Top 10 Legislative Changes in Texas Property Tax Law

Though relatively few changes were made in the Texas Tax Code during the recent legislative session, this does not mean that property owners and tax consultants will not be affected by the revisions and new provisions. Many of the legislative changes are minor or administrative. However, GPD has reviewed the legislation and determined the revisions that are likely to have the greatest impact. Here are the top ten in no particular order.

1. Shortening the penalty period for personal property delinquent taxes.

Under existing law, delinquent taxes do not incur the attorney collection penalty until July 1. This penalty may be as much as 20 percent of the assessed taxes, interest, and late penalty. However, new legislation (HB 2491) allows taxing units to expedite the imposition of this penalty for delinquent taxes on personal property. If adopted by a taxing unit, the collection penalty could be imposed as soon as 60 days after the taxes become delinquent. With a delinquency date of February 1, the additional penalty could be imposed on April 1 or 2, depending on how the 60 days is counted.

Plus - The expedited penalty should encourage taxpayers owing personal property taxes to pay such taxes more timely because of the possibility of early imposition of stiff penalties. The statute carries forward the requirement of prior notice before imposition of the collection penalty, so delinquent taxpayers should have some notice and opportunity to pay the taxes before the penalty is imposed.

Minus - The penalty is most likely to be imposed against and impact small business owners having difficulty paying their expenses, including taxes. The legislation appears aimed more at lining the pockets of collection attorneys than taxing units, as the taxing units will receive none of the penalty proceeds. This may be a first step in expediting the collection penalty on all property. It will be interesting to see what proposed legislation is submitted in future legislative sessions that might seek to build on this new provision.

2. Strengthening collection of the rendition penalty.

When the mandatory rendition statute was enacted in 2003, certain penalties were put into place to encourage property owners to comply with the provisions. Essentially, a 10 percent penalty was imposed for either failing to file a rendition or filing the rendition late. An additional 50 percent penalty was possible if a fraudulent rendition was filed. The problem with the penalty provisions, however, was that there was virtually no effective way to enforce collection of the penalty. (See prior article.) The penalty could not be included on the tax bill, had no delinquency date, had no delinquency penalty, and resulted in no lien against the taxpayer's property. The law also imposed the penalty collection responsibility on the chief appraiser. The Legislature attempted to correct some of these problems with a revision to the Tax Code (HB 2491). This revision provides that the chief appraiser only needs to certify imposition of a rendition penalty to the tax collector. The penalty then becomes part of the taxes assessed on the property and is secured by the tax lien. The tax collector is responsible for collecting the penalty with the taxes, while the chief appraiser is paid 5 percent of the collected penalty to offset administrative expenses in imposing and certifying the penalty. (In the same legislation, the late correction penalty imposed under Section 25.25 was also allowed to be secured by a lien on the property.)

Plus - With some teeth finally given to the rendition penalty, it is more likely that taxpayers will comply with the rendition requirements and actually pay the penalty when imposed.

Minus - For small businesses that are most likely not to render (either because they are unaware of the requirement or too busy to do so), the penalty results in a 10 percent increase in their tax bill.

3. Potential of concurrent expert deadlines in value litigation.

Under the Texas Rules of Civil Procedure, the party seeking affirmative relief (i.e., the plaintiff) in a lawsuit normally has an earlier deadline to turn over the report of any testifying expert. Because the property owner is usually the plaintiff in value litigation, the property owner is required to incur the expense of an expert and turn over that expert's report to the appraisal district. The appraisal district then has at least 30 days to review the report before turning over its own report. Often, a case will not settle until after the property owner has incurred its expert expenses and before the district is required to incur its expert expenses. In some cases, this appears to simply be a case of the district forcing the taxpayer to incur additional expenses before considering settlement. A new provision of the Tax Code (HB 2491) seeks to level the playing field in part with regard to expert reports. The new statute provides a procedure where both the taxpayer and the appraisal district will be considered parties seeking affirmative relief and thus both expert reports will be due at the same time. To qualify for the concurrent deadline, the property owner must make a written offer of settlement, request alternative dispute resolution (such as mediation or arbitration), and designate either market value or equity as the basis of appeal. For the designated basis, the expert deadlines will be concurrent; if the other basis is also raised in the lawsuit, then the taxpayer's deadline will still be before the district's for that basis. The taxpayer cannot designate both market value and equity for the shift in expert deadline.

