Taxpayer lacked standing to challenge Houston drainage fee ordinance despite charter election invalidity

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Elizabeth C. Perez v. Sylvester Turner, et al., 01-16-00985-CV (Tex. App. – Hous. [1st Dist], Oct. 15, 2019)

This is a long standing/multi-opinion dispute challenging the City of Houston’s drainage fee ordinance. Prior summaries found here and here. In this substituted opinion (for an opinion issued in August of 2018), the First District affirmed the granting of the City’s plea to the jurisdiction.

Voters in the City of Houston adopted a dedicated charter amendment for a “Pay-As-You-Go Fund for Drainage and Streets.” It then adopted a regulatory ordinance. One source of funding was a charge imposed on properties directly benefitting from the drainage system. The ballot language for the charter amendment was originally held misleading and invalid. After several disputes from the subsequent ordinance occurred, Perez  brought this ultra-vires claim and sought a judgment declaring the drainage fee ordinance invalid (yet again); an injunction against the assessment, collection, and expenditure of taxes and fees pursuant to the ordinance; and reimbursement, “on behalf of herself and all other similarly situated persons or entities,” of taxes and fees assessed and collected pursuant to the ordinance and paid “under duress.”  The City filed a plea to the jurisdiction asserting Perez lacked standing because she had suffered no particularized injury separate from the public, which was granted. Perez appealed.

The prior judicial declaration that the Charter Amendment is void does not address the Drainage Fee Ordinance. Thus, to the extent that Perez’s claims are based on her allegations the prior opinions invalided the ordinance, such are misplaced. The charter amendment was only needed to shift a portion of ad valorem tax revenue from debt services and was not required for authority to pass a drainage fee ordinance. Local Government Code Chapter 552 provided independent authority for such an ordinance. Perez has pleaded that she paid “illegal” drainage fees, she has cited to no authority declaring illegal the Drainage Fee Ordinance. Further, Perez has to demonstrate she “suffered a particularized injury distinct from that suffered by the general public” by the drainage fees collected.  The municipal fees were assessed to property owners across the City. The payment of municipal fees, like the drainage fees assessed against Perez’s properties here and numerous other properties in the City, does not constitute a particularized injury. Taxpayer standing is an exception to the “particularized injury” requirement.  However, it is not enough for the plaintiff to establish that she is a taxpayer— the plaintiff “may maintain an action solely to challenge proposed illegal expenditures.” A litigant must prove that the government is actually expending money on the activity that the taxpayer challenges; merely demonstrating that tax dollars are spent on something related to the allegedly illegal conduct is not enough.  Perez asserts the fees were collected illegally.  However, she was unable to establish the City is actually making any “measurable, added expenditure” of funds on illegal, unconstitutional, or statutorily unauthorized activities. As a result, she is not entitled to taxpayer standing. The plea was properly granted.

If you would like to read this opinion click here. Panel consists of Justice Keyes, Justice Lloyd and Justice Kelly. The attorneys listed for the City are Collyn A. Peddie and Patricia L. Casey.  The attorneys listed for Perez are Dylan Benjamen Russell, Andy Taylor  and Joseph O. Slovacek.

14th Court of Appeals holds immunity is waived for refund of penalties and interest paid on delinquent taxes only if taxpayer requested waiver within 180 days

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Harris County, et al. v. Falcon Hunter, LLC, 14-18-00247-CV (Tex. App. – Houston [14th Dist.], February 7, 2019).

This is a delinquent tax case in which the taxpayer company, Falcon Hunter, LLC. (Falcon), sued for a refund of penalties and interest paid.  The 14th Court of Appeals reversed the denial of the taxing entities’ plea to the jurisdiction and dismissed the case.

Falcon failed to pay property taxes after the tax bill was sent to an incorrect address. Upon discovering it was listed as delinquent, Falcon paid the taxes, including penalties and interest. Three years later, Falcon applied for a refund of the penalties and interest, but did not seek a refund of any property taxes paid. When Falcon did not receive a response, it sued for the amount in penalties and interest, plus collection fees and attorney’s fees. The taxing units filed a plea to the jurisdiction, which was denied. The units appealed.

