Untitled Texas Attorney General Opinion

.

The Attorney General of Texas
.~uly22, 1983
JIM MATTOX
Attorney General

Mr. Kenneth E. Graeber opinion No. m-43
Supreme Court Building
P. 0. Box 12548
Executive Director
Austin. TX. 78711. 2548 State Property Tax Board Re: Constitutionality of
5121475.2501 9501 North Ill-35 section 115 of House Bill No.
Telex 9101674-1367 Austin, Texas 78761 30 enacted by the first ~called
Telecopier 512/475-0266 session of the Sixty-seventh
Legislature
1607 Main St., Suite 1400
Dallas, TX. 75201-4709 Dear Mr. Graeber:
2141742-8944
You have requested our opinion regarding the constitutionality of
4824 Alberta Ave., Suite 160
section 115 of House Bill No. 30 enacted by the first called session
El Paso. TX. 79905-2793 of the Sixty-seventh Legislature. Section 115 amended the Property
9151533.3464 Tax Code by adding section 26.011, which became effective on January
1, 1982.
x20 Dallas Ave., Suite 202
rlouston, TX. 77002.6986
Section 115 provides the following:

Sec. 26.011. LIMITATION ON APPLICATION OF
REAPPRAISED VALUES.
806 Broadway, Suite 312
Lubbock, TX. 79401-3479
806/747.5236
(a) If the appraised value of a property in
any year from 1982 through 1985, after subtracting
the appraised value of any new or previously
4309 N. Tenth. Suite 8 undiscovered improvements, increases for the first
McAllen. TX. 78501.1685 time above its assessed value on s taxing unit’s
5121682-4547
1981 tax roll, the assessor for the unit shall
limit the appraised value in the year of the
200 Main Plaza, Suite 400 reappraisal, if the percentage of the increase is
San Antonio. TX. 78205.2797 greater than l-1/2 times the percentage of
512/225-4191 increase above the 1981 value of all other
property on the unit’s tax roll in both 1981 and
A” Equal Opportunityl the current year, to an amount that is only l-112
Affirmative Action Employer times greater than the percentage of increase in
the value of all other property.

(b) If the appraised value submitted by the
appraisal district is less than the value required
to be substituted under Subsection (a) of this
section, the assessor shall retain the appraised

p. 185
 . .

Mr. Kenneth E. Graeber - Page 2 (JM-43)

value submitted by the district instead of
substituting a value pursuant to this section.

(c) A tax assessor shall limit increases in
market values of land appraised as provided by
Subchapters C, D, E, and F or Chapter 23 of this
code in the same manner as increases in appraised
value are limited and shall substitute the limited
values in the records for purposes of calculating
additional taxes.

(d) To be entitled to limitation of an
increase in appraised value of personal property
as prescribed by this section, a person must
present to the tax assessor records establishing
the kinds, amounts, and values of personal
property he owned on January 1, 1981, and on
January 1 of the year in which the increase
occurs.

(e) In this section, a new improvement is a*
improvement made after January 1, 1981, and a
previously undiscovered improvement is an
improvement that was made on or before January 1,
1981, but was not included on the taxing unit's
1981 tax roll.

(f) This section does not apply to a taxing
unit unless the unit, by ordinance, order, or
resolution (depending on the requirements of law
for adoption of a law by that unit), provides that
it applies.

(g) The State Property Tax Board shall issue
rules and regulations necessary for the effective
implementation of this section.

(h) This section expires January 1, 1987.

Acts 1981. 67th Leg., 1st C.S., ch. 13, §115, at 163. In other words,
if section 26.011 is adopted by the governing body of a taxing unit,
the appraised value of any individual property in that unit may not
increase by more than one hundred and fifty percent of the average
percentage increase in value of all property in the taxing unit in any
year from 1982 through 1985.

You submit that the statute could properly be construed in any
one of three different ways -- as a special valuation provision, as a
partial exemption, or as a "reasonable classification of property

p. 186
Mr. Kenneth E. Graeber - Page 3 (JM-43)

within the inherent powers of the legislature." You ask whether,
under any of these.constr"ctions, section 26.011 is constitutional.

