News and Insights

Recent Appeals Court Decision Affects Mandatory Property Tax Renditions in Texas

Tax Development Sep 04, 2001


The issue of whether or not to file a rendition of personal property inTexas is not new nor is it a simple one. Since the introduction of the TaxCode as Senate Bill 621 during the 66th Legislative Regular Session in 1979there have been questions regarding the intent of the legislature regardingthe rendition of personal property. The language of Tax Code sections 22.01(a) and (b) seems clear. Section (a) states "….a person shall render fortaxation all tangible personal property used for the production of incomethat he owns or that he manages and controls as a fiduciary on January 1."Section (b) further states, "When required by the Chief Appraiser, a personshall render for taxation any other taxable property that he owns or thathe controls as a fiduciary on January 1." This language would appear tomandate rendition of taxable personal property. Why then has there been22 years of controversy on this requirement? The simple answer is that whilethe language in the Tax Code seems to mandate renditions, the legislaturehas consistently failed to provide a penalty for failure to file renditions.

Originally the introduced version of S.B. 621 called for a penalty but thepenalty provision was deleted prior to the adoption of the bill and enactmentof the Tax Code. The legislature has had numerous opportunities in followingsessions to enact a penalty and in fact a number of bills have been filed,but none have passed. Indeed, as recently as the 76th legislative sessionin 1999, H.B. 1630 was filed. The bill contained language expressly statingthat the filing of a personal property rendition is mandatory. The billfailed to pass. When you consider the consistent refusal of the legislatureto address this issue, it is not unreasonable to form the conclusion thatthe legislature meant for Section 22.01 (a) and (b) to be directory ratherthan mandatory.

It is also not unreasonable for taxpayers to use this interpretation inthe attempt to minimize their property tax liability. Conversely, it shouldcome as no surprise that chief appraisers and taxing authorities continuallyseek legislative and judicial help to rectify what they consider to be aserious deficiency in the discovery and valuation of income producing tangiblepersonal property. They are charged with the task of discovering taxablepersonal property and accurately and equitably valuing it for taxation.This task is considerably complicated, if not rendered impossible, whena majority of taxpayers fail to file personal property renditions. The taxpayersand their agents that do file renditions, primarily because they interpretSection 22.01 as mandatory, also have good reason to seek a consistent applicationof the rendition requirement. They logically assume that they are beingpenalized by having to pay a disproportionate share of taxes, and they arerightly offended by a system that punishes good citizenship. Robinson v.Budget Rent-A-Car, Inc. is the latest round of this continuing struggle.

The District Court Decision

The original suit was filed with the 215th District Court, Harris County,Texas; Cause No. 98-37721. Jim Robinson, Chief Appraiser, Harris CountyAppraisal District, Texas sued taxpayers Budget Rent-A-Car Systems, Inc.,Fred Haas Motors, Inc., and Splashtown, LTD., for an injunction to compelthe taxpayers to file personal property renditions in accordance with TaxCode sections 22.01 (a) and (b). The question before the court was whetherthe rendition provisions of the Tax Code sections 22.01 (a) and (b) aredirectory or mandatory, and if compliance with the provisions can be judiciallycompelled. The facts of the case were undisputed and the parties filed cross-motionsfor summary judgment. The court granted summary judgment and held that thestatute that requires rendition is directory rather than mandatory.

The Appellate Court Decision

Robinson v. Budget Rent-A-Car, Inc. was taken up on appeal to the Courtof Appeals of Texas, First District, Houston, Cause No. 01-98-01265-CV.The judges' panel consisted of Chief Justice Schneider and Justices Andelland Duggan. The standard of review applied by the court involved a reviewof the summary judgment evidence presented by both sides and a determinationof all questions presented. The court determined that "The central issuedividing the parties is whether the rendition provisions of Tax Code sections22.01 (a) and (b) are directory or mandatory." The court in their reviewof this issue considered case law, "…the plain meaning of the words used,as well as the entire act, its nature and object, and the consequences thatwould follow from each construction". In determining "plain meaning" thecourt relied on TEX.GOV'T CODE ANN. section 311.011 (a) (Vernon 1998), "wordsand phrases shall be read in context and construed according to the rulesof grammar and usage". The court determined that "The plain meaning ofthe term "shall" in sections 22.01 (a) and (b) supports a mandatory constructionof the rendition provisions. Additionally, the court looked to the CodeConstruction Act to determine the meaning of the word "shall". TEX. GOV'TCODE ANN. SECTION 311.016 (VERNON 1998), The Code Construction Act statesthat the term "shall" imposes a duty "unless the context in which the wordor phrase appears necessarily requires a different construction…..". Thecourt chose a strict interpretation of the Tax Code provision and foundthe rendition provision to be mandatory. The court further determined thatTax Code section 22.01, requiring the owner of property to render such propertyfor taxation, is a revenue law of the state.

The court reasoned that the proper enforcement mechanism is Civil Practiceand Remedies Code section 65.016. This section provides that "at the instanceof the county or district attorney or the attorney general, a court by injunctionmay prevent, prohibit, or restrain the violation of any revenue law of thisstate." TEX. CIV. PRAC. & REM. CODE ANN. SECTION 65.016 (Vernon 1997). Thecourt further supported their reasoning with the assertion that since section65.06 was enacted in 1989, after the adoption of Tax Code in 1979 and itsamendment in 1981, the legislature intended section 65.016 as an enforcementmechanism for the rendering of property under the Tax Code.

The court reversed the trial court's summary judgment that the taxstatute was directory rather than mandatory and mandated that the appelleesrender their property for taxation. The ruling of the court was 2-1with Justice Andell dissenting. Justice Andell closes his dissenting opinionwith the statement; " The Legislature chose not to attach a penalty or tomake rendition mandatory; I believe our duty is to refrain from legislatingand to follow existing case law."

In Conclusion

Will this decision materially affect the taxation of income producing tangiblepersonal property in Texas? Will a substantially greater number of taxpayersfile renditions? Is the injunctive process a realistic tool for compellinglarge numbers of taxpayers to render their property for taxation?

It is doubtful that the answer to any of these questions is in the affirmative.The legal process is too slow to act and too expensive both in terms ofmoney and political capital. It is estimated that in many Texas Countiesthe rendition filing rate is only 50-60 percent. It is difficult to envisionand unrealistic to expect local Chief Appraisers and County Attorneys tofile for injunctive relief against large numbers of taxpayers that liveand vote in their jurisdictions. It is more likely that this judicial "bullet"will be targeted against a relatively small number of taxpayers that meeta set of very select criteria. Selective legal enforcement by injunctionwill occur at the expense of "fair and equal taxation".

The Texas system for discovering, valuing, and taxing income producing personalproperty is inefficient, inaccurate, and inequitable. The Tax Code needsto be remedied, but as Justice Andell contends, that task belongs to the Legislature.