AUSTIN — Two years ago at tax time, Bexar County appraisers calculated the value of a ritzy San Antonio resort at about $270 million.
Owners of the JW Marriott disagreed, arguing the property, which includes a luxury hotel and a private water park, was less valuable. The company ultimately prevailed, knocking $36 million off the value and lowering its property tax bill by hundreds of thousands of dollars.
Last year, the resort reportedly sold for more than $600 million — more than double its taxable value.
As property owners across Texas receive their notices this month of their tax values, appraisers are bracing for another round of appeals by hotels, office buildings and oil refineries making use of a 22-year-old law that has been wildly successful at knocking down their taxable values.
More Information
Taxable values reduced in protests and lawsuits related to equity appeals in 2018, by county:
Bexar County: $4.1 billion
Dallas County: $11.9 billion
Harris County: $12.1 billion
Tarrant County: $6 billion
Travis County: $9.7 billion
Source: Texas Comptroller’s Office, appraisal districts
Over the years, appraisers say the law has increasingly shifted the state’s property tax burden onto homeowners, who now face the third-highest property tax rate in the nation.
“The only public policy reason behind it is to enrich commercial land owners at the expense of residential ratepayers,” said Jeff Branick, county judge in Jefferson County, where an appeal filed by owners of a huge industrial facility is creating a multimillion dollar hit on local government tax revenue. “If I had all properties being appraised at true fair market value, I could lower the tax rate.”
Protests and lawsuits related to the tax provision knocked a total of $44 billion off the tax rolls last year in the state’s five biggest counties: Harris, Bexar, Dallas, Tarrant and Travis, records from the Texas Comptroller’s Office show — an amount that equates to nearly $1 billion in tax revenue for local school districts and governments, according to a Hearst Newspapers analysis.
Yet this is one tax provision getting little attention in Austin, even as state lawmakers debate several different proposals for reining in soaring residential property taxes.
Bills to limit the so-called equity appeals — filed by two freshman lawmakers — have stalled in committee with just five weeks remaining in the legislative session. Neither has had a public hearing.
Jim Popp, a prominent Austin tax attorney who drafted the 1997 law, says the tax provision is working. The change, he said, ensures taxpayers have a way to protest when their property is assigned a value that’s higher than similar ones.
“To me, fair means treating similar taxpayers similarly,” said Popp, with Popp Hutcheson PLLC. If some properties are reduced below their market value, the next year appraisal districts “can come back and correct it so everyone is treated fairly,” he said.
Any property owner can file an equity appeal, but big businesses with the financial means to file lawsuits year after year make the most use of the law.
Property owners in Harris County filed over 5,000 lawsuits in 2017 making an equity argument. Roughly 90 percent came from commercial owners and together wiped more than $5.8 billion from the tax rolls, data from the Harris County Appraisal District shows.
Equity appeals let owners reduce their property’s taxable value by simply showing it’s higher than the median of similar properties — without any regard for what the property would sell for in the open market, a traditional measure of value.
But with so few guidelines in the law, appraisers say owners can find a median by pointing to lesser properties that are not really similar, or that aren’t even located in the same county.
While properties must be “appropriately adjusted” to account for any differences, appraisers say it can be impossible for unique buildings.
“It’s like comparing a 15,000 square-foot residential mansion to a two bed, two bath, two car garage,” said Jeff Law, chief appraiser for the Tarrant Appraisal District. “How do you make adjustments for that? You don’t, because they aren’t comparable.”
Once one property’s taxable value is reduced, the median drops, too. As a result, property owners often try to be the last to protest, said Brent South, Chief Appraiser at Hunt County Appraisal District and a past president of the Texas Association of Appraisal Districts.
“Each time one of their competitors gets an adjustment, it drives that median down,” South said. “It’s a continual spiral effect.”
Schools take an immediate hit
Perhaps no other school district in Texas feels the consequences of the law more than Port Arthur.
The 8,300-student district just finished reimbursing the energy company Valero some $30 million in property tax payments from years-old equity appeals. Now, Motiva Enterprises is suing to knock the 2018 taxable value of its Port Arthur refinery from $3.5 billion to $1.5 billion, records show.
With the protest ongoing, Motiva is paying property taxes on the value it considers fair. As a result, the school district has received $18 million of the $42 million it was expecting, said Assistant Superintendent for Business and Finance Phyllis Geans.
“It’s a big frustration,” said Geans, adding the district had planned to put the tax dollars toward its summer debt service payment. Motiva’s $42 million property tax bill represents 45 percent of the district’s total property tax levy she said.
“The lawsuit is not against the district, but we’re the ultimate one that loses,” she said.
Motiva officials said the decision to protest “wasn’t made lightly,” but the company believes the current assessed value is excessive. CFO Georganne Hodges said in a statement the refinery is valued more than 60 percent higher than all others in the area combined. “This is an unreasonable and inaccurate valuation of our facility,” Hodges said.
Motiva’s refinery — which became the nation’s largest after a 2012 expansion — can’t be compared to the three smaller refineries in Port Arthur, said Jefferson Central Appraisal District chief appraiser Angela Bellard. The company has been weighing roughly $6.6 billion worth of investments in its Port Arthur refinery to expand into the petrochemical business.
“You can find two houses that are similar,” Bellard said. “When you get to industry, there’s not two facilities that are the same. The adjustments are too large.”
The county’s appraisal review board sided with Bellard last year and then the company filed a lawsuit.
“Right now, our plan is to fight it,” Bellard said.
A game of chicken
Often, the legal challenges end in settlements that reduce the property’s taxable value.
In Bexar County, one apartment complex lost its litigation in 2017, appraisal district records show. The other 140 lawsuits filed that year by owners of garden and luxury apartment buildings resulted in reduced values.
Protesting property owners who win their litigation can recoup attorneys fees from the appraisal district, but the reverse isn’t true, making the taxpayer-funded appraisal districts reluctant to risk it in court.
“In that game of chicken, the appraisal district ducks, blinks and reduces the value,” said Bexar Appraisal District chief appraiser Michael Amezquita.
Popp says the setup evens the playing field, particularly for homeowners and small businesses, and it encourages negotiation.
“If you had two-way attorney fees,” he said, “the result would be many, many, many of the smaller lawsuits and the smaller taxpayers would no longer file.”
A 2015 report by the Legislative Budget Board found the tax provision cost the state tens of millions of dollars in school payments. The report suggested sweeping change, but the Legislature has made just a few tweaks since.
Sen. Nathan Johnson, D-Dallas, authored one of the bills this year proposing to roll back the equity appeals law by restricting the comparisons it would allow.
