Appeals shift tax burden
BY BRENDA BELL
Last year, Advanced Micro Devices successfully protested the tax appraisal
of its 59-acre office park on Southwest Parkway, knocking about $13 million
off the $111 million valuation of the property with commanding views of the
hills west of Austin.
This year, when the Travis Central Appraisal District raised the assessment
by nearly 50 percent, the computer chip company appealed again. The
appraised “market value” of AMD’s Lone Star campus, which it spent more
than $200 million to develop, now stands at $127.5 million. AMD has filed a
lawsuit to drop it even lower — as italso did in 2010, when the district
tried to peg the appraisal of the property to its cost.
Meanwhile, the real market has spoken. In April, the company sold its
office park for $164 million to Spear Street Capital, a San Francisco
group. The price was $37.5 million more than the taxable value that AMD is
disputing as too high.
For two years running, AMD has topped the list of 25 property owners who
won the largest markdowns from the appraisal district, but it is hardly an
aberration. All but one parcel on the list are classified as commercial --
businesses, industries, offices, apartment complexes — and all received
reductions that lowered their tax bills by tens of thousands, if not
hundreds of thousands of dollars a year.
The Texas Constitution and state law require that real property be assessed
at fair market value. But state lawmakers — by both their actions and
inaction — have made it increasingly difficult. That has consequences for
homeowners already squeezed by high property taxes in a state with no
income tax, business taxes that are some of the lowest in the country and a
heavy reliance on local property levies to educate its children, fix
streets and hire police and firefighters.
Gaping discrepancies between the value of property on the tax rolls and
what it actually sells for are widespread, especially in the commercial and
multifamily sectors attractive to investors. Two buildings at Research Park
Plaza, another Spear Street investment, are currently valued on the tax
rolls at $65.8 million; they sold for $103 million in August. The 20-story
office building at 816 Congress, valued at $82.5 million, sold for $102
million in April. The owners of a luxury 502-apartment complex in the
Steiner Ranch development recently sold it for $80 million, shortly after
they got its tax value reduced to $59 million.
As 2013 property tax bills go in the mail in October, Travis County’s
appraisal district — which has barely cleared the decks from another heavy
season of tax protests — is gathering data for the 2014 assessments that
will go out next spring, producing a flood of protests disputing property
valuations that kicks off the months-long appeal process again.
But tax appraisers around the state say a sea change has taken place in
that process, unnoticed by the general public. Thousands of appeals --
historically, arguments over what a property is worth to somebody who might
buy it — are uncoupling tax appraisals from that very question.
What’s driving the change, say appraisers, is the growth of so-called
equity appeals, which are unique to Texas. While the state constitution
mandates uniformity and equality in taxation, a 10-year old provision in
the tax code defined that standard in a new way, allowing property owners
to protest their valuations — and get them lowered — to the median
appraised value of “comparable” properties.
As properties above the median are reduced to the target valuation, the
median drops. The result: “a constant and growing erosion of the tax base,”
said Travis chief appraiser Marya Crigler.
Texas has been fertile ground for this development. It’s one of the few
remaining states that don’t require some form of disclosure of property
sales prices — transparency that greatly eases the appraiser’s job in
aligning appraised values with market values. With equity appeals, that
“Sales are the most accurate indicator of market value,” said Williamson
Central Appraisal District chief appraiser Alvin Lankford. “‘Equal and
uniform’ appeals stray from the most important equalizer of all — the
Asked how many of the 8,000-plus formal appeals to Bexar County’s Appraisal
Review Board are based on the equal and uniform provision, that county’s
deputy chief appraiser Mary Kieke said, “All of them.”
In the words of Houston tax consultant Patrick O’Connor, the equity
provision was “an incredible gift” from the Legislature in 2003. In the
words of Michael Amezquita, chief appraiser for the Bexar Appraisal
District, it’s a “scam” that lightens the tax burden of those with the
resources to exploit it and transfers that burden to lower- and
The gradual shifting of that burden is seen in the annual property value
study produced by the state comptroller’s office. In 2000, single-family
homeowners paid the biggest share of real property taxes that support the
public schools — 45 percent — while commercial and industrial property
owners paid 21 per cent. (Other sectors, from oil and gas to personal
property, make up the rest.) By 2012, commercial and industrial owners were
paying less than 20 percent, but homeowners were paying 54 percent.
State Sen. Wendy Davis, D-Fort Worth, introduced a bill in the Legislature
this year that would have curtailed equity appeals for properties valued at
more than $1 million. Appraisal districts, including Travis County’s,
supported it. The bill never got a hearing beyond a subcommittee.