It is clearly the rule that, when a law is attacked as being
unconstitutional, there is a presumption that the law is valid and
doubts as to its constitutionality should be resolved in favor of its
constitutionality. Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968);
Key Western Life Insurance Company v. State Board of Insurance, 350
S.W.2d 839. 849 (Tex. 1961). Moreover, no act of the legislature will
be declared unconstitutional unless some provision of the constitution
can be cited which clearly demonstrates the invalidity of the act.
Duncan v. Gabler, 215 S.W.2d 155, 159 (Tex. 1948); Texas National
Guard Armory Board v. McGraw. 126 S.W.2d 627, 634 (Tex. 1939).
Nevertheless. the lenislature mav not authorize that which the
constitution-prohibits-,Maher v. Lasater, 354 S.W.2d 923, 925 (Tex.
1962), nor may it lawfully act beyond the limitations set out in the
constitution. Travelers' Insurance Company v. Marshall, 76 S.W.2d
1007, 1009 (Tex. 1934). We conclude that section 26.011 of the
Property Tax Code contravenes article VIII, sections 1 and 2 of the
Texas Constitution and would be held unconstitutional by the courts.

First, we address the contention that section 26.011 should
properly be construed as a special valuation provision. Article VIII,
section 1 of the Texas Constitution provides in pertinent part:

Taxation shall be equal and uniform. All property
and tangible personal property in this State,
whether owned by natural persons or corporations,
other than municipal, shall be taxed in proportion
to its value, which shall be ascertained as may be
provided by law.

Texas courts have repeatedly declared that the term "value" as
employed in article VIII, section 1 means "market value" or the
"reasonable cash market value." Rowland v. City of Tyler, 5 S.W.2d
756, 760 (Tex. Comm'n App. 1928); z tlantic Richfield Company v. Warren
Independent School District, 453 S.W.2d 1910. 197 (Tex. Cl". App. -
Beaumont 1970, writ ref'd n.r.e.); Harlingen Independent School
District v. Dunlap, 146 S.W.2d 235, 237 (Tex. Civ. App. - San Antonio
1940, writ ref'd). See also Whelan v. State, 282 S.W.2d 378, 380
(Tex. 1955); State v. Whittenburg, 265 S.W.2d 569, 572 (Tex. 1954).
The Texas Supreme Court declared in Lively v. Missouri, K. & T.
Railway Company of Texas, 120 S.W. 852, 856 (Tex. 1909):

Article 8, 51, of the Constitution, contains this
language: 'All property in this state, whether
owned by natural persons or corporations, other
than municipal, shall be taxed in proportion to
its value, which shall be ascertained as may be

p. 187
Mr. Kenneth E. Graeber - Page 4 (JM-43)

provided by law.' The rule announced by that
provision is 'equality and uniformity.' To secure
this 'uniform and equal' taxatio", the ssme
sentence prescribes that the property of all
persons and corporations, other than municipal,
'shall be taxed in proportion to its value, which
shall be ascertained as may be provided by law.'
This is a clearly expressed purpose, that the
officers charged with the assessment of property
shall in the manner prescribed by law ascertain
its value. 'The value of the property is to be
determined by what it can be bought and sold for.'
New York State v. Barker, 179 U.S. 287, 21 Sup.
ct. 124, 45 L. Ed. 194. If it means full market
value when applied to the intangible assets of a
railroad company, it means the same thing when
applied to land, horses, etc. The standard of
uniformity prescribed by the Constitution being
the value of the property, taxation cannot be in
the same proportion to the value of the property,
unless the value of all property is ascertained by
the same standard.

"Market value" has been defined as "the amount of money that a person
desiring to sell, but not bound to do so, could, within a reasonable
time procure for such property from a person who desires and is able
to buy, but is not bound to purchase such property." West Texas Hotel
Company v. City of El Paso, 83 S.W.2d 772, 775 (Tex. Cl". App. - El
Paso 1935, writ dism'd). See also Property Tax Code §1.04(7). As
this office has already declared:

While it can be argued that the portion of article
8, section 1, which refers to ascertainment of
value 'as provided by law' permits the Legislature
to establish a standard of value for taxation
purposes other than market value, the courts have
clearly ruled otherwise. See also Tex. Const.
art. 8, 520. Accordingly, it is our opinion that
article 8, section 1 of the Constitution does not
permit the Legislature to provide for the taxation
of property other than in proportion to its market
value.

Attorney General Opinion H-1022 (1977). Exceptions to this market
value standard are found in article VIII, sections l-d and l-d-(a)
providing for the special valuation of agricultural and open space
land. Absent these specific constitutional amendments, however, such
property would have to be valued in accordance with the standard set
forth in article VIII, section 1. Attorney General Opinion H-1022

p. 188
Mr. Kenneth E. Graeber - Page 5 (JM-43)

(1977). Accordingly, we conclude that, absent a specific
constitutional provision permitting the special valuation authorized
by section 26.011 of the Property Tax Code, the Texas courts would
declare the code provision unconstitutional.

