- Taxes in Texas are supposed to be equal and uniform and fair.
- Sometimes, however, taxing authorities can get overaggressive in trying to maximize revenue.
- A recent ruling by the Texas Supreme Court will curb some of that aggressiveness.
How is tax season going? Everyone having fun? Here at Bukowski Law Firm, we are in the heart of protest hearings. Its always challenging and frustrating and sometimes satisfying. I hope you are having only success.
Anyway, there was a court decision a couple of months ago that impacted the property tax world that I thought I would share this week. I think its totally fascinating. But I totally realize that may just be the legal nerd coming out. So hopefully you will find it interesting also.
The Texas Supreme Court did not like the scheme that a local school district was using to increase its property tax base. So lets talk about it.
Texas Appraisal Districts are Supposed to be Neutral
It can be incredibly frustrating when you get your new assessed values every year. And every year – often contrary to logic – there is a big increase in the assessed value. But officially, appraisal districts are supposed to be fair to property owners.
The requirement of Texas appraisal districts to be neutral when determining the assessed value of properties in taxing is a crucial aspect of maintaining a fair and equitable tax system, as required under the Texas Constitution. While it may not always appear that they do, appraisal districts are supposed to set valuations fairly – and not just try to maximize revenue.
Neutrality in property appraisal means that the valuation process should be free from bias, favoritism, or any external influences that could skew the assessed value. This requirement ensures that all property owners are treated equally and that the tax burden is distributed fairly across the community. By maintaining neutrality, appraisal districts can foster trust and confidence in the tax system, as property owners can be assured that their assessments are based on objective criteria and not influenced by personal or political considerations.
Furthermore, neutrality in property appraisal is essential for upholding the principles of transparency and accountability. It allows property owners to understand how their assessments are determined and provides them with a clear basis for challenging an assessment if they believe it to be inaccurate or unfair. Neutrality also helps prevent potential conflicts of interest that may arise if appraisal districts were influenced by individuals or entities seeking to manipulate property values for their own benefit.
Appraisal District does not have Authority to Hire on Contingency Basis
This brings us to the issue of the lawsuit in question. The Iraan-Sheffield Independent School District (“ISD”) was not happy with the appraisal of a commercial building in its district. See Pecos County Appraisal District, et al. v. Iraan-Sheffield Independent School District, No. 22-0313 (Tex. 2023). To seek a higher appraised value, the ISD hired a lawyer to protest the value and wanted to pay the lawyer on a contingency basis.
Because governmental authorities can only act if they have authority to do so, the Supreme Court first looked into whether the legislature gave the ISD this authority. After its analysis, the Court concluded that the ISD did not have this express authority.
The Court then looked into whether the ISD had the implied authority to do so. And that’s when the analysis got very interesting. The Court recognized that the taxing authority’s mission is not to maximize tax revenue. Instead, under the Texas Constitution, taxes are supposed to be equal and uniform. Taxes shall be assessed fairly and in proportion to the value of the property. But by hiring a lawyer on a contingent fee basis, the ISD has given the lawyer the incentive to maximize recovery. Because that is how the lawyer will get paid the most money. And this is a perverse incentive not in line with the legislative goals.
This case is interesting because it shows how far and off base some taxing authorities can get when trying to maximize revenue. But thankfully, property lawyers and the Supreme Court will sometimes tell them, “No.”