There are two types of people in Texas: Those for whom the tax code is written to favor, and everybody else.
The Dallas Country Club, not a place usually thought of as needing a huge tax break, used a quirk in state law to reduce its taxable value by nearly half.
Valero, one of the largest oil companies around, also used this provision to twice to force the Texas City school district to repay millions in collected taxes.
At a time when budgets are tight and school districts are hurting, counties statewide are watching their tax bases shrink by hundreds of millions of dollars in some cases as big business takes advantage of a 1997 amendment to the tax code that was intended to make sure homeowners were treated fairly.
The tax clause allows companies to file lawsuits year after year to reduce taxable value on their properties without any regard for the true market value, slowly shifting the tax burden to homeowners, officials in several Texas counties say.
In Bexar County, the clause allowed a new $600 million J.W. Marriott resort, in 2010 the largest Marriott in the world, to reduce its taxable value by more than half.
To Michael Amezquita, Bexar County’s chief appraiser, “It’s the equivalent of backing up the Brink’s truck to the public trough and driving away.” In his opinion, “It’s a legal way to steal dollars.”
As of Jan. 1 this year, there were 4,222 lawsuits challenging property values in Harris County, about 98 percent of them using the tax clause. The lawsuits represent about $35 billion in taxable value.
Lawsuits using the tax clause flooded the courts after the Texas 14th Court of Appeals ruled in 2005 that tax consultants testifying for the property owner did not need to use approved methods for determining value. The judge only has to believe that the testimony is reasonable.
“It’s like the Legislature just gave them a big red ‘easy’ button to reduce property taxes on the basis of equity,” said Sands Stiefer, attorney and deputy chief appraiser for the Harris County Appraisal District.
The lawsuits are nearly always successful, and most are settled out of court.
“It’s going to shift the tax base back to residential property,” said Ken Nolan, chief appraiser for the Dallas County Appraisal District.
Amezquita, the Bexar County appraiser, said that after Marriott lowered its tax value, he was sued by nearly every hotel in the county for tax rate reductions.
In El Paso County, a refinery used the law to slash its $781 million taxable value by 60 percent.
In Harris County, Houston 8th Wonder Properties purchased 104 acres of unimproved land for $77 million and a judge reduced the taxable value to $38 million. The appraisal district is appealing to the Texas Supreme Court. Houston 8th Wonder Properties officials did not respond to a request for comment.
The key element of the 1997 law allows companies to reduce their taxable value to the median value of similar properties. But because there is no definition for a comparable property, businesses are able to pick properties that in reality are dissimilar, appraisal district officials say.
In Harris County, HCA Gulf Coast compared 62.5 acres of prime, undeveloped property with a strip of property 90 feet wide, so narrow that it cannot be easily developed, according to an example of unfair property comparison given to legislators by the Harris County Appraisal District. The court reduced the value of the prime property by half.
Isn’t that nice? The effect of this ridiculous largesse is in the tens of billions statewide; it cost HISD $11 million just last year. There was a bill by Sen. Wendy Davis to try to limit the damage of this by restricting these lawsuits to properties valued at under $1 million, but it never had a chance in the Senate. Way too much money at stake to for that.
Hand in hand with this kind of generosity towards the wealthiest taxpayers is the notion of tax “reform” that lowers their taxes even more but does nothing for anyone else.
When the Texas House began debating HB 500 last Tuesday, the proposal would have reduced the collective tax bills of Texas businesses by $400 million. After several hours of debate, that figure had ballooned to $627 million as lawmakers eagerly tacked on amendments for various industries who said they had been treated unfairly under the state’s “margins” tax.
After all, Gov. Rick Perry has promised the Legislature will approve $1.8 billion in tax relief. Why say no to any exemption?
“HB 500 takes a stupid tax policy and makes it stupider,” a frustrated Rep. Mark Strama, D-Austin, told the House at the end of the lengthy debate. The bill, especially with all the amendments just approved, he said, would make the margins tax “more inequitable and more arbitrary.”
What the Legislature should be doing, he said, is a complete overhaul of the tax.
As Tuesday’s debate showed, that is easier said than done.
Texas’ tax system is “unbalanced, inefficient and inequitable,” said Bernard Weinstein, an adjunct professor of Business Economics at SMU’s Cox School of Business. And yet, elected officials view tax studies as opening a Pandora’s box, said Weinstein, a member of the 1987 Select Committee on Tax Equity,
“It’s great to sit down and talk about the big picture, but I don’t know too many politicians who are willing,” he said.
“Tax reform to many people equals tax increase.”
For those who are already winning, maybe. For the rest of us, it might mean we’d be screwed a little bit less. Again, we can’t let that happen.
“When the state cuts, local governments have to pick up the pieces,” said Scott McCown, executive director of the Center for Public Policy Priorities. “You can’t just cut taxes. We need tax reform.”
[Former Deputy Comptroller Billy] Hamilton agreed that it made sense to view “state and local tax structure as a unit.”
“High property taxes are the price we pay for the tax system we’ve got,” he said.
When the governor promises tax relief, added SMU’s Weinstein, an important question is: “For whom?”
Unless you have a lobbyist there in Austin schmoozing for you, the answer is not you. You don’t get the breaks, you get the tab. It’s not by accident, it’s the system we’ve put in place.
Finally, on a related note, Mayor Parker’s office put out this statement on property tax fairness yesterday.
Property tax fairness is an issue important to the city’s bottom line and that of every residential property owner because they are bearing an unequal tax burden. Clearly, all properties need to be valued appropriately. The current system is obviously inequitable and rewards a lack of transparency by the owners of many commercial properties. All too often, sound valuations made by Harris County Appraisal District (HCAD) are unfairly attacked by these owners, and HCAD, bound by a system that favors the owners, is forced to defend its actions with one hand tied behind its back. It is time for a change, and the state legislature is the primary place to make that change. The City of Houston will work with HCAD, the Houston Organization of Public Employees and other groups to achieve that change.
See here for more. It’s a little late to address this in the current legislative session, but the sentiment is correct, and I hope the fight for more tax fairness is a highlight of the next session.