.



# The Attorney General of Texas

.~uly22, 1983

JIM MATTOX Attorney General

Supreme Court Building P. 0. Box 12548 Austin. TX. 78711. 2548 5121475.2501 Telex 9101674-1367 Telecopier 512/475-0266

1607 Main St., Suite 1400 Dallas, TX. 75201-4709 2141742-8944

4824 Alberta Ave., Suite 160 El Paso. TX. 79905-2793 9151533.3464

x20 Dallas Ave., Suite 202 rlouston, TX. 77002.6986

806 Broadway, Suite 312 Lubbock, TX. 79401-3479 806/747.5236

4309 N. Tenth. Suite 8 McAllen. TX. 78501.1685 5121682-4547

200 Main Plaza, Suite 400 San Antonio. TX. 78205.2797 512/225-4191

A” Equal Opportunityl Affirmative Action Employer Mr. Kenneth E. Graeber ExecutiveDirector State PropertyTax Board 9501North Ill-35 Austin,Texas 78761 opinionNo. m-43

Re: Constitutionality of section 115 of House Bill No. 30 enactedby the first~called session of the Sixty-seventh Legislature

DearMr. Graeber:

You have requestedour opinion regardingthe constitutionalityof section 115 of House Bill No. 30 enactedby the first called session of the Sixty-seventh Legislature. Section 115 amended the Property Tax Code by adding section 26.011,which became effective on January 1, 1982.

Section 115provides the following:

Sec. 26.011. LIMITATION REAPPRAISEDVALUES. ON APPLICATION OF

(a) If the appraised value of a property in any year from 1982 through 1985,after subtracting the appraised value of any new or previously undiscovered improvements,increases for the first time above its assessed value on s taxing unit’s 1981 tax roll, the assessor for the unit shall limit the appraised value in the year of the reappraisal, if the percentage of the increase is greater than l-1/2 times the percentage of increase above the 1981 value of all other property on the unit’s tax roll in both 1981 and the currentyear, to an amount that is only l-112 times greater than the percentage of increase in thevalue of all otherproperty.
(b) If the appraised value submitted by the appraisaldistrict is less than thevalue required to be substituted under Subsection (a) of this section, the assessor shall retain the appraised

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Mr. Kenneth E. Graeber - Page 2 (JM-43)

value submitted by the district instead of substitutinga value pursuant to this section.
(c) A tax assessor shall limit increases in market values of land appraised as provided by Subchapters C, D, E, and F or Chapter 23 of this code in the samemanner as increases in appraised value are limitedand shall substitutethe limited values in the records for purposes of calculating additional taxes.
(d) To be entitled to limitation of an increase in appraised value of personal property
as prescribed by this section, a person must present to the tax assessor records establishing the kinds, amounts, and values of personal property he owned on January 1, 1981, and on January 1 of the year in which the increase
occurs.
(e) In this section, a new improvement is a* improvement made after January 1, 1981, and a previously undiscovered improvement is an improvement thatwas made on or before January 1, 1981, but was not included on the taxing unit's 1981 tax roll.
(f) This section does not apply to a taxing unit unless the unit, by ordinance, order, or resolution (dependingon the requirements of law for adoptionof a lawby thatunit),provides that it applies.
(g) The State Property Tax Board shall issue rules and regulationsnecessary for the effective implementationof this section.
(h) This section expiresJanuary 1, 1987.

Acts 1981. 67thLeg., 1st C.S., ch. 13, §115,at 163. In otherwords, if section 26.011 is adopted by the governingbody of a taxing unit, the appraised value of any individualproperty in that unit may not increase by more than one hundred and fifty percent of the average percentage increase invalue of all property in the taxingunit in any year from 1982 through 1985.

You submit that the statute could properly be construed in any one of three differentways -- as a specialvaluation provision,as a partial exemption, or as a "reasonable classification of property

p. 186Mr. Kenneth E. Graeber - Page 3 (JM-43)

within the inherent powers of the legislature." You ask whether, under any of these.constr"ctions,section26.011 is constitutional.

