Late Protest Opportunities

The deadline for the filing of many appraisal review board protests is May 31 (June 1 in 2004). For many other potential protests, the deadline for filing will pass soon after the standard deadline - a matter of weeks if not days after May 31. No matter how diligent a property owner or tax consultant might be, there always seem to be a few protests that either get overlooked or the protest decision comes so late that the deadline is missed.

When the deadline is missed, all hope might not be lost. There are opportunities for filing and obtaining late corrections after the initial protest deadline has passed. However, in pursuing these late protests, the property owner might face penalties that will cut into the benefit received by a value correction. Also, because of locally imposed restrictions, there is no guarantee that a review board will even consider a late-filed protest.

The following are the late protest opportunities that a property owner or tax consultant may consider if the original protest deadline is missed.

Section 41.44(b) - Good Cause

If the deadline to file a protest is missed, then the property owner can file for a good cause hearing under Section 41.44(b) of the Texas Tax Code. This statute provides that a property owner who files his protest after the deadline "but before the appraisal review board approves the appraisal records" is entitled to a hearing on and determination of the protest "if he shows good cause as determined by the board for failure to file" a timely protest.

Note that the protest and "good cause" motion must be filed before approval of the appraisal roll. The deadline for such approval by the review board is July 20, but the approval can occur at an earlier date. Therefore, it is important to determine if the appraisal roll has been approved before the protest is filed.

One problem that property owners often face with "good cause" is that review board members seldom know what constitutes good cause. There is no statutory definition for "good cause" in the Tax Code, and the courts have not provided a definition for the term as used specifically in this statute. Often, appraisal districts will attempt to impose the most restrictive definition possible on "good cause," almost to the point of extinguishing any opportunity for the showing of good cause. In some situations, the appraisal district attempts to blend its allowed reasons for postponing a review board hearing into the good cause statute. Section 41.45(e) allows the property owner or agent to postpone a protest hearing upon the showing of "good cause." However, again there is no statutory explanation of "good cause" other than a conflicting review board hearing in another county as provided in Section 41.45(g).

Though the courts have not defined "good cause" for the purpose of the Tax Code, there are cases in which the court has defined "good cause" with regard to other statutes and rules to mean that the failure to file was an accident or mistake and not intentional or the result of conscious indifference. Though an appraisal district will seldom accept this view, review boards will sometimes go against the district and grant a "good cause" protest.

Section 41.411 - Failure to Receive Notice

If the failure to file a protest was caused by the appraisal district, specifically the result of a failure of the district to send a required notice, then the property owner may file a protest under Section 41.411 of the Tax Code.

If the owner demonstrates to the review board that the appraisal district should have sent a notice (for example, a notice of valuation under Section 25.19) and failed to send that notice, then the review board is supposed to determine "a protest made by the property owner on any other grounds of protest." In other words, if the district failed to send the required notice of value, then the property owner can protest that value through a late filed protest.

A protest under Section 41.411 must be filed "prior to the date the taxes on the property to which the notice applies become delinquent." Thus, a 41.411 protest must be filed before February 1 of the following year.

Though Section 41.411 may provide a basis for a late protest, it is important to remember that a value notice under Section 25.19 is not required in every year. See related article (Protest Deadline Issues: Timing and Notice).

Section 25.25(h) - Chief Appraiser Agreement

If a property owner or tax consultant misses the protest filing deadline, it might be possible to convince the chief appraiser of the error and obtain agreement as to a correction. Section 25.25(h) of the Tax Code provides for the correction of a value error through the joint motion of the property owner and the chief appraiser. The correction allowed by this statute is not really a protest by the property owner, but more of a plea for reasonableness to the chief appraiser.

Any agreed motion must be filed before the delinquency date for the taxes; i.e., before February 1 of the following year. Therefore, the property owner needs to present his case to the chief appraiser and obtain a decision (to agree or not to agree) well in advance of that date.

The primary problem with utilizing this section of the Tax Code is that agreement must be reached with the chief appraiser. There is no criteria by which the chief appraiser must determine whether to reach agreement with the property owner. It appears to be solely within the discretion of the chief appraiser.

Also, if the chief appraiser refuses to agree to a correction, the property owner cannot appeal that refusal. Instead, the property owner must seek relief through another form of motion or protest.