Taking Falcon’s pleadings as true for purposes of the analysis, the Texas Tax Code §31.11(k) states that after a request for refund has been denied, the taxpayer may file suit against the taxing unit in district court to compel the payment of the refund within 60 days. However, it applies when a tax bill is returned to the taxing unit by the post office under certain conditions. To secure the benefit, the taxpayer must submit a request for waiver of penalties and interest under the code. The request must be made before the 181st day after the delinquency date. Since Falcon waited almost three years, it did not timely request a waiver and did not exhaust its administrative remedies.  Section 31.11 waived immunity for a refund of “taxes.”  However, the legislature took care to clearly distinguish the terms “penalty” and “interest” from the term “tax.”  A taxpayer has three years to seek a refund of the tax. However, if a taxpayer wants penalties and interest on a delinquent tax waived, the taxpayer has, as relevant here, 180 days from the delinquency date to request the waiver in writing. Falcon sought a refund of penalties and interest, not the tax. As a result, no waiver of immunity exists for a refund of penalties/interest outside the 180-day limitation. The plea should have been granted.

If you would like to read this opinion, click here. Panel consists of Justice Wise, Justice Jewell and Justice Poissant. Memorandum opinion by Justice Jewell. The attorneys listed for the appellants are Stephen A. Smith, Mary Lucille Anderson and Patrick Nagorski.  The attorneys listed for Falcon are Kory Ryan,  John Brusniak Jr. and Tracy Turner.

Texas Supreme Court disposes of various natural gas compressor taxation suits by holding taxing location is inventory yard, not temporary physical locations

Ward County Appraisal District v EES Leasing, et al, 15-0965 (Tex. Nov. 16, 2018)

The Texas Supreme Court issued several connected opinions relating to the proper taxing entity for compressor equipment and pipelines.

EXLP Leasing owns and leases out compressor stations used to deliver natural gas into pipelines, with some of the pipelines located in Ward County and some in Midland County. EXLP began paying taxes on the compressors located in Ward County to Midland County, where EXLP contends it “maintain[s] a yard from which its inventory … is leased, to which leased compressors are returned after [the] leases expire[s], and where the inventory in the area is serviced.” But Ward County continued to tax full market value. EXLP Leasing filed suit arguing Tax Code provisions amended in 2012 are unconstitutional on their face and as applied because the statutory formula for valuing leased heavy equipment bears no relationship to any measure of market value as required by the Texas Constitution.  The Court, on October 10, 2018, issued an opinion in EXLP Leasing, LLC v. Galveston Central Appraisal District, 554 S.W.3d 572 (Tex. 2018), which disposed of the issues by holding taxable situs for dealer-held heavy equipment was the location where the dealer maintained its inventory, rather than the various locations where leased equipment might have otherwise been physically located.

The Court adopted its reasoning in EXLP Leasing to the varying claims and facts in the consolidated cases. The Court upheld the constitutionality of the Tax Code provisions but held EXLP neither expects nor intends for the compressors located in Ward County to permanently remain in Ward County.  Their “permanent” home is the inventory yard and therefore, the proper place for taxation of inventory.  However, specific to this case, the County argued the specific compressors were not “heavy equipment” as listed in the Tax Code. The Court held the definition of “heavy equipment” applied to self-powered machines. The Legislature intended “self-powered” to mean a piece of a machinery or equipment supplied with mechanical power through an internal motor or engine. As a result, EXLP Leasing’s engines are “heavy equipment” falling under the same Tax Code provisions.

If you would like to read this opinion click here. Per Curiam opinion. Companion cases of Reeves County Appraisal District v Midcron (opinion), Reeves County Appraisal District v Valereus Compression Services (opinion) and Loving County Appraisal District v EXLP Leasing (opinion) are linking.

