collector's duties with regard to the motor vehicle inventory tax when the county had a Section 6.24(b) contract. He found that letter opinion concluded "[T]here is no reason to believe that the legislature did not intend section 6.24(b) to apply to tax collections under section 23.122."
The opinion held that the receipt of motor vehicle inventory tax prepayments is unquestionably the collection of taxes within the meaning of Article 8885. It also stated that the collection of these motor vehicle inventory prepayments must be included in a Section 6.24(b) contract. Finally, it also held that the collection of such payments and receipt of the monthly reports will cause assessor-collectors to "lose their exemption under Article 8885, Section 11B."
Opinion No. JC-0282, issued September 7, looked at Tax Code Section 1.04(3)(B) on travel trailers as improvements and Tax Code Section 11.14 on procedures for taxing personal property not used to produce income.Heavy equipment inventorySenator Eddie Lucio, Jr., Chair of the Special Committee on Border Affairs, asked for an opinion on whether a travel trailer may be considered an "improvement" under Tax Code Section 1.04(3) if the same person owns the land on which it is located. He also asked about the consequences of a taxing unit's failure to hold a public hearing on its intent to tax personal property otherwise exempt under Tax Code Section 11.14.
Senator Lucio was requesting clarification of Attorney General Opinion No. JC-0150 (reported in the January 2000 Statement). That opinion concluded, "a travel trailer attached to a leased lot will generally remain the property of the person leasing the lot" and will be taxable to the lessee of the lot as personal property, rather than real property.
In reviewing Opinion JC-0150, General Cornyn wrote that the opinion focused on Tax Code Section 1.04(3)(A), the question being whether a structure has been affixed to land and has become an improvement. He said that the opinion "suggested that in most cases it is 'safe to presume that trailer owners do not intend that, by hooking up their trailers, they will cede ownership of them to the trailer park operators.'" And, he also noted that the opinion said in rare instances, the improvement could be taxable as real property to the trailer park operator.
In reviewing Tax Code Section 1.04(3), General Cornyn held in Opinion No. JC-0282 that "under subsection (A), a travel trailer that has been permanently affixed to land is an improvement and is taxable as real property. Under subsection (B), a travel trailer is also an improvement and taxable as real property if the owner of the trailer owns the land on which it is located. It is not relevant under subsection (B) whether or not the travel trailer has been affixed to land." He continued that "subsection (B) is intended to expand rather than restrict the universe of structures taxable as improvements."
The second question dealt with Tax Code Section 11.14 and taxing personal property not used to produce income. Section 11.14 does not permit taxing personal property otherwise exempt unless a taxing unit has held a public hearing as required by Section 11.14(e). The attorney general found no court cases addressing the consequences of failure to adhere to the requirement and whether the requirement was met was a fact finding that his office cannot make.
General Cornyn did add that, if the question about Section 11.14 dealt with taxing travel trailers, another consideration would apply. He wrote that Section 11.14 provides a tax exemption for all tangible personal property, other than manufactured homes (emphasis added), that the person owns and that is not held or used for production of income. He said that Texas Constitution Article VIII, Section 1(d), states that the Legislature by general law may exempt "(2) all other tangible personal property, except structures which are personal property and are used or occupied as residential dwellings (emphasis added) ..." He concluded "whether a travel trailer may be taxed as personal property will depend not only on whether the governmental body has complied with the procedural requirements of section 11.14, but also whether the constitution permits its exemption from taxation."
In Opinion No. JC-0286, issued September 29, General Cornyn ruled that a tax assessor-collector lacks statutory authority to accept or deposit money paid by a heavy equipment dealer to the dealer's inventory tax escrow account when the dealer would not owe taxes. The opinion stated "a heavy equipment dealer who mistakenly prepays such taxes is not entitled to a refund of the monies unless he is entitled to a refund under section 31.11 of the Tax Code or can show that he paid them as the result of fraud, because of a mutual mistake of fact, or under duress."Omitted propertyDenton County Criminal District Attorney Bruce Isaacks, on behalf of the Denton County Tax Assessor-Collector, asked General Cornyn whether the assessor-collector must refund monies paid into an inventory tax escrow account. A heavy equipment dealer opened his business in April 1999 and made monthly deposits, along with his inventory tax statements, beginning in May 1999. Because he was not in business as of January 1, 1999, and did not sell any inventory during 1998, he would not owe taxes for 1999. The dealer did not acquire the business from another owner. The dealer demanded return of the funds.
Tax Code Sections 23.1241 and 23.1242 govern the appraisal and taxation of heavy equipment dealers' inventory. The tax assessor-collector refused to refund the money because Section 23.1242(d) prohibits withdrawals from an escrow account.