Section 25.25(b) - Chief Appraiser Correction

Section 25.25(b) of the Tax Code allows the chief appraiser to correct certain items on the appraisal roll. These include (1) name or address, (2) ownership, (3) property description, (4) multiple appraisals of the property, (5) clerical error or "other inaccuracy" that does not increase the amount of tax liability.

So, the chief appraiser may correct an inaccuracy that does not increase the tax liability, i.e. the appraised value. But there is nothing that prevents the chief appraiser from correcting an inaccuracy that decreases the value and thus decreases the tax liability.

There is no stated deadline for the chief appraiser to make any such correction. In fact, the statute specifies that the change may be made "at any time."

However, since the correction must come from the chief appraiser, this again requires the agreement of the chief appraiser to make the change. Thus, the statute does not really provide for a late protest, but does provide for a late correction method.

As with Section 25.25(h), there is no requirement that the chief appraiser make a correction and no specified criteria for him to consider in making a correction under Section 25.25(b).

And, if the chief appraiser refuses to make the correction, there is no appeal of that refusal. Section 25.25(o) specifies that the refusal of the chief appraiser to make the correction is not subject to appeal before the review board or to the courts.

However, though the chief appraiser's refusal may not be subject to appeal, this does not mean that the property owner cannot file a protest seeking the same correction, if such a protest can be filed through another late protest method.

Section 25.25(d) - Substantial Value Error

For strictly a value protest, a property owner might be able to take advantage of the late correction authorized under Section 25.25(d) of the Tax Code. This statute allows for a value correction if the appraised value on the appraisal roll is at least one-third more than the correct appraised value. In other words, the property must be substantially overappraised by the district.

As an example, if the property is on the roll for $1,000,000, then the market value of the property cannot exceed $750,000 in order to obtain a correction under Section 25.25(d) If the review board determines the market value to be $750,001, then no correction is available.

Furthermore, there is a 10 percent late-correction penalty added to the tax liability for any correction obtained under this section of the Tax Code. So, if in the example the property owner does get the value reduced to a market value of $750,000, he will effectively pay taxes based on $825,000 in value. This is still less than on a $1,000,000 value, but more than on the $750,000 value that might have been obtained through a timely protest.

Any motion under Section 25.25(d) must be filed with the review board prior to the delinquency date, which is February 1 of the following year.

Also, a correction under Section 25.25(d) is not available if the property was the subject of a protest filed under Chapter 41 of the Tax Code, in which the property owner presented evidence and the review board made a determination. Some appraisal districts read this limitation so strictly as to claim that a 41.411 lack of notice protest or a "good cause" protest determined against the property owner precludes a correction under Section 25.25(d). Thus, the appraisal district might seek to deny the property owner any opportunity for correction by claiming a prior protest "under Chapter 41" was denied.

The primary danger faced by a property owner in such appraisal districts is when there is a delay between the filing of the 41.411 or "good cause" protest and the Section 25.25(d) motion. If there is too long a delay without a judicial appeal from the Chapter 41 protest, the property owner might find his rights under Chapter 41 closed with the appraisal district and review board refusing to hear a 25.25(d) motion.

To avoid such a situation, the property owner should consider filing a "good cause" protest and a 41.411 protest and the 25.25(d) motion simultaneously as alternatives for correction. At the subsequent hearing, the property owner should try to get the 25.25(d) motion heard first for a value determination, and then proceed with the other motions for a determination of whether the 10 percent penalty applies or if correction is still allowed if the threshhold value for 25.25(d) correction is not achieved.

A 25.25(d) correction is also not available if the appraised value was the result of a written agreement between the property owner or his agent and the appraisal district. However, presumably if that were the case, then the property owner would not be worrying about a late protest.

For more on Section 25.25(d) corrections, see related article (A "Last Chance" Opportunity For Tax Relief That Is Often Overlooked By Property Owners).

Section 25.25(c) - Clerical Errors and Others

Most late correction remedies require some sort of filing before the tax delinquency date (or before approval of the appraisal roll for "good cause" motions). But for certain types of errors, a longer correction period is allowed. However, the errors that may be corrected are limited. Section 25.25(c) allows for a correction of "clerical errors that affect a property owner's liability for a tax imposed in that tax year," multiple appraisals of a property, or errors in the form or location of the property.