Second, you suggest that section 26.011 of the Property Tax Code
could properly be construed in the alternative as a partial exemption
rather than as a special valuation provision. Section 1.04(11) of the
Property Tax Code states that "'[plartial exemption' means an
exemption of part of the value of taxable property." The Texas
Constitution does not provide for or permit any partial exemption
other than those set forth in article VIII, sections l-a (partial
exemption for residential homestead for county taxes if county levies
tax for farm to market roads or for flood control), l-b (residence
homestead partial exemptions), and 2 (disabled veterans' partial
exemption). "[Elxemptions are subject to strict construction since
they are the antithesis of equality and uniformity." Hilltop Village,
Inc. v. Kerrville Independent School District, 426 S.W.2d 943, 948
(Tex. 1968). The legislature is without power to broaden exemptions
beyond those permitted by the constitution. Tex. Const. art. VIII,
section 2; Leander Independent School District v. Cedar Park Water
Supply Corporation, 479 S.W.2d 908, 910 (Tex. 1972); City of Amarillo
v. Love, 356 S.W.2d 325, 327 (Tex. Civ. App. - Amarillo 1962, writ
ref'd n.r.e.). If section 26.011 of the Property Tax Code were
construed to authorize a partial exemption, it would be declared by
the courts to be unconstitutional.

Third, you suggest that section 26.011 constitutes "s reasonable
classification of property within the inherent powers of the
Legislature." While the legislature is empowered to make
classifications of property for purposes of taxation so long as such
classifications are not unreasonable, arbitrary or capricious, Bullock
v. ABC Interstate Theatres, Inc., 557 S.W.2d 337, 341 (Tex. Civ. App.
- Austin 1977, writ ref'd n.r.e.), cert. denied, 439 U.S. 894 (1978);
American Transfer and Storage Company v. Bullock, 525 S.W.2d 918 (Tex.
Cl". App. - Austin 1975, writ ref'd), reliance on such a principle in
support of the constitutionality of section 26.011 would be misplaced.
The cases which rely on the principle are concerned with the power of
the legislature to specify
. . the objects of taxation, not with the
standard emnloved
_ to value oroner'ty so taxed. See ._ e.g.. Tex. Const.
art. VIII, §li; Bullock v: ABC . Interstate Theatres, inc. , supra;
Calvert v. Capital Southwest Corporation, 441 S.W.2d 247 (Tex. Civ.
APP. - Austin 1969, writ ref'd nI.r.e.), appeal dismissed, 397 U.S. 321
(1970); Grayson County State Bank V. Calvert:, 357 S.W.Zd 160 (Tex.
Cl". App. - Austin 1962, writ ref'd n.r.e.); Lockhart v. American
Mutual Life Insurance Company, 194 S.W.2d 285 (Tex. Civ. App. - Austin
1946, no writ); Gulf States Utilities Company v. State, 46 S.W.2d 1018
(Tex. Cl". App. - Austin 1932, writ ref'd). Indeed, the principle is
trnditionally coupled with the principle requiring equality and

P. 189
Mr. Kenneth E. Graeber - Page 6 (JM-43)

uniformity in taxation as set forth in article VIII, section 1 of the
Texas Constitution. The legislature is empowered to make such
classifications when the legislation is reasonable and when within the
class the legislation operates equally. Grayson County State Bank v.
Calvert, supra, at 162; San Jacinto National Bank V. Sheppard, 125
S.W.2d 715, 716-17 (Tex. Civ. App. - Austin 1938, no writ); Dallas Gas
Corn
pany v. State, 261 S.W. 1063, 1069 (Tex. Civ. App. - Austin 1924,
writ ref'd); Raymond V. Kibbe, 95 S.W. 727 (Tex. Civ. App. 1906, writ
ref'd). The Texas Supreme Court has in fact declared that, as to the
question of equality and uniformity of taxes within different classes
created by the state, the requirements of the equal protection clause
of the fourteenth amendment to the U.S. Constitution are essentially
the same as the requirements imposed by the Texas Constitution.

Each requires that all persons falling within the
same class must be taxed alike. Each recognizes
the power of the Legislature to make
classifications, and each requires that such
classifications, when made. must not be unreason-
able, arbitrary, or capricious.

Hurt V. Cooper, 110 S.W.2d 896, 901 (Tex. 1937). Again, however, the
issue as to the permissibility of any classificatory scheme of
taxation imposed by the state is different from the issue as to the
standard by,which property so taxed is valued.

Finally, in connection with this discussion, it has been
suggested that the following underscored language of article VIII,
section 18 of the Texas Constitution empowers the legislature to pass
such a statute:

(a) The Legislature shall provide for
equalizing, as near as may be, the valuation of
all property subject to or rendered for taxation,
and may also provide for the classification of all
lands with reference to their value in the several
counties. (Emphasis added).