General Cornyn found that Section 23.1242(d) did not apply to the situation in this case. He pointed out that Subsection (d) used the term "owner" rather than "dealer" and reads: "The owner may not withdraw funds in an escrow account created under this section." He explained that the distinction between the terms is significant and wrote, "the statute uses the term 'owner' more narrowly to refer to only those dealers who owned a dealership as of January 1 and owe and are required to prepay taxes."
The attorney general also held that there was no statutory basis for the tax assessor-collector to accept the funds from the dealer or to deposit them into the escrow account in this situation. He stated that Section 23.1232(c) "does not authorize the collector to maintain an escrow account for a dealer who is not an 'owner' or to accept funds from a person who is not an owner ... "
The attorney general then looked to whether the assessor-collector should refund the monies. Relying on several Texas Supreme Court's rulings, he wrote: "According to the voluntary payment rule, the fact that an official is not entitled to collect a tax or fee does not necessarily mean that a person who has paid the tax or fee is entitled to a refund." To receive a refund, he stated that the dealer would have to meet the requirements of Tax Code Section 31.11 (refunds of an overpayment or erroneous payment) or an exception to the voluntary payment rule.
In reviewing Section 31.11, General Cornyn explained that the relevant issue was whether the taxpayer's error involved a mistake of fact, like an accidental overpayment of the amount of taxes or lack of knowledge that the tax had been paid by another person, or a mistake of law. "A mistake of fact occurs where one understands the facts to be other than they actually are. The mistake of fact must be mutual and not merely the product of the complaining party's inattention. In contrast, a mistake of law occurs where one cognizant of the facts reaches an erroneous conclusion as to the legal consequences or effect of those facts," the opinion stated.
The opinion continued, "If the equipment dealer here acted under the mistaken conclusion that he was legally required to prepay taxes in 1999, that would have been a mistake of law. Again, a taxpayer 'cannot qualify for a refund under Section 31.11 on the basis of a mistake of law.' First Bank of Deer Park, 770 S.W.2d at 854. If, on the other hand, the equipment dealer prepaid the taxes as the result of a mistake of fact, then he could be entitled to a refund." The attorney general ended that his office was not equipped to make findings of fact.
Looking at any exception to the voluntary payment rule, the attorney general cited Tax Code Section 31.115, which permits taxpayers to avoid the voluntary payment rule by paying taxes under protest. The dealer in this case did not prepay the taxes under protest.
Finally, the opinion ended by noting that the requestor had not asked whether the funds mistakenly paid into the escrow account may be applied to taxes owed by the dealer in subsequent years. The attorney general pondered this issue. The opinion noted that Tax Code Section 23.1242(d) prohibits owners from withdrawing funds from the escrow account. He stated, however, that it was "silent with respect to whether excess funds in an owner's escrow account may be credited to taxes owed by the owner in future tax years." After reviewing some provisions of Section 23.1242, the Attorney General stated "we believe that it is reasonable to construe section 23.1242 to authorize a collector to credit excess funds in an owner’s escrow account to taxes owed by the owner in future tax years … we see no reason why a collector could not credit funds mistakenly paid by a dealer in a year in which he did not owe taxes to taxes he will owe in future tax years."
On October 10, General Cornyn in Opinion No. JC-0290 addressed the legality of a business locating property omitted from the appraisal rolls for a percentage of the amount of tax generated for a local taxing unit. The opinion held that a corporation that locates property omitted from the appraisal rolls may be organized, but no taxing unit may enter a contingent fee, tax ferret contract with the corporation.County development districtState Representative Gary L. Walker, Chair of the Land and Resource Management Committee, asked the question for a constituent interested in starting a business to locate omitted property for a fee. The fee would be based on the tax generated to the local taxing units.
The attorney general found that such a business was not illegal, but that no taxing unit may contract with a private entity to locate property on a contingent fee basis.
The type of contract described is known as a tax ferret contract. To ferret is to search out or discover. The opinion noted that prior to 1930, commissioners' court legally could enter into a contingent fee, tax ferret contract. But the contracts many counties entered "shocked the public conscience as being unfair and exorbitant," according to the opinion. The opinion noted that the Legislature, thereafter, set limitations and other requirements on such contracts.
The attorney general did find that in rare circumstances where such a contingent fee contract is permitted, it is expressly allowed by a statute that sets the amount of compensation. The opinion gave Tax Code Section 6.30, regulating the percentage by which a taxing unit may compensate an attorney by contract for delinquent tax collection, as an example.
The opinion also found that Tax Code Section 25.01 forbids a chief appraiser to contract for private appraisal services on a contingent fee basis.
The opinion concluded that, without express authority, a taxing unit may not enter into a contingent fee, tax ferret contract.
