On June 14, Texas Governor Rick Perry signed several property tax bills that were passed in the recently concluded 2013 regular legislative session. The legislation:
- requires localities to provide notice of proposed property tax rate changes;1
- amends the operation and procedures of the Appraisal Review Boards (ARBs);2
- makes permanent the process permitting a taxpayer to pursue an alternative appeal of an ARB's decision to the State Office of Administrative Hearings;3
- allows for a closed ARB hearing to be held if confidential information is disclosed;4
- mandates the use of the cost approach to appraise solar energy assets;5 and
- allows for the binding arbitration process to consider an equal and uniform appraisal argument.6
S.B. 1510 – Rate Change Notice
Effective January 1, 2014, counties and municipalities will be required to comply with new notice requirements regarding proposed property tax rate changes.7 While each county and municipality generally is required to use the new notice procedure, a locality that is eligible to use the simplified tax rate notice for taxing units with low tax levies8 has the option of using either the existing or new notice method.9 Different notice requirements apply depending on whether the proposed property tax rate exceeds the lower of the effective tax rate or the rollback tax rate.10
H.B. 585 – Appraisal Review Board Procedures
Effective January 1, 2014, unless otherwise noted, numerous changes to the operations and procedures of the ARBs take effect.11 All members of an ARB must complete a state-mandated course by the end of their second term on the panel.12 The legislation also amends the Comptroller's power of communications on matters that are the subject of a protest to an ARB.13 The Comptroller is directed to prepare model hearing procedures for ARBs.14 An individual is prohibited from serving on an appraisal district board of directors if the individual has been doing business as an appraiser or as a representative of property owners in the appraisal district in the previous five years.15 Also, a chief appraiser is required to obtain certification as a registered professional appraiser or its equivalent.16 A county with a population of more than 120,000 (previously, 125,000) must appoint a taxpayer liaison officer.17 The legislation increases the duties of the tax liaison by requiring the liaison to provide clerical support to an ARB and accept taxpayer complaints.18 Local administrative district judges are directed to appoint members of an ARB in counties with a population of at least 120,000.19 A hearing on a protest filed by a property owner who is not represented by an agent must be set for a certain time and date.20 If the hearing is not started within two hours of the scheduled time, the ARB must postpone the hearing at the property owner's request.21
The legislation enacts a formal application process for personal property owners requesting interstate allocation.22 The legislation raises the appraisal district's burden of proof from a preponderance of the evidence standard to a clear and convincing evidence standard if the appraised value of the property was lowered in the preceding year and other requirements are satisfied.23 A petition filed by an owner or lessee of property may include multiple properties that are owned or leased by the same person and are of a similar type or are part of the same economic unit and would typically sell as a single property.24 Also, the owner or lessee may amend the petition to include certain other property within the same county that it owns or leases.25
H.B. 316 – Alternative Appeal Process
Effective January 1, 2014, the legislation makes permanent the former pilot program allowing for the alternative appeal of an ARB's determination to the State Office of Administrative Hearings.26 The Office is directed to hear alternative appeals filed in the following designated 14 municipalities: Amarillo, Austin, Beaumont, Corpus Christi, El Paso, Fort Worth, Houston, Lubbock, Lufkin, McAllen, Midland, San Antonio, Tyler and Wichita Falls.27 If all or part of the property that is the subject of the appeal is located in one of these municipalities, the administrative law judge (ALJ) must set the hearing in that municipality.28 If no part of the property that is the subject of the appeal is located in one of these municipalities, the ALJ must set the hearing in the listed municipality that is closest to the subject property.29
H.B. 2792 – Closed Appraisal Review Board Hearings
Though some jurisdictions informally have allowed for closed appraisal review board hearings in the past, a new provision formally allows a chief appraiser and property owner to agree to conduct a closed ARB hearing when the property owner's proprietary or confidential information is disclosed. The property owner and the chief appraiser must make a joint motion when a closed ARB hearing is desired.30 As this bill was enacted with a supermajority in the Texas legislature, the provision is effective immediately.
H.B. 2500 – Appraisal of Solar Energy Assets
Effective January 1, 2014, solar energy property must be appraised using the cost approach.31 "Solar energy property" means a "solar energy device"32 that is used for a commercial purpose, including a commercial storage device, power conditioning equipment, transfer equipment, and necessary parts for the device and equipment.33
To determine the market value of solar energy property using the cost method of appraisal, the chief appraiser must: (i) use cost data obtained from generally accepted sources; (ii) make any appropriate adjustment for physical, functional, or economic obsolescence and any other justifiable factor; and (iii) calculate the depreciated value of the property by using a useful life that does not exceed 10 years (which cannot be less than 20 percent of the value computed after making appropriate adjustments under (ii) to the value determined under (i)).34
This provision only applies to solar energy property that is constructed or installed on or after January 1, 2014.35 This legislation is important because the income approach on this type of property could cause a disparity in property tax paid by companies holding similar assets which have vastly differing income streams.
