Attorney General Opinions
Three Opinions Address Property Tax Issues
Texas Attorney General Greg Abbott issued three opinions on property tax issues concerning a 9-1-1 service contract, nepotism and tax refunds on travel trailers. He also received a request for an opinion on the appraisal of property in overlapping appraisal districts.
9-1-1 services and CAD
On April 8, Abbot issued Opinion No. GA-0176 that held Article XI, Section 7 of the Texas Constitution prohibits Bastrop County from indemnifying the Bastrop Central Appraisal District (CAD), its officers and its employees for their actions in performing 9-1-1 services for the county under contract unless the county, at the time of contracting, levies and collects a tax as required for the purpose of retiring the debt.
Bastrop County Criminal District Attorney Bryan Goertz had asked whether the county may agree to indemnify the CAD for the costs of litigation arising out of the appraisal district’s performing services under an interagency contract. In its regional 9-1-1 plan established under Health and Safety Code Chapter 771, the county had contracted with the CAD for assistance with 9-1-1 addressing, database program management and office space. Under the agreement, the CAD assigned two full-time employees to work exclusively on functions designed to get emergency services quickly to county residents. The county agreed to compensate the CAD in an amount not to exceed $99,956 and to indemnify the CAD for all costs, expenses and damages associated with any litigation that might arise from the installation, operation or administration of 9-1-1 services.
Abbott responded that his office did not construe contracts, but would address a public entity’s authority to agree to a particular contract term, if the question can be answered as a matter of law. Article XI, Section 7 provides that “[N]o debt for any purpose shall ever be incurred in any manner by any city or county unless provision is made, at the time of creating the same, for levying and collecting a sufficient tax to pay the interest thereon and provide at least two per cent (2%) as a sinking fund ...”
The opinion looked at several court decisions, including Texas & New Orleans Railroad Co. v. Galveston County. In that case, the Supreme Court of Texas addressed Galveston County’s agreement to indemnify private railway companies for their liability in using a causeway and drawbridge built jointly by the county and the railway companies. The court observed that when the parties made the agreement they could not determine when such liability might arise or what its extent would be and held that the county’s agreement to indemnify the railway companies created an unconstitutional debt. Because the county had not, at the time it made the agreement, provided “for levying and collecting a sufficient tax to pay the interest thereon and provide at least two per cent (2%) as a sinking fund” to pay the debt, the indemnity agreement was invalid.
The opinion held that a county’s agreement to indemnify a third party for damages arising from the third party’s acts creates a debt within Article XI, Section 7 of the Texas Constitution. A county may undertake such obligation only by providing, at the time the debt is created, for levying and collecting a tax to retire the debt.
The opinion also noted that the annual renewal of the contract does not change the opinion’s conclusion, because an action taken under the contract in one year may result in litigation in a future year. It said that “the parties cannot, at the time of the agreement, reasonably expect the costs of litigation and associated damages to be satisfied out of ‘current revenues for the year’ or a fund within the county’s immediate control.”
In Opinion No. GA-0187 issued May 12, Abbott ruled that the exception for continuous employment in the general nepotism statute, Government Code Chapter 573, does not apply to an employment relationship prohibited by Tax Code Section 6.05(f). Section 6.05(f) provides that an appraisal district’s chief appraiser may not employ any individual related to a member of the board of directors within the second degree by affinity or within the third degree by consanguinity. Affinity relates to relatives by marriage; consanguinity relates to relatives by blood.
Representative James L. Keffer, Chair of Economic Development Committee, asked the employment question. A school district nominated a school board member as a candidate for the Grimes County Appraisal District’s board of directors. The candidate is the son of an appraisal district employee who has served in her position for more than 15 years.
Tax Code Section 6.05(f) prohibits a chief appraiser from employing certain relatives of appraisal district directors. Government Code Chapter 573, which applies to all state and local public officials, also prohibits public officials from employing their close relatives, but provides an exception for a relative who has been continuously employed in a position for some time before the public official’s election or appointment.
