Large companies turn to courts for tax relief
Posted: 5:31 p.m. Saturday, Nov. 2, 2013
By Christian McDonald and Tony Plohetski - American-Statesman Staff, KVUE News
Over the past decade, Walgreens has engaged in a high-stakes game of dominoes across Texas to get its property taxes lowered for dozens of stores.Using a 15-year-old law “” and the state civil court system “” the national retailer has successfully obtained reductions in several of Texas' largest counties, including Bexar, Dallas, Collin and Harris.
* Appeals shift tax burden
* Travis Central Appraisal District lawsuit explorer
Last year, another domino fell. With a long-running pending lawsuit against Travis County, the company brought those victories from other counties to Austin. Instead of taking the case to trial, county officials said they felt pressed into settling and cut Walgreens property tax valuations by $14.8 million, translating into an estimated $350,000 tax savings for the company.
“I cant be held to a decision made by another appraisal district,” Travis County Chief Appraiser Marya Crigler said. “But at the same time, I had to consider that. What if it goes to trial, what would the jury consider?”
Last month, the American-Statesman reported that the property tax revenue Texas counties depend on to pay for schools, the construction and upkeep of streets and for local police protection is coming more and more from residential property owners, and less from large commercial owners and businesses. A three-month joint analysis by the newspaper and KVUE-TV demonstrates in part how and why that transformation has occurred.
Large businesses have turned to the courts to systematically lower their property tax bills by millions of dollars, shifting the tax burden to homeowners. County appraisers say once they become the target of such lawsuits, the system is so stacked against them that the litigation becomes the equivalent of bringing a penknife to a gunfight.
The review found:
* Property owners have used lawsuits to obtain valuation reductions totaling about $1.8 billion since 2010. Officials say that translates into an estimated $40 million in tax dollars that didnt flow to the countys taxing entities such as Travis County, the city of Austin and the Austin Independent School District. A big chunk of the valuation loss in the past three years came from a single lawsuit involving Samsung in which the county prematurely taxed an incomplete project.
But lawsuits fighting valuations can be filed year after year, and property owners can and frequently do contest the value for multiple properties in a single suit, blanketing the courts with “robo-filings.”
There is little disincentive for large property owners to sue. If they lose at trial, they dont have to reimburse the county for its legal fees. On the other hand, counties are legally obligated to pay a portion of the legal bills for the plaintiffs if the case goes to trial and the valuation is lowered by as little as $1. Last year, Travis County picked up Advanced Micro Devices $200,000 legal tab when the chip manufacturer prevailed in its property tax case.
At the same time, county appraisers say, they are immediately financially outgunned in such litigation. The Travis County Appraisal District has an average annual legal budget of about $700,000 money to pay for outside lawyers and experts “” and officials say they must be stewards of that publicly funded money pool. In cases in which a company might hire multiple experts, the county might be able to afford only
one, Crigler said.
Consequently, many companies and large property owners file lawsuits with little hesitation. Crigler said county appraisers have contended with suits in which plaintiffs included every property they own, despite the strength of the case for lowering the valuation. Walgreens officials acknowledged in a written statement that while it routinely sues Texas appraisal districts, it rarely does so in other states.
Once companies that own multiple properties or large parcels file a lawsuit, county appraisers say such litigation immediately has a chilling effect. Fearful of suffering a deep valuation cut or paying a costly legal tab from their limited budgets, they almost never rise to the challenge in court. In the past three years, the Travis County Appraisal District has been sued over the valuations of about 1,900 parcels and taken a case to trial in less than a handful of instances.Yet any legal victory either inside the courtroom or in a pretrial settlement for property owners can then have a cascading effect, suppressing the valuations of other properties on the tax rolls, as one owner uses the lowering of one valuation to argue his or her own case.
Robert Mott, a Houston lawyer who represents taxing entities, said property owners in some instances are using the courts to avoid paying their share of property taxes. Appraisers “feel particularly strongly about the shift to homeowners just because of the easy remedy among those who have the resources to fight,” he said.
