PROPERTY AND FRANCHISE TAX REFORM
IN THE 2009 TEXAS LEGISLATIVE SESSION
Taxpayer Rights and Remedies • Appraisal Review Board Matters
• Comptroller Reforms

There were significant tax reforms passed in the 2009 Texas Legislative Session, particularly with regard to property (ad valorem) taxes and franchise (margins) taxes. This article summarizes the reforms with the most potential to affect TSSA members.

FRANCHISE (MARGINS) TAX REFORM:
• The “small business” exemption to the franchise/margins tax is temporarily increased from the current $300,000 in gross revenue to $1 million for the next two years and permanently increased to $600,000 in subsequent years. This should provide much-needed tax relief for many members. HB 4765, effective 1/1/10.

PROPERTY TAX REFORM:
Constitutional Amendment. A bill was passed to put the following issue on the state-wide ballot for vote on November 3, 2009:
Allowing the state to oversee the property tax system to establish greater uniformity of standards and procedures throughout the system. HJR 36

Truth in Taxation Statement. Provides a "truth in taxation" statement of by what percentage the proposed tax rate exceeds the effective tax rate. Section 26.05, HB 2291, effective: 6/19/09

Taxpayer Rights and Remedies
• Filing Deadline Extended. The deadline for filing a lawsuit is extended to 60 days (from 45 days) after issuance of an appraisal review board (ARB) order. HB 986, effective 6/19/09.

• Good Cause Postponement. A taxpayer may obtain a postponement of an ARB hearing for “good” rather than “reasonable” cause. “Good” cause is defined as a mistake that was not intentional or the result of conscious indifference, and which will not cause undue delay. HB 1030, effective 1/1/10.

• Limited Alternate Appeals Process Established. A three-year “pilot” program in Bexar, Cameron, El Paso, Harris, Tarrant, and Travis counties established. The program would allow commercial property owners with property valued at over $1 million the option of appealing any ARB decisions to a new “state office of administrative hearings” (SOAH) at a relatively minimal cost compared to an appeal in district court. The “loser” pays the cost of the appeal. HB 3612, effective 1/1/10.

• One Appeal Deposit Required for Two Tracts. In an arbitration appeal, only one deposit is required for two or more contiguous tracts of land. HB 4412, effective 9/1/09.

•Attorneys Fees for Error. In a petition for a correction of an error in the appraisal roll, a prevailing taxpayer is now entitled to receive attorneys fees. (Under law that already exists, a prevailing taxpayer is entitled to receive attorneys fees for a protest of tax valuation but not a correction of error). HB 1030, effective 6/19/09.

• Signature Other Than Tax Consultant Required. Designation of an agent (a property tax consultant helping you with your protest, for example) must now be on a form from the Comptroller’s office and must be signed by a person other than the person being designated. The agent designation may be filed at or before the ARB hearing. HB 1203, effective 5/26/09.

Appraisal Review Board Matters
•Notice of Hearing to Taxing Unit. In a motion to determine compliance with the payment requirements of Tax Code Section 42.08, the party filing the motion must provide notice of the compliance hearing to each taxing unit that imposes taxes on the property. The notice(s) must be sent via certified mail, return receipt requested. Also, the taxing unit may intervene in the hearing, whether or not it received notice of the hearing, for the limited purpose of determining compliance with Section 42.08 requirements. SB 1359, effective 6/19/09

Additional note about Section 42.08, regarding the duty to pay taxes when you are protesting:
Tax Code Section 42.08 details the amount of tax that must initially be paid when a taxpayer is protesting a tax valuation. Filing a timely protest does not delay the deadline for payment of taxes. Unless an oath of inability to pay is filed and a specific finding made, a taxpayer filing a protest (appeal) must pay taxes on the property that is subject to appeal in a timely manner.

The taxes paid must be the lesser of either:
(1) The amount of tax due on the portion of the taxable value of the property that is not in dispute (taxes would be calculated based on what the owner believes the correct valuation to be on the improvement, for example); or
(2) The amount of tax due on the property under the order from which the appeal is taken (in other words, the amount you were billed). “Overpaying” does not affect your right to a refund should you be successful in your protest.

• Business Personal Property for Income-Producing Real Estate. Business personal property used in the production of income on income-producing real estate must be appraised as part of the real property under the income approach and not separately appraised as business personal property. SB 771, effective 1/1/10.

• Proof of Valuation Required. Appraisal districts will be required to use property-specific information provided by the owner’s tax consultant or the owner in the process of valuing the owner’s property. Appraisal districts must also demonstrate “substantial evidence” to warrant an increase in the property’s value in the year subsequent to a successful protest. A sale used for comparison must be within 24 months of the valuation date to be considered comparable unless there are insufficient sales. Criteria have also been set forth for determining whether a property is comparable. SB 771, effective 1/1/10.

• Training for ARB Members. Appraisal review board members are required to receive training from an independent source. The new law specifies topics that must be covered in the training. HB 2317, effective 9/1/09.

• TDLR Now Responsible for Licensing and Regulation of Appraisal District Employees. The Board of Tax Professional Examiners is eliminated and the responsibility for regulating and licensing employees of appraisal districts, and tax assessor-collectors is moved to the Texas Department of Licensing and Regulation. HB 2447, effective 9/1/09.

Comptroller Reforms
• Property Study and Audits Every Two Years. The Texas Comptroller's previously annual property value study is now required to be a biennial study. The Comptroller's authority for audits is expanded to mandate a biennial audit of all appraisal district operations and methodologies, hopefully helping to bring more consistency throughout the state to appraisal methods used by various appraisal districts. HB 8, effective 1/1/10.