EXLP Leasing, LLC v. Galveston Cent. Appraisal Dist., 475 S.W.3d 421 (Tex. App.—Houston [14th Dist.] 2015, pet. filed)
Appellants EXLP Leasing, LLC and EES Leasing, LLC (collectively, “EXLP”) rent compression units to third parties. Compression units assist in the movement of natural gas from a production field to a common carrier pipeline. The compression units at issue in this case were rented by EXLP from EXLP’s yard in Washington County to companies that utilized the compression units in Galveston County on January 1, 2012. Prior to 2012, EXLP rendered compression units in use in Galveston County, such as those at issue in this case, to the Galveston County Appraisal District (“GCAD”) as business personal property. However, in 2011, the legislature amended Section 23.1241 of the Texas Property Tax Code, which concerns the valuation of heavy equipment inventory. Whereas previously only dealers who held heavy equipment inventory for sale, or for lease with a purchase option, were entitled to calculation of the market value of their property based on sales for the previous year divided by twelve, after the amendments dealers who held heavy equipment inventory for lease without a purchase option were also entitled to calculation of the market value of their property based on lease payments for the previous year divided by twelve. The section also requires heavy equipment dealers to file a declaration stating the name and business address of each location at which it conducts business. Consequently, for tax year 2012, EXLP did not render the compression units to GCAD but instead treated them as taxable heavy equipment inventory in Washington County. GCAD disagreed and declared the compression units operating in its Galveston County as of January 1 to be taxable business personal property. After an unsuccessful administrative protest, EXLP filed suit in district court. The appraisal district argued that Sections 23.1241 and 23.1242 were unconstitutional because the resulting taxable value was unrelated to market value, that the compression units did not qualify as heavy equipment, and that the taxable situs was in Galveston County. After both parties filed motions for summary judgment, the trial court ruled that the compression units were heavy equipment, that Sections 23.1241 and 23.1242 were unconstitutional, and that the compression units were sitused and taxable in Galveston County. EXLP appealed.
On appeal, GCAD did not appeal the trial court’s determination that EXLP’s compression units qualified as heavy equipment inventory. EXLP raised two primary issues on appeal: (1) whether the trial court erred in declaring Sections 23.1241 and 23.1242 unconstitutional; and (2) whether the trial court erred in declaring that the taxable situs for the compression units was in Galveston County. The court of appeals declined to rule on the constitutionality of Sections 23.1241 and 23.1242 of the Tax Code, holding instead that neither party produced sufficient summary judgment evidence for the court to determine as a matter of law whether the valuation of the heavy equipment under these Sections was based on reasonable market value as required by the Texas Constitution. As a result, the court of appeals reversed the trial court’s judgment declaring the Sections unconstitutional and remanded the matter back to the trial court for further proceedings on the constitutional question. On the question of situs, the court of appeals affirmed the trial court’s determination that Galveston County was the taxable situs for the compression units. The court of appeals cited Valerus Compression Servs. v. Gregg Cnty. Appraisal Dist., 457 S.W.3d 520 (Tex. App.—Tyler 2015, no pet.), a similar case in which the Tyler Court of Appeals concluded that the legislature did not intend for Section 23.1241 to operate as a situs statute or to modify the general rules on situs laid out in Section 21.02. Relying on the Valerus decision and noting EXLP’s admission in briefing that, but for its interpretation of Section 23.1241, situs would be in Galveston County, the court of appeals agreed with GCAD and the trial court’s determination that Galveston County had taxable situs for the compression units.