When big businesses want to fight their property tax bills, Texas law hands them an easy way, critics say
Supporters of the provision, known as equity appeals, say it's valuable for all property owners and stops taxing units from imposing unfair taxes.
As state leaders promote their property tax reform package as needed relief for everyday Texans, some Democrats and county appraisers suggest a provision in the tax code has stacked the system in favor of corporations that can appeal their valuations with a combativeness most homeowners can’t muster.
At issue: a 1997 amendment, drafted by a prominent tax attorney, that critics say has allowed businesses and industries to lower their property tax burden at the expense of other taxpayers. The provision offers all Texans a way to fight their appraisals by arguing they were treated unfairly compared to other properties. But critics say large property owners have capitalized on it to drive down their costs while owners of residences and small businesses can’t afford to do the same.
“If you have a whole category of property that is nonresidential systematically paying less, well who do you think is paying more?” said Bexar County chief appraiser Michael Amezquita.
Amezquita is one of several officials who say their districts have been inundated by appeals and lawsuits from commercial owners trying to lower their appraisals, which determine what taxes are owed on a property. Supporters of the “equity” provision say it’s a critical tool for all property owners and that commercial properties aren’t afforded the tax exemptions many home and agricultural landowners receive. Critics counter only well-funded property owners can afford to sue — and when they do, there’s often little an appraisal district can do to fight back.
“The deck is stacked against us,” said Amezquita, who has been sued by a J.W. Marriott resort seeking to have its taxable value reduced. A spokeswoman for the hotel declined comment.
In Texas, property owners can contest their appraisals in two ways: They can argue their property was appraised at greater than market value — what they could sell it for. Or they can file an “equity appeal,” arguing their property was not treated the same as similar real estate. Although the state constitution requires that properties be appraised equally and uniformly, it used to be virtually impossible to win such a claim.
Before 1997, in fact, property tax attorney Jim Popp had never seen an equity appeal filed in his 15 years practicing tax law. So in the last months of the 1997 session, he came up with language that made it far easier to make — and win — such a claim. The provision was included in a taxpayer reform bill and passed into law without debate. In the years that followed, the number of equity appeals shot up.
“It’s worked very well to give not only homeowners” but also commercial properties an avenue to ensure they are treated fairly, Popp said. Just like average Texans, commercial property owners are “fighting town hall” over their tax increases, he said. And with millions of parcels in Texas, appraisal districts charged with determining their value “do a really good job but can’t always get it right.”
There's a cap to how much the appraised value of a home can increase each year; commercial properties follow the market.
In 2017, more than 12,400 lawsuits were filed against appraisal districts, with nearly 11,000 of them making an equity argument, according to data compiled by the Texas comptroller’s office.
Just 979 of the lawsuits statewide, 8 percent, were filed by single-family homeowners — in part, Amezquita says, because it’s cost prohibitive.
The tax savings on a small piece of property usually don’t justify the cost of filing suit. And “no attorney is going to take a case for less than a $3,000 to $5,000 retainer,” he said. “If you can’t save $3,000 to $5,000 in taxes, what the hell is the point?”
“We used to call this a cottage industry,” Amezquita said of the consultants and lawyers who help fight commercial tax appraisals. “Now, it’s a McMansion industry.”
“What’s unfair about being fair?”
Texas is among a handful of states that do not require sales data to be disclosed. While the price of a home can often be found easily — including on public websites like Zillow — the price of commercial properties cannot, and those properties sell far less frequently.
Before Popp’s amendment, an owner had to hire independent appraisers and experts to show a property was not assessed in an “equal and uniform” fashion. The 1997 provision eliminated those technical requirements, and now, a property owner can furnish a list of plots they deem comparable and ask that they be assessed at the median value.
The current mechanism “is really a pretty straightforward approach,” said Austin-based property tax attorney Lorri Michel. “Because it's so straightforward, it makes it more accessible for an everyday taxpayer to be able to seek equal and uniform taxation without a lot of experts and without a lot of time and money.”
All taxpayers face an uphill climb when they contest their appraisals or sue the government, said Michel, a member of the state’s association of property tax professionals.
“When an unlawful appraisal of property occurs, when it's higher than it should be, that's a taking,” she said. The property owner then has to “incur much expense and time just to get back what was theirs.”
Property owners who want to contest their appraised value can do so informally and then in a hearing before an appraisal review board. Claims not resolved there can be escalated to district court or to the state’s office of administrative hearings, or they can be addressed in binding arbitration, a process more affordable than litigation. Because of the cost and time associated with taking a case to trial — and because appraisal districts are liable for the opposing side’s attorney’s fees — most claims are settled out of court, with the district agreeing to reduce the taxable value of the property in question.
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Tax attorneys like Popp and Michel say the equity appeal process restores fairness and stops taxing units from imposing undue taxes.
“What’s unfair about being fair?” said Popp, who views the issue as nonpartisan. Equity appeals are “not a scam,” he said, and “not a loophole.”
But critics say the appeals force appraisal districts to shave millions in taxable property value off their rolls, to the detriment of local government or school districts.
In 2011, for example, Jefferson County settled an equity lawsuit filed by Valero Energy. The school district had to issue $14.6 million in refund checks to the oil giant for property taxes Valero had already paid, said Angela Bellard, Jefferson Central Appraisal District's chief appraiser.
This year, the Beaumont-based appraisal district is again staring down the barrel of a lawsuit, Bellard said. The county’s largest taxpayer, Motiva, is seeking to have its taxable value reduced from $3.5 billion, she said — the value counted when the oil refinery was participating in a local tax incentive program that reduced the taxes it paid.
A spokeswoman for Motiva said the company’s decision “was not made lightly,” and that the refinery is overvalued compared to peer properties.
“We are committed to paying our fair share in taxes; however, we believe the current assessed value is excessive,” the spokeswoman said.
But from Bellard’s perspective, the company was “OK with their value for all those years,” she said. “Now, they’ve filed suit.”
Equal and uniform "would be gone"
Although past efforts to change the equity appeal system have mostly sputtered, freshman state Rep. Michelle Beckley and state Sen. Nathan Johnson, both Democrats, are the latest lawmakers to try.
Beckley, from Carrollton, and Johnson, from Dallas, have filed bills that would essentially rewind the clock on Popp’s amendment.
It would lead to “enforcement of the law as it existed prior to this goofy amendment,” said Johnson — and do so “in a way that's consistent with the way that we tax homeowners and small business owners.” He said his bills are based on a 2015 report from the Legislative Budget Board that was critical of the equity appeals and found 6,200 equity lawsuits had been filed in fiscal year 2012.
The new bills would also allow for appraisal districts to recoup some attorney’s fees if they prevail in court or in arbitration. Under current statute, an appraisal district must pay up to $100,000 of the winning side’s attorney’s fees but can’t be compensated if a judge sides with the district.
Because there’s no downside to filing, “it encourages litigation,” Johnson said, and can dissuade appraisal districts from fighting lawsuits since they risk having to pay lawyers’ fees if they lose.
Popp, who opposes the measures, said the change would squeeze out small businesses who can’t afford $15,000 while leaving deep-pocketed corporations undeterred. He said needed changes had been included in a 2015 law he helped craft, and that now requires the equity appeals to abide by generally accepted appraisal standards.
If Johnson’s or Beckley’s bill passes, he said, “we'd be back to pre-1997, where fairness was not the focus — it was an attempt to find market value.”
“There would be no equal and uniform,” he said. “It would be gone.”
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