Astroworld Property Tax Aftermath: How much is the urban prairie at the South Loop worth now?

… or, rather, how much was it worth in 2006, which was the issue in an ad-valorem tax appraisal dispute which finally reached decision-stage in one of our local courts of appeals a few years more down the road ....while the the weeds have been growing.  

     

APPRAISING THE AMUSEMENT PARK sans THE AMUSEMENTS:

 

The Appraiser was not amused and appealed the reduction in appraised value obtained by the owner in its successful tax protest to the district court, and then to the court of appeals.  The decision came down yesterday. Appraiser has yet more reason not to be amused, as the First Court’s panel assigned to the case, in an opinion by Justice Massengale, upholds the reductions in the appraised value of the Houston’s premier playground-turned-weedland, which has been sitting vacant in hopes of a brighter future along with the  domed -- and now likely doomed -- erstwhile world wonder just North of the 610 South.

Rare Astroworld antique: Duck on wheels adorning parking lot in West Houston

Harris County Appraisal District v. Houston 8th Wonder Property, L.P., d/b/a Six Flags Astroworld (Tex.App.- Houston [1^st Dist.] May 17, 2012, no pet. h.)

O P I N I O N

Appellee Houston 8th Wonder Property, L.P., d/b/a Six Flags Astroworld successfully protested the 2006 appraised and market values of its commercial property as determined by appellant Harris County Appraisal District.  See Tex. Tax. Code Ann. § 41.41(a) (West 2008).  Both the property owner and the appraisal district invoked their rights to seek judicial review of the appraisal review board’s valuation.  See id. §§ 42.01, 42.02 (West Supp. 2011).  The appraisal district’s appeal was dismissed for want of jurisdiction.  After a de novo bench trial, the district court entered a final judgment further lowering the appraised value of the property, and the appraisal district now appeals from that judgment.  See id. § 42.28.

We conclude that the dismissal of the appraisal district’s appeal was error.  Despite this error, the ruling that the appraisal district sought to challenge by its appeal—the appraisal review board’s valuation—remained at issue in the de novo trial that ensued for the property owner’s appeal.  The record reflects that the appraisal district was permitted to actually present its arguments and evidence about the market value of the property, both at trial and in post-trial briefing, and without any substantive limitation.  Because the district court ultimately heard and determined the appraised value of the property de novo, on this record there is no basis to conclude that the error probably caused the rendition of an improper judgment.  See Tex. R. App. P. 44.1(a).

We also reject the appraisal district’s remaining issues on appeal, relating to the admissibility of expert testimony and the constitutionality of the judgment.  Accordingly, we affirm.

Background

Houston 8th Wonder purchased 104.196 acres of unimproved land in Harris County on May 31, 2006 for $77,000,000.  This property was formerly the site of the Six Flags Astroworld theme park.  The Harris County Appraisal District appraised 101.833 acres of the purchased tract at a value of $74,668,035 for the 2006 tax year.  The property owner protested this appraisal to the appraisal review board under section 41.44 of the Tax Code, presenting two grounds: (1) “Value is over market,” and (2) “Value is unequal compared with other properties.”  The ARB panel “determined that the property appraisal is incorrect and unequal and the value should be changed.”  The ARB reduced both the property’s market value and appraised value from $74,668,035 to $48,054,000.

Both the property owner and the appraisal district appealed to the district court.  The property owner sought relief for unequal appraisal, alleging that it was “entitled to have the court order the value changed to [the] median level of appraisal in accordance with Section 42.26 of the Texas Tax Code.”  The appraisal district alleged that the “appraised value as determined by the Appraisal Review Board is far lower than the actual fair market value of the Property as of January 1, 2006,” and it requested that the court “determine the market value of the Property and increase its appraised value on the appraisal roll as authorized by sections 42.23 and 42.24 of the Tax Code.”

The property owner filed a motion to dismiss the appraisal district’s appeal for lack of jurisdiction.  The district court granted that relief after a hearing.  A de novo bench trial was conducted on the property owner’s appraised-value challenge.  The district court rendered judgment in favor of the property owner that the appraised value of the subject property was $31,938,000.00 for the 2006 tax year.  The court also issued findings of fact and conclusions of law.  The appraisal district now appeals from that judgment.

Analysis

I.               Appraisal district’s appeal from appraisal review board’s order

In its second issue, the appraisal district argues that the district court erred by granting the property owner’s plea to the jurisdiction because the statutory requirements for an appeal of an ARB order by the chief appraiser had been satisfied.  We review a trial court’s ruling on a plea to the jurisdiction de novo.  KM-Timbercreek, L.L.C. v. Harris Cnty. Appraisal Dist., 312 S.W.3d 722, 726 (Tex. App.—Houston [1st Dist.] 2009, no pet.).

A.   Right of appeal by chief appraiser

Section 42.02 of the Property Tax Code provides that “the chief appraiser is entitled to appeal an order of the appraisal review board determining” a taxpayer protest.  Tex. Tax Code Ann. § 42.02(a)(1).  A chief appraiser who wishes to appeal such an order of the ARB must (1) obtain written approval of the board of directors of the appraisal district, (2) file a written notice of appeal within 15 days of receipt of the notice from the ARB determining the taxpayer protest, and (3) deliver a copy of the notice of appeal to the property owner whose property is involved in the appeal.  Id. §§ 42.02(a), 42.06(a), (c) (West 2008 & Supp. 2011).  In this case, the chief appraiser obtained written approval from the board of directors to appeal the ARB order determining the property owner’s protest.  Six days later, the appraisal district filed a notice of appeal and sent a copy to the property owner.  The appraisal district thus satisfied the statutory prerequisites to appeal the ARB order.  The property owner presented three arguments to the court in support of its plea, each of which we address below.

