The New Rendition Law: What It Really Means

Undoubtedly, the most talked about and confusing amendment to the Texas Tax Code enacted in the recent legislative session concerns the rendition of business personal property. After considering various forms of penalties, and even incentives, in an effort to have businesses file renditions of taxable personal property, the legislature finally passed Senate Bill 340.

GPD has already fielded numerous phonecalls inquiring as to exactly what this new law means. These questions have concerned both the general scope of the statute, as well as questions concerning specific provisions of the legislative bill.

In an effort to explain the new rendition statutes, GPD offers the following analysis in the form of questions and answers.

NOTE: This analysis has been updated from time to time with additional questions and answers based on readers' inquiries. If you have reviewed this article previously, you may wish to do so again. The last update was on September 12, 2003.

What property must be rendered?

The statute provides that "all tangible personal property used for the production of income" that a person owns or controls as a fiduciary on January 1 must be rendered. This is not a change from the previous law. The difference is now the statute provides penalties for the failure to file a rendition or for the filing of a false rendition.

What about special valuation inventory?

Technically, the statute provides that "all" personal property must be rendered. Special valuation inventory, such as cars, boats, heavy equipment, etc. held for sale, does constitute personal property. Therefore, under a very strict reading of the statute, a property owner would be required to render this property even if the property is subject to the special valuation provisions based on prior year sales. However, the model form prepared by the comptroller's office for safe harbor renditions states that dealers with inventory subject to special valuation should list that information on the Dealer's Inventory Declaration instead of the rendition form. The Comptroller has not yet released a 2004 rendition form.

What must the rendition include?

The rendition is required to include (1) the name and address of the property owner, (2) a description of the property by type or category, (3) if the property includes inventory, a description of each type of inventory and a general estimate of the quantity of each type of inventory, (4) the physical location or taxable situs of the property, and (5) either the property owner's good faith estimate of market value or the historical cost when new and year of acquisition of the property.

What if I own a small business?

If the owner believes that all his tangible personal property used for the production of income has a total value of less than $20,000, the owner is only required to include (1) the name and address of the owner, (2) a general description of the property, and (3) the physical location or taxable situs of the property. However, the owner is still required to file a rendition.

Do I have to give a value estimate on the rendition?

No. A property owner may choose instead to provide the historical cost new and year of acquisition of the property. The statute continues to provide that the owner's opinion of value may not be required on the rendition.

Can my estimate of value be used against me?

To some extent, yes. The statute provides that the value estimate included in the rendition is inadmissible in any protest, hearing, appeal, suit or other proceeding except: a proceeding to determine compliance with the rendition requirements, a proceeding to determine a penalty for a false rendition, and a protest under Section 41.41. This last provision means that the owner's opinion of value can be used in the administrative protest hearing before the appraisal review board, but it may not be used in subsequent litigation appealing the review board's decision.

Are there any exceptions to rendition?

The owner of property that is regulated by the Public Utility Commission, the Railroad Commission, the Federal Surface Transportation Board or the Federal Energy Regulatory Commission is considered to comply with the rendition requirements by providing to the chief appraiser a copy of the annual regulatory report covering the property and sufficient information to allow an allocation of value among taxing units to be made. However, the provision states that the owner is to provide the annual report "on written request of the chief appraiser." If the chief appraiser does not request the report, it is unclear if the owner can comply by simply turning over the report and other information without filing an actual rendition.

What if my property is appraised by an outside appraisal firm for the appraisal district?

If the property is appraised by a third party retained by the appraisal district, then the owner is considered to have complied with the rendition requirements by providing substantially the same information to the third party instead of the appraisal district itself.

Does exempt property have to be rendered?

No. The statute specifically provides that property exempt from taxation need not be rendered. However, if property loses its exemption during a year, then the owner must file a rendition within 30 days after the exemption terminates. Also, if a person has applied for an exemption and that exemption is subsequently denied, the owner must render the property within 30 days of the denial.

My real property is appraised on an income approach (apartments, hotels, etc.). The appraisal district does not create a separate personal property account for the real property, but includes the value of the personal property in the determination of the overall value of the property. Do I still have to file a personal property rendition?

Yes. The statute provides that "all tangible personal property used for the production of income" must be rendered. Whether the appraisal district chooses to appraise the personal property under a separate account or roll the personal property value into the real property account is a matter for the appraisal district to decide. However, the property owner or his tax consultant will want to make sure that the personal property is not taxed twice (once as personal property and again as a component of the real property).

Can the chief appraiser ask for further information?

Yes. The chief appraiser can request that the owner provide a statement supporting the rendered value and showing how the rendered value was determined. The owner's statement must be delivered within 21 days and must provide sufficient information to identify the property, including any characteristics relevant to the opinion of value, the effective date of the value opinion, and the basis of the value rendered.

What if I do not render a value, but instead provide historical cost data?