In his analysis, Abbott found that Government Code Chapter 573 does not prohibit a chief appraiser from employing appraisal district directors’ relatives. However, the legislature addressed that possibility in Tax Code Section 6.05(f), which expressly prohibits a chief appraiser from employing directors’ relatives. A person commits an offense if the person intentionally or knowingly violates this subsection. An offense under this subsection is a misdemeanor punishable by a fine of not less than $100 or more than $1,000.
He wrote: “Section 6.05(f) adds an employment prohibition that goes beyond the chapter 573 nepotism prohibitions in that it precludes the chief appraiser from employing board member’s relatives. By its express terms, section 573.062(a) does not apply to employment relationships prohibited by section 6.05(f).”
On May 26, Opinion No. GA-0194 found that while the retroactive exemption for travel trailers back to tax year 2002 may benefit persons who have not yet paid school district taxes on travel trailers for 2002 and 2003, there is no express or implied statutory authority for school districts that collected property tax on travel trailers in the 2002 and 2003 tax years to make refunds.
Abbott addressed questions from Representative David Swinford, Committee Chair on Government Reform, and Randall County Criminal District Attorney James A. Farren about the 2003 amendments to the Texas Constitution Article VIII, Section 1(d) and Tax Code Section 11.14 to exempt travel trailers from property tax as of the 2002 tax year.
In 2001, the Texas voters amended Texas Constitution Article VIII, Section 1, to add certain travel trailers to the property that the legislature could exempt from property taxation. The amendment, however, did not apply to school district taxes on travel trailers.
In his look at the exemption’s background, Abbott wrote that the legislature proposed the 2001 amendment to address the difficulties in applying the property tax laws to travel trailers. He wrote: “Before 2000, a travel trailer that had been permanently attached to the land could be treated as real property. If used as the owner’s primary residence, the trailer could qualify for tax exemptions applicable to residence homesteads. Otherwise, it would be fully taxable as real property. Travel trailers not attached to the land were tangible personal property and, if not used for producing income, were exempt from property tax unless a particular taxing unit elected to tax them. Given the complexities in applying property tax laws to travel trailers, it was possible that taxing units would reach inconsistent results.”
He added: “The 2001 constitutional amendment and the enabling legislation excluded school districts from the taxing units that might exempt travel trailers from ad valorem taxes. As a result of these provisions, some school districts that had not previously taxed travel trailers began to tax them.”
In 2003, the 78th Texas Legislature, Regular Session, proposed and the voters approved the constitutional amendment designed to exempt travel trailers in school districts as well as other taxing units. The 2003 constitutional amendment also provided that the amendment took effect January 1, 2004, and applied only to a tax year that began on or after January 1, 2002.
Through Senate Bill 510, the 78th Legislature repealed former Tax Code Section 11.142, which barred school districts from exempting travel trailers from property tax, and amended Tax Code Section 11.14(a) to exempt them. Section 11.14 did provide that the subsection “does not exempt from taxation a structure that a person owns which is substantially affixed to real estate and is used or occupied as a residential dwelling.”
Abbott found that while the amendment to Section 11.14(a) provided a retroactive exemption, it stated nothing about refunds to persons who paid the tax.
He wrote, “Appraisal districts do not need to take any action to provide the exemption for the years 2002 and 2003. Nor do school districts that taxed travel trailers in 2002 and 2003 need to take action now to exempt travel trailers from tax, because Senate Bill 510 does so as a matter of law.”
He noted that a school district still has constitutional and statutory authority to tax travel trailers in any tax year, including the years 2002 and 2003. Under Tax Code Section 11.14(c), “[t]he governing body of a taxing unit, by resolution or order, depending upon the method prescribed by law for official action by that governing body, may provide for taxation of tangible personal property exempted under Subsection (a).” If a taxing unit provides for taxing such property, “the exemption prescribed by Subsection (a) does not apply to that unit.” It must first hold a hearing on the matter, giving notice as required by Section 11.14(e). If it does so, such taxes remain in place and the question of refunds for those tax years does not arise.