1.       Actual market valuation controversy. 

The appraisal district’s petition sought a determination of “the market value of the Property.”  The property owner argued in the district court that its original tax protest had been limited to the question of equal and uniform appraisal because that was the only relevance of the evidence it presented to the ARB.  See Tex. Tax Code Ann. § 42.26 (West 2008) (remedy for unequal appraisal).  The property owner thus argued that the ARB’s order did not implicate market value and there was “no ARB order for [the appraisal district] to appeal based on market value.”  However, the “Property Tax Notice of Protest” filed by the property owner listed two reasons for protest, namely: (1) value is over market and (2) value is unequal compared with other properties.  In addition, the ARB order actually determined that the original property appraisal was both “incorrect and unequal,” and it reduced not only the “appraised” value but also the “market” value from $74,668,035 to $48,054,000.  Accordingly, the suggestions that the property owner did not challenge the property’s market value and that the ARB did not actually lower market value are affirmatively disproved by the record on appeal.

2.       Appraisal district’s “standing” to challenge ARB order. 

In a brief supporting the plea to the jurisdiction, the property owner argued that the chief appraiser had “no standing to appeal that which he had no standing to protest.”  The court apparently found this argument persuasive, as its conclusions of law expressly noted that it lacked jurisdiction over the appraisal district’s appeal because the “Chief Appraiser has no right of appeal of an ARB order on any basis which the protesting property owner does not have.”  The consequence of this reasoning is that the property owner’s evidence and arguments presented to the ARB establish the exclusive parameters for any subsequent appeal of the ARB ruling by either party to the proceeding.  Thus the property owner contended that the appraisal district could not appeal the order on market-value grounds that had not been a basis for the original tax protest. 

This argument is apparently premised upon the requirement applicable to property owners that administrative remedies must be exhausted before seeking judicial review of an appraisal district’s property valuation.[1]  However, the procedural differences between the avenues of appeal available to the property owner and the appraisal district require that the exhaustion principle be applied differently to the two types of appeals.  Only the property owner, and not the chief appraiser or the taxing unit, has the right to protest the appraised value of a single taxpayer’s property before the ARB.[2]  But both the property owner and the chief appraiser have distinct rights to appeal the ARB order determining the protest.[3] 

Unlike the property owner, the appraisal district had no prior administrative remedy to exhaust at the ARB stage of the proceedings.  As the entity responsible for the initial property valuation, the appraisal district had no right to initiate the protest procedure and no control over what objections would be presented by the property owner to the ARB.  Regardless of what issues were presented by the property owner, the appraisal district had no grievance until the ARB altered its determination of the property’s market value and appraised value.  The statutory procedure for the appraisal district to complain about the ARB’s ruling began with its right of “appeal” to the district court for a trial de novo.  Thus, because the appraisal district contended that the ARB erred by reducing the property’s market value and appraised value, and it followed the statutory procedures for initiating an appeal, it had standing to challenge the ARB’s order in accordance with its statutory right to do so.  There was no prior administrative procedure available to the appraisal district that it failed to exhaust.

3.       Relevance of market valuation. 

Finally, the property owner argued that market value, which the appraisal district sought to challenge in its appeal, is irrelevant to the issue of unequal appraisal, which was a basis of the property owner’s protest to the ARB and appeal to the district court.  Section 42.26 of the Tax Code specifies three methods for determining if a property has been unequally appraised: 

The district court shall grant relief on the ground that a property is appraised unequally if:

(1)     the appraisal ratio of the property exceeds by at least 10 percent the median level of appraisal of a reasonable and representative sample of other properties in the appraisal district;

(2)     the appraisal ratio of the property exceeds by at least 10 percent the median level of appraisal of a sample of properties in the appraisal district consisting of a reasonable number of other properties similarly situated to, or of the same general kind or character as, the property subject to the appeal; or

(3)     the appraised value of the property exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted.

Tex. Tax Code Ann. § 42.26(a).  Although market value may not be necessary to a determination made pursuant to Tax Code section 42.26(a)(3), it is not irrelevant to a determination of appraisal value made pursuant to section 42.26(a)(1) & (2).  Section 1.12 of the Tax Code defines the term “appraisal ratio” as used in section 42.26(a)(1) & (2) as follows:

An appraisal ratio is the ratio of a property’s appraised value as determined by the appraisal office or appraisal review board, as applicable, to:

(1)           the appraised value of the property according to law if the property qualifies for appraisal for tax purposes according to a standard other than market value; or

(2)           the market value of the property if Subdivision (1) of this subsection does not apply.

Id. § 1.12(b).  Because market value is an element of the calculation of “appraisal ratio” that may be used to determine whether an appraisal is equal and uniform, the market value is not irrelevant,[4] and the property owner’s argument to the contrary was incorrect.

