Four Opinions Address Property Tax Questions
Attorney General John Cornyn issued four rulings on questions addressing property taxes. The questions dealt with reducing an adopted tax rate, using interest earned on escrow accounts, mailing five-year delinquency notices and entering into an abatement agreement.
Adopted tax rate
After adopting a tax rate higher than the rollback rate under Tax Code Section 26.05, a community college district may not voluntarily reduce its adopted tax rate in the same tax year, according to Attorney General Opinion No. JC-0360 issued April 3. The opinion held that there was no express statutory authority for reducing an adopted rate, and such authority may not be implied. The only method by which the Tax Code authorizes a community college district to reduce a tax rate that exceeds the rollback rate is an election timely initiated by a valid voter petition.
Higher Education Commissioner Don W. Brown asked whether a community college district may voluntarily reduce its tax rate in the same tax year after the district adopted its tax rate and mailed tax bills to taxpayers. The community college district complied with the Tax Code notice and hearing requirements before it adopted the tax rate and notified the collector to mail bills to taxpayers. The district then considered voluntarily reducing its adopted tax rate.
Tax Code Sections 26.05 and 31.01 require a taxing unit to set an annual tax rate. Section 26.05(d) provides that a taxing unit (other than a school district) may not adopt a tax rate that exceeds the lower of the rollback tax rate or 103 percent of the effective tax rate until the taxing unit has conducted a public hearing on the proposed rate and complied with Sections 26.06 and 26.065. Section 31.01 requires the tax assessor to prepare and mail tax bills to property owners by October 1 or as soon as practicable.
Citing Opinion No. JC-0290 (2000), Cornyn held that a taxing unit other than a home-rule city has "only those powers that the constitution or statutes expressly confer or those necessarily implied from the express powers." He found that the Tax Code expressly authorizes a taxing unit to reduce a tax rate that exceeds the rollback rate by only one method. Section 26.07 authorizes a taxing unit to amend its tax rate through an election initiated by a valid voter petition. No other provision in the Tax Code expressly authorizes a taxing unit to reduce its adopted tax rate, voluntarily or otherwise.
He wrote that “... we do not believe that such authority may be implied. While it may be reasonable as a matter of policy for a taxing unit to consider reducing its tax rate voluntarily, there is no statutory framework for ‘unwinding’ the complex and detailed tax assessment and collection procedures.”
Further, the attorney general noted: “Were this office to infer the authority to voluntarily reduce an adopted tax rate, it would also have to determine a framework for mailing corrected tax bills, adjusting delinquency dates, and refunding taxes paid at the higher rate, among other things. That is not the province of this office but rather of the legislature. Thus, we conclude that absent express statutory authority, a community college district may not voluntarily reduce its adopted tax rate.”
Escrow account interest
In Opinion No. JC-0348, the attorney general held that Tax Code Section 23.122 does not preclude a tax assessor-collector from using interest earned on motor vehicle inventory tax escrow accounts to supplement her own salary. The February 22 opinion stated that the tax assessor-collector must determine first that use of the interest is a legitimate cost of administering the motor vehicle inventory tax prepayment program and serves a public purpose as required by Article III, Sections 51 and 52, Texas Constitution. The tax assessor-collector's initial determination that use of the interest monies is lawful is subject to judicial review. The county auditor is authorized to audit the interest monies, to review expenditures from the fund and to make audit reports to the commissioners court.
Harris County Attorney Mike Fleming had asked whether a tax assessor-collector may use interest earned on motor vehicle inventory tax escrow accounts to supplement her own salary.
Tax Code Section 23.122 requires certain motor-vehicle dealer owners to prepay property taxes levied against their motor vehicle inventory. Each month, a motor-vehicle dealer owner must deposit with the county tax assessor-collector in the county in which the inventory is located a portion of the property tax the owner is expected to owe for the year. The tax assessor-collector must place the prepaid taxes in an escrow account to the owner's credit. The tax assessor-collector disburses funds in the escrow account to taxing units in proportion to taxes levied. The owner may not withdraw funds from the escrow account.
Section 23.122(c) provides that "the collector shall retain any interest generated by the escrow account to defray the cost of administration of the prepayment procedure established by this section. Interest generated by an escrow account created as provided by this section is the sole property of the collector, and that interest may be used by no entity other than the collector. Interest generated by an escrow account may not be used to reduce or otherwise affect the annual appropriation to the collector that would otherwise be made."
The opinion found that because interest generated by a motor vehicle inventory tax escrow account is the "sole property" of and may be used only by the tax assessor-collector, it is not subject to commissioners court's control. It said that the tax assessor-collector's discretion with using interest monies is statutorily limited to defraying the costs of administering the tax prepayment procedure. If an item will be used both in administering the motor vehicle inventory tax prepayment and in general administration of the tax office, interest monies may be used to fund only that portion of the cost of an item allocable to the motor vehicle inventory tax prepayment program.
