Ready to Rumble? (Or…How Best to Obtain Texas Property Tax Reductions for Your Business and Residence Due to Lower Property Values)

12/31/2008

Irresistible force, meet immovable object. The irresistible force is the drop (extreme drop in many circumstances) in taxpayers’ property values during 2008. The immovable object is appraisal districts’ desire to maintain 2009 property tax values in order to avoid massive city, school and county revenue losses.

In anticipation of Texas appraisal districts not lowering voluntarily taxpayers’ 2009 property values to their fair market values, what follows is a brief toolkit to use in preparing for the good fight.

Strategic Rendering
“Rendering” is the process whereby a taxpayer notifies the appraisal district of the property it owns in the appraisal district. Each taxpayer is required to report on its rendition statement either (i) the taxpayer’s estimate of market value of its property, or (ii) such property’s original cost and year of acquisition. Rendering is generally required only for business personal property but taxpayers can voluntarily render commercial and residential real property. Rendition statements should be prepared extremely carefully because they have the potential to be very effective tools in framing valuation issues (but can be litigation nightmares for taxpayers if prepared casually because they can be used by appraisal districts against taxpayers). Key issues for taxpayers to consider with respect to rendition statements are (a) whether to report its property’s cost or value, (b) how the taxpayer determines market value (being mindful of serious penalties for fraudulent or evasive valuations) of its property, (c) whether to voluntarily render real property, and (d) where to report tangible personal property that is not permanently located in one tax jurisdiction.

Tax Protests and Hearings
The appraisal district will send a taxpayer a notice of appraised value for a property if the appraised value of such property is greater than (i) the value asserted by the taxpayer on its rendition statement or (ii) the property’s appraised value for last year. If the appraised value is not acceptable, a taxpayer must timely file a protest in order to challenge the appraisal. Generally, a tax protest is timely if it is filed before the later of May 31, 2009 or 30 days following delivery to the taxpayer of the relevant notice of appraised value. The tax protest process usually gives taxpayers two opportunities to resolve a property tax dispute, once at a settlement meeting before the hearing and the other at the hearing. Frequently, a taxpayer’s best shot to settle favorably the dispute before filing suit is at the settlement meeting; this is because the hearing is resolved by members of the appraisal review board, lay people appointed by the appraisal district board of directors. There are a host of issues to consider at the protest stage, including (a) whether to obtain an appraisal for settlement discussions, (b) making sure the taxpayer’s protest includes all possible objections (one objection often overlooked is unequal appraisal, i.e., the taxpayer’s property may be taxed at market value, but it is being taxed unfairly because other similar properties are being taxed at below market values), (c) how best to sell the taxpayer’s case at the settlement conference, and (d) if the case is not settled before the protest hearing, whether the taxpayer should appear at the protest hearing by affidavit (instead of in person) – with the goal being saving time and money for the litigation stage.

Litigation
If a taxpayer’s protest is not resolved favorably, the taxpayer may file suit to challenge the determination. The taxpayer generally must file suit within 45 days following the date the taxpayer receives written notice of the appraisal review board’s determination of the protest. A taxpayer’s bargaining power generally increases at the litigation stage because of several factors, including the arbiter being an unbiased judge or jury, the appraisal district’s risk of paying the taxpayer’s attorneys fees and the appraisal district sometimes being overwhelmed by a heavy property tax litigation docket (this may be particularly prevalent in 2009). Discovery is particularly important in property tax cases. With the right inquiries, taxpayers can access numerous nuggets in discovery, especially given the multitude of disputes the appraisal district has likely battled concerning properties similar to a taxpayer’s property. Conversely, taxpayers should be wary of internal communications and outside appraisals that might support a higher value (for example, an appraisal obtained for a potential lender). We believe that it is often beneficial for a taxpayer to obtain an appraisal of the property early on in the litigation process because a quality appraisal can encourage the appraisal district to settle.

Missing Filing Deadlines
Although meeting deadlines for filing protests and lawsuits are generally a prerequisite to moving forward on a property tax dispute, there are exceptions, such as one for substantially overvalued property (by more than one-third) and other circumstances.

If you have any questions or would like to discuss your property tax matters, please contact any of the attorneys below, each of whom has extensive experience with property tax issues. We would be very pleased to discuss your matter with you.

Jeff W. Dorrill
214.651.5781
jeff.dorrill@haynesboone.com

 Lamont Jefferson 
 210.978.7413 
 lamont.jefferson@haynesboone.com

Matthew R. Schindel
214.651.5368
matthew.schindel@haynesboone.com

 

 

Lisa Schumacher Barkley
210.978.7427
lisa.barkley@haynesboone.com

 

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