September 4, 2001
FOR IMMEDIATE RELEASE

Recent Appeals Court Decision Affects Mandatory Property Tax Renditions in Texas. Overview

The issue of whether or not to file a rendition of personal property in Texas is not new nor is it a simple one. Since the introduction of the Tax Code as Senate Bill 621 during the 66th Legislative Regular Session in 1979 there have been questions regarding the intent of the legislature regarding the rendition of personal property. The language of Tax Code sections 22.01 (a) and (b) seems clear. Section (a) states "….a person shall render for taxation all tangible personal property used for the production of income that 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 person shall render for taxation any other taxable property that he owns or that he controls as a fiduciary on January 1." This language would appear to mandate rendition of taxable personal property. Why then has there been 22 years of controversy on this requirement? The simple answer is that while the language in the Tax Code seems to mandate renditions, the legislature has consistently failed to provide a penalty for failure to file renditions.

Originally the introduced version of S.B. 621 called for a penalty but the penalty provision was deleted prior to the adoption of the bill and enactment of the Tax Code. The legislature has had numerous opportunities in following sessions 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 session in 1999, H.B. 1630 was filed. The bill contained language expressly stating that the filing of a personal property rendition is mandatory. The bill failed to pass. When you consider the consistent refusal of the legislature to address this issue, it is not unreasonable to form the conclusion that the legislature meant for Section 22.01 (a) and (b) to be directory rather than mandatory.

It is also not unreasonable for taxpayers to use this interpretation in the attempt to minimize their property tax liability. Conversely, it should come as no surprise that chief appraisers and taxing authorities continually seek legislative and judicial help to rectify what they consider to be a serious deficiency in the discovery and valuation of income producing tangible personal property. They are charged with the task of discovering taxable personal property and accurately and equitably valuing it for taxation. This task is considerably complicated, if not rendered impossible, when a majority of taxpayers fail to file personal property renditions. The taxpayers and their agents that do file renditions, primarily because they interpret Section 22.01 as mandatory, also have good reason to seek a consistent application of the rendition requirement. They logically assume that they are being penalized by having to pay a disproportionate share of taxes, and they are rightly 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 County Appraisal District, Texas sued taxpayers Budget Rent-A-Car Systems, Inc., Fred Haas Motors, Inc., and Splashtown, LTD., for an injunction to compel the taxpayers to file personal property renditions in accordance with Tax Code sections 22.01 (a) and (b). The question before the court was whether the rendition provisions of the Tax Code sections 22.01 (a) and (b) are directory or mandatory, and if compliance with the provisions can be judicially compelled. The facts of the case were undisputed and the parties filed cross-motions for summary judgment. The court granted summary judgment and held that the statute 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 Court of Appeals of Texas, First District, Houston, Cause No. 01-98-01265-CV. The judges' panel consisted of Chief Justice Schneider and Justices Andell and Duggan. The standard of review applied by the court involved a review of the summary judgment evidence presented by both sides and a determination of all questions presented. The court determined that "The central issue dividing the parties is whether the rendition provisions of Tax Code sections 22.01 (a) and (b) are directory or mandatory." The court in their review of 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 that would follow from each construction". In determining "plain meaning" the court relied on TEX.GOV'T CODE ANN. section 311.011 (a) (Vernon 1998), "words and phrases shall be read in context and construed according to the rules of grammar and usage". The court determined that " The plain meaning of the term "shall" in sections 22.01 (a) and (b) supports a mandatory construction of the rendition provisions. Additionally, the court looked to the Code Construction Act to determine the meaning of the word "shall". TEX. GOV'T CODE ANN. SECTION 311.016 (VERNON 1998), The Code Construction Act states that the term "shall" imposes a duty "unless the context in which the word or phrase appears necessarily requires a different construction…..". The court chose a strict interpretation of the Tax Code provision and found the rendition provision to be mandatory. The court further determined that Tax Code section 22.01, requiring the owner of property to render such property for taxation, is a revenue law of the state.

The court reasoned that the proper enforcement mechanism is Civil Practice and Remedies Code section 65.016. This section provides that "at the instance of the county or district attorney or the attorney general, a court by injunction may prevent, prohibit, or restrain the violation of any revenue law of this state." TEX. CIV. PRAC. & REM. CODE ANN. SECTION 65.016 (Vernon 1997). The court further supported their reasoning with the assertion that since section 65.06 was enacted in 1989, after the adoption of Tax Code in 1979 and its amendment in 1981, the legislature intended section 65.016 as an enforcement mechanism for the rendering of property under the Tax Code.

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

In Conclusion

Will this decision materially affect the taxation of income producing tangible personal property in Texas? Will a substantially greater number of taxpayers file renditions? Is the injunctive process a realistic tool for compelling large 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 of money and political capital. It is estimated that in many Texas Counties the rendition filing rate is only 50-60 percent. It is difficult to envision and unrealistic to expect local Chief Appraisers and County Attorneys to file for injunctive relief against large numbers of taxpayers that live and vote in their jurisdictions. It is more likely that this judicial "bullet" will be targeted against a relatively small number of taxpayers that meet a set of very select criteria. Selective legal enforcement by injunction will occur at the expense of "fair and equal taxation".

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

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