Commercial property owners and attorneys who represent them defend their right to sue.
“We appeal our property taxes when we believe the property assessment significantly exceeds the market value of our properties,” Walgreens said in a written response. “If our appeal is unsuccessful, and we still believe the assessment is too high, we may seek a court review, just as any other property owner can. Like any individual or business that owns property, we want to ensure the taxes we pay are fairly assessed.”
Commercial property owners say obtaining accurate property appraisals is nearly always more difficult than for the appraisals of homes and that by fighting to keep their taxes low, they are keeping prices lower for consumers.
“We arent being frivolous,” said Mark Hutcheson, an Austin attorney whose firm specializes in representing businesses and commercial property owners with such claims. “You want to make sure your tax obligation is fair, and your fair share, but not more than that.”
County officials say they strive to appraise property for taxing purposes at the price for which they think it would sell. Yet the market has demonstrated they are losing that battle.
As the American-Statesman reported last month, the field is tilted against appraisers from the start because Texas is one of only a few remaining states that doesnt require some form of disclosure of property sales prices; officials say such data is necessary for accurate appraisal.
Last year, for example, through a protest to the appraisal district, Advanced Micro Devices got its valuation lowered for a third consecutive year by about $13 million, and its appraised “market value” now stands at $127.5 million. Yet in April, the company sold its complex for $164 million $37.5 million more than the taxable value that AMD was disputing as too high.The company has a pending lawsuit it filed this year for another valuation decrease.
Appraisers say the lack of data also contributes to a large number of annual protests 79,000 last year in Travis County, affecting about 1 out of 5 tax parcels in the county.
Property owners dissatisfied with their appraisal may appeal before the appraisal districts review board, an independent committee that hears evidence and decides whether the tax bill should be lowered. Those still unhappy can then go to court.Such lawsuits were largely unheard of until the late 1970s because of laws favoring government appraisers.
“You could file a lawsuit, but it was difficult to win,” said Kenneth Graeber, chair of the government relations committee for the Texas Association of Property Tax Professionals. Courts commonly relied upon a standard in which an owner had to demonstrate that their property was subjected to “grossly excessive calculations, and there wasnt a defined standard with regard to how to measure equality,” he said.
Former state Rep. Wayne Peveto said that, among the few property owners who did prevail in court, most of their savings were ultimately given to their lawyers to cover legal costs.Peveto said he sought to right that wrong, leading several reforms to the state tax code that set a different standard for property owners who sued and permitting them to win if they could demonstrate any “excessive value.”
“So there was something you could do about over-appraisals,” he said.A legislative change in 1997 also created a usable avenue for property owners to sue. It allows owners to protest their valuations, and potentially get them lowered to the median appraised value of “comparable” properties. Yet Crigler pointed out that the law doesnt specify the meaning of “comparable” or prescribe a formula for how much a propertys value should be decreased if an owner proves his or her case.
Appraisers say the coupling of those two legal changes over the past decade has led to appraisal districts at times being inundated with lawsuits.Although the law requires a property owner to exhaust appeals with the appraisal district before suing, appraisal districts said they have watched in recent years as some big property owners have increasingly made only marginal attempts to settle their cases before the appraisal review board. Instead of aggressively pursuing a lower valuation at that time, officials said, they take only the minimum steps that permit them to obtain the necessary forms allowing them to go forward in court.
Sharon Baxter, senior litigation attorney for the Travis Central Appraisal District, said some owners present minimum evidence.“There are some who come in and actually do the work-up and do the
data and put effort into it, but there are many others who come in and get a board order without presenting much evidence,” Baxter said.Yet experts, including Hutcheson, said their clients often want to air their grievances with the review board, but that because of the complexity of their cases, it requires more lengthy and detailed conversations that cant be accomplished in that setting.
“We are always seeking to utilize the administrative process,” Hutcheson said.