We conclude that the appraisal district had the right to appeal from the ARB’s order.  Irrespective of any rights the property owner might exercise to appeal from an order of the appraisal review board, the Tax Code separately authorizes the chief appraiser to appeal an ARB order determining a taxpayer protest.  Id. § 42.02(a)(1).  In this case, the appraisal district fulfilled all of the statutory requirements to appeal the ARB’s order by (1) filing a timely notice of appeal, (2) obtaining written approval of the board of directors, and (3) notifying the taxpayer that the chief appraiser has filed a notice of appeal.  See id. §§ 42.02, 42.06.  The appraisal district’s appeal was not barred for failure to exhaust administrative remedies; it had no predicate administrative remedy to exhaust in this situation.  Finally, market value was not irrelevant to the questions at issue in this appeal.  Accordingly, we hold that the district court had jurisdiction over the appraisal district’s appeal.

B.   Harm analysis

To reverse the judgment on appeal, we must conclude that any error probably caused the rendition of an improper judgment or prevented the appellant from properly presenting its appeal.  Tex. R. App. P. 44.1(a).  To make this determination, we review the entire record.  See, e.g., McCraw v. Maris, 828 S.W.2d 756, 758 (Tex. 1992).  We are also mindful that an erroneous decision by a trial court can be rendered harmless by subsequent events.  See, e.g., Progressive Cnty. Mut. Ins. Co. v. Boyd, 177 S.W.3d 919, 921 (Tex. 2005).

In the circumstances of this case, a de novo bench trial mooted the effect of granting the property owner’s jurisdictional plea.  Both parties had attempted to appeal from the ruling of the ARB—the appraisal district wanted to increase the ARB’s appraised value of the property, while the property owner wanted to further decrease that value.  After dismissing the appraisal district’s appeal, the court conducted a trial de novo, in which it was empowered to grant the relief in favor of either side by either increasing or decreasing the property values at issue.  See Cherokee Water Co. v. Gregg Cnty. Appraisal Dist., 801 S.W.2d 872, 877 (Tex. 1990).  The district court granted relief in favor of the property owner, further reducing the appraised value of the property beyond the reduction already achieved in the protest proceeding before the ARB. 

If the court had not dismissed the appraisal district’s appeal, the resulting proceeding still would have concerned the appraised value of the same property.  The appraisal district was not required to perfect its own appeal for the trial court to have the ability to increase the property value in its de novo determination of “the appraised value of property in accordance with the requirements of law.”  Tex. Tax Code Ann. § 42.24(a); see Cherokee Water, 801 S.W.2d at 877.  The appraisal district remained free to present its evidence and arguments in favor of a higher value, and the record does not show that the appraisal district was in any way prevented from doing so.  Even though the appraisal district’s appeal was dismissed and the property owner took the position that evidence of market value was irrelevant to the proceeding, the district court nevertheless admitted all of the evidence offered by the appraisal district, including evidence of market value which was admitted over the property owner’s relevance objections.  The appraisal district also cross-examined the property owner’s valuation expert about his failure to incorporate market value into his analysis.

The appraisal district has provided no suggestion of how the erroneous dismissal of its appeal probably caused the rendition of an improper judgment with respect to the trial court’s final determination of appraised value.  See Tex. R. App. P. 44.1(a).  Neither has it demonstrated that the error probably prevented it from presenting its appeal.  See id.  Our review has revealed no such harm.  We therefore overrule the appraisal district’s second issue. 

II.            Expert testimony 

In its first issue, the appraisal district argues that the trial court abused its discretion in admitting the testimony of the property owner’s expert, Gerald Teel.  The appraisal district contends that Teel’s testimony was unreliable because of a flawed methodology and his failure to produce certain documents upon which he relied.  For these reasons, the appraisal district asserts that Teel’s testimony was no evidence.

Ordinarily, a challenge to the admissibility of evidence, including whether expert testimony is reliable, is reviewed for an abuse of discretion.  Whirlpool Corp. v. Camacho, 298 S.W.3d 631, 638 (Tex. 2009); see Harris Cnty. Appraisal Dist. v. Kempwood Plaza, Ltd., 186 S.W.3d 155, 157 (Tex. App.—Houston [1st Dist.] 2006, no pet.).  A trial court has broad discretion in deciding whether to admit or exclude expert testimony, and this court will uphold a trial court’s evidentiary ruling if a legitimate basis for the ruling exists.  See Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 719–20 (Tex. 1998); Weingarten Realty Investors v. Harris Cnty. Appraisal Dist., 93 S.W.3d 280, 283 (Tex. App.—Houston [14th Dist.] 2002, no pet.).  We will reverse only if the court acted arbitrarily, unreasonably, or without reference to any guiding rules or principles.  Kempwood Plaza, 186 S.W.3d at 157. 

To be admissible, expert testimony must be both relevant and reliable.  Gammill, 972 S.W.2d at 727; Kempwood Plaza, 186 S.W.3d at 157.  Expert testimony is relevant when it assists the fact finder in determining an issue or in understanding other evidence.  See Tex. R. Evid. 702; TXI Transp. Co. v. Hughes, 306 S.W.3d 230, 234 (Tex. 2010).  As to reliability, the court must examine the expert’s methodology, foundational data, and whether too great an analytical gap exists between the data and methodology, on the one hand, and the expert’s opinions, on the other.  See Gammill, 972 S.W.2d at 728; Kempwood Plaza, 186 S.W.3d at 159.  “[I]t is the basis of the witness’s opinion, and not the witness’s qualifications or his bare opinions alone, that can settle an issue as a matter of law; a claim will not stand or fall on the mere ipse dixit of a credentialed witness.”  Burrow v. Arce, 997 S.W.2d 229, 235 (Tex. 1999).