Water District property entitled to tax exempt status even though District rents to private business on river front

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Tarrant Appraisal District v. Tarrant Regional Water District 02-17-00042-CV (Tex. App— Fort Worth, January 25, 2018)

The Tarrant Appraisal District (“TAD”) asserted part of the property owned by the Tarrant Regional Water District (“TRWD”) was not “used for public purposes” and therefore was not tax exempt. The Fort Worth Court of Appeals affirmed the order dismissing TAD’s suit. [This is a 37 page opinion, but has excellent language on “public purpose” definitions applicable to governmental entities. Sorry, but long opinion equals long summary in comparison.]

TRWD acquired property in connection with a federal control project. Undertaken in concert with the United States Army Corps of Engineers, the program’s purpose was to control flooding on the Clear Fork Trinity River. A portion of the property was not used directly for flood control but was used for public trails, common areas, and river access. In an effort to counteract a lack of use outside of certain areas along the trails and “to encourage development of river-facing businesses on TRWD’s property and adjoining properties,” TRWD determined it would improve and lease to chef Tim Love’s River Shack, LLC to run a restaurant on the river front property. River Shack pays TRWD rent based on a percentage of its annual sales and “[a]ll income received by TRWD from the [lease] is deposited into the general fund of TRWD and used exclusively for [] TRWD’s public purposes.” TAD asserted the property was not exempt from taxation. TRWD followed the procedures in the Tax Code to challenge the decision, ending in district court. TRWD filed a motion for summary judgment which the trial court granted. TAD appealed.

TRWD is a governmental entity created under statute. TRWD is authorized to make and enforce reasonable rules that are necessary to accomplish TRWD’s “authorized purposes,” which include (i) regulating “all recreational and business privileges on any . . . body of land . . . owned . . . by the district,” (ii) promoting “state or local economic development,” and (iii) stimulating “business and commercial activity in the district.” TRWD is further permitted to provide for or participate in the acquisition, construction, development, operation, or maintenance of recreational facilities intended to promote economic development. TAD contends the Tax Code should control over the TRWD authorization statutes and applies only when public property is used exclusively for the use and benefit of the public.  TRWD asserts its creation is dictated by the Texas Constitution and it serves a public purpose as a matter of law. Interestingly, the court, after going through a detailed analysis of the Texas Constitution, statutory construction principles, and the Tax Code, held the Tax Code controls, but the property is exempt as a matter of law.

The court ends up holding unconstitutional, as a local law, a portion of the uncodified statute authorizing TRWD’s creation and authority. The result being the Tax Code controls for purposes of determining the exemption. Under §11.11(a) of the Texas Tax Code, a property is exempt from taxation if it is used for a public purpose. The court declined to adopt TAD’s interpretation that it must be used “exclusively” for public purposes with no simultaneous use benefiting an individual private business. The court compared other statutes and constitutional provisions where the legislature expressly inserted  “exclusive-use” language. TAD’s argument “has no basis in the text” of either the Tax Code or its constitutional counterpart for exclusivity. Whether property is used for public purposes is a highly fact-specific question that must be answered on a case-by-case basis. The court held “[c]ontrary to TAD’s overly-narrow characterization, the Property is not some run-of-the-mill strip mall that TRWD developed merely for retail purposes. River Shack no doubt operates a business for profit, but that is only one facet of a larger project that, at its core, unquestionably has a public purpose.” TRWD entered into the lease with River Shack “to encourage development of river-facing businesses on TRWD’s property and adjoining properties.” The property “was intended and designed as a trail amenity to provide the public with recreational enhancements ancillary to the public’s use of the Trinity Trails system.” Thus, the evidence conclusively demonstrates, TRWD leased the property to River Shack in connection with its optimistic plan to develop it for economic and recreational purposes. With its pavilion, common areas, and location adjacent to the Trinity Trails, and developed and leased for economic and recreational purposes, the property is used for public purposes as a matter of law.