Once a lawsuit is filed, Baxter said, the county nearly always attempts to negotiate prior to going to trial, a process that can take more than a year. She said that often before a case is settled, those
same property owners get new tax bills for the following year, and amend their original lawsuit to gets those valuations lowered, perpetuating a cycle of negotiations that can lead to lower valuations year after year.
All the while, the lawsuits are adding to a running tab for other Travis County taxpayers. Since 2010, the county has budgeted $2.8 million in legal fees to contest such suits. Of the budgeted amount, it
has spent about $1 million for outside lawyers and experts, county records show. Officials said that even though only a few cases have gone to trial, much of the countys expense results from mediation, where it tries to settle on an agreed valuation a process that often still creates the need for outside consultants.
“We try to match attorney for attorney, expert for expert,” Baxter said. “You have to put all efforts into defending it.” Yet Hutcheson pointed out that businesses and property owners also incur a financial hit when they believe county overvalued its property.“Most of my clients are forced to go out and hire people like me, experts in the field, so if anyone has an excessive legal cost, it is the taxpayer, who is required in our system, in order to protect their rights, to go through the process,” he said.
Although any property owner can sue to lower his or her taxes, few residential homeowners about 300 since 2010 have taken advantage of the law. The court dockets are instead populated with the names of large commercial business owners and enterprises, who accounted for about 1,100 of the lawsuits.
But amid fears of deeper valuation cuts and the cost of paying the opposing sides legal fees if a case goes to court, the mere act of filing a suit has resulted in substantial markdowns to property owners.
The American-Statesman and KVUE analysis found that the biggest Travis County winner after filing a single lawsuit was Samsung, which obtained a $1.2 billion cut, but officials said the county taxed Samsung at a higher rate before the company had completed a new project. The next year, after the completion, the county raised the taxes, and the company did t protest.
AMD sued the county, and got its valuations reduced in 2010 and 2011 for a combined $164 million. It got its 2012 valuations reduced without a suit, but again sued the appraisal district this year. That case is pending.AMD officials said they have sued because independent appraisals of their property were far less than what the county estimated.(Cox Enterprises, the owner of the Austin American-Statesman, in late September filed a lawsuit contesting its 2013 appraisal for the newspapers printing equipment at South Congress Avenue and Riverside Drive.)
Retail chains have also taken advantage of the suits.
Walgreens received the most. According to the analysis, Walgreens has gotten a $14.8 million cut from $132.6 million in valuations since 2010, an estimated $350,000 savings for the company.Supermarket chains H-E-B and Randalls also saw significant reductions. Since 2010, H-E-B has gotten $120 million in property valuations lowered to $107 million. Randalls won a $9.6 million decrease after suing to have $108.3 million in value lowered.Neither H-E-B nor Randalls responded to interview requests.
Mott said the businesses were only taking advantage of Texass favorable laws.
“I think there is a great deal of abuse of the process. But at the same time, if you look at it from a business standpoint, they have remedies available that allows them to cut their taxes, so what do youexpect them to do?” he said.
'A cascading effect'
Like grabbing money from a bag, once a property owner sees a decrease, appraisers say they fear the continued implications on the tax base and to other taxpayers. Crigler said that once big property owners get valuations lowered, others can use that information to help prove that they, too, deserve to have their valuations cut. Over time, she said, “there is a cascading effect.”
In the case of Walgreens, county records show that the company sued Travis County regarding multiple properties in 2005. The county entered into negotiations with the company to settle, but Walgreens continued adding to its original lawsuit each year by suing again on many of the same properties, according to officials and county records.
Crigler said the company and county finally settled the cases last year after Walgreens presented evidence that appraisal districts in Harris, Bexar, Dallas and Collin counties had lowered their valuations.
Large national companies havent been the only businesses to benefit from the trickle-down impact, in which the success of one property owner can drive down appraisals for an entire area.
In 2010, the owners of the San Gabriel Square apartments near the University of Texas sued the county, claiming the property had been overvalued. As evidence, the complex cited several nearby apartments that had received significant reductions after launching formal appeals or suing. The case was resolved, but this year, the apartment complex sued again for another reduction.