The Rendition Penalty: More Bark than Bite?

Though the Texas Property Tax Code has long required the annual filing of a personal property rendition, such filings were often neglected or ignored in past years because no penalty was associated with the failure to file. This omission was addressed by the Texas Legislature in the 2003 regular legislative session by the passage of HB 340.

This bill amended the rendition provisions of the Tax Code to include penalties for failing to file a rendition or for filing a false rendition. The potential imposition of penalties was a key component of the revisions, with the threat of penalties anticipated to spur rendition filings.

This threat appears to have served its primary purpose, as rendition filings increased dramatically around the state. Now, as the appraisal districts finish up their value determinations and protests, the chief appraisers' attentions will soon turn to the imposition of the penalties against individual property owners.

With the imposition of any penalties, appraisal districts, taxpayers, and consultants may take a new look at just how effective the penalties are. Upon closer examination, the penalties like an old watchdog appear to be more bark than bite.

View the question-and-answer summary below, and judge for yourself.

What are the potential penalties that may be imposed?

The rendition statute provides for two types of penalties relating to the filing of a business personal property rendition form. A 10 percent penalty applies if the property owner fails to timely file a rendition form. An additional 50 percent penalty may apply if it is determined that the property owner filed a false rendition.

Who collects the penalty?

The chief appraiser imposes and collects both the 10 percent and the 50 percent penalties.

Who gets the penalty?

The chief appraiser is allowed to retain a portion of any penalty, not to exceed 20 percent, to defray costs of collection. The remainder is distributed proportionately to the taxing units which assess taxes on the property involved.

How is the chief appraiser going to collect the penalty?

In smaller counties in which the chief appraiser is effectively the tax assessor, this should not be a problem. However, in larger counties where the chief appraiser does not normally collect taxes, it is uncertain how this will be handled. The chief appraiser may contract with a tax assessor or might even attempt to contract with a delinquent tax law firm for collection. It is uncertain.

Will the rendition penalty be included on my property tax bill?

It should not be. The State Comptroller says that, under the Tax Code, only certain information is allowed to be contained within a tax bill. As the rendition penalty is not currently one of the allowed items, this penalty should not appear on the tax bill. In other words, a separate bill for the rendition penalty should be issued. However, this may change in the future.

Will a lien be imposed on my property for the penalty?

No, the rendition law does not provide for any such lien. The State Comptroller has also indicated that there is no lien attached to the property under the Tax Code for the penalty. Liability for the penalty, however, will continue to be an obligation of the property owner.

If I want to transfer my property without paying an imposed penalty, will I have to pay the penalty first?

This should not be necessary. As no lien attaches to the property for nonpayment of the penalty, any transfer of the property should be free of any lien. The new property owner should face no obligation for the penalty, but the previous property owner would continue to have personal liability.

When is the deadline to pay the penalty?

There is no deadline provided in the Tax Code for payment of the penalty. Therefore, under the Tax Code as it currently exists, according to the State Comptroller, the penalty never becomes delinquent. However, theoretically, the payment is due upon receipt of the penalty bill.

Do any interest or collection penalty provisions of the Tax Code apply to the rendition penalties?

No. The State Comptroller has pointed out that the interest and penalty provisions of the Tax Code only apply to taxes and do not apply to the rendition penalty.

No deadline, no interest, no collection penalty, etc. Then, are there any real teeth to the rendition penalty?

Not under the Tax Code as it is currently written. However, there have already been some behind-the-scene efforts aimed at having teeth put into the penalty during the next legislative session set for 2005.

Will delinquent tax law firms be jumping at this chance for new business in collecting the rendition penalty?

Under current conditions, maybe not, unless they anticipate some future benefit. The 10 percent penalty would be imposed on the personal property tax bill. Of course, with a high appraised value, this amount could be significant. However, the chief appraiser is only entitled to retain 20 percent of the penalty to defray collection costs. If the chief appraiser gives all of the 20 percent to the collection firm, the appraisal district will be left with nothing. Even then, the collection firm would get, at most, an effective rate of 2 percent of the tax bill. There does not appear to be any provision for the taxing units themselves to provide for an additional percentage of the penalty to a collection firm. Also, the collection firm will not have the weapons that it likes to apply in an effort to collection delinquent taxes; i.e., threats of lien, threats of seizure, threats of foreclosure, threats of increasing interest and penalties. In attempting to collect the rendition penalty, the collection firm may have to change its normal method of operation, since it will not have the Tax Code sledgehammer it applies against property owners in delinquent tax matters.

With all these problems relating to collection, if a penalty is assessed against me, why should I pay it?

Payment of the penalty is a legal obligation of the property owner. Enforcement could be obtained through a civil suit by the chief appraiser against the property owner. Though no interest or collection penalty applies under the Tax Code, it may be possible that prejudgment and postjudgment interest, attorney fees, and/or court costs could be imposed against the property owner through a civil judgment. Also, if a civil judgment is obtained, then that judgment might create a lien on the property owner's real property, even though the penalty was originally assessed against personal property.

What is the penalty for failing to file a rendition?

If a property owner fails to file a rendition, then at a minimum a penalty of 10 percent of the total amount of taxes assessed against the property for that year is imposed. This is the penalty for failing to timely file a rendition.

Could there be additional penalties for failing to file a rendition?