When a party asserts on appeal that an expert’s testimony is insufficient because it is unreliable, a court will ordinarily consider both the Robinson reliability factors and the expert’s experience.  Whirlpool, 298 S.W.3d at 638; see E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 556 (Tex. 1995) (identifying factors for courts to consider in evaluating reliability of expert testimony).  Robinson set out the following list of nonexclusive factors: (1) the extent to which the theory has been or can be tested, (2) the extent to which the technique relies upon the subjective interpretation of the expert, (3) whether the theory has been subjected to peer review and/or publication, (4) the technique’s potential rate of error, (5) whether the theory or technique has been generally accepted as valid by the relevant scientific community, and (6) the non-judicial uses which have been made of the theory or technique.  Robinson, 923 S.W.2d at 557.  However, not all of these factors may applicable to a case, like this one, involving specialized but non-scientific expert testimony.  See Weingarten, 93 S.W.3d at 285; see also Kempwood Plaza, 186 S.W.3d at 157.  Likewise, when the opponent of the testimony stipulates that the expert is qualified, an appellate court need not review that finding.  See Kempwood Plaza, 186 S.W.3d at 158.

Because the appraisal district stipulated that Teel was qualified as a real estate appraiser, we limit our analysis to the reliability of his testimony.  Thus, we will examine his methodology and the foundational data upon which he relied.  Teel testified that his assignment was to evaluate the subject property under section 42.26 of the Texas Tax Code.  Section 42.26(a)(3) provides that “[t]he district court shall grant relief on the ground that a property is appraised unequally if: . . . the appraised value of the property exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted.”  Tex. Tax Code Ann. § 42.26(a)(3).  The “‘appraised value’ means the value as determined by Chapter 23 of this code.”  Id. § 1.04(8).  Chapter 23 provides that, “[e]xcept as otherwise provided by this chapter, all taxable property is appraised at its market value as of January 1.”  Id. § 23.01(a) (West Supp. 2010).

To determine if “the appraised value of the property exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted” under section 42.26(a)(3), “the appraisal expert determines a reasonable number of comparable properties.  Then, the expert takes the appraised value of those properties from the public record, and appropriately adjusts them to the subject property.”  In re MHCB (USA) Leasing & Fin. Corp., No. 01-06-00075-CV, 2006 WL 1098922, at *3 (Tex. App.—Houston [1st Dist.] Apr. 27, 2006, orig. proceeding) (mem. op.) (quoting Weingarten, 93 S.W.3d at 286) (examining application of former section 42.26(d), now found at section 42.26(a)(3)).  The comparable properties are adjusted according to factors that tend to influence value, such as location, age, depreciation, physical characteristics of the property, and “economic factors.”  Id.; see Harris Cnty. Appraisal Dist. v. United Investors Realty Trust, 47 S.W.3d 648, 650 n.4 (Tex. App.—Houston [14th Dist.] 2001, pet. denied); see also Kempwood Plaza, 186 S.W.3d at 160–61.  Finally, “the appropriately adjusted comparable properties are arrayed and a median is determined.”  Weingarten, 93 S.W.3d at 286.

Section 42.26(a)(3) does not delineate what specific considerations are relevant for adjustment.  MHCB, 2006 WL 1098922, at *4.  In Harris County Appraisal District v. United Investors Realty Trust, the parties relied upon values of comparable properties taken from the appraisal district’s tax rolls, but they made adjustments for location, traffic, access, age, and depreciation.  47 S.W.3d 648, 650 n.4 (Tex. App.—Houston [14th Dist.] 2001, pet. denied).  The Fourteenth Court of Appeals held that a protest alleging only that the appraised value is not uniform and equal does not require independent proof of the market value of the comparable properties.  Id. at 653.  The court explained that the tax rolls could be used to determine value, with “the only independent analysis required [being] adjusting the appraised values to put the properties on equal footing.”  Id.  This court has also held that an appraiser may base his adjustments on his personal experience.  Kempwood Plaza, 186 S.W.3d at 161 (“Appraising property is not an exact science based on set mathematical formulas.  It is not error for an appraiser to use his or her personal experience and expertise to make certain determinations.”).

Teel testified that he considered adjustments for location to be much more subjective than adjustments for size of the property, which could be done based on a well-established logarithmic relationship between size and value that is commonly used among appraisers in his industry.  Therefore, he considered only properties that had the same “neighborhood code” on tax rolls of the appraisal district.  He testified that he looked to properties that were being used for the types of businesses that would potentially form part of the mixed-use, which was the highest and best use of the subject property.  He considered only the unimproved value of the comparable properties because the subject property was unimproved.  He also testified that the comparables were smaller than the subject property because there were no properties of a similar size in the relevant location. 