S.B. 1255 – Addition of Equal and Uniform Argument in Binding Arbitration Process
The equal and uniform appraisal principle has been added to the binding arbitration process.36 In the past, only excessive appraised value was considered in binding arbitration proceedings. The equal and uniform appraisal principle requires that all taxpayers' properties should be appraised uniformly with no taxpayer being treated inequitably as compared with owners of similar property. As this bill was enacted with a supermajority in the Texas legislature, the provision is effective immediately.
Commentary
Many of the amendments discussed above are favorable to taxpayers and are designed to improve the property tax appraisal process. As discussed above, taxpayers are provided with improved notice of proposed property tax changes. Also, many of the changes to the ARB procedures, including closed hearings in the event confidential information is disclosed, benefit taxpayers. In addition, the alternative appeal process has been made permanent. Some level of certainty regarding the appraisal of solar energy assets is mandated with the cost approach requirement. Finally, the binding arbitration process is expanded to allow for use of the equal and uniform appraisal principle. It should be noted that the legislature did not take up consideration of lowering residential appraisal increase caps or the expansion of the homestead exemption. This is favorable news for business property owners, as these measures essentially would have increased the property tax burden on companies.
Footnotes
1 S.B. 1510, Laws 2013, Regular Session.
2 H.B. 585, Laws 2013, Regular Session.
3 H.B. 316, Laws 2013, Regular Session.
4 H.B. 2792, Laws 2013, Regular Session.
5 H.B. 2500, Laws 2013, Regular Session.
6 S.B. 1255, Laws 2013, Regular Session.
7 TEX. LOCAL GOV'T CODE ANN. § 140.010.
8 TEX. TAX CODE ANN. § 26.052.
9 TEX. LOCAL GOV'T CODE ANN. § 140.010(b).
10 TEX. LOCAL GOV'T CODE ANN. § 140.010(d), (e).
11 For further discussion of this legislation, see Fiscal Note for H.B. 585, Texas Legislative Budget Board, May 23, 2013 and House Research Organization Bill Analysis for H.B. 585, May 2, 2013.
12 TEX. TAX CODE ANN. § 5.041(e-2).
13 TEX. TAX CODE ANN. § 5.041(f).
14 TEX. TAX CODE ANN. § 5.103.
15 TEX. TAX CODE ANN. § 6.035(a-1).
16 TEX. TAX CODE ANN. § 6.05(c).
17 TEX. TAX CODE ANN. § 6.052(a). According to the House Research Organization Bill Analysis for H.B. 585, this adds the liaison requirement to the following counties: Gregg, Grayson, Potter and Randall.
18 TEX. TAX CODE ANN. § 6.052(f).
19 TEX. TAX CODE ANN. § 6.41(d-1).
20 TEX. TAX CODE ANN. § 41.66(i).
21 Id.
22 TEX. TAX CODE ANN. §§ 21.09; 21.10.
23 TEX. TAX CODE ANN. § 41.43(a-3).
24 TEX. TAX CODE ANN. § 42.21(f).
25 TEX. TAX CODE ANN. § 42.21(g).
26 TEX. GOV'T CODE ANN. § 2003.901.
27 TEX. GOV'T CODE ANN. § 2003.902.
28 TEX. GOV'T CODE ANN. § 2003.909(b-1).
29 Id.
30 TEX. TAX CODE ANN. § 41.66(d-1).
31 TEX. TAX CODE ANN. § 23.26(c).
32 A "solar energy device" means an apparatus designed or adapted to convert the radiant energy from the sun, including energy imparted to plants through photosynthesis employing the bioconversion processes of anaerobic digestion, gasification, pyrolysis, or fermentation, but not including direct combustion, into thermal, mechanical, or electrical energy; to store the converted energy, either in the form to which originally converted or another form; or to distribute radiant solar energy or the energy to which the radiant solar energy is converted. TEX. TAX CODE ANN. § 11.27(c)(1).
33 TEX. TAX CODE ANN. § 23.26(a).
34 TEX. TAX CODE ANN. § 23.26(d).
35 TEX. TAX CODE ANN. § 23.26(b).
36 TEX. TAX CODE ANN. § 41A.01.
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