A correction motion under this statute may be filed in any of the five preceding years. Thus, the motion can relate to the current year or any one or more of the five years preceding the current year. Essentially, each January 1 a year is eliminated from being allowed correction under Section 25.25(c).

There is no penalty for a correction under this statute. However, the corrections that may be obtained are severely limited.

Multiple appraisal essentially involves the same property being appraised more than once on the same appraisal roll for the same year. For illustration, one such protest we handled involved property being appraised twice at two different addresses because the property was located on a corner lot. The appraisal district picked up each of the intersecting streets as an address for the property.

Form and location errors are usually the most difficult on which to prevail. Under most court opinions, the property owner must show that no property exists as indicated on the appraisal roll, not just that the value is far in excess of what could be reasonable. For example, if the appraisal district places a value of $1,000,000 for personal property at a building, the property owner must show that there was no personal property located at the building. Even a single chair (worth maybe $10) located at the building could conceivably prevent a correction. Because then, the error is not a form or location error, but merely a value error which cannot be corrected under Section 25.25(c).

The most common type of error sought to be corrected under Section 25.25(c) is a clerical error. The error may be made by either the property owner or the appraisal district, but it must be clerical and it must result in a valuation error.

The Tax Code defines "clerical error" as (1) an error resulting from a mistake or failure in writing, copying, transcribing, entering or retrieving computer data, computing, or calculating" or (2) an error that prevents the appraisal or tax roll from accurately reflecting a finding or determination made by the chief appraiser, review board, or tax assessor. The Code specifically states that a "clerical error" does not include a mistake in judgment or reasoning.

So, just because the value is wrong (even excessively wrong) does not mean that there is a clerical error. The value error could be a mistake in judgment.

However, if the value is based on $100 per square foot and on an appraisal record showing 100,000 square feet when there are actually only 10,000 square feet, then the difference between the 10,000 square feet and the 100,000 square feet is a clerical error. But the difference between $100 per square foot and $10 per square foot is not a clerical error, unless it can be proved that the appraisal district really meant to enter $10 per square foot but mistakenly entered $100.

Furthermore, even if a clerical error is shown, this does not allow the property owner to then re-open the issue of valuation. Any correction must be based on correcting the error and the results of that error. So, in the example, the value would be reduced from $10,000,000 to $1,000,000; and the property owner cannot claim that the actual value should be less since the $100 per square foot is too high.

One thing that property owners and consultants should be aware of is that Section 25.25(c) is the only basis for a late correction to increase a certified value that may be filed by an appraisal district after certification of the appraisal roll. In other words, the clerical error can result in a higher value as well as a lower value, depending on the error.

Bankruptcy

When all else fails, the property owner can choose to go outside the Tax Code. The only effective way to do this is by filing bankruptcy, thus putting federal law into play. While this might seem extreme, it might provide the only basis for a late correction available to a property owner.

Section 505 of the U.S. Bankruptcy Code allows a debtor to have his tax liability redetermined by the bankruptcy court. The basis of this remedy is to ensure that the taxing units do not receive more than their fair share of the debtor's assets at the expense of other creditors. Often, prior to filing bankruptcy, a debtor will lose interest in their financial affairs and neglect potential remedies involving such things as taxes. If he is not going to pay the taxes anyway due to inability and is going to file bankruptcy in the future, why bother with the hassle of a value protest?

The claim in bankruptcy is actually filed against the taxing units themselves and not against the appraisal district. Because no funds are owed to the appraisal district, it is not considered a creditor or a party to the bankruptcy proceeding (though this may change in the future with regard to late rendition penalties, which are owed in part to the chief appraiser).

The bankruptcy proceeding is not to redetermine the value of the property, but to redetermine the amount of taxes. Of course, the way such taxes are redetermined is by redetermining the value. While this may seem confusing, the distinction eliminates the appraisal district from the equation except as a potential witness if the taxing units utilize the district's employees in a new appraisal of the property.

A correction under Section 505 is not available if the value previously has been the subject of a protest that has been finally determined through state procedures. So, if the property owner files a protest under the Tax Code which is determined against the property owner through the eventual exhaustion of all remedies in the state, then the property owner cannot seek a subsequent correction of that year through bankruptcy. The bankruptcy provision is not supposed to provide a second bite at a correction remedy.

If you have any questions about the contents of this article, please contact the GPD Property Tax Section at propertytax@gpd.com.