Overlapping Jurisdiction: One Property, One Value

One of the more confusing issues that a property owner faces concerning Texas property tax law is in attempting to understand how a single piece of property can have more than one fair market value. However, in situations where a single property is appraised by more than one appraisal district due to overlapping jurisdiction, such discrepancies have often been the case.

In the last regular legislative session, the Tax Code was amended to try to resolve this confusion, requiring appraisal districts to put the same value on the same property. But this is not the first time that the Legislature has attempted the "One Property, One Value" rule. Will it work this time?

Or more appropriately, will it last this time?

Basis of the Problem

The Texas Constitution provides that no property can "be assessed for ad valorem taxes at a greater value than its fair cash market value." In keeping with this constitutional mandate, the Texas Tax Code provides in Section 23.01(a) that all taxable property is to be "appraised at its market value as of January 1."

The Constitution also prohibits the statewide appraisal of property, providing instead that appraisal for ad valorem purposes "shall originate in the county where the tax is imposed." This is the basis of the county appraisal district system; and the Constitution and the Legislature could have left it at that - allowing each county appraisal district to appraise the property located in that county.

However, the Constitution also provides that "the legislature may provide by general law for political subdivisions with boundaries extending outside the county." So, the Legislature provided in Section 6.02(b) of the Tax Code that a taxing unit located in more than one county must choose a single appraisal district to appraise the property located within its boundaries.

In other words, if a taxing unit's boundaries are such that the unit is located in more than one county, then the taxing unit must choose the appraisal district located in only one of those counties to value its taxable property. As municipal and school district boundaries often cross county lines, this means that many properties are appraised by more than one appraisal district. In some extreme cases, a property may be valued by three districts - one for the county, one for the city, and one for the school district.

Though all of the appraisal districts have the same constitutional and statutory mandate - to determine the fair market value of the property -- it is not unusual for different values to be assigned to the same piece of property by different appraisal districts. Such multiple values often result in multiple administrative appeals and multiple lawsuits.

Tax Code Section 6.025

In Section 6.025, the Tax Code attempts to remedy these value discrepancies by requiring that appraisal districts having overlapping jurisdiction for the valuation of property enter into written agreements to share information regarding such properties and provide notice to the property owners of the overlapping jurisdiction. However, subsection (c) only instructs the chief appraisers "to the extent practicable coordinate their appraisal activities so as to encourage and facilitate the appraisal of the same property appraised by each district at the same value."

In other words, Section 6.025 attempts to encourage "One Property, One Value."

However, mere encouragement has been insufficient to convince the appraisal districts to adhere to such a policy. It is not unusual for an appraisal district to ignore its written agreement with another appraisal district in order to place a different value on the same property. And often it appears that appraisal districts are playing politics with the property owners - putting a higher value on the property than the other appraisal district in an attempt to convince the overlapping taxing unit that it should choose the higher valuing district as its valuation entity of choice.

To contest a particular appraisal district's value determination, the property owner had to file a protest with the review board of that district. If the property owner wished to contest both appraisal districts' values, then a separate protest had to be filed with each of the applicable review boards.

One Property, One Value

For a brief two-year period, 1998 and 1999, the Tax Code was amended to mandate the "One Property, One Value" system.

In those years, the chief appraisers in overlapping jurisdictions were required to get together and attempt to agree on a single value. If they were unable to reach an agreement, then they were required to take the average of their competing values. So, if one appraisal district claimed a value of $1 million and the other claimed a value of $1.5 million, the value in each district would be the average, or $1.25 million.

If a property owner disagreed with this value, or even an agreed value noticed by both districts, the property owner could appeal in any of the districts. The results of that appeal would then become the value for all overlapping jurisdiction districts. So, for example, if the property owner appealed the $1.25 million value and managed to get it reduced to $1 million in one appraisal district, the other appraisal district was also required to put the property on at $1 million.

However, if the owner's appeal resulted in the value increasing to $1.5 million, then the other appraisal district was supposed to also increase the value. The statute was not limited to reductions in value, but provided that, if a review board or court determined a "different appraised value," then that value must be entered for all appraisal districts.

Even with such a risk of increase, the "One Property, One Value" system appealed to property owners seeking a single determination of the fair market value of their property. And, if they picked the right forum, they might stand a better than even chance of achieving a reduction.

However, the system soon became extinct, repealed in the next legislative session at the urging of chief appraisers. Thus, the previous system of multiple appraisals, multiple protests, and multiple lawsuits was reinstated.

One Property, One Value Revisited

In the 2003 regular legislative session, the Legislature again amended Section 6.025 in an effort to impose the "One Property, One Value" system. Though having some similarity to the 1998-1999 version, there are some key differences.

The new version, included as subsection (d) of Section 6.025, provides as follows:

If on May 1 all the chief appraisers of the appraisal districts described by Subsection (a) in which a parcel or item of property is located are not in agreement as to the appraised or market value of the property, on that date each of the chief appraisers shall enter as the appraised or market value of the property on the appraisal records of the appropriate appraisal district the lowest appraised or market value of the property as determined by any of the chief appraisers. If as a result of a protest, appeal, or other action the appraised or market value of the property is subsequently reduced in any of the appraisal districts, the chief appraiser shall notify each of the appraisal districts of the reduced or market value. The chief appraiser of each appraisal district shall enter that reduced appraised or market value on the appraisal records as the appraised or market value of the property. If the appraised or market value is reduced in more than one appraisal district, each chief appraiser shall enter the lowest of those values on the appraisal records.

Though not yet tested in the courts or in practice, the following are some of the apparent key differences, tracking the statute sentence by sentence.

If the chief appraisers disagree as to value, then the lowest value is to be noticed by all. In the 1998-1999 version, the chief appraisers were required to average their dispute. (With the new statute, one can expect a lot more agreements between the chief appraisers; at least, a public showing of agreement.)

If the value is reduced by protest or appeal, then that reduced value is to apply to all appraisal districts. The 1998-1999 version had no limitation as to reduction of value; the value could be increased.

If there are multiple protests or multiple appeals resulting in reductions but not the same amount of reduction, the chief appraisers must all accept the lowest value. In other words, there can be multiple protests, unlike the 1998-1999 version which in theory made the property owner pick a single forum.

Though the new statute appears to be taxpayer-friendly, there are some unanswered questions.

For example, the State Comptroller has opined that, under the new statute, property owners "are required to file protests with each ARB if they disagree with their property's value." In other words, according to the State Comptroller, there is no forum shopping, but a continuation of the necessity for multiple protests.

Such a requirement is not expressly stated in the new statute. Instead, the statute says that if the value is reduced in "any" of the appraisal districts, it must be reduced in all. To hold that a property owner must file and pursue a protest in all of the appraisal districts and cannot be satisfied with the reduction achieved in one, appears to be a waste of time and money.

The Comptroller's opinion may be a misunderstanding or simply a misstatement. However, property owners should be aware that the opinion exists. And some appraisal districts may look to it (and any other excuse they can find) to avoid the impact of the new "One Property, One Value" statute.

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