"What constitutes a legitimate cost of administration of the prepayment program is a matter of fact upon which this office cannot opine," the opinion stated. "The tax assessor-collector must make the initial determination that a particular expenditure is a legitimate cost of administration under section 23.122(c), subject to judicial review." Similarly, the determination as to what extent a particular purchase is a legitimate cost related to administration of the motor vehicle inventory tax prepayment program is for the tax assessor-collector to make in the first instance, subject to judicial review, according to the opinion.
The opinion also held that interest monies may be used to supplement the salaries of a tax assessor-collector's full-time employees who administer the prepayment program "if the assessor-collector determines that salary supplements are a legitimate cost of administration under section 23.122(c)." The opinion reasoned that the salaries of those personnel who manage or administer the program "probably are related to the costs of administering the prepayment program" and noted that while nothing in the statute expressly authorizes this use, "we find nothing forbidding, as a matter of law, the use of [the] interest for salary supplements."
The opinion cautioned that “if the salary of the tax assessor-collector established by the commissioners court already compensates that officer for her time administering the motor vehicle inventory tax prepayment program, it may be difficult for the tax assessor-collector to establish as a matter of fact that a salary supplement is a legitimate cost of administration under section 23.122(c). Although the legislature has given tax assessor-collectors a great deal of autonomy with respect to the interest monies, we caution that the interest monies are not the personal property of the tax assessor-collector, but rather public funds, the use of which is limited by the Texas Constitution and subject to review by the courts, other county officials, and the public.”
With regard to the county auditor, the opinion stated that the auditor is authorized and required to audit the motor vehicle inventory tax escrow accounts, as well as interest earned on the prepaid taxes. Local Government Code Section 115.002(b) requires a county auditor, at least four times each year, to examine the county tax assessor-collector's books to verify their correctness. The county auditor is to make audit reports to the commissioners court.
Five-year notice
On January 12, Attorney General John Cornyn issued Opinion No. JC-0328 addressing the five-year notice for delinquent taxes. He found that a taxpayer who owes property taxes that are delinquent more than five years but who has not received proper notice is not responsible to pay any penalty and interest. The opinion held that the taxpayer has until "the first day of the first month that begins at least 21 days" after the tax collector delivers proper notice. Any accrued penalty and interest between the time the tax became delinquent and the first day of the first month that begins at least 21 days after proper notice delivery is canceled.
The opinion noted that the conclusion assumed the legislature may release and extinguish a property owner's obligation to pay interest that has accrued since August 26, 1991, without violating article III, section 55 of the Texas Constitution.
Harris County Attorney Michael Fleming asked whether penalties and interest on delinquent property taxes are canceled in whole or in part if the notice has not been sent as required by Tax Code Section 33.04(b). The request concerned 1981 tax accounts that were not paid until at least 1999.
Section 33.04 requires a taxing unit's tax collector, "in each year divisible by five," to mail written notice (the five-year notice) to a property owner whose property taxes have been delinquent more than one year. The property owner may raise the collector's failure to provide the required five-year notice as an affirmative defense in a suit to collect the tax. When the collector at last delivers a required five-year notice, penalties and interest are "reinstated prospectively" and begin to accrue "on the first day of the first month that begins at least 21 days after the date the collector delivers the subsequent notice."
Fleming asked what portion of the penalty and interest must a property owner pay if a tax collector did not deliver a five-year notice until 19 years after the tax accrued.
In 1981, U.S. Homes failed to pay 1981 taxes on multiple tracts. In 1982, U.S. Homes requested a replat and an entry error was made at the time of that replat. The error resulted in omitting the delinquent taxes from the newly created accounts. Old account numbers continued to reflect the delinquent taxes, penalties and interest. When U. S. Homes sold the tracts, the new owners were not provided the old account numbers and had no knowledge of any delinquent taxes. The new owners' names and addresses were properly recorded under the new account numbers and have been known by the tax office since that time, as they correctly appeared on the tax rolls, and all subsequent tax years are current. The delinquent taxes were carried forward on the delinquent tax rolls under the old account numbers, with the previous owner's name and no address information. Consequently, no delinquent tax notices for the 1981 taxes have been mailed to any property owners of record since 1982, and the taxes owed prior to the replat, along with the penalties and interest which have accrued thereon, remain delinquent.
In a few instances in which U.S. Homes financed the sales to new owners, Fleming indicated that the owners paid taxes to U.S. Homes, but U.S. Homes failed to forward the tax payments to the tax assessor. After U.S. Homes filed for bankruptcy, the 1981 taxes were never paid. The county finally notified the correct property owners of the delinquent tax, penalties and interest in August 1999, although the tax assessor did not mail the five-year notice until May 2000. The property owners have questioned the tax assessor's authority to collect penalties and interest that have accrued since February 1, 1982.
Attorney General Cornyn responded that a property owner owes only that portion of the penalty that begins to accrue on the first day of the first month beginning at least 21 days after the collector delivers the notice if the delinquent tax is not paid by that time. The opinion noted that the notice is presumed to be delivered when it is deposited in regular first-class mail, postage prepaid and addressed to the appropriate person.