The statute allows the chief appraiser to request information supporting the value. If instead of providing an estimate of value, the owner provides historical cost data, then the chief appraiser arguably would not be entitled to request the additional information. By providing the historical cost data, the owner is providing information from which the chief appraiser can make his own opinion of value.

On what can I base my value opinion?

The statute does not require any particular basis for a value opinion, though the owner must be able to explain the basis if asked by the chief appraiser. The statute does provide that a business with 50 employees or less may base the estimate of value on the depreciation schedules used for federal income tax purposes. There is nothing to indicate that larger businesses cannot use the same basis, if they choose.

What if my estimate of value is not in good faith?

The statute provides that, in lieu of providing historical cost information, the owner may include a "good faith estimate of the market value of the property" on the rendition. There is nothing in the statute which indicates when an estimate of value is "in good faith" or on what an owner may in "good faith" base his estimate, other than allowing small businesses to use federal tax depreciation tables. However, because the owner must be able to explain the basis of the value if asked by the chief appraiser, "good faith" likely encompasses more than a wild guess or an artificially low number. If a market value estimate is made without support and thus not in "good faith," then this might be considered a failure to file a rendition or even the filing of a false rendition, which could result in the imposition of the penalties described below.

Is it better to provide historical cost information or an estimate of value?

The answer will depend on the specific interests of the owner. However, it is probably better in the long run to provide historical cost information. If an estimate of value is provided instead of the cost information, then the chief appraiser may request information beyond that which the owner would have provided. So, the owner may still end up providing the cost information, but also additional information.

How about if I do both, provide historical cost information but also an estimate of value?

Some owners may be tempted to provide historical cost information, but also provide an estimate of value because they do not believe that the cost information alone and without explanation will result in a fair valuation of their property. However, by providing an estimate of value, an owner will leave open the possibility that the owner will have to provide additional information to the chief appraiser to support the value estimate. It is probably best to provide the historical cost information without an estimate of value. The owner or his consultant can then go in and meet with appraisal district officials in an effort to explain additional factors affecting value and attempt to work out a fair value different than that indicated by historical cost information.

If I give information to the chief appraiser, what can he do with it?

The statute is contradictory as to the use of the owner's statement supporting the rendered value. The statute provides that the statement is confidential and may not be disclosed, except as allowed for other confidential information voluntarily provided under a promise of confidentiality. However, the statute also provides that the statement can be used in the same manner as the original rendition, including a protest under Section 41.41. Use in such a protest hearing would make the statement part of a public record.

Is the information I provide confidential?

Maybe, and maybe not. See answer to the previous question.

When must the rendition be filed?

The new law makes no change in the date for filing a rendition. A rendition must be filed between January 1 and April 15.

Can I get more time to file a rendition?

On written request by a property owner, the chief appraiser must extend the deadline to file a rendition to May 15. The chief appraiser may extend the deadline an additional 15 days upon the property owner showing good cause in writing.

What is the safe harbor provision?

In an attempt to have property owners catch up on their renditions, the legislation provides that, if a property owner files a 2003 rendition containing the required information and the chief appraiser determines based on that rendition that some of the owner's property escaped taxation in prior years, the chief appraiser may not add the value of the omitted property to the 2001 or 2002 appraisal roll. The 2003 rendition must be filed prior to December 1, 2003, to qualify for the safe harbor.

Why does the safe harbor apply to the 2001 and 2002 appraisal rolls?

Under the Tax Code, the chief appraiser can only go back two years to add the value of personal property omitted from the appraisal roll. Therefore, the legislature apparently believed that there was no need to include any other years.

Why the "before December 1" deadline?

The new rendition provisions other than the safe harbor take effect January 1, 2004. On or after January 1, 2004, the chief appraiser would only be able to go back to 2002 on omitted property. The December 1 deadline provides a further incentive by including an additional year and also provides some time to supplement the 2003 appraisal roll and allow taxing units to send bills on any additional value determined by the safe harbor renditions.

Can I file the 2003 rendition on December 1 since it is a Monday?

December 1, 2003 is a Monday. Thus, the last day for filing would be Sunday, November 30. If the 2003 rendition is to be filed "before December 1" as provided in the statute, then the deadline for filing might be Friday, November 28. However, Section 1.06 of the Property Tax Code provides that, if the last day for performance of an act is a Saturday, Sunday, or legal holiday, then the act is timely if performed on the next regular business day. Under Section 1.06, there is an argument that a rendition filed on December 1 would in fact be timely. However, this is an argument that should be avoided, since the effect of Section 1.06 on the safe harbor provision is uncertain. The better option is to consider that the safe harbor deadline is November 28.

Does the safe harbor apply to 2003 value?

No. There is nothing to prevent the chief appraiser from using the safe harbor rendition to increase the appraised value of personal property for 2003 by claiming that a portion of the property was omitted from the appraisal roll. It is likely that the chief appraiser would do this either through a supplemental appraisal or an actual omitted property notice.