Plus - Too often appraisal districts wait to see what the property owner's expert report says before even considering settlement. Additionally, when a property owner turns over his expert report earlier, the district's expert has an opportunity to review that report in preparation of his own report. Thus, the work of the district's expert is shortened because he will have information already gathered by the taxpayer's expert. In some cases, the district expert merely attempts to find fault with the taxpayer's expert report rather than truly performing his own appraisal. Additionally, by seeing what the other expert has done, the district's expert will know to approach the valuation in a different manner in order to achieve a higher opinion of value. By having the expert deadlines the same, this advantage for the district's appraisal expert disappears, which makes sense in that the experts are supposed to reach an independent determination of value. What the other expert did should not influence an expert's methodology or opinion.

Minus - It remains to be seen how effective this provision will be. If a court enters a scheduling order setting a deadline for the plaintiff's expert and a later deadline for the defendant's expert, then the statute might be useless. Additionally, it is possible that some appraisal districts might attempt to have the property owner waive the provisions of the statute before agreeing to discuss settlement. In other words, the attempt to level the playing field might be thwarted by the appraisal district through several different procedural measures.

4. No internet posting of improvement pictures.

A new provision (SB 541) of the Tax Code prohibits appraisal districts from posting on the internet photographs, sketches, or floor plans of residential property.

Plus - The legislation was primarily driven by concerns of absent homeowners (in other words, owners of vacation homes) who were concerned that posting the information provided information that could be used by burglars in breaking in to the property.

Minus - The absence of such detail could make it more difficult for property owners, tax consultants, and appraisers to obtain quick information to use in making an equity analysis of property. Instead of using the internet to obtain such information in weeding out properties that are not comparable, an actual trip to view potentially comparable properties may become necessary.

5. Omitted property included in tax certificate release of lien.

When someone buys a piece of property, he can be relieved of potential liability for delinquent taxes assessed against the property by obtaining a tax certificate from the tax collector. If the tax certificate states that there are no taxes owed and it turns out that the certificate is wrong in that there are actually delinquent taxes, the lien against the property is erased because of the erroneous certificate. While the previous owner remains personally liable for the taxes, the taxing unit cannot pursue foreclosure of the tax lien against the property. However, courts have determined that the certificate is not applicable to omitted property taxes under the theory that such taxes had not been assessed. Therefore, it is possible for a property owner to purchase a piece of property with a clean tax certificate, only to have the appraisal district determine after acquisition that there existed omitted property (such as improvements) prior to the acquisition of the property. The purchaser then would face a lien upon his property and might have to satisfy the tax obligation of the prior owner to avoid a lien foreclosure. The Legislature has closed this loophole (SB 898) in the tax certificate statute by providing that the tax certificate also eliminates omitted property liens. Taxes on the omitted property would remain the personal obligation of the prior owner.

Plus - The new provision should provide greater assurance to purchasers of property that they will not be slapped with unanticipated tax assessments and liens.

Minus - There is appears to be no minus.

6. Fiduciary authority to receive tax notices remains effective until withdrawn.

Section 1.11 of the Tax Code allows a property owner to identify a fiduciary to whom tax notices, tax bills, and other communications are to be delivered by the appraisal district or the tax collector. Previously, this statute provided that such a designation remained in effect until revoked by the owner. The new legislation (HB 2491) provides that the designation remains in effect until revoked in a written document filed with the appraisal district.

Plus - The statute provides some certainty for the appraisal district and tax collector as to whom is to receive notices, bills, etc. Property owners will no longer be able to claim that they had revoked the designation without notice to the appraisal district and that notices or bills were thus misdelivered.