In Opinion No. JC-0291, the attorney general held that a county development district is not authorized to levy an ad valorem (property) tax. The October 10 opinion held that a county development district created under Local Government Code Chapter 383 may undertake a project only if it is consistent with the purpose of "providing incentives for the location and development of projects in certain counties to attract visitors and tourists."Agricultural rollback tax
Kaufman County Criminal District Attorney Louis W. Conradt, Jr., asked whether a county development district may levy a property tax to construct infrastructure for a residential subdivision. The district would finance water, sewer, drainage, and road facilities to serve homes over 150 acres, an elementary school, an office building, a strip mall, a day care facility, 120 acres of parks, a swim center, a church, and other amenities.
The attorney general found that Local Government Code Chapter 383, establishing county development districts, does not plainly and unmistakably confer these districts with the power to levy an ad valorem tax. "The only tax that chapter 383 expressly authorizes a county development district to levy is the sales and use tax," the opinion noted. The opinion disagreed that references in Chapter 383 to Chapter 375 (authority of municipal management districts to issue bonds) establish any statutory authority to levy an ad valorem tax.
In reviewing the county development district's project to construct infrastructure for a new residential subdivision, the attorney general concluded that the district is not authorized to do such a project unless the project will promote and develop tourism in the county. The opinion found that county development district projects must be limited to the purpose of attracting visitors and tourists. It stated: "Furthermore, chapter 383's statement of purpose and legislative findings establish that the Act is intended to foster economic development by authorizing projects that attract tourists rather than general economic development." It held that the phrase "visitors and tourists" was intended to refer to people who travel for recreation or pleasure, rather than people who come and go from an area for any reason.
On October 24, the attorney general issued Opinion No. JC-0299 that qualification of agricultural open-space land owned by a youth development association qualified for a property tax exemption does not itself constitute a change of use for purposes of the rollback tax, when the land continues to be used for agricultural purposes.Hospital district buildingState Representative Robert Junell, Chair of the House Appropriations Committee, asked questions of the attorney general on behalf of the Concho Valley Council, Inc., Boy Scouts of America. The Council owns 8,059 acres of land used to provide a permanent camp and income for its separate 300-acre camp. The Council leases the 8,059 acres for livestock grazing and hunting purposes. Until 1998, the Menard County Appraisal District appraised the large tract as open-space land based on its principal use for farm and ranch purposes. In 1999, the Council filed applications for both open-space land appraisal (based on principal use of the land for agricultural purposes) and total exemption under Section 11.19 (youth development association purposes). The appraisal district denied the Section 11.19 exemption, but granted the open-space land appraisal. On appeal, the Menard County Appraisal Review Board (ARB) granted the Section 11.19 tax exemption. Because the land qualified for the Section 11.19 exemption, the appraisal district determined that a change in use of the land had occurred, thus triggering the rollback tax. To settle the dispute, the Council withdrew its claim for the Section 11.19 exemption and the appraisal district agreed to appraise the land as open-space land. The Council, however, may seek the Section 11.19 exemption in the future.
The attorney general reviewed Tax Code Section 23.55 that imposes an additional tax as a penalty for taking land out of agricultural production and is referred to as a "rollback tax." The opinion stated that change of use triggering the rollback tax occurs when the land's use changes from an agricultural use to a nonagricultural use. Referring to Texas Attorney General Opinion No. JM-667 (1987), it stated that no change of use occurs if the land continues to be used for agricultural purposes even though the land may no longer qualify for open-space land appraisal.
The attorney general held that since the owner (Council) continues to use the land for agricultural purposes, there is no change of use triggering the rollback tax. The opinion stated: "While land qualifying for open-space appraisal and the section 11.19 exemption is conceptually problematic, we conclude that the section 11.19 tax exemption qualification does not effect a section 23.55 change of use."
The attorney general issued Opinion No. JC-0311 on November 30 that a building owned by Karnes County Hospital district but leased to physicians for their private medical practice was not exempt from property taxes.Karnes County Attorney Robert L. Busselman asked about the building, located near but not attached to the hospital, that contained leased doctors' offices. He stated that the doctors were not employed by the hospital district but by lease agreement were required to use the hospital's X-ray and laboratory facilities. The Karnes County Appraisal District exempted the land but not the building. The hospital district believed that the building was tax exempt "not only because the [District] owns it, but also because the use being made of the property increases the income to the hospital, which is a benefit to the residents of Karnes County."
The opinion held that "private commercial use of publicly owned property destroys its tax-exempt status." The opinion stated that Texas Constitution Article 9 and Article 8, Section 2, require that property must be held only for public purposes and devoted exclusively to the use and benefit of the public to be tax exempt. The opinion reviewed several appellate court decisions and former attorney general opinions that held such leased buildings were not tax exempt.
"The District's building here is not held only for public purposes and devoted exclusively to the use and benefit of the public, given that it is used by the lessee physicians for their private medical practice," wrote General Cornyn. "The exclusive public use requirement is not met by the use of revenues generated by the private commercial use to benefit the residents of Karnes County."