“I have said for 20 years that the meek had better inherit the earth since
they were paying all the property taxes in the meantime,” Kieke said. “This
has become a soul-sucking business for anyone who believes in fairness.”
Millions in lost revenue
As Austin’s real estate market scaled giddy heights this year, property
owners filed 79,000 protests of their valuations, affecting 1 out of 5 tax
parcels in Travis County. That ratio has held steady since 2009, when an
economic downturn produced even more appeals, 93,000.
Unlike in the past, most protesters now rely on the growing industry of
professional tax agents to file the paperwork and represent them in
appraisal district proceedings. Today, 70 percent of appeals are brought by
hired tax agents, many of whom use mass-marketing techniques to encourage
owners to fight their appraisals. One of the biggest is Texas ProTax,
located next door to the appraisal district’s Northeast Austin office.
This year, appeals shaved $4.3 billion from $107.6 billion worth of taxable
property of all kinds. Crigler said the process plays “an important role in
the fairness and integrity of the property tax system. … Corrections are
valid and expected.”
More value will be lost after equity lawsuits like AMD’s run their course.
For four of the past five years, the growth in value on the tax rolls has
been offset by value taken away in the appeals process, even as land and
building prices marched steadily upward.
But the beneficiaries aren’t distributed equally across the tax rolls. The
average value of properties protested was $744,084; the average value of
those under equity lawsuits was $11.5 million. “These are not your typical
homeowners,” Crigler said.
The Statesman’s rough estimate of the potential tax dollars that the
adjusted valuations cost public schools, city, county, health district and
Austin Community College last year: about $113 million. Of that, the Austin
school district would have been due as much as $58 million — enough to
offset what the Legislature cut from the school district’s funding in the
state’s 2013 budget and to build the new boys’ school, put on hold for lack
The vast majority of protests were resolved in informal meetings with the
Travis appraisal district’s staff; only a tiny portion — less than 5
percent — made a formal appeal before the Appraisal Review Board. Fewer
still, about 400, have sued the district for relief. Both in value and
frequency, the litigation these days is overwhelmingly commercial.
While Crigler said her $500,000 litigation budget is “pretty generous,” it
goes fast. The extraordinary cost of litigation — hiring outside experts,
paying the protester’s attorneys’ fees if a judge reduces the valuation by
even a dollar — puts enormous pressure on the district to settle before
getting to the courthouse, a fact not lost on tax agents.
“Lawsuits are expensive for everybody,” said Mark Dzeda, president of
Industrial Tax Consulting.
Expensive properties benefit most
Equal taxation is a difficult goal in any tax system, but few states make
it harder than Texas to assess property taxes fairly, while claiming to do
just that. The surge in equity appeals had its beginnings in laws that were
touted to help homeowners fight unfair appraisals.
“The state’s constitution sets a standard that its statutory provisions
cannot satisfy,” wrote Bexar County assistant district attorney Nathan
Morey in the St. Mary’s Law Journal in 2010. “On the one hand, the Texas
constitution requires equality in taxation, while on the other, the tax
code does not give appraisal districts the necessary tools to achieve that
Chief among those tools is a law mandating sales prices of real estate to
be reported. The International Association of Assessing Officers declares
that such laws are necessary to assure that appraisers have access to
reliable sales data, critical to formulas for calculating market value.
“It could be argued that price disclosure would be the single most leveling
force in resolving what appears to be significant inequality between
residential and commercial property appraisals,” wrote James Johnson, a
Ph.D. candidate at the University of Texas at Arlington, in his
dissertation last year that looked at the accuracy of commercial property
tax appraisal in Texas.
Yet the Texas Legislature has repeatedly declined to pass such a law.
All but four states — Texas, Alaska, Idaho and Utah — now have some kind of
disclosure, said Idaho tax policy expert Alan Dornfest. Some states have
transfer fees from which the sales price can be deduced. Others, like New
Mexico, require only disclosure of residential sales. Missouri doesn’t
require disclosure, but some of its counties do. Louisiana lets tax
assessors have access to a property owner’s books and records.
In 2004, the Legislative Budget Board recommended Texas lawmakers enact
sales disclosure, saying it would result in “significant savings” to the
state because school districts would get more money from property taxes. In
2006, believing the board had understated the case, the state’s largest
appraisal districts released their own study asserting the lack of sales
disclosure in Texas was costing them more than $4 billion a year due to
Most of that lost value was in underappraisals of the most expensive
property. In the zero-sum game of property taxation, that means lower-value
properties — the category where the most sales information is available --
paid more than their fair share. The study included a sample of real estate
sales in Travis County indicating that offices and apartments were being
assessed at 63 percent of market value and high-end residential at 77
percent of market value, but low to mid-range homes at 98 percent.