If you would like to read the opinion click here. Panel consists of Chief Justice Walker, Justice Meier and  Justice Gabriel. Memorandum opinion by Justice Meier. The attorney listed for Tarrant Regional Water District is Steven K. Hayes. The attorneys listed for Tarrant Appraisal District of Harris is Catherine Jane Alder and Todd A. Clark.

El Paso Court of Appeals holds non-appearance jurors failed to show waiver of immunity in contempt/fee challenge case but should be allowed to amend.

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Joshua Luttrell, et al v. El Paso County, et al., 08-16-00090-CV (Tex. App. – El Paso, December 20, 2017).

There is no way to categorize this case in a single sentence. In the thirty-nine page opinion, the El Paso Court of Appeals addressed a challenge to El Paso County’s use of a special assignment judge who would issue and handle all contempt proceedings when a juror would fail to appear for duty. Long opinion means long summary — sorry.  The Court held the County retained immunity based on the pleadings, but the Plaintiff should be afforded the opportunity to amend. The case was remanded.  For government attorneys or those suing governments, this opinion provides a good basis and starting point for various immunity issues and Uniform Declaratory Judgment Act (“UDJA”) claims.

Appellants filed a lawsuit on behalf of themselves and others, naming Judge Woodard and El Paso County, requesting a declaration that their contempt judgments were void for lack of jurisdiction and that Judge Woodard imposed court costs and fees in an “illegal” manner.  Apparently, when a juror failed to respond to a jury summons in a particular court in El Paso County, that court would either “refer” or “transfer” the matter to Judge Woodard for the purpose of allowing him to conduct contempt proceedings against the recalcitrant juror.  The collective jurors sought to have their court costs and fees removed and the process stopped.  The case has many implications and court performed various analyses of statutes discussing the power of the courts and the counties. By the time the case hit the Court of Appeals, Judge Woodard had been dismissed under judicial immunity and the only issue was the immunity of the County. The County filed a plea to the jurisdiction, which the trial court granted. The collective jurors appealed.

The court began with a history of governmental immunity and transitioned into immunity in declaratory judgment proceedings. The court cited various cases noting the UDJA only waives immunity if the validity of a statute (or ordinance) is in play. The Appellants failed to identify a statute being challenged. Their pleadings “reveal that the true nature of their claims center on their belief that the actions of Judge Woodard and/or the County violated existing law, i.e., that they were held in contempt in violation of their due process rights, and that they were accessed illegal court costs and fees…”  Such claims cannot be brought under the UDJA. Additionally, the UDJA may not typically be used to collaterally attack, modify, or interpret a prior court judgment. The contempt proceedings were declared to be criminal in nature, not civil. Civil courts may only exercise “equity jurisdiction” in cases involving criminal proceedings in a “narrow” set of circumstances, which are not present here. The UDJA is the wrong vehicle for making a challenge to the validity of a criminal contempt judgment.   There is a line of cases stating the UDJA can be used to collaterally attack void judgments. The proper method to collaterally attack a criminal contempt judgment as being void is through either a petition for a writ of habeas corpus when the contemnor has been subjected to jail time, or a petition for a writ of mandamus when, as here, the contemnor is subjected only to a fine. Such are exclusive mechanisms.