Possibly. At least one appraisal district has expressed the view that the failure to file a rendition could result in the imposition of the 50 percent penalty. The 50 percent penalty is imposed for (1) filing a false rendition with intent to commit fraud or evade tax or (2) altering, destroying, or concealing a record, document, or thing, or presenting a fraudulent information to the chief appraiser, or engaging in fraudulent conduct for the purpose of affecting the outcome of an investigation, determination, or appraisal district proceeding. Apparently, the appraisal district believes that failing to file a rendition, with the intent to evade taxes, could be considered the concealment of information or other fraudulent conduct. This is a very liberal reading of the statute. Whether the appraisal district's position is correct or not will have to be decided in a future court action.

What if I filed a rendition, but did not file a statement with additional information requested by the chief appraiser?

After a property owner files a rendition form, the chief appraiser may request additional information from the property owner in support of the rendition. Failure to provide the requested information is considered a failure to file the rendition. So, the 10 percent penalty at a minimum would apply. The appraisal district described in the previous question might take the view that the 50 percent penalty would also apply, for the same reasons stated in the previous question.

What if I filed my rendition, but I filed it late?

If the rendition is late, the 10 percent penalty should apply. The penalty is for failing to timely file the rendition.

Was my rendition required to be sworn?

Under prior law, a rendition had to be sworn to only if it was not filed by the property owner or an employee of the property owner. In other words, the property owner would have to sign the rendition but not have to swear to it, while a tax consultant would have to swear to it. The new rendition law did not specifically change this provision. However, it does require that the rendition statement include the warning that a false statement included in the rendition is punishable as a crime. Therefore, though a property owner need not actually swear to the rendition, he must effectively vouch for its accuracy anyway.

Is there a penalty for filing a false rendition?

Yes. There is both a tax penalty and a potential criminal penalty.

What is the possible punishment for a false rendition?

In addition to the 50 percent tax penalty explained further below, a false rendition subjects the filer to a Class A misdemeanor or a state jail felony under Section 37.10 of the Penal Code. Section 37.10 is tampering with a governmental record. The most likely offense would be knowingly making a false entry in a governmental record. The offense is normally a Class A misdemeanor, which is punishable by a fine not to exceed $4,000 and/or confinement in jail not to exceed one year. If the violator is determined to have acted with intent to defraud or harm another, then the offense is a state jail felony, which is punishable by confinement in state jail for a minimum of 180 days and a maximum of 2 years. The violator may also be fined up to $10,000.

When does the 50 percent penalty apply?

If it is determined that the property owner filed a false statement or report with intent to commit fraud or evade taxes, or if the person alters, destroys or conceals records or presents altered or false records to the chief appraiser in connection with an inspection, investigation or other proceeding, then the additional 50 percent penalty applies. Note that this is an additional penalty, so the maximum penalty could be 60 percent.

Who enforces the additional penalty?

The statute provides that enforcement will be in a proceeding initiated by the district or county attorney on behalf of the appraisal district.

Who determines liability for the additional penalty?

A court would make the final determination as to whether the additional penalty applies.

What can be considered in determining liability?

In determining liability, the court is to consider (1) the person's compliance history with respect to paying taxes and filing reports; (2) the type and nature of the property involved; (3) the type, nature, and sophistication of the business for which the property is rendered; (4) the completeness of the person's records; (5) the person's reliance an any advice from the appraisal district; (6) any change in appraial district policy that might have affected how the property was rendered; and (7) any other factor the court considers relevant.

Can the penalties be waived?

Yes. The chief appraiser may waive the 10 percent penalty, the 50 percent penalty, or both upon the written request of the property owner, with supporting documentation, seeking a waiver.

What is the deadline for seeking a waiver?

The written waiver request must be sent to the chief appraiser by the 30th day after the date the person receives notification of the imposition of the penalty. For the 50 percent penalty, this could create confusion. The 50 percent penalty is imposed by the chief appraiser, but enforced by the district or county attorney through a court action in which the court determines liability for the penalty. So, it is unclear whether the 30 days will begin to run from the day that the chief appraiser provides some notice of the penalty, from the date that the attorney files the court action, or from the date that the court determines liability.

What can be considered in determining an application for waiver?

In considering a waiver request, the chief appraiser can consider the same factors as the court can consider in determining liability for the 50 percent penalty.

What recourse do I have if the chief appraiser refuses to grant a waiver?

If the chief appraiser refuses to grant a waiver, that refusal can be appealed to the appraisal review board. Presumably, the review board's action could then be appealed to district court.

What if I do not pursue a waiver or an administrative and judicial protest of the denial of a waiver?

It is possible that a property owner could be prohibited from presenting any defense against the imposition of the penalty in a subsequent court action to collect the penalty.

Is there any risk in filing a judicial appeal of the denial of a penalty waiver?

Upon a filing by the property owner, the appraisal district might counterclaim for collection of the penalty.

So, should I fight the penalty or not?

That is a decision that each property owner must make himself. With a 10 percent penalty, the penalty is 10 percent of the tax bill. If the property tax bill is relatively small, then it might not be economically feasible to fight the penalty. On the other hand, if the tax bill is high, then contesting the imposition of the penalty could make more sense. Of course, if a suit is filed to impose the 50 percent penalty, the property owner should answer and contest the imposition of the penalty.

If I do not want to pay the penalty now, but I do not want to pay the expense of contesting it either, what is my alternative?

With no lien, no interest, no collection penalty, etc., the taxpayer may decide to delay payment as long as possible. However, if he delays until a collection lawsuit is filed, then the appraisal district might ask the court to impose some additional costs due to the filing. It is also possible that some appraisal districts might attempt to charge some type of interest on the penalty under some law other than the Tax Code.

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