In addressing the refund of taxes on travel trailers collected in the 2002 and 2003 tax years, Abbott wrote: “Under common law, the voluntary payment of an illegal tax will not support a claim for repayment. ... A person who has paid an illegal fee or tax can receive a refund only upon a showing that the payment resulted from fraud, mutual mistake of fact, or duress, whether implied or express. ... The voluntary payment rule assumes that everyone knows the law, and if one voluntarily makes a payment that the law does not compel him to make, he cannot later base a refund claim on ignorance of the law.”
Abbott reviewed Tax Code Chapters 41 and 42 that establish strict procedures for protesting the collection of property taxes and securing a tax refund. He noted that these procedures are exclusive, with narrow exceptions, and a taxpayer who fails to raise a ground of protest at the required time may not rely on it to obtain a tax refund.
He looked at Tax Code Section 31.11 that provides for “a refund of an overpayment or erroneous payment of taxes” if the taxpayer applies to the taxing unit and the unit’s auditor determines that “the payment was erroneous or excessive.” If the taxpayer does not apply for a refund within three years after he paid the tax, the claim is waived. He found that judicial decisions have read Section 31.11 narrowly and applied “only in cases where the tax is correctly assessed but the taxpayer erred in paying it,” for example, by “accidental payment on the wrong account, inadvertent payment of a greater amount than that assessed or an overpayment caused by errors in calculation.” The taxes that school districts collected on travel trailers in the 2002 and 2003 tax years were not collected due to either a mistake of law or a mistake of fact.
Thus, Abbott found: “Neither the common law nor the statutes require a school board to refund taxes collected on travel trailers in those years.
So, could a school district elect to refund taxes?
Abbott wrote: “No statute expressly authorizes a school district’s governing body to refund taxes collected on travel trailers in 2002 and 2003, and we find no basis for concluding that school district governing bodies have implied authority to make such refunds. Section 45.105 of the Education Code, which governs the expenditure of public school funds, provides that ‘[l]ocal school funds from district taxes, tuition fees . . . , other local sources, and state funds not designated for a specific purpose may be used’ for specific enumerated purposes including ‘other purposes necessary in the conduct of the public schools determined by the board of trustees.’ Tex. Educ. Code Ann. § 45.105(c) (Vernon Supp. 2004). While section 45.105 authorizes expenditures for various school district purposes, it does not authorize the school board to develop procedures necessary to refund taxes under a retroactive exemption.”
He continued with several other key statements: “The public policy underlying the voluntary payment rule supports a conclusion that a school district may not, absent express authority, refund taxes it collected on travel trailers during the 2002 and 2003 tax years. The voluntary payment rule ‘gives stability to a taxing authority in the conduct of its affairs.’ ... It prevents ‘the taxing entity from using funds paid by taxpayers in a given budget year and subsequently being required to refund these amounts.’ ... A retroactive adjustment of school district property tax revenues may have an impact even beyond the school district. Government Code Section 403.302 requires the Comptroller to determine the ‘total taxable value of all property in each school district.’ ... The Commissioner of Education uses that figure to calculate the state’s support for school districts and determine the district’s wealth per student under the Education Code’s funding equalization provisions. ... A legislative solution is necessary to establish procedures for adjusting the tax rolls, deciding whether refunds are authorized, providing for their payment, and addressing the school finance issues that would result from refunds. While the retroactive exemption may benefit persons who have not yet paid school district taxes on travel trailers for the 2002 and 2003 tax years, a school district has no express or implied statutory authority to refund such taxes to persons who have paid them.”
On June 10, Harris County Attorney Mike Stafford requested the attorney general’s opinion about Tax Code Section 6.025(d). He has asked whether Section 6.025(d) permits chief appraisers in overlapping appraisal districts to enter on the tax roll either the lowest market value or the lowest appraised value for a property appraised by the two districts, but not the lowest of both the market value and the appraised value.
STATEMENT will report on the opinion for Request No. RQ-0239-GA, when the opinion is issued.
In the meantime, appraisal districts should consult their legal counsel to determine how to value property in overlapping districts, to prepare inter-district agreements for dealing with uniformity of value and to deal with taxpayer protests.