Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Exlp Leasing, LLC v. Galveston Central Appraisal District

Supreme Court of Texas

March 2, 2018

EXLP Leasing, LLC and EES Leasing, LLC, Petitioners,
Galveston Central Appraisal District, Respondent

          Argued October 10, 2017

         On Petition for Review from the Court of Appeals for the Fourteenth District of Texas

          Justice Guzman did not participate in the decision.


         The Texas Constitution requires that taxation "shall be equal and uniform" and that property "shall be taxed in proportion to its value." The Galveston County appraisal district argues that a statutory formula determining the taxable value of leased natural-gas compressors located in its jurisdiction violates these constitutional provisions because this formula values the compressors at a "minute fraction" of their market value. The parties further disagree on which county-Galveston or Washington-may tax the compressors. We hold that the county has failed to rebut the presumed constitutionality of the statutes at issue and that Washington County is the taxable situs for the compressors. As the court of appeals held otherwise, we reverse its judgment.


         EXLP Leasing, LLC, and EES Leasing, LLC (collectively, "EXLP") are wholly owned subsidiaries of Exterran Holdings, Inc. EXLP owns and leases out compressor stations used to deliver natural gas into pipelines. Some of these compressors are in use in Galveston County.

         The county traditionally taxed the compressors in its jurisdiction as business-personal property based on their full market value. But the legislature overrode that practice in 2012 when it added leased heavy equipment to a statutory formula used to appraise the value of heavy equipment held by dealers for sale. Act of May 21, 2011, 82d Leg., R.S., ch. 322, 2011 Tex. Gen. Laws 938, 938-41. Accordingly, state law now requires appraisal based on the lease revenue the compressors generated during the previous tax year divided by twelve. See Tex. Tax Code § 23.1241(b).

         EXLP contends the legislature intended to fix a problem that arose when the same equipment was leased multiple times within one year, with each lease counting as an individual sale for tax purposes. See Briggs Equip. Tr. v. Harris Cty. Appraisal Dist., 294 S.W.3d 667, 672 (Tex. App.-Houston [1st Dist.] 2009, pet. denied) (holding that "successive leases" cannot be "'subsequent sales'" because "they are not 'dealer-financed sales'" as defined by the tax code). The new divide-revenue-by-twelve formula would simplify the appraisal process while providing an "offsetting gain" for the tax revenue lost to the fix. See Fiscal Note, Tex. H.B. 2476, 82d Leg., R.S. (2011). But the county claims the anticipated offset never materialized because lawmakers proceeded on the erroneous assumption that counties were not already taxing leased heavy equipment at full market value. As a result, a statutory change "intended to produce a slight gain in tax revenue or remain neutral has actually resulted in a 97% loss in [compressor-based] tax revenue" for Galveston County.

         EXLP and the county are also at odds over where the compressors may be taxed in light of the 2012 tax-code amendments. After the amendments were enacted, EXLP took the position that its compressors in Galveston County are taxable only in Washington County, where EXLP maintains a business address and storage yard. The county disagreed. In a letter to all dealers with heavy equipment leased in its jurisdiction, the county announced it would appraise leased heavy equipment under the tax-code provision generally covering business-personal property, see Tex. Tax Code § 22.01, declaring that "[r]ecent litigation has determined that the valuation of leased heavy equipment under Section 23.1241 of the Texas Property Tax Code is unconstitutional."

         EXLP sued for judicial review pursuant to tax code sections 42.10 and 42.21. Both sides moved for summary judgment. The county argued that: (1) the tax-code provisions at issue are unconstitutional as applied to EXLP's compressors in Galveston County; (2) EXLP's compressors are not actually "heavy equipment" under the tax code, and therefore the disputed statute is inapplicable; and (3) Galveston County is the taxable situs for the compressors at issue. EXLP urged the trial court to rule that: (1) the legislature validly exercised its power to prescribe a method for appraising the value of its compressors; (2) its compressors are "heavy equipment" as defined by the tax code; and (3) Washington County is the proper taxable situs. The trial court granted the county's motion in part, declaring that EXLP's compressors are heavy equipment under the tax code, but that tax code sections 23.1241 and 23.1242 are unconstitutional as applied to those compressors. The trial court also declared Galveston County the compressors' taxable situs.

         EXLP appealed.[1] The court of appeals reversed in part, holding that "[n]either side produced summary[-]judgment evidence demonstrating, as a matter of law, that the method of appraising compression unit rental inventories embodied in sections 23.1241 and 23.1242 of the Tax Code is either a reasonable or unreasonable method of calculating their reasonable market value." 475 S.W.3d 421, 428 (Tex. App.-Houston [14th Dist.] 2015). The case was remanded "for further proceedings on the constitutionality of sections 23.1241 and 23.1242 as applied to the compression unit rental inventories at issue." Id. at 429. But the court of appeals affirmed the trial court's declaration of Galveston County as the taxable situs of EXLP's compressors, holding that tax code section 23.1241(f) "does not create a specific situs rule for [EXLP's] inventory" and that "its situs is determined under the general rule of section 21.02." Id. at 430. Both parties sought our review.


