What to Render and What Not to Render - Part 1

By its plain language, the new mandatory rendition statute appears to require that every property owner who owns tangible personal property used for the production of income in Texas must render his property. There are no exceptions for small business (though the information included on the rendition might differ if all the property has a value of less than $20,000) or a particular type of business.

While some property, such as special inventory (motor vehicles, heavy equipment, etc. held for retail sale) might be subject to a different form of rendition, the new rendition law appears to establish one fact. If it is business personal property, it must be rendered.

Or does it?

The new rendition requirement, included in Section 22.01 of the Texas Tax Code, does contain three semi-exceptions to the rendition requirement.

Subsection (h) provides that, if the property subject to rendition is regulated by the Public Utility Commission of Texas, the Railroad Commission of Texas, the federal Surface Transportation Board, or the Federal Energy Regulatory Commission, the property owner can satisfy the rendition requirement by providing the chief appraiser a copy of the annual regulatory report covering the property with sufficient information to enable the chief appraiser to allocate the value among the appropriate taxing units. However, it is important to note that such a report is only considered to comply with the rendition requirement if the regulatory report is furnished at the written request of the chief appraiser. Therefore, if no such request is made by the chief appraiser, the mere submission of the annual report without a properly completed rendition form will not technically comply with the rendition statute.

Subsection (i) of Section 22.01 provides that the rendition requirement does not apply to a property owner whose property is subject to appraisal by a third party retained by the appraisal district (i.e., an outside appraisal firm) if the property owner provides to the outside appraiser information that is substantially equivalent to the information required under the rendition statute. However, this does not really mean that the property owner does not have to render. What it means is that the property owner can render instead to the outside appraiser and, in doing so, probably is not required to use an official rendition form.

Finally, Subsection (j) provides that the rendition requirements do not apply to property that is exempt from taxation. Unfortunately, the way that the rendition statute (specifically in changes to Section 22.02) reads concerning exempt property could create some problems for property owners.

Section 22.02 previously provided that property losing an exemption during a tax year had to be rendered by the owner within 30 days of the date that the exemption terminates. This provision of the statute has not changed (though it has been relabeled as Subsection (a)). However, under Section 22.01, such a rendition for previously exempt property will now be mandatory.

The big change comes in the addition of Subsection (b) to Section 22.02. This new provision provides that, if the chief appraiser denies an application for an exemption, the owner as of the date of denial must render the property within 30 days from the date of denial.

The problem here is that not every exemption requires the filing of an application for exemption. The Tax Code lists eight specific types of personal property that are exempt without the filing of an application. These include public property used for a public purpose, property exempt under federal law, tangible personal property not producing income, income-producing property with a value of less than $500, family supplies, farm products, implements of husbandry, and marine cargo containers used exclusively in international commerce. A ninth listed exemption is for mineral interests with a value less than $500, but mineral interests are considered real property.

However, at least two other personal property exemptions are at least implied and do not require the filing of an application.

First, in order to be taxable in Texas, the state must have jurisdiction to tax the property. Tangible personal property is taxable in Texas if it is located in Texas for more than a temporary period, is only temporarily located outside Texas and the owner resides in Texas, or the property is used continually (whether regularly or irregularly) in Texas.

Second, though the state has jurisdiction to tax intangible personal property, most intangible property is "not taxable" under Section 11.02 of the Tax Code. This statute does not really state that the property is exempt; just that it is not taxable. Of course, if it exists and is not taxable, then it must be "exempt."

Additionally, there are various tax exemptions not appearing in the Tax Code that are sprinkled throughout other statutory codes, though these usually are encompassed in some way under the public property exemption of Section 11.11.

The problem that a property owner could face is in deciding whether his property is exempt or not. For example, if a Kansas trucking company drives its trucks from Kansas to Mexico and back, only stopping in Texas and Oklahoma to purchase gas or for driver rest stops, is the property taxable in Texas. The Kansas company would probably say "no" since the trucks are merely passing through the state and the company is not doing any other business in the state.

However, some chief appraisers may take a different view, believing that the use within the state makes the trucks taxable.

In such example, is the Kansas company required to render its trucks in Texas? And if so where, since the trucks pass through multiple counties and appraisal districts but the company has no place of business in Texas?

The property owner probably will take the view that no rendition is required since the trucks are not taxable in Texas, and thus "exempt." For that matter, the Kansas owner may have no idea that there is even a theory that the trucks might be taxable under Texas law.

However, if a chief appraiser decides to appraise the trucks after noting their license plates as they roll along the highway, then he could send the Kansas company a value notice. Not only that, the value notice might not include any interstate value allocation (since the Kansas company did not know it needed to ask for such allocation). However, the notice might include a penalty for the failure of the Kansas company to file a rendition of the trucks.

Such is the potential with any movable business property that might pass through Texas. Though there are factual and legal issues of taxability based on whether the Texas use is "continual," the true risk is that a property owner might find its personal property subject to taxation in Texas and might find that he has waived unknown rights because of the failure to render.

A similar problem exists with any exemption claim. The statute provides that exempt property does not have to be rendered. However, except when an application is required, the law does not address dispute situations where the owner honestly believes that the property is not subject to taxation and the chief appraiser conversely believes that the property is subject to taxation.

The question, then, becomes whether a property owner who believes that its property is exempt or not taxable should go ahead and render the property anyway, with a notation that the property is exempt or not taxable under Texas situs and jurisdiction rules. Unless the appraisal district has already made a determination that it intends to tax the property, perhaps not. By discovering the property through rendition, it becomes more likely that the appraisal district will attempt to tax the property. This could lead potentially either to an unjust and illegal assessment or to an extended legal battle over the taxability of the property.

However, the rendition decision is one that must be made by the business owner, giving consideration to the risks and potential expenses (including the possibility of a penalty for non-rendition) involved.

If you have any questions about the contents of this article, please contact Dan Donovan, David Kaplan, or Ron Gray or contact the GPD Property Tax Section at propertytax@gpd.com.