Appellants also sought the recovery of the fines, fees and costs, which they believe Judge Woodard wrongfully imposed.  However, Appellants’ request for a “refund” cannot be brought in a UDJA proceeding in the absence of legislative permission. When fees are paid in the context of a judicial proceeding, the aggrieved party may challenge the imposition of those fees (illegal or otherwise) in the context of those proceedings, thus satisfying the requirements of due process.  When a party pays an illegal tax or fee “under duress” in an administrative matter they may challenge it, but these were judicial proceedings. In a judicial proceeding, once a defendant pays the fee, it is voluntarily given. To avoid paying the fee, the defendant must challenge it in the proceedings or utilize another system established for the challenge.  Appellants had other means of challenging the validity of the costs and fees imposed on them. They could have challenged it in the proceedings, filed a mandamus or brought claims under Article 103.008 of the Texas Code of Criminal Procedure, which provides a separate statutory remedy to correct erroneous or unsupportable court costs.  They failed to do so.  As to Appellants attempted ultra vires claim, they only named the County. Such claims must be brought against an official.    Additionally, claims of judicial court action versus county administrative action, falls outside the scope of any takings claims under the Texas Constitution. As to the Appellants §1983 claims, a judge has judicial immunity from a lawsuit brought under §1983, and therefore cannot be named as the “person” who violated the plaintiff’s constitutional rights, when the lawsuit is based on the judge’s judicial actions.  A county may only be held liable in a §1983 case if the plaintiffs are able to demonstrate that the county had an “official policy or custom” that caused them to be subjected to a denial of a constitutional right.  Appellants have not alleged in their current pleadings that the County had any policy or custom that deprived them of their federal constitutional rights and only allege Judge Woodard acted without authority. There is nothing in the pleadings or the record to suggest that Judge Woodard was executing any county policies and, to the contrary, everything points to him acting in his judicial capacity (for which he is immune from suit).  Finally, the  court noted that while the panel “expresses no opinion” as to whether the Appellants can successfully amend, they recognized the should be given the opportunity. The court ends by stating “[w]e do caution Appellants, however, that any amendment to their pleadings must focus on the liability of the County as the only remaining party in the proceeding, with the recognition that Judge Woodard is no longer a party to the proceedings, and expressly explain what actions the County took that would render them liable to Appellants.”   The case was then remanded.

If you would like to read this opinion click here. Panel includes Chief Justice McClure, Justice Rodriguez and Senior Judge Larsen. Opinion by Justice Rodriguez.  The docket page with attorney information is found here.

Texas Supreme Court rules on electrical transmission utility’s appeal involving rate calculations

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ONCOR ELECTRIC DELIVERY COMPANY LLC, ET AL., v. PUBLIC UTILITY COMMISSION OF TEXAS, ET AL., No.15-0005 (Tex. January 6, 2017)

This is a Texas Supreme Court case which held several things, but the main issue of interest to local governments is factors used in determining rates as well as the validity of certain franchise fee agreements.

OncorElectric DeliveryCo., LLC (“Oncor”) is the largest transmission and distribution utility in Texas and the sixth largest in the United States. Oncor is regulated by the Public Utility Commission (“PUC”), even after deregulation of certain parts of electric utility operations. In June 2008, Oncor initiated a ratemaking proceeding with the PUC, its first request for a comprehensive rate increase since deregulation. Several parties intervened during the administrative matter. After extensive hearings, the administrative law judges recommended only an increase of 1/7th of the requested rate increase. Oncor and other parties to the administrative proceeding sued for judicial review and then appealed to the court of appeals. Various parties appealed to the Texas Supreme Court, which granted all petitions and consolidated the cases.

The Court first held that while the Public Utilities Regulatory Act (“PURA”) requires an end-user electrical utility to discount rates to a state funded university, Oncor cannot sell to end-users. It can only charge for transmission and distribution. As a result, it does not have to provide any such discount. Next, the Court held that when Oncor’s parent corporation sold 19% of the ownership to other investors, it could not file an “affiliated group” consolidated tax return with the parent corporation.  Filing under a consolidated tax return can affect the tax liability in a calculation for long term expenses. Long term expenses is one element the PUC reviews in determining rate changes. Oncor filed its return individually, not consolidated and the Court held it was proper.  Next, the Court held municipalities are entitled to franchise to utilities the use of streets, alleys, and other public areas. The Court then held that the PUC’s determination Oncor could not pay a negotiated franchise fee to the cities was improper. Section 33.008(f) of PURA does not restrict renegotiated franchise charges to only those agreed to on the expiration of franchise agreements existing on September 1, 1999. The provision simply precludes the inference that §33.008(b) is exclusive.

