Texas Appellate Court Cases
Courts Issue Four Property Tax Decisions
Texas appellate courts have issued four decisions that deal with property tax areas, including a homestead appraisal, leased improvements owned by a city, cancelled tax abatement and excess funds from a property tax sale.
In Bader v. Dallas Central Appraisal District, 139 S.W.3d 778 (Tex. App.—Dallas 2004), the appellate court affirmed the trial court’s decision that the appraisal district’s value did not exceed the 10 percent annual “cap” on a residence homestead appraisal.
The Dallas Court of Appeals found that the appraisal district correctly applied Tax Code Section 23.23, limiting the proposed appraisal increase on a residence homestead to 10 percent for each year since the homestead’s last reappraisal.
The taxpayer contended the 2002 appraisal of his homestead exceeded the 10 percent limitation because the appraisal district should have applied the increased appraisal separately to the land and to the improvements, or buildings.
In 2001, the appraisal district appraised the owner’s home at $217,000, with $75,000 on the land and $142,000 on the improvements. The 2001 appraisal was limited to $181,500 based on Section 23.23.
In 2002, the appraisal district valued the residence at $235,000, with the land value remaining at $75,000 and the improvements increasing to $160,000. Based on Section 23.23, the district capped the 2002 appraised value at $199,650, based on the 2001 value of $181,500 plus 10 percent.
The taxpayer contended the 2002 capped appraised value was more than a 10 percent increase on the improvements and that the 2002 appraisal should have been $192,150.
The taxpayer argued that Tax Code Section 25.19(f) required the appraisal district to list separately the market value of the land and improvements on the notices of appraised value sent to property owners. The taxpayer’s brief stated: "The only logical purpose is to facilitate application of the ten percent limitation of section 23.23 by requiring the ten percent limit to be applied separately to the land and improvements."
The appellate court disagreed and ruled the limitation applied to the residence homestead as a single unit, which is the land together with improvements. It held that Section 25.19 applied to all real property, not just residence homesteads. The notice required by Section 25.19 did not require the 10 percent limitation to be applied separately.
The court held that the definition of residence homestead found in Tax Code Section 11.13, that is “a structure ... together with the land and improvements used in the residential occupancy of the structure ...,” applied and that the aggregate value was the “residence homestead.”
On July 1, the Austin Court of Appeals affirmed the trial court’s decision in Travis Central Appraisal District v. Signature Flight Support Corp., 140 S.W.3d 833 (Tex. App.—Austin 2004). The trial court ordered the appraisal district to remove from the tax roll the city owned improvements listed by the appraisal district in the name of the city’s lessees. The appellate court found that under the lease agreements, the city held legal title to the improvements and the improvements were tax exempt.
In 1998, the city entered into fixed-based operator leases with Signature and Austin Aero for a term of 40 years. The leases granted Signature and Austin Aero particular acres of unimproved land at the Austin airport to construct facilities for a full service fixed-based operation for general aviation.
In 1999, Signature subleased a portion of the leased premises to Triple S for the purpose of building a storage and maintenance hangar facility. Austin Aero similarly subleased a portion of its leased premises to R & J for the purpose of constructing an airplane hangar, offices and related facilities.
In 2001, the appraisal district assessed property taxes against each lessee, asserting that each owned or had a taxable ownership estate or interest in the improvements that had been constructed under the leases and subleases. The appraisal district contended the lessees owned the improvements and were liable for the property taxes.
The lessees claimed that the city owned the improvements constructed at the city’s airport and that the lessees merely leased or subleased them.
The appellate court found that, under the lease agreements, the city held legal title to the improvements. The lessees merely held a leasehold interest in the improvements; they did not hold equitable title or a beneficial interest that could have compelled the city to turn over legal title. The appellate court found that the improvements were tax exempt.
Cancelled tax abatement
In ABT Galveston L.P. v. Galveston Central Appraisal District, 137 S.W.3d 146 (Tex. App.—Houston 2004), the appellate court affirmed the trial court’s decision about due process rights after local taxing units cancelled a property’s tax abatement agreement and assessed property taxes.
In 1994, ABT leased tracts of property at the Port of Galveston owned by the City of Galveston Wharves Board. ABT obtained tax abatement agreements from the local taxing units for the construction of an automated grain bagging and loading facility at the Port. The agreements required ABT to complete proposed construction and capital improvements estimated at $23 million. ABT would receive tax exemptions on the full amount of the increased value for a period of seven years.
The agreements provided that the taxing units could declare the agreements in default if ABT did not meet its obligations. The taxpayer's business failed, and it stopped repayment of loan obligations and ceased operations. The taxing units notified ABT that it was in default.
ABT’s finance company paid the full amount of property taxes assessed on the facility before the delinquency date. Neither ABT nor the finance company filed a timely written protest about the property’s value as required by Tax Code Section 41.44 or requested a timely hearing about any lack of notice under Tax Code Section 41.411(a).
The appellate court held that the failure to pursue and exhaust administrative remedies required by Tax Code Section 42.09 precluded the recovery of any tax paid. The taxpayer’s alleged lack of notice did not violate due process.
Excess funds from tax sale
The Beaumont Court of Appeals in Franks v. Woodville Independent School District, 132 S.W.3d 167 (Tex. App.—Beaumont 2004), reversed and remanded the case back to the trial court on excess funds from a property tax sale.
The trial court had ordered that excess funds be disbursed to the taxing units, including the school district, education district and the county. The trial court denied an owner’s claim to the excess funds, concluding the owner failed to secure a hearing on his claim, failed to present evidence in support of his claim and failed to establish entitlement to the proceeds within the two years required by Tax Code Section 34.03(a).
Following a tax sale, Tax Code Section 34.02 requires any excess proceeds be paid to the clerk of the court issuing the warrant or order of sale. Section 34.03 requires the clerk to keep the proceeds for two years. Section 34.04 provides that a person, including a taxing unit, may file a petition with a claim to the excess proceeds. A petition must be filed before the second anniversary of the property’s sale date. If no claimant establishes entitlement to the proceeds within the two years from the date of the sale, the clerk shall distribute the excess proceeds to the taxing units that participated in the sale.
The owner appealed the denial of his claim and argued that Tax Code Section 34.04 applied to the exclusion of Section 34.03. He argued that his claim to the excess proceeds was not barred by his failure to establish his claim in a court proceeding within two years of the sale date.
The taxing units argued the owner’s failure to secure a ruling on the claim within two years of the sale triggered Section 34.03(b). The trial court agreed with the taxing units.
The appellate court ruled that a claimant had to file a claim within two years of the sale, but did not require the trial judge to sign an order ruling on the claim within that same period of time. The owner had filed his motion within the two years but had not obtained a hearing on that motion before the two-year period elapsed.
The appellate court held that had no claim been pending on the second anniversary of the tax sale, the clerk would be authorized under Section 34.03(b) to distribute the funds to the taxing units. Such a distribution did not occur because the trial court had a pending claim to the funds on its docket. Because the owner satisfied the limitations requirement of Section 34.04(a), he was entitled to present his claim to the trial court for a ruling and nothing within Section 34.03(b) prohibits the trial court from considering the petition.
The appellate court ordered the trial court to hold a hearing on the owner’s claim to the excess proceeds.