Teel’s testimony makes clear that he followed a statutorily-approved methodology for estimating an appraised value.  See Tex. Tax Code Ann. § 42.26(a)(3).  He used the appraisal value of the comparable properties as listed in the tax rolls as his starting point.  When he adjusted the values of the comparable properties, he relied on generally accepted appraisal principles that are commonly used among professionals in his field.  Teel testified that his methodology had been tested, was generally accepted as valid, and was mandated, to some extent, by statute.  See, e.g., Robinson, 923 S.W.2d at 557.  By choosing to limit the comparable properties he selected to those near the subject property, he minimized the extent to which his analysis relied on his subjective interpretation.  See id.  We conclude that Houston 8th Wonder met its burden to show the reliability of Teel’s testimony, and we hold that the trial court did not abuse its discretion in admitting his testimony.  In addition, we further hold that Teel’s testimony was legally sufficient to support the trial court’s judgment.

Accordingly, we overrule the appraisal district’s first issue.

III.         Constitutionality of the trial court’s judgment

In its third and final issue, the appraisal district argues that the trial court’s judgment determining that the value of the subject property was approximately $31 million was unconstitutional because that value was unrelated to market value.  This court rejected this argument in Kempwood Plaza.  See Kempwood Plaza, 186 S.W.3d at 162.  We overrule the appraisal district’s third and final issue.

Conclusion

We affirm the judgment of the trial court.

Michael Massengale

Justice

Panel consists of Justices Jennings, Bland, and Massengale.

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[1]         “Because the administrative procedures established by the Code are exclusive of a taxpayer’s other remedies, a taxpayer must first exhaust all administrative remedies before seeking judicial review of a taxing authority’s actions.”  ABT Galveston Ltd. P’ship v. Galveston Cent. Appraisal Dist., 137 S.W.3d 146, 152 (Tex. App.—Houston [1st Dist.] 2004, no pet.).  The taxpayer’s failure to comply with the Code requirements, such as not protesting the initial valuation before the appraisal review board, deprives the reviewing district court of jurisdiction over the taxpayer’s appeal.  See, e.g., id. at 152.

 [2]         See Tex. Tax Code Ann. § 41.41 (West 2008) (property owner’s right of protest); see also id. § 41.03(a) (challenge by taxing unit may not include “the appraised value of a single taxpayer’s property”).

 [3]         See id. § 42.01 (right of appeal by property owner); id. § 42.02 (right of appeal by chief appraiser).  Such appeals are to the district court, and review is “by trial de novo.”  Id. § 42.23(a).

 [4]         See In re MHCB (USA) Leasing & Fin. Corp., No. 01-06-00075-CV, 2006 WL 1098922, at *4 (Tex. App.—Houston [1st Dist.] Apr. 27, 2006, orig. proceeding) (mem. op.) (stating that “information regarding both the appraised and the market value of comparable properties, insofar as this information shows the need for the ‘adjustments’ contemplated by the statute, including quality, size, age, and depreciation, could be potentially relevant to a determination of whether an appraisal district has appraised properties unequally”). 

Taxing entities successfully appeal to have penalties added to judgment for attorney's delinquent busines property taxes

Trial court had apparently cut Bellaire attorney who was behind in paying local taxes on personal business property some slack by not awarding penalty amounts in tax suit in addition to delinquent taxes; but court of appeals finds fault with such judicial leniency in appeal brought by a bevy of dissatisfied taxing entities, reverses the judgment, and remands for calculation and assessment of penalties.

  
City of Bellaire et al v. Sewell , No. 01-11-00131-CV (Tex.App.- Houston [1^st Dist.] May 10, 2012, no pet. h.)

  

OPINION BY JUSTICE KEYES

 

Appellants, Harris County, the Harris County Department of Education, the Port of Houston Authority of Harris County, the Harris County Flood Control District, the Harris County Hospital District, the Houston Independent School District, and the Houston Community College System (collectively, “the taxing authorities”), sued Efrem Sewell, d/b/a The Law Offices of Efrem D. Sewell, P.C. (“Sewell”), to recover delinquent ad valorem taxes on Sewell’s business personal property.  The City of Bellaire (“the City”) intervened, also seeking delinquent ad valorem taxes.  The trial court awarded the delinquent base tax amounts to the taxing authorities and the City, but it did not award the penalties and interest that had accrued on the delinquent taxes.  In one issue, the taxing authorities and the City contend that the trial court erred by failing to award them the penalties and interest to which they were statutorily entitled under the Texas Tax Code.

 

We reverse and remand.

 
Background
 

The taxing authorities brought suit against Sewell for delinquent ad valorem taxes on his business personal property for the tax years 2002–2008 and sought $22,991.62 in delinquent taxes, penalties for failure to file statutorily required rendition statements, and statutory penalties and interest.  It is undisputed that Sewell did not render his business personal property for any of the tax years at issue.  The taxing authorities additionally sought recovery of “all delinquent taxes, penalties and interest, including taxes, penalties and interest becoming delinquent during the pendency of this suit,” such as the taxes and the associated penalties and interest for the 2009 tax year, which became delinquent during the pendency of the suit.  The taxing authorities joined the City as a party because it “may have a claim and lien for delinquent taxes against all or part of the same property.”  The City subsequently intervened and sought recovery of $4,542.71 in delinquent taxes, penalties, and interest for the 2002–2008 tax years and “all additional taxes which become delinquent on such property prior to judgment, as well as any additional penalties and interest which accrue prior to or after judgment.”

