A “LAST CHANCE” OPPORTUNITY FOR TAX RELIEF THAT IS OFTEN OVERLOOKED BY PROPERTY OWNERS
By: Amy Reilly Sallusti, Shareholder Attorney
Geary, Porter & Donovan, P.C.1
The time of year has come for all property owners to receive their favorite pieces of mail – the dreaded 2008 tax bills. Regardless of whether the property is classified as commercial, industrial, agricultural, residential, or personal property, the owner’s initial reaction is always the same “how am I going to pay this tax bill?” The answer to this question is difficult for many property owners to face, especially in a down economy. However, not all hope is lost. The purpose of this article is to inform you of an opportunity for tax relief that is often overlooked by owners of property, especially owners who acquired their property after June 1st of a given year. Throughout this article I will refer to this opportunity as the “last chance” for tax relief.
Traditionally, if a property owner receives a notice of appraised value for his property and is unsatisfied with that value, the owner will file a protest under Chapter 41 of the Property Tax Code with the Appraisal Review Board. The deadline to file a Chapter 41 protest is generally May 31st. For various reasons, such as a pending sale of the property, the Chapter 41 protest deadline may be missed. In such a case, the Appraisal Review Board will certify the property’s value as determined by the Appraisal District. This certified value is then used in the calculation of taxes.
Despite such certification, the owner still has one “last chance” to obtain a value correction. The owner may file a motion to correct certain types of errors in the appraisal roll under Section 25.25(d) of the Texas Property Tax Code. Section 25.25(d) can be a very useful provision for owners who have recently purchased property or anticipate purchasing property prior to the tax delinquency date, which is January 31st of the year following the assessment year. Of course, Section 25.25(d) may also provide tax relief for owners who missed their Chapter 41 protest opportunity.
In essence, Section 25.25(d) extends the time to file a challenge to the appraised value of property for properties that have been significantly overvalued due to an error. However, this “last chance” provision is subject to certain limitations. First, to be entitled to a correction under Section 25.25(d), the property owner must show the error resulted in a valuation that exceeds the correct appraised value by more than one-third. Second, the motion must be filed before the time the taxes on the property become delinquent. In general, that date is January 31st of the year following the tax year for which the taxes are owed. Third, the error in the appraised value can only be corrected if the property was not previously protested in the same tax year under Chapter 41 of the Property Tax Code. Fourth, the error can only be corrected if the appraised value of the property was not established by a written agreement between the property owner, or his agent, and the appraisal district.
The initial question that must be answered is whether the appraised value of the property is at least one-third in excess of the correct appraised value of the property. This is commonly referred to as the one-third test and seems to cause the most confusion among property owners and appraisal districts. Here is an example of how to apply the one-third test: if the appraised value of the property as reflected on the tax roll is $250,000.00, yet the property owner has evidence indicating the correct appraised value should be $180,000.00 (e.g. the property sold in August of 2008 for $180,000.00), then the property owner meets the one-third test and has his “last chance” since the error in the appraised value of the property of $250,000.00 exceeds the correct appraised value of the property of $180,000.00 by more than one-third.2
If the value of the property meets the one-third test, the property owner still must file a 25.25(d) motion to correct the appraised value with the Appraisal Review Board before the date the yearly taxes on the property become delinquent. Generally, the extension under 25.25(d) ends on January 31st of the year following the tax year in issue, which is the date the yearly property taxes become delinquent. This provision has been strictly and narrowly construed. Courts have gone so far as to hold that an owner of agricultural land who was assessed a rollback tax in 1997 and filed a 25.25(d) motion on January 29, 1998 could not use a 25.25(d) motion to seek relief from the past appraised market value of the agricultural land in tax years 1992-1997 since the 25.25(d) motion was not filed before the date the yearly property taxes became delinquent.3 Since the 2008 appraisal rolls have been certified, the property owner can exercise his “last chance” and file a 25.25(d) motion at anytime between now and January 31st, 2009.