If you would like to read this opinion click here. Chief Justice Hecht delivered the opinion of the court. The Court’s docket page with all attorney information can be found here.

City loses its suit to hold Tax Code provisions unconstitutional

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City of Austin v. Travis Central Appraisal District, et al, 03-16-00038-CV (Tex. App — Austin. November 10,2016)

This is an appraisal case involving vacant land and commercial real property where the City sought to declare parts of the Tax Coder were unconstitutional. The Austin Court of Appeals affirmed the trial court’s dismissal of the suit.

City filed a petition challenging the Travis Central Appraisal District’s appraisals for the 2015 tax year on certain categories of real property . The City challenged certain Tax Code provisions which “have incentivized taxpayer protests and led to widespread diminution of appraised property values to a ‘median value’ that is below market value.” According to the City, the reduction in appraised values to median values “has resulted in unequal taxation in violation of the Texas Constitution.” See Tex. Const. art. VIII, § 1.  Essentially, according to the City, the Appraisal District’s application of §§41.43(b)(3) and 42.26(a)(3) to resolve taxpayer protests has resulted in a reduction of property value making an unconstitutional and unqueal tax Several commercial and residential property owners intervened. The intervenors then moved to dismissed the City’s claims, which the trial court granted. The City appealed.

“[E]xcept for certain specifically circumscribed rights,” the Tax Code’s comprehensive legislative scheme generally excludes taxing units, like the City, from the appraisal process.  Chapter 41, subchapter A, of the Tax Code provides taxing units, like the City, with a mechanism for challenging certain actions by their local appraisal districts. Chapter 41 also provides property owners a mechanism for appealing appraisals. The Austin Court of Appeals analyzed the City’s standing to bring such a claim and ultimately determined the City failed to establish an injury sufficient to confer standing. Further, the Tax Code is a pervasive regulatory scheme, vesting appraisal review boards with exclusive jurisdiction to decide protests and challenges as permitted under chapters 41 and 42. The record reflects that even though the City attended the Review Board hearing, the City did not present a case on the merits of its challenge at the hearing and, in truth, requested the challenge be denied so it could pursue other avenues of attack. The City’s position that it sufficiently exhausted its administrative remedies because it was present at the administrative hearing and requested the denial of its own challenge, if accepted, would thwart the intent of the administrative process and of the exhaustion requirement. The Court held that by affirmatively requesting the Review Board deny its challenge petition, the City failed to “appear,” as required under the law. The trial court did not error in dismissing the City’s case.

If you would like to read this opinion click here. The Panel includes Justice Puryear, Justice Pemberton, and Justice Field. Justice Field delivered the opinion of the court. If you would like to see the representatives for the Appellant and Appellees, please click here to see the docket page.

City’s summary judgment reversed and remanded under failure to address Patel due-course-of-law analysis; dismissal of all other constitutional challenges to utility late fee ordinance affirmed

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Gatesco Q.M. Ltd d/b/a Quail Meadows Apartments, a Texas Limited Partnership v. City of Houston, 14-14-01017-CV (Tex. App— Houston [ 14th Dist.], October 20, 2016)

In this case the 14th Court of Appeals affirmed-in-part and reversed-in-part the granting of the City’s summary judgment motion in this constitutional challenge to the City utility charging late fees and shutting off a customer’s water service. It’s a 21-page opinion so the summary is a bit long. However, the case is good analysis of constitutional ordinance challenges and the new Patel due-course-of-law test.