  
At a bench trial on November 29, 2010, the taxing authorities and the City introduced certified copies of Sewell’s delinquent tax statements for tax years 2002–2009, issued by the Harris County Tax Assessor-Collector, which reflected the base tax owed and the statutory penalties, interest, and rendition penalties assessed.  Sewell argued that collection of the delinquent taxes, penalties, and interest for the 2002–2004 tax years was barred by limitations, and the trial court agreed and rendered judgment to this effect.[1]  The final judgment included a table setting out the delinquent base tax, the penalties and interest accrued, and the total amounts owed to Harris County,[2] the Houston Independent School District, the Houston Community College System, and the City.  These amounts corresponded to the entries for the base taxes, penalties, and interest for each taxing unit for the tax years 2005–2009 as shown in the certified tax statements.  In the judgment, the trial court crossed out the columns for “Penalty & Interest” and “Total,” and instead handwrote a total of $12,834.59 underneath the “Delinquent Base Tax” column.  The trial court also awarded post-judgment interest and costs to the taxing authorities and the City and placed a tax lien against Sewell’s property.
 

The taxing authorities requested that the trial court file findings of fact and conclusions of law, and they later requested past-due findings and conclusions.  The trial court never responded.

  

Both the taxing authorities and the City moved for a new trial.  They argued that the certified tax statements established a prima facie case of the amount of delinquent taxes, penalties, and interest that Sewell owed to each taxing unit.  They noted that Sewell had complained at trial that the “[appraised] value [of his business personal property] was too high,” but they argued that no section of the Tax Code allows the trial court to waive the statutory penalties and interest on this basis and that the only waivers authorized by the Tax Code were not applicable to this case.  They argued that the trial court should have granted relief “in the full amount requested,” and they requested that the court modify its judgment to include the amount of assessed penalties and accrued interest as shown on the certified tax statements.  These motions were overruled by operation of law.

 

Penalties and Interest on Delinquent Ad Valorem Taxes

 
In their sole issue, the taxing authorities and the City contend that the trial court erred in awarding them only delinquent taxes because they are also statutorily entitled to the penalties and interest that have accrued on the delinquent taxes.
 
The Tax Code provides that generally, with exceptions not applicable here, ad valorem taxes are delinquent “if not paid before February 1 of the year following the year in which [the taxes are] imposed.”  Tex. Tax Code Ann. § 31.02(a) (Vernon 2008).  Tax Code section 33.01 provides that a delinquent tax incurs a penalty of six percent of the amount of the tax for the first calendar month the tax is delinquent, plus one percent for each additional month the tax remains unpaid prior to July 1 of the year in which it becomes delinquent.  Id. § 33.01(a) (Vernon 2008).  If, however, the tax remains unpaid on July 1, the tax incurs a total penalty of twelve percent of the amount of the tax, regardless of how many months the tax has been delinquent.  Id.  Delinquent taxes continue to incur this penalty as long as the taxes remain unpaid, regardless of whether a judgment for the delinquent taxes has been rendered.  Id.  A delinquent tax also accrues interest at the rate of one percent for each month the tax remains unpaid, regardless of whether a judgment has been rendered.  Id. § 33.01(c).
 
The taxing unit may also provide that taxes that remain unpaid on July 1 “incur an additional penalty to defray costs of collection” if the unit contracts with an attorney for collection purposes pursuant to Tax Code section 6.30.  Id. § 33.07(a) (Vernon 2008); see also id. § 6.30(c) (Vernon 2008) (“The governing body of a taxing unit may contract with any competent attorney to represent the unit to enforce the collection of delinquent taxes.  The attorney’s compensation is set in the contract, but the total amount of compensation provided may not exceed 20 percent of the amount of delinquent tax, penalty, and interest collected.”).  The amount of the penalty may not exceed the amount of compensation specified in the contract with the collections attorney.  See id. § 33.07(a).
 
Additionally, taxpayers are required to “render for taxation all tangible personal property used for the production of income that the person owns . . . on January 1.”  Id. § 22.01(a) (Vernon Supp. 2011) (listing requirements for rendition statement).  If a taxpayer fails to timely file a rendition statement, “the chief appraiser shall impose a penalty . . . in an amount equal to 10 percent of the total amount of taxes imposed on the property for that year by taxing units participating in the appraisal district.”  Id. § 22.28(a) (Vernon Supp. 2011); Sturgis Air One, L.L.C. v. Harris Cnty. Appraisal Dist., 351 S.W.3d 381, 386 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (“An untimely rendition results in the ten percent penalty mandated by Section 22.28.”); Indus. Commc’ns, Inc. v. Ward Cnty. Appraisal Dist., 296 S.W.3d 707, 720 (Tex. App.—El Paso 2009, pet. denied) (“The Tax Code imposes substantial penalties on a person who fails to render property for taxation.”).
 

Tax Code section 33.011 contains provisions in which waiver of the assessed penalties by the governing body of the taxing unit is mandatory and waiver of the accrued interest is discretionary, as well as provisions in which waiver of both the penalties and the interest is discretionary.  See Tex. Tax. Code Ann. § 33.011 (Vernon 2008).  For these waivers to apply, both of these provisions require, among other things, the taxpayer to pay the delinquent tax not later than the 21st day after the date the taxpayer knows or should have known of the delinquency.  See id. § 33.011(a)(1), (3).  It is undisputed that Sewell has never paid any portion of the taxes assessed, and thus the waiver provisions of section 33.011 are inapplicable.