         "There is always a presumption of constitutional validity with regard to legislation and it is especially strong in respect to statutes relating to taxation." In re Nestle USA, Inc., 387 S.W.3d 610, 623 (Tex. 2012) (quoting Vinson v. Burgess, 773 S.W.2d 263, 266 (Tex. 1989)). Courts presume that the Legislature "understands and correctly appreciates the needs of its own people, that its laws are directed to problems made manifest by experience, and that its discriminations are based upon adequate grounds." Enron Corp. v. Spring Indep. Sch. Dist., 922 S.W.2d 931, 934 (Tex. 1996) (quoting Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968)). The party challenging the statute's constitutionality bears the burden of demonstrating that the enactment fails to meet constitutional requirements. Spring Branch Indep. Sch. Dist. v. Stamos, 695 S.W.2d 556, 558 (Tex. 1985).


         The Texas Constitution provides that "[t]axation shall be equal and uniform." Tex. Const. art. VIII, § 1(a). We have held that the constitutional provisions that follow this directive are examples of equal and uniform taxation, see Nestle, 387 S.W.3d at 620, including the requirement that "real property . . . shall be taxed in proportion to its value, which shall be ascertained as may be provided by law" but "never at a greater value than its fair market cash value." Tex. Const. art. VIII, §§ 1(b), 20. Accordingly, a property tax is equal and uniform "only if it is in proportion to property value." Nestle, 387 S.W.3d at 620.

         The county argues that for constitutional purposes, "value" under article VIII, section 1(b) means the actual market value a willing buyer would pay a willing seller for the compressors at issue. Cf. Tex. Tax Code § 1.04(7) (defining "market value" as "the price at which a property would transfer for cash or its equivalent under prevailing market conditions"); City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 187 (Tex. 2001) ("Market value is the price the property would bring when it is offered for sale by one who desires, but is not obligated to sell, and is bought by one who is under no necessity of buying." (internal quotation marks omitted)). The county contends the legislature's chosen approach for dealer-held leased heavy equipment, however, values the compressors for tax purposes at "a minute fraction" of their market value.

         Nothing in the constitution, however, binds the legislature to tax only on "market value" as so defined. The constitution refers only to the legislature's authority to set the "value" of property for taxation. See Tex. Const. art. VIII, § 1(b). It sets no requirement that "value" must approximate "market value." In fact, section 1(b) does not mention "market value" at all. Instead, the constitution assigns to the legislature the task of determining "value, " providing that it "shall be ascertained as may be provided by law." Id. This provision "would seem to leave the Legislature free to adopt the mode of ascertaining the value of any class of property by such method as it might deem best." Mo., K. & T. Ry. Co. of Tex. v. Shannon, 100 S.W. 138, 144 (Tex. 1907); see also Republic Ins. Co. v. Highland Park Indep. Sch. Dist., 102 S.W.2d 184, 193 (Tex. 1937) (observing that "the fixing of a standard of valuation" is "purely of the exercise of discretion and judgment on the part of the Legislature").

         To read "market value" into the constitution would both add a word the drafters omitted and reduce legislative discretion to a purely ministerial duty. If "value" must always mean "market value, " what is left for the legislature to "ascertain[]" and "provide[] by law"? See Tex. Const. art. VIII, § 1(b). Plainly, it is the legislature's province under the constitution to decide how property should be valued for taxation. In doing so, the legislature is not tethered to an extra-textual valuation methodology that would dictate a particular outcome.

         But the county argues our case law acknowledges "market value" as the appropriate constitutional benchmark. See, e.g., Enron, 922 S.W.2d at 935 ("We have further held that section 1 of article VIII of our Constitution requires 'value' for ad valorem purposes to be based on the reasonable market value of the property."); State v. Whittenburg, 265 S.W.2d 569, 572 (Tex. 1954) (noting that courts "have interpreted [article VIII, section 1 and a statute providing that 'real property shall be valued at its true and full value in money'] to mean that assessed valuations shall be based on the reasonable cash market value of property" (internal quotation marks omitted)); Lively v. Mo., K. & T. Ry. of Tex., 120 S.W. 852, 856 (Tex. 1909) ("The value of the property is to be determined by what it can be bought and sold for." (quoting New York State v. Barker, 179 U.S. 279, 285 (1900)). The county further contends this interpretation has been "codified" in the tax code; indeed, the valuation statute challenged here itself purports to determine the "market value" of dealer-held leased heavy equipment. See Tex. Tax Code § 23.1241(b)-(c).

         If our case law contradicts the constitution's plain text, our case law is wrong. But we do not believe any of our decisions warrant the conclusion that "value" must be constitutionally attached to "market value." And while many of the tax code's valuation methodologies are based on market value, the code also provides for alternative valuation methods in some circumstances. In any event, the legislature's reliance on market valuation for ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.