The last two hurdles the property owner must overcome in order to proceed with a 25.25(d) motion are to determine whether the property was the subject of a Chapter 41 protest and whether the property’s appraised value as reflected on the appraisal roll is the result of a written settlement agreement between the property owner, or his agent, and the Appraisal District. These two issues commonly arise when the property is sold after June 1st, and it is unclear who if anyone will protest the appraised value of the property. The purpose of 25.25(d) is to permit a property owner to file a late appraisal protest and have at least one bite at the apple, but not two.
The mere filing of a Chapter 41 protest with no further action does not prevent a property owner from seeking relief under Section 25.25(d). The Courts have held that an unadjudicated protest filed by a prior property owner under Chapter 41, which is later withdrawn, does not bar a hearing on a subsequent Section 25.25(d) motion by the new property owner.4 Furthermore, even if a Chapter 41 protest is withdrawn by the prior property owner or subsequently dismissed by the Appraisal Review Board for failure to appear, the new property owner should not be barred from seeking “last chance” relief under Section 25.25(d). However, if the prior property owner withdraws the Chapter 41 protest and enters into a written settlement agreement with the Appraisal District establishing the appraised value of the property, the new property owner is bound by the appraised value set forth in the settlement agreement and is barred from seeking additional relief under Section 25.25(d).5
Section 25.25(d) is the property owner’s “last chance” for tax relief, but the property owner will be penalized for having waited to correct the appraised value of his property. As the old saying goes “there’s no such thing as a free lunch.” In order to exercise his “last chance,” the property owner will have to pay a 10% late-correction penalty to each affected taxing unit if the appraised value of the property is corrected. However, even with the 10% late-correction penalty, the property owner can still receive significant tax relief by filing a Section 25.25(d) motion.
Furthermore, this “last chance” opportunity does not eliminate the property owner’s obligation to pay the taxes due and owing on the property under Section 42.08. The property owner will forfeit his right to proceed to a final determination of the Section 25.25(d) motion if he fails to comply with Section 42.08. Generally, Section 42.08 provides that on or before January 31st of the year following the assessment year, the property owner shall pay the amount of taxes due on the appraised value of the property (the amount reflected on the tax bill) or the amount of taxes due on the portion of the taxable value of the property that is not in dispute. Even if a 25.25(d) motion is pending at the January 31st deadline, the owner still must make a timely tax payment. If a correction is made to the appraised value of the property under Section 25.25, the property owner will receive a tax refund from the affected taxing units.
In conclusion, Section 25.25(d) is truly a property owner’s “last chance” for tax relief in any given tax year. If the property qualifies for “last chance” relief under 25.25(d), then the property owner should consider filing a 25.25(d) motion to correct the appraised value of the property with the Appraisal Review Board prior to January 31, 2009.
1Geary, Porter & Donovan, P.C. is a full service law firm with a practice group devoted entirely to ad valorem taxation issues. Geary, Porter & Donovan, P.C. is located at One Bent Tree Tower, 16475 Dallas Parkway, Suite 400, Addison, Texas 75001-6837, (972) 931-9901, (972) 931-9208 (facsimile), www.gpd.com.
Special thanks to Ronald D. Gray, a shareholder of Geary, Porter & Donovan, P.C., for assistance with this article.
2 To determine whether the error exceeds the correct appraised value by more than one-third take the original appraised value of $250,000 and multiply it by .75 which will provide you with the threshold value. The corrected value must be the threshold value or less.
3Patsy Ann Anderton v. Rockwall Central Appraisal District, et al., 26 S.W.3d 539, 544 (Tex.App. – Dallas 2000).
4Jim Sowell Construction Co., Inc. v. Dallas Central Appraisal District, et al., 900 S.W.2d 82, 86 (Tex. App. – Dallas 1995).
5Dallas Central Appraisal District, et al. v. Park Stemmons, Ltd., et al., 948 S.W.2d 11, 14 (Tex. App. – Dallas 1997).