Regarding the interest, Cornyn held that, assuming that the legislature constitutionally may waive the collection of interest accrued since August 26, 1991, the property owner owes only that portion of the interest that begins to accrue on unpaid tax on the first day of the first month beginning at least 21 days after the collector delivers the notice.
The opinion reviewed Tax Code Chapter 33 that provides a taxing unit with various means to prevent or punish delinquent taxpayers with penalty and interest charges. It also found that Chapter 33 provides various circumstances in which penalties and interest may be canceled or waived. Section 33.05 provides that delinquent taxes, penalties and interest are presumed paid after 20 years unless litigation to collect the taxes is pending.
"At some point in 2001, the delinquent taxes will be canceled and penalties and interest will be presumed paid if the taxing unit does not sue to collect the tax," the opinion noted. "We further presume that the taxing unit may not waive the taxpayers' penalties and interest under section 33.011(a)(1). Because you describe the error as omitting 'the then delinquent taxes from the newly created accounts,' we do not believe that the error caused the delinquencies. Rather, the taxes were delinquent when the error was made, and the error affected only notice of the delinquency. Whether a particular property owner has failed to pay a tax before it became delinquent because of an act of an officer, employee, or agency of the taxing unit or the appraisal district is a fact question that the opinion process cannot resolve."
The opinion held that the significant legal issue was the meaning of the phrase "reinstated prospectively" in Section 33.04(e). It construed the phrase "reinstated prospectively" to mean that penalties and interest that accrued between the time the taxes became delinquent and "the first day of the first month that begins at least 21 days after" delivery of the five-year notice are canceled. But if a property owner does not pay the tax by "the first day of the first month that begins at least 21 days after the date the collector delivers" the required five-year notice, penalty and interest begin to accrue on that date. The property owner must pay any penalty and interest that begin to accrue on that date.
"To give the word 'prospectively' meaning, we conclude that a property owner is not liable for penalties and interest that have accrued between the time the tax became delinquent until 'the first day of the first month that begins at least 21 days after the date the collector delivers' a five-year notice under section 33.04(b)," the opinion said. "In addition, were we to construe section 33.04 to require that accrued penalties and interest be carried forward, instead of canceled, this office would need to ascertain the period during which penalties and interest accrue so that the accrued amount may be 'reinstated' if the delinquent tax is not timely paid."
The opinion interpreted Section 33.04 to mean that a taxpayer who does not timely pay the delinquent tax is penalized because penalties and interest begin to accrue if the delinquent tax is not paid within the statutory grace period. In this way, Section 33.04 encourages the property owner to timely pay the delinquent tax.
"We finally assume that, to the extent section 33.04 of the Tax Code purports to cancel interest, it does not violate article III, section 55 of the Texas Constitution. Article III, section 55 withholds from the legislature 'power to release or extinguish, or to authorize the releasing or extinguishing, in whole or in part,' any corporate or individual 'indebtedness, liability or obligation . . . to this State or to any county or defined subdivision thereof, or other municipal corporation therein,' except taxes that are at least ten years overdue," the opinion said.
Assuming that the legislature constitutionally may waive collecting interest accrued since August 26, 1991, the opinion concluded that a delinquent property owner to whom a required five-year notice was not delivered is not responsible to pay any penalty and interest that accrued between the time the taxes became delinquent and the first day of the first month that begins at least 21 days after the five-year notice is finally delivered. On the first day of the first month that begins at least 21 days after the notice is delivered, penalty and interest begin to accrue unless the delinquent tax has been paid. The opinion also noted that if the tax has been delinquent 20 years, and no litigation is pending to collect the tax, the taxing unit must cancel and remove the tax from the delinquent tax roll and presume the penalty and interest paid (again assuming that the legislature constitutionally may release interest that has accrued since August 26, 1991).
Abatement agreement
Opinion No. JC-0300, issued in late 2000, held that Tax Code Section 312.206 authorizes a commissioners court to enter into an abatement agreement only with the owner of taxable real property, and that the owner of a leasehold interest in tax-exempt property is not such an owner.
Bexar County Criminal District Attorney Susan D. Reed asked if the Bexar County commissioners court was authorized to enter into an abatement agreement with Boeing Aerospace Operations, Inc. for a ten-year term for abating taxes on tangible personal property located at its leased facility at Kelly Air Force Base. The City of San Antonio had entered into such an abatement agreement. Because the county must enter into any tax agreement under Section 312.206 within 90 days of the city agreement, the county entered into the agreement with Boeing subject to an attorney general’s ruling.
The opinion found that Section 312.206 authorizes an abatement agreement only with the “owner of taxable real property.” It held that Boeing’s leasehold interest in tax-exempt property is not the “owner of taxable real property.” It said that Boeing’s leasehold interest was tax-exempt pursuant to a “grandfather” provision of the Development Corporation Act of 1979.