If I did not file a 2003 rendition, but protested and presented information to an appraisal district in connection with that protest, is it safe to presume that a safe harbor rendition is not required? In other words, does my providing information to the appraisal district satisfy the safe harbor provision?

No. The literal language of the statute provides that a property owner must file a rendition that provides the information required by the statute in order to gain safe harbor. The only certain safe harbor is literal compliance with the statute, which means filing of a rendition with the required information before December 1. Having provided the same information previously in some other form is not a rendition. However, if the 2003 protest was resolved by agreement, then your stated opinion of market value in the safe harbor rendition would probably be the settlement value.

Will filing a safe harbor rendition result in a 2003 value increase?

Maybe and maybe not. This will largely depend on the specific circumstances involved, especially regarding how much omitted value is discovered for 2003. In smaller appraisal districts, the chief appraisers might be more likely to try to add every dollar possible to the roll. However, in larger appraisal districts in which hundreds or thousands of safe harbor renditions might be received, the chief appraisers might be more selective, picking out those renditions showing a large amount of omitted property value for supplementation. Unless they are forced to do so, the chief appraisers of larger appraisal districts may not find it cost-effective to supplement the 2003 roll in every case, especially since such supplementations would result in a new flurry of protests and need to resolve values relating to the supplements. Therefore, it is likely though not certain that the chief appraisers will pick and choose their fights regarding supplementation. At what point a chief appraiser might determine that a supplementation is warranted remains unclear and is likely to vary widely from appraisal district to appraisal district.

If I did not file a 2003 rendition, am I required to file a safe harbor rendition?

No. The filing of a safe harbor rendition is a voluntary option for the property owner. The mandatory requirement for the filing of a rendition, and resulting penalties for failing to do so, does not take effect until 2004.

What are my options other than the safe harbor?

If you do not file a 2003 rendition prior to December 1, then the chief appraiser will not be prohibited from adding personal property as omitted property. If the chief appraiser determines the existence of omitted property from a rendition filed on December 1 or later this year, then he can add value as omitted property for 2001 and 2002 and 2003. If the chief appraiser makes the determination based on a rendition filed after January 1, 2004, then he can add omitted property value for 2002 and 2003. Some chief appraisers may attempt to take advantage of the new legislation by adding omitted property value in December of this year for 2001 and 2002 for any taxpayers who have not filed a rendition, thus forcing the owner to protest and produce supporting documentation for personal property. For any omitted property claimed by the chief appraiser, the property owner still has the right of administrative and judicial protest of the value determination.

If I file a safe harbor rendition, can the chief appraiser request additional information?

This is unclear. The specific portions of the legislation allowing the chief appraiser to request additional information from the property owner to support a rendition does not take effect until January 1, 2004, while the safe harbor provision takes effect on September 1, 2003. The safe harbor provision merely allows the taxpayer to file a 2003 rendition providing the information required by Section 22.01 as amended. The ability of the chief appraiser to request additional information is contained in Section 22.07. Theoretically, a property owner could file a rendition and merely give an opinion of fair market value and achieve safe harbor. However, as stated before, this is unclear.

What is the danger in the safe harbor?

There is no safe harbor for previously filed fraudulent or erroneous renditions. In other words, if renditions have previously been filed that were untrue, the filing of a rendition under the new law could expose the previous filer to criminal penalties for filing a false document. The safe harbor only concerns omitted property valuation.

Is there a safe harbor rendition form?

The State Comptroller has prepared a model form for complying with the 2003 safe harbor rendition. There have also been some forms promulgated by individual appraisal districts. However, it is probably best to use the comptroller's form.

Is there a penalty for filing a false rendition?

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

Do renditions have to be sworn?

Previously, 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 law does 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.

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.

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 is taking 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 file a rendition, but do not file a statement with additional information requested by the chief appraiser?

Failure to provide the requested statement 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 just file the rendition late?

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

Are there any additional penalties?

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 an additional 50 percent penalty is imposed. 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.

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

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

Again, this is uncertain. The new law does not provide for any such lien.

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 begins 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 the chief appraiser sends a value notice before I render?

The chief appraiser is prohibited from noticing a value for business personal property prior to the deadline for filing a rendition on that property.

If I fail to render, can I still file a value protest?

Yes. However, if a rendition or the information requested by the chief appraiser is not delivered before the date of the review board hearing, then the property owner has the burden of proof of establishing value by a preponderance of evidence. If the property owner fails to meet that standard, then the protest is to be determined in favor of the district. Of course, this is the standard already applied by most appraisal districts regardless of the statutory provisions stating otherwise.

When does the rendition law take effect?

January 1, 2004, except for the safe harbor provision which takes effect on September 1, 2003.

Should I file a safe harbor rendition prior to September 1?

No. The safe harbor provision does not take effect until September 1. Therefore, a rendition filed prior to that date might open the door for a chief appraiser to included omitted property valuation for 2001 and 2002. Probably not, but better safe than sorry.

This article was prepared by Ron Gray.