Gatesco owns an apartment complex known as the Quail Meadows Apartments. The only available supplier of water for the Apartments comes from the City. Gatesco, a longtime water customer, paid its water bill to the City one day late. The City assessed a ten-percent late fee of $1,020.03 (the “Late Fee”) pursuant to an adopted ordinance. Gatesco did not want to pay the Late Fee and challenged it in an administrative proceeding. Though unsuccessful in this proceeding, Gatesco still did not pay the Late Fee. To avoid having its water shut off, Gatesco obtained a temporary restraining order but the trial court denied Gatesco’s request for temporary injunction. Within two hours Gatesco paid the Late Fee, although the City says Gatesco paid the fee at the wrong location. The City shut off the water to the entire complex 17 minutes after Gatesco paid the fee, but turned the water on later that afternoon. But, because the water had been turned off, the City required a cash security deposit of $35,200.00, an estimate of three months of water bills to turn it back on. After the case went up and back to the court of appeals on a plea to the jurisdiction, the trial court granted the City’s summary judgment motions. Gatesco appealed.

Gatesco first sought a declaratory judgment the Late Fee is an excessive fine under the Texas Constitution. Whether the constitutional prohibition has been violated is a question for the court to decide under the facts of each particular case. Generally, prescribing fines is a matter within the City’s discretion. A fine is not unconstitutionally excessive “‘except in extraordinary cases, where it becomes so manifestly violative of the constitutional inhibition as to shock the sense of mankind.’” This ordinance applies a bright-line, ten-percent late charge to all people paying late, subject to a few exceptions. The charge is proportional to the unpaid amount owed and is thus proportional to the amount of water and sewer services consumed.  The City has discretion to prescribe fees to be assessed for late payment for the City’s water and sewer services with the object of incentivizing timely payment for these services. There are no “extraordinary circumstances” here to justify an excessive fee under the Texas Constitution, so the summary judgment is affirmed in that regard. Gatesco also asserts the Houston Ordinance is an unconstitutional tax. In order to determine whether the Late Fee is a regulatory charge or a tax, the court applies the “primary purpose” test. Under this test, the court does not examine the specific regulatory costs incurred by the City as to this one delinquent payment by Gatesco; instead, its looks at whether the aggregate late fees collected exceeds the amount reasonably needed for regulation. The court examines the regulation as a whole to determine whether the late fees imposed are intended to raise revenue or compensate the reasonable costs for regulation. In analyzing the facts and admissions, the court held whether the City incurred any collection costs before charging Gatesco the Late Fee is not material. The record does not show the fees were unreasonable in relation to overall costs of the system. As a result, the trial court did not err in granting summary judgment on this question. As to Gatesco’s equal protection claims, Gatesco bears the burden of showing that it has been treated differently from others similarly situated and that the treatment is not rationally related to a legitimate governmental interest. The summary-judgment evidence does not address how the City treated similarly situated customers, so the trial court did not error in grating summary judgment.  Next, the City violates federal Substantive Due Process if it exercises its power in an arbitrary and unreasonable way. Since no suspect class or fundamental right is involved, the analysis is under the rational basis test. The summary-judgment evidence does not raise a genuine fact issue as to whether it is not at least fairly debatable that each component of the challenged conduct was rationally related to a legitimate governmental interest. The trial court did not error in granting summary judgment on this issue.

The court, however, utilized a different standard for the substantive-due-course-of-law violation under the Texas Constitution. The court analyzed the Supreme Court’s holding in Patel v. Texas Dep’t of Licensing and Regulation. See 469 S.W.3d 69 (Tex. 2015). The high court held that the proponent of an as-applied challenge to an economic-regulation statute under article I, section 19’s substantive-due-course-of-law protections must demonstrate that either (1) the statute’s purpose could not arguably be rationally related to a legitimate governmental interest; or (2) when considered as a whole, the statute’s actual, real-world effect as applied to the challenging party could not arguably be rationally related to, or is so burdensome as to be oppressive in light of, the governmental interest.  However, since the timing of the Patel opinion is so new, the City’s no-evidence summary judgment evidence did not address or incorporate the “oppressive” arguments or elements, which are essential to a no-evidence determination. Accordingly, the court reversed the trial court’s judgment as to these claims and remanded.  Since the substantive-due-course-of-law claims are remanded, so too must the claim for injunctive relief and attorney’s fees.