Minus - The statute poses some significant difficulties for tax consultants and owners. Section 1.11 is not the statute allowing a property owner to designate a tax agent; that statute is Section 1.111. Section 1.111 provides that the designation of a tax agent can be made to expire according to its terms. Section 1.11 contains no such provision, and now will state that notices will continue to be delivered to the designated fiduciary until revoked in writing. The comptroller's form of agent authorization combined these two provisions (one for notices and one for agent appointment) into a single form. With the new statutory provision, it is possible that an agent's authority to represent a property owner might expire (either by its own terms or because the agent is fired). However, if the agency form on file also shows that the agent is to receive the notices, then the agent might continue to receive such notices on behalf of the former client until the client actually files a revocation of the designation. The agent receiving such notices might have some obligation to continue forwarding any received notices on a timely basis to the property owner even though the agent no longer represents the owner.

7. Excluding mixed use vehicles from personal property renditions.

New legislation (HB 809) will allow an individual to exclude from his business personal property rendition all passenger cars or light trucks that are used for both business and personal purposes. To qualify for exclusion, the cars or trucks must be owned by the person filing the rendition and that person must be the primary operator of the vehicle.

Plus - If the property is not rendered, then there remains the possibility that it will not be taxed.

Minus - The law does not create an exemption; so if the appraisal district knows about the vehicles from a prior rendition or discovers the vehicles through some other means, then the vehicles might still be taxed. Also, there is a rendition danger in that some business owners might believe that they can choose not to render company vehicles that employees are allowed to drive home. Only the vehicles for which the business owner is the primary operator are subject to the statute.

8. Automatic qualification for elderly homestead exemption.

Every taxpayer owning a residential homestead is entitled to certain partial exemptions from taxes. When the taxpayer turns 65, he or she is entitled to additional homestead exemptions. Under current provisions of the Tax Code, a homeowner turning 65 must file a new homestead application with the appraisal district in order to obtain the additional exemption. If the homewoner fails to file the application (a distinct possibility), then the additional exemption is not given. New legislation (HB 2491) seeks to eliminate this double filing requirement. The new statute requires that a homestead application form must include a space where the homeowner can put his or her date of birth. If the homeowner provides this information, then the appraisal district is required to automatically grant the elderly homestead application when the person turns 65 without the necessity of filing an additional application.

Plus - Because the elderly exemption is likely to be one of the most overlooked, the law should assist in assuring that those who are entitled to such exemption actually receive it. It might also deter those businesses that attempt to charge the elderly a fee for filing the second application.

Minus - The automatic qualification only applies where the appraisal district has information to determine when the homeowner turns 65. Therefore, it is likely to be most effective for new homestead applications rather than existing homesteads already receiving an exemption. As many of those approaching elderly status are likely to already have a homestead in place based on an application filed under prior law and as these homesteaders likely did not provide age information when filing their previous application, they will still be required to file for the elderly exemption when they turn 65. If the appraisal district does not have the information as to when the homeowner turns 65, it is not required to automatically grant the elderly exemption.

9. Owners and tax agents to receive tax bills.

Under the current Tax Code, a tax collector is required to send a tax bill to either the property owner (actually the person in whose name the property is listed on the tax roll) or the owner's agent. The Legislature enacted a revision to this law (SB 898) to require that a tax bill be mailed to both the property owner and the owner's agent.

Plus - With bills going to both the property owner and the agent, there is twice the chance that someone will notice the imposition of taxes and avoid the taxes becoming delinquent.

Minus - There is no real minus. However, tax agents who are designated under Section 1.11 to receive tax bills should not become complacent in their duty to forward such bills to their client just because the tax collector should have sent the owner a copy of the bill as well. Just because the bill is sent does not mean that anyone is going to pay attention to it, especially if the client is relying on the agent to inform it of any taxes due.

10. Arbitration.

The new Chapter 41A of the Tax Code (enacted by both HB 182 and SB 1351)allows certain property owners to choose arbitration instead of litigation in contesting the value of real property. To qualify for binding arbitration, the property at issue must be real property (no personal property allowed) and the appraised or market value (whichever is in dispute) must be $1 million or less as determined by the review board. No issues other than value can be in dispute.

Plus - The Legislature undoubtedly thought that arbitration would provide a more efficient, timely, and economical method for property owners of lower value property (most likely residences) to protest and obtain a resolution of their value protests.

Minus - The legislation has so many questions and restrictions that there are issues as to whether it is even workable. Property owners might find the arbitration procedure less efficient, taking longer, and even more expensive. See related article.

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