Sebastian Cotton & Grain, Ltd. v. Willacy Cnty. Appraisal Dist., No. 13-14-00574-CV, 2016 Tex. App. LEXIS 4376 (Tex. App.—Corpus Christi Apr. 28, 2016, no pet. h.)
This appeal involves three issues: (1) whether an appraisal district can raise a claim of fraud for the first time at the district court level, (2) whether an appraisal district can utilize Texas Property Tax Code §25.25(b) to increase a property owner’s taxable value, and (3) whether a property owner who succeeds in a Texas Property Tax Code §25.25 is entitled to attorneys’ fees.
Sebastian Cotton & Grain, Ltd. (“Sebastian”) filed forms with Willacy County Appraisal District (“WCAD”), claiming that all of the grain in Sebastian’s possession was its property. However, after learning it would be taxed on the grain, Sebastian filed a motion to correct ownership and explained to WCAD that its forms were filed in error and that the majority of the grain had been sold to DeBruce prior to the relevant valuation date. Sebastian provided copies of the purchase contracts and argued that DeBruce should be responsible for the taxes. Sebastian’s tax consultant and WCAD entered into an agreement under Texas Property Tax Code § 1.111(e), reducing the amount of grain on which Sebastian would be taxed to about 1/3 of the original amount. WCAD shifted the liability for the remaining grain to DeBruce. DeBruce protested, pointing to National Grain & Feed Association rules which dictate that title does not pass until grain has been delivered. Because most of the grain was not delivered until after the relevant valuation date, DeBruce argued that Sebastian was the owner responsible for taxes on the majority of the grain now attributed to DeBruce. WCAD sent notice to Sebastian under Texas Property Tax Code §25.25(b) that it intended to change the ownership again and shift a large part of the grain back to Sebastian. Sebastian protested, and the Appraisal Review Board determined that Sebastian owned the majority of the grain. Sebastian appealed to district court. The district court upheld the ARB decision that Sebastian was responsible for the majority of the grain, based in part on WCAD’s argument, raised for the first time in an amended answer, that Sebastian committed fraud in procuring the Section 1.111(e) agreement. Sebastian appealed the district court’s decision.
In its first issue on appeal, Sebastian argued that because WCAD raised fraud for the first time in district court, it failed to exhaust its administrative remedies on this theory and the theory could not serve as a basis for the judgment against Sebastian. The court of appeals acknowledged that several sister courts of appeals have ruled that a district court does not have jurisdiction to hear an argument in a trial de novo if a party failed to raise the argument before the appraisal review board. However, the court of appeals in this case did not adopt this approach. The court of appeals stated that a trial de novo cures procedural defects in the administrative proceedings. The court found support in the concept that appraisal review board hearings and orders are inadmissible at a trial de novo, a rule that could not be applied if issue preservation were in issue. The court of appeals concluded that WCAD did not fail to exhaust its administrative remedies by raising the issue of fraud for the first time to the district court.
In its second issue, Sebastian claimed that Section 25.25(b) could not be used to increase a property owner’s liability. In contrast, WCAD argued that 25.25(b) permitted any change to the appraisal roll at any time, as long as the net tax liability on the property remained the same. In other words, WCAD claimed that 25.25(b) permitted the shifting of tax liability from DeBruce to Sebastian because the net tax liability on the grain was the same. Turning to the statutory language utilized in Chapters 25, 41, and 42 of the Texas Property Tax Code, the court of appeals stated that the statutes consistently used the term “liability” to refer to an owner’s liability rather than a net liability on the property, and they required due process rights and an ability to protest where a taxpayer’s liability was increased. The court of appeals further stated that WCAD’s interpretation was contrary to the statutory scheme favoring finality in property tax matters. Accordingly, the court of appeals concluded that Section 25.25(b) could not be used to increase tax liability.
Finally, Sebastian sought attorneys’ fees as the prevailing party in a Section 25.25 dispute. The Corpus Christi court of appeals joined the Dallas, Austin, and San Antonio courts of appeals in stating that the award of attorney’s fees is mandatory under Texas Property Tax Code § 42.29. The court of appeals reversed the district court’s judgment and remanded the matter for proceeding on the amount of reasonable attorneys’ fees.