NHH-Canal St. Apts., Inc. v. Harris Cnty. Appraisal Dist., No. 14-14-00251-CV, 2015 Tex. App. LEXIS 11890 (Tex. App.—Houston [14th Dist.] Nov. 19, 2015, no pet.)
NHH-Canal Street Apartments filed suit after the Harris County Appraisal District (“HCAD”) denied its charitable organization property tax exemption. The NHH-Canal Street Apartments are a single-room residency facility for residents who are disabled, have special needs, and/or are of economic disadvantage. Many of the residents were formerly homeless. Residents pay no rent or substantially below-market rent. NHH-Canal Street screens residents to ensure that they make at least 1.5 times the rent charged and have the ability to pay rent. NHH-Canal Street provides additional services, including but not limited to assistance in securing employment, managing finances, and providing health screening. Both HCAD and NHH-Canal Street filed motions for summary judgment. NHH-Canal Street argued that it qualified for the exemption because it is a charitable organization that provides support to the impoverished under Texas Property Tax Code Sections 11.18(d)(2) and (d)(3). HCAD argued that NHH-Canal did not qualify for the exemption because they screened the income of applicants and therefore did not provide support “without regard to the beneficiaries’ ability to pay,” a term found in Sections 11.18(d)(2) and (d)(3). After the trial court granted HCAD’s motion for summary judgment and denied NHH-Canal Street’s motion, NHH-Canal Street appealed to the court of appeals.
On appeal, the court of appeals first weighed whether NHH-Canal Street provided support to the impoverished as contemplated in Texas Property Tax Code Section 11.18(d)(2). Evidence had been introduced that the average annual income of residents was near the Department of Health and Human Services Poverty Guidelines. Based on that evidence, as well as the ordinary meaning of the term “impoverished,” the court of appeals concluded that NHH-Canal Street serves the impoverished. Turning to HCAD’s argument that screening for ability to pay is contrary to Section 11.18(d)(2), the court of appeals stated that the “ultimate consideration” is whether, evaluating the total operation, the charitable organization did not require beneficiaries to pay the full cost of services. Finding that rents charged were substantially below market and the additional services were provided at no cost, the court of appeals concluded that NHH-Canal Street was a charitable organization serving the impoverished without regard to ability to pay and thus qualified for the exemption under Texas Property Tax Code Section 11.18(d)(2). Moreover, the court of appeals went on to conclude based on statutory construction of the Section that the qualifier “without regard to beneficiaries’ ability to pay” did not apply to charitable organizations serving the impoverished. The court of appeals reversed the trial court’s order and rendered judgment on behalf of NHH-Canal Street.