“Mandatory sales disclosure is an idea whose time has come in Texas,” the
study’s authors proclaimed. A task force named by Gov. Rick Perry and
headed by former Texas Workforce Commission Chairman Tom Pauken endorsed a
limited form of disclosure.
But it never found favor with either the Legislature or the real estate
industry — particularly the Texas Association of Realtors. The
association’s political action committees dole out contributions from two
of the five biggest “campaign war chests” in the state, totaling $14
million, according to the latest reports published by the Texas Tribune.
“There was a deep fear the Legislature would add a transfer tax” --
basically, a kind of sales tax — if sales prices were reported, said former
Harris County chief appraiser Jim Robinson. (Most disclosure states have
done so.) There were privacy concerns. There were arguments that prices
were only one of many equally important factors in reaching accurate
Not so, say tax appraisers. “There’s nothing that beats sales. (Otherwise)
how can you know what the market value is?” said Michelle Hagen, director
of the commercial business division for the King County Department of
Assessments in Seattle.
Former state Sen. Jeff Wentworth, R-San Antonio, unsuccessfully pushed
sales disclosure legislation for years. If it had passed, he said, the
Legislature probably wouldn’t have needed to cut $4 billion from public
education in 2011. But that year his bill didn’t even get out of committee.
By 2013, Wentworth had lost his seat in the Senate, and no one else picked
up the cause.
“In my opinion it will never pass,” said Art Cory, former Travis chief
“If you want to use the word beaten-down, we accept that,” Lankford said.
Paul Welcome, who worked under Cory in Austin, is now the chief appraiser
in Johnson County, Kansas, a state where sales prices have been a matter of
public record for 20 years. Welcome said the real estate lobby in Kansas
had also objected to sales disclosure.
But Kansas lawmakers believed it would make property assessments more
accurate “so everyone is paying their fair share,” said Welcome. “The
Legislature knew it was the right thing to do.”
Game of cat and mouse
Though resistant to sales disclosure, Texas lawmakers have easily passed
bills more to the industry’s liking. Foreclosures were not the problem in
Texas that they were in some other states during the housing bust, yet a
2009 law directs appraisal districts to factor in recent foreclosures when
valuing property; another prevents a district from raising a valuation
without clear and convincing evidence for a year after the owner has won a
The measures were among the “dramatic reforms” that were needed to correct
a “broken system,” said Mark Lehman, vice president of governmental affairs
for the Texas Association of Realtors. “All we want is a good, fair,
balanced appraisal process.”
Lehman, like many in the real estate industry, contends that sales figures
are readily available to appraisal districts through the Multiple Listing
Service run by local boards of Realtors. There’s some truth to that, if
only because every real estate agent has access to the MLS book, which
details residential properties for sale. The information leaks out, often
in their promotional materials.
However, the Austin Board of Realtors has chosen not to share its
proprietary MLS data with the Travis appraisal district. Senior litigation
appraiser Patrick McCluskey, a licensed broker who is a dues-paying
Realtor, said the organization forbid him to use MLS data at his job. Local
boards don’t let appraisal districts in Harris, El Paso, Bexar and
Williamson counties have access to their listings.
And MLS data doesn’t help fill in the blanks that appraisal districts
struggle with the most. Sales of high-end homes often don’t show up in the
listings; commercial properties never do. Larger districts — and their
taxpayers — pay providers such as CoStar for commercial sales information
that comes free in most other states. A subscription to CoStar costs the
Travis appraisal district $26,000 a year. The state comptroller’s property
tax division pays $43,150. Harris County pays $89,472 for its CoStar
subscription and $357,000 to PropertyInfo, which tracks residential sales.
While the privately held information is extensive, it is not all-inclusive,
and there are no guarantees of accuracy.
The Travis appraisal district also sends letters asking purchasers of
properties what they paid, but fewer than one-third respond, said Crigler.
Her appraisers scour the Statesman and other media outlets for news of
sales. Appeals hearings, in which protesters present evidence of comparable
sales, provide more information.
Wentworth, who is now a Bexar County justice of the peace, knows that
appraisal districts have ways of scrounging for information, and paying for
it, too. “But why should they have to do that?” he asked.