 
Tax Code section 33.41 authorizes a taxing unit, “[a]t any time after its tax on property becomes delinquent,” to file suit to enforce the taxpayer’s personal liability for the tax.  Id. § 33.41(a) (Vernon 2008).  In this suit, the taxing unit must “join other taxing units that have claims for delinquent taxes against all or part of the same property.”  Id. § 33.44(a) (Vernon 2008).  Section 33.47(a) provides:
  
In a suit to collect a delinquent tax, the taxing unit’s current tax roll and delinquent tax roll or certified copies of the entries showing the property and the amount of the tax and penalties imposed and interest accrued constitute prima facie evidence that each person charged with a duty relating to the imposition of the tax has complied with all requirements of law and that the amount of tax alleged to be delinquent against the property and the amount of penalties and interest due on that tax as listed are the correct amounts.
 
Id. § 33.47(a) (Vernon 2008).  Once a taxing authority in a delinquency suit introduces the tax records described in section 33.47(a) into evidence, it establishes a prima facie case “as to every material fact necessary to establish its cause of action.”  Nat’l Med. Fin. Servs., Inc. v. Irving Indep. Sch. Dist., 150 S.W.3d 901, 906 (Tex. App.—Dallas 2004, no pet.); see also Maximum Med. Improvement, Inc. v. Cnty. of Dallas, 272 S.W.3d 832, 835 (Tex. App.—Dallas 2008, no pet.) (stating same); Reinmiller v. Cnty. of Dallas, 212 S.W.3d 835, 836–37 (Tex. App.—Eastland 2006, pet. denied) (stating same); Aldine Indep. Sch. Dist. v. Ogg, 122 S.W.3d 257, 264 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (stating same).  A rebuttable presumption then arises that the taxes in question are due, delinquent, and unpaid.  Nat’l Med. Fin. Servs., 150 S.W.3d at 906.  After the taxing authority makes its prima facie case by introducing the required records, the burden of proof then shifts to the taxpayer to show, by introducing competent evidence, that he has paid the full amount of taxes, penalties, and interest or that there is some other defense that applies to his case.  Id.; see also Estates of Elkins v. Cnty. of Dallas, 146 S.W.3d 826, 829 (Tex. App.—Dallas 2004, no pet.) (“Unless the taxpayer establishes independent reasons why the taxing authority should not recover, the taxing authority is entitled to judgment.”).
 
Taxing units are statutorily entitled to penalties and interest on delinquent taxes pursuant to Tax Code chapter 33.  See Tex. Tax Code Ann. § 33.01(a) (“[A] tax delinquent on July 1 incurs a total penalty of twelve percent of the amount of the delinquent tax . . . .”), (c) (“A delinquent tax accrues interest at a rate of one percent for each month . . . the tax remains unpaid.”); see also Atl. Shippers of Tex., Inc. v. Jefferson Cnty., No. 09-10-00511-CV, 2012 WL 746299, at *5 (Tex. App.—Beaumont Mar. 8, 2012, no pet. h.) (“The Tax Code further provides that a delinquent tax incurs statutory penalties and accrues interest.”); Galveston Indep. Sch. Dist. v. Heartland Fed. Sav. & Loan Ass’n, 159 B.R. 198, 205 (S.D. Tex. 1993) (applying section 33.01(c) and holding, “[T]he Taxing Authorities are entitled to statutory interest for every month or portion of a month after August 26, 1991, in which the 1990 taxes remained unpaid”).  Tax Code section 33.52(b), which addresses the form of the judgment in a delinquent tax suit, provides that “[i]n lieu of stating as a liquidated amount the aggregate total of taxes, penalties, and interest due, a judgment may: (1) set out the tax due each taxing unit for each year; and (2) provide that penalties and interest accrue on the unpaid taxes as provided by Subchapter A [of chapter 33].”  Tex. Tax Code Ann. § 33.52(b) (Vernon Supp. 2011).  In either circumstance, the judgment must award applicable penalties and interest in addition to the delinquent tax.  Unless one of the waiver provisions of section 33.011 applies, which is not the case here, the trial court has no discretion to omit an award of penalties and interest from the judgment if the taxing units have established their prima facie entitlement to relief and the taxpayer provides no contrary evidence or legal arguments for why the penalties and interest should not be awarded.  See Atl. Shippers, 2012 WL 746299, at *5 (“[W]e conclude the summary judgment evidence establishes, as a matter of law, that Atlantic failed to pay its taxes by the statutory deadlines. . . .  We hold the trial court correctly concluded that Atlantic, as a matter of law, owed penalties and interest on tax years 2005, 2006, and 2007.”); see also Carrollton-Farmers Branch Indep. Sch. Dist. v. JPD, Inc., 168 S.W.3d 184, 188 (Tex. App.—Dallas 2005, no pet.) (“Once the appraised value is finally determined, the tax rolls are corrected and the current tax roll is used to calculate penalties and interest recoverable in a delinquency lawsuit under chapter 33.”); Richardson Indep. Sch. Dist. v. GE Capital Corp., 58 S.W.3d 290, 294–95 (Tex. App.—Dallas 2001, no pet.) (“By changing the amount of tax owed, the corrected tax bill changes the amount of tax on which delinquency penalties are assessed; however, it does not purport to eliminate the property owner’s liability for penalties from the failure to pay the original tax bill.”).
 