The above underscored language was included in the Texas
Constitution of 1876; however, it has never been construed by Texas
courts. The statute implementing section 18 was, however, twice
construed. Article 7206, V.T.C.S., contained the following:

3. They shall equalize improved lands in three
classes, first-class to embrace the better quality
of land and improvements, the second-class to
embrace the second quality of lands and
improvements, and the third-class to embrace lands
of but small value or inferior improvements. The

P. 190
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Mr. Kenneth E. Graeber - Page 7 (JM-43)

unimproved lands shall embrace first, second and
third class, and all other property made as nearly
uniform as possible.

In both State v. Mallet Land & Cattle Company, Inc., 88 S.W.Zd
471 (Tex. 1935) and Taylor v. Alanreed Independent School District,
138 S.W.2d 149 (Tex. Civ. App. - Amarillo 1940, no writ), a taxpayer
alleged that the failure of a board of equalization to strictly comply
with subdivision 3 of article 7206, V.T.C.S., resulted in an illegal
assessment and in excessive, non-uniform, unequal and discriminatory
valuation. In both instances, the courts declared that compliance
with subdivision 3 was permissible, that the requirements of article
VIII, section 1 effectively supercede the requirements of article
7206. "It is our opinion that where the equalization is equal and
uniform, and in proportion to value, and no discrimination is shown,
as found by the jury in this case, the mere failure to follow the
statute in detail would not render the Iudament of the board of
equalization void." state V. Mallet Land- &-Cattle Company, Inc.,
supra, at 432. See also Taylor v. Alanreed Independent School
District, supra, at 150.

While the mere failure to adopt a classification scheme will not
result in an illegal assessment if the valuation is equal, uniform,
and in proportion to market value, the failure to value property in
accordance with article VIII, section 1 principles will result in an
illegal assessment even though a classification scheme is adopted.
The constitutional guarantee of equality and uniformity of taxation
controls of the method the legislature may prescribe for ascertaining
taxable values under the statutes providing for equalization of
assessments. Aycock v. City of Fort Worth, 371 S.W.Zd 712, 715 (Tex.
Civ. App. - Fort Worth 1963, writ ref'd n.r.e.). Courts have
repeatedly held assessments illegal and void when such assessments
were the result of classification schemes which Droduced values which
were not in accord with market values. See, 'e.g., Sierra Blanca
Independent School District v. Sierra Blanca Corporation, 514 S.W.Zd
782 (Tex. Civ. App. - El Paso 1974, writ ref'd n.r.e.); Duffey v.
Union Hill Independent School District, 490 S.W.Zd 201 (Tex. Civ. App.
- Texarkana 1973, writ ref'd n.r.e.); Atlantic Richfield Company v.
Warren Independent School District, 453 S.W.2d 190 (Tex. Civ. APP. -
Beaumont 1970, writ ref'd n.r.e.); Dietrich v. Phipps, 438 S.W.2d.900
(Tex. Civ. App. - Houston [lst Dist.] 1969, no writ); City of Saginaw
v. Garvey Elevators, Inc., 431 S.W.2d 575 (Tex. Civ. App. - Fort Worth
1968, writ ref'd n.r.e.).

It should be noted that article 7206, V.T.C.S., was repealed by
the Property Tax Code, effective January 1, 1982. Acts 1979, 66th
Leg., ch. 841, §6 at 2329. There is presently no implementation of
article VIII, section 18 in the code. Arguably, the land
classification scheme imposed by section 23.52 of the Property Tax

p. 191
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Mr. Kenneth E. Graeber - Page 8 (JM-43)

Code upon land receiving special valuation as "open-space land" is
authorized by article VIII, section 18, but it is important to note
that any classificatory scheme which results in a value other than
market value is unconstitutional absent a specific constitutional
provision permitting it. See Attorney General Opinions H-1220 (1978);
H-1022 (1977). In orderx meet this requirement, article VIII,
sections l-d and l-d-(a) were proposed and adopted.

While the legislature may establish classifications for purposes
of taxation, it clearly may not use such a means to circumvent the
constitutional principle that all property must be valued for purposes
of taxation at market value, unless the constitution otherwise
permits.

SUMMARY

Section 115 of House Bill No. 30 enacted by the
first called session of the Sixty-seventh
Legislature amending the Property Tax Code by
adding section 26.011 is unconstit~utional.

J--w
Very truly your
a

f
-JIM MATTOX
Attorney General of Texas

TOM GREEN
First Assistant Attorney General

DAVID R. RICHARDS
Executive Assistant Attorney General

Prepared by Jim Moellinger
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Rick Gilpin, Acting Chairman
Jon Bible
Susan Garrison
Ben Harrison
Jim Moellinger

p. 192