The Williamson Central Appraisal District and other members of the Texas Association of Appraisal Districts aim to lobby for reforms to the way commercial property values are determined during the upcoming 84th Texas legislative session, which begins in mid-January.
WCAD Chief Appraiser Alvin Lankford said since 1997 state law has allowed some commercial property owners to lower their appraised values each year by millions of dollars, which has lead to some of the property tax burden shifting to residential property owners.
"I see the unfair treatment of residential property owners in this county. And I also see it in the state, and I really care about what happens in this system because I'm a representative of this system. I want everyone to pay [his or her] fair share, period," Lankford said.
According to the law, known as the equal and uniform statute, the appraised value of the commercial property must be "equal to or less than the median appraised value of a reasonable number of comparable properties, appropriately adjusted."
Lankford said that not clearly defining what a "reasonable number of comparable properties, appropriately adjusted" is has left the door open for interpretation that could take advantage of the system.
"When there are no guidelines people make their own rules," he said.
Marya Crigler, chief appraiser for the Travis Central Appraisal District, said most commercial property owners follow the spirit of the law, but a few bad examples can cause some taxpayers to lose confidence in the system.
"What we see happening now creates some issues that affect fairness and the perception of the taxpayers that we need to correct," Crigler said. "I'm not advocating that we need to repeal [the law]. I just think we need to get common standards to make it fair to everybody."
Equal and uniform
The statute was intended to serve as an equity remedy to ensure commercial property owners were being taxed in an equal and uniform manner, said Austin property tax attorney Jim Popp, a partner with law firm Popp and Hutchinson, who wrote the original legislation approved by the Legislature in 1997.
"Some say that the statute is eroding the tax base because it is creating what they refer to as a spiral-down effect," Popp said. "It is only when you misappropriately adjust the [comparable] properties that you will result in a bad conclusion."
Crigler and Lankford both cited examples of commercial property owners using comparable properties in other counties and in some cases outside of the state to adjust their property values.
"Nowhere in the law does it tell you what a comparable property is," Lankford said. "The No. 1 problem is that you've got a very broad scope of what even is comparable."
However, Popp said regardless of which comparable properties are used, if their values are adjusted correctly to account for elements such as building size and age, the values would not need to be lowered drastically.
"The statute works if applied correctly," he said. "If you follow the appraisal concepts that have been in existence for 60 to 100 years, comparable property and appropriately adjusted are not unknown concepts. From my side, when an advocate comes in and pulls properties out that are either not comparable or not appropriately adjusted, the person is misapplying the statute. It is difficult to legislate doing what's right."
Popp said it is up to the appraisal districts to say when the statute is being misused.
"If someone is filing their income tax and wants to take an exemption they are not entitled to, the [Internal Revenue Service] doesn't say, 'OK, you asked for it, so we're going to give it to you,'" Popp said. "So if you use a comparable that's not appropriate I think it's incumbent upon the appraisal district, appraisal review board and, certainly, the courts to say it's not comparable."
Although the vast majority of appraisal protests are settled out of court, some property owners sue appraisal districts under the statute, Lankford said. The cost of litigation related to those lawsuits—especially having to pay an attorney's fees if a judge reduces the valuation by any amount—can be high for the district, whose budget comes from the taxing entities within the district.
"[A lawsuit is] not as much of a risk for [commercial property owners]," Lankford said, adding that the way attorney fees are calculated puts pressure on the district to settle out of court. "Basically we are rewarding them for suing us."
Taxable values lost
Popp said in Texas reductions from all litigation, including equal and uniform, accounted for approximately $13 billion in reductions granted each year out of the state's $2 trillion in property values. However, Lankford said it is not accurate to show statewide figures because the number of commercial properties in an appraisal district could vary from district to district.
In Williamson County, equal and uniform protests and lawsuits accounted for a value reduction of more than $330 million in 2013 and more than $428 million in 2012. That could have meant an additional $8.2 million and $10.7 in property tax revenue respectively, according to information from WCAD.
In Travis County, which has more commercial properties than Williamson County, equity protests alone totaled nearly $2.3 billion in value reductions in 2013. That equaled nearly $56.6 million in lost tax revenue, according to TCAD data.
Changes to the law
Although the TAAD legislative agenda had not been approved as of press time Dec. 11, Lankford said the group is lobbying to clarify parts of the law that have led to the confusion, including adding to the language that equal and uniform values would be determined by generally accepted appraisal techniques.
"That's the way I've always told my appraisers to do it, and that's the way my law firm has always done it," Popp said. "So I think that is probably a worthwhile area of exploration."
Popp said he would work to oppose changes to the law that would eliminate the equal and uniform statute or changes that could go against the "spirit of the law."
"This is a remedy to try to achieve fairness," Popp said. "[Appraisals are] an opinion, but let's do the best job we can to be fair."
Rep. Tony Dale, R-Cedar Park, said in the upcoming legislative session, the topic of how appraisals are protested could be worth discussing.
"If the issue is related to interpretation, I think the interpretation can be changed without [creating a] statute, but it bears examination," he said. "Every business that is running well has a budget and they set how much they are going to set on certain things, and taxes come into that equation. If your taxes double or triple or quadruple, that's going to have a substantial impact on your budget. ... If you take that kind of big hit, you're talking about [cutting] jobs potentially, and most of the people in this area work for somebody else."
Crigler and Lankford said along with clearly defining the equal and uniform statute, they would like to see changes to the state's real estate sales disclosure law that would allow sales information to be shared with the appraisal district on large commercial properties. Doing so would allow the district to be able to value properties closer to market value, she said.
"The burden of proof is on [the appraisal district], but we're not given all of the information," Crigler said.
Texas is one of five states without real estate sales disclosure.
"While sales [information] would be useful, [the data is] not generally useful for property tax purposes," Popp said. "The suggestion that the world would change if there was sales disclosure, I think, is misplaced because most of the sales could not be used for property taxes anyway. While it's an interesting information point, it's not a reliable indicator of value for property taxes."