Here, the taxing authorities and the City complied with section 33.47(a) by introducing into evidence certified copies of the delinquent tax statements for tax years 2002–2009.  These statements demonstrated the delinquent tax owed, the applicable penalties, including rendition penalties, and the accrued interest assessed for each taxing unit and each tax year.  The taxing authorities and the City thus established a prima facie case “as to every material fact necessary to establish [their] cause of action.”  Nat’l Med. Fin. Servs., Inc., 150 S.W.3d at 906.  The burden then shifted to Sewell to introduce competent evidence showing either that he paid the full amount of taxes, penalties, and interest, or that some other defense applied to his case.  Id.  Aside from asserting limitations with regard to the 2002–2004 tax years, which the taxing authorities and the City conceded, and arguing that his property was overvalued, which is not a proper defense in a suit to recover delinquent taxes,[3] Sewell asserted no other defenses, and he presented no evidence that he had paid the full amount of taxes, penalties, and interest.
 

We conclude that the taxing authorities and the City were statutorily entitled to penalties and interest accrued on Sewell’s delinquent taxes for tax years 2005–2009.  We hold that the trial court erred in failing to award the applicable penalties and interest to the taxing authorities and the City in its final judgment.[4]

 
We sustain the taxing authorities’ and the City’s sole issue.
 
Conclusion
 
We reverse the judgment of the trial court insofar as it failed to award applicable penalties and interest to the taxing authorities and the City and remand the case to the trial court for calculation of the amount of penalties and interest to which the taxing authorities and the City are statutorily entitled.

                                                                  Evelyn V. Keyes

                                                                   Justice

Panel consists of Justices Keyes, Bland, and Sharp.

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[1]           See Tex. Tax Code Ann. § 33.05(a)(1) (Vernon 2008) (“Personal property may not be seized and a suit may not be filed to collect a tax on personal property that has been delinquent more than four years.”).  The trial court ruled that “Plaintiff(s) HISD, HCCS, and HARRIS COUNTY take nothing against the Defendant(s) as to tax years 2002 through 2004” on the basis of limitations.  The taxing authorities do not challenge this ruling on appeal.  The trial court did not, however, so limit the City’s recovery.  Instead, the final judgment awarded $3,018.50 to the City.  This amount corresponds to the total amount of base taxes payable to the City for tax years 2002–2009 as reflected on the certified copy of the tax assessor-collector’s records.  On appeal, however, the City argues that it “does not request recovery of [the 2002–2004] tax years,” and it instead requests rendition of judgment in the amount of $3,858.05:  $2,196.19 for “2005–2009 base tax and rendition penalty” and $1,661.86 for statutory penalties and interest.  (Emphasis added.)

[2]           The trial court referred to Harris County, the Harris County Department of Education, the Port of Houston Authority of Harris County, the Harris County Flood Control District, and the Harris County Hospital District collectively as “Harris County.”

[3]           Complaints that the appraisal district overvalued the taxpayer’s property are properly raised in proceedings pursuant to Tax Code chapters 41 and 42, involving a protest of the appraised value before the appraisal review board and judicial review of the appraisal review board’s administrative determination in the district court.  See Tex. Tax Code Ann. §§ 41.01–.71, 42.01–.43 (Vernon 2008 & Supp. 2011).  Except for exceptions not applicable here, the administrative procedures for adjudicating valuation protests are “exclusive, and a property owner may not raise any of those grounds in defense to a suit to enforce collection of delinquent taxes.”  Id. § 42.09(a)(1) (Vernon 2008); see also Nev. Gold & Silver, Inc. v. Andrews Indep. Sch. Dist., 225 S.W.3d 68, 76 (Tex. App.—El Paso 2005, no pet.) (“[F]ailure to exhaust the administrative remedies precludes judicial review of the appraisal and also deprives the property owner of the right to raise such protest as a defense against a suit to enforce collection of delinquent taxes.”); Reed v. Prince, 194 S.W.3d 101, 107 (Tex. App.—Texarkana 2006, pet. denied) (“A taxpayer must meet specific and mandatory provisions of the Tax Code in order to challenge the amount of taxes assessed against a property.”) (citing Tex. Tax Code Ann. §§ 41.01–.71 (Vernon 2008 & Supp. 2011)).  Thus, because Sewell could not properly assert overvaluation as a defense to payment of the delinquent taxes, penalties, and interest, the trial court could not refuse to award penalties and interest to the taxing authorities and the City on this basis.
[4]           The City requests that we reverse and render judgment that it is entitled to $3,858.05, the total amount of delinquent taxes, rendition penalties, and section 33.01 penalties and interest for the 2005–2009 tax years as stated in the certified tax statements.  We note that section 33.01 provides that penalties and interest continue to accrue “as long as the tax remains unpaid, regardless of whether a judgment for the delinquent tax has been rendered.”  Tex. Tax Code Ann. § 33.01(a), (c) (Vernon 2008).  We therefore remand this case to the trial court to determine the amount of penalties and interest to which the taxing authorities and the City are entitled under the Tax Code.

SOURCE: HOUSTON COURT OF APPEALS [FIRST APPELLATE DISTRICT] - 01-11-00131-CV - 5/10/2012
CASE STYLE: City of Bellaire, Harris County, Houston Independent School District, Port of Houston Authority of Harris County, Harris County Flood Control District, Harris County Hospital District, Harris County Department of Education, and Houston Community College System, Appellants v. Efrem D. Sewell d/b/a The Law Offices of Efrem D. Sewell, P.C., Appellee

[case details added per request]