If you would like to read this opinion click here. The Panel includes Chief Justice Frost, Justice Boyce, and Justice Jamison. Chief Justice Frost delivered the opinion of the court. Attorneys for the Gatesco are listed as Robert Gaines Gibson and Steven Doyle Poock. Attorneys for the City are listed as Mary Stevenson and Darah L. Eckert.

Neither appraisal district nor religious organization established entitlement to MSJ on tax exemption question regarding elderly housing, so full case remanded says 1st Court of Appeals

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National Church Residences of Alief, TX v. Harris County Appraisal District, 01-15-00900-CV (Tex. App- Houston [ 1st Dist.] August 9, 2016)

This is a tax exemption case where the First District Court of Appeals reversed the trial court’s order denying a religious organization’s exemption from taxation because it helped senior citizens with their housing as part of a federally-subsidized housing program.

This is a 28-page opinion, so the summary is a bit long.  National Church Residences of Alief (“NCR”) is a non-profit 501(c)(3) which owns a 62-unit apartment complex. NCR obtained financing from the Department of Housing and Urban Development (“HUD”) to develop the Property into low-income rental housing for either elderly or disabled persons.  Pursuant to the program, a tenant would pay a portion of the monthly rent, calculated under HUD’s formulas depending on the tenant’s income, and HUD would pay the remainder. NCR had a published eviction policy, providing that, if a tenant fails to pay his non-subsidized portion of the rent they could be evicted. NCR applied for an ad valorem exemption from taxation.  HCAD took the position that NCR was not providing its residents with housing or other services without regard to the residents’ ability to pay because tenants were required to pay some rent and security deposits. NCR filed suit in district court, seeking judicial review of HCAD’s denial of its request for a property-tax exemption.  The trial court granted HCAD’s motion for summary judgment, denied NCR’s summary judgment and NCR appealed.

Texas Tax Code §11.18(d)(3) states an entity is entitled to property tax exemptions if it was “providing support without regard to the beneficiaries’ ability to pay to . . . elderly persons.” NCR also claimed that it was entitled to an exemption under §11.18(d)(13) because it was “providing permanent housing and related social, health care, and educational facilities for persons who are 62 years of age or older without regard to the residents’ ability to pay.” Id. § 11.18(d)(13). NCR asserted the requirements tenants make some level of payment is not their policy, but is instead HUD requirements, and that NCR must follow these requirements before it can permit a resident to rent an apartment. NCR asserted no resident pays the full market value rent out of his or her own funds. Instead, the amount that each resident pays is determined by a HUD formula.  HCAD asserts NCR charged security deposits and partial rent making it ineligible for the exemption. The Court of Appeals utilized various statutory constructions principles in applying the Tax Code to NCR’s situation. The court held a resident’s ability to pay the deposit and other obligations is not the focus of the NCR policies, but are instead, HUD regulations. The HUD handbook makes clear that the significance of the security deposit is to protect the landlord from any costs, resulting from a tenant’s breach of the lease. The security deposit remains in a separate interest-bearing account until the tenancy ends. Should the resident comply with the lease, the security deposit is refunded. Further, the eviction policy must be viewed in light of other resolutions of NCR, including the one which held it would assist any tenant who could not pay with other forms of assistance. As a result, the court held HCAD did not show as a matter of law that NCR should be denied the exemption. However, after a long analysis of NCR’s summary judgment, the court concluded the evidence is insufficient to demonstrate it was entitled to the exemption. In other words, both parties were not entitled to summary judgment so the case is remanded for trial.

If you would like to read this opinion click here. The Panel: Justice Higley, Justice Bland, and Justice Massengale. Justice Higley delivered the opinion of the court.  Attorneys for the Appellant are Tanya Nicole Garrison, Donald. T Keller Jr., and Misty Gasiorowski. Attorneys for the Appellee are Denis Potvin, and Eric C. Farrar.