It is clearly the rule that, when a law is attacked as being unconstitutional, there is a presumption that the law is valid and doubts as to its constitutionalityshouldbe resolved in favor of its constitutionality. Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968); Key Western Life Insurance Company v. State Board of Insurance, 350 S.W.2d 839. 849 (Tex. 1961). Moreover, no act of the legislaturewill be declaredunconstitutionalunless someprovisionof the constitution
can be cited which clearly demonstrates the invalidity of the act. Duncan v. Gabler, 215 S.W.2d 155, 159 (Tex. 1948); Texas National Guard Armory Board v. McGraw. 126 S.W.2d 627, 634 (Tex. 1939). Nevertheless. the lenislature mav not authorize that which the constitution-prohibits-, Maher v. Lasater, 354 S.W.2d 923, 925 (Tex. 1962),nor may it lawfully act beyond the limitations set out in the constitution. Travelers' Insurance Company v. Marshall, 76 S.W.2d 1007, 1009 (Tex. 1934). We conclude that section 26.011 of the Property Tax Code contravenes article VIII, sections 1 and 2 of the Texas Constitutionandwould be held unconstitutionalby the courts.
First, we address the contention that section 26.011 should properlybe construedas a specialvaluationprovision. ArticleVIII, section 1 of the Texas Constitutionprovides inpertinentpart:

Taxation shallbe equal and uniform. All property and tangible personal property in this State, whether owned by natural persons or corporations, other thanmunicipal, shallbe taxed inproportion to itsvalue,which shallbe ascertainedasmay be providedby law.

Texas courts have repeatedly declared that the term "value" as employed in article VIII, section 1 means "market value" or the "reasonable cash market value." Rowland v. City of Tyler, 5 S.W.2d 756, 760 (Tex.Comm'nApp. 1928);ztlanticRichfieldCompanyv. Warren Independent School District, 453 S.W.2d 19 10. 197 (Tex. Cl". App. - Beaumont 1970, writ ref'd n.r.e.); Harlingen Independent School Districtv. Dunlap, 146 S.W.2d 235, 237 (Tex.Civ. App. - SanAntonio 1940, writ ref'd). See also Whelan v. State, 282 S.W.2d 378, 380 (Tex. 1955); State v. Whittenburg, 265 S.W.2d 569, 572 (Tex. 1954). The Texas Supreme Court declared in Lively v. Missouri, K. & T. Railway Companyof Texas, 120 S.W. 852, 856 (Tex. 1909):

Article 8, 51, of the Constitution, contains this language: 'All property in this state, whether owned by natural persons or corporations, other than municipal, shall be taxed in proportion to its value, which shall be ascertained as may be

p. 187Mr. Kenneth E. Graeber - Page 4 (JM-43)

provided by law.' The rule announced by that provision is 'equalityand uniformity.' To secure this 'uniform and equal' taxatio", the ssme sentence prescribes that the property of all persons and corporations, other than municipal, 'shallbe taxed in proportion to its value, which shall be ascertained as may be provided by law.' This is a clearly expressed purpose, that the officers charged with the assessment of property shall in the manner prescribed by law ascertain its value. 'The value of the property is to be determinedby what it canbe bought and sold for.' New York State v. Barker, 179 U.S. 287, 21 Sup. ct. 124, 45 L. Ed. 194. If it means full market value when applied to the intangible assets of a railroad company, it means the same thing when applied to land, horses, etc. The standard of uniformity prescribed by the Constitution being the value of the property, taxation cannot be in the same proportion to the value of the property, unless thevalue of allproperty is ascertainedby the same standard.

"Market value" has been defined as "the amount of money that a person desiring to sell, but not bound to do so, could,within a reasonable time procure for such property from a person who desires and is able tobuy, but is not bound topurchase suchproperty." West Texas Hotel Company v. City of El Paso, 83 S.W.2d 772, 775 (Tex. Cl". App. - El Paso 1935, writ dism'd). See also Property Tax Code §1.04(7). As this officehas already declared:

While it canbe argued that theportion of article 8, section 1, which refers to ascertainment of value 'asprovidedby law'permits theLegislature to establish a standard of value for taxation purposes other than market value, the courts have clearly ruled otherwise. See also Tex. Const. art. 8, 520. Accordingly, it is our opinion that article 8, section 1 of the Constitutiondoes not permit the Legislatureto provide for the taxation of property other than inproportion to itsmarket value.
Attorney General Opinion H-1022 (1977). Exceptions to this market value standard are found in article VIII, sections l-d and l-d-(a) providing for the special valuation of agricultural and open space land. Absent these specific constitutionalamendments,however, such propertywould have to be valued in accordancewith the standard set forth in article VIII, section 1. Attorney General Opinion H-1022

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(1977). Accordingly, we conclude that, absent a specific constitutionalprovision permitting the special valuation authorized by section 26.011 of the Property Tax Code, the Texas courts would declare the codeprovisionunconstitutional.
Second,you suggest that section 26.011 of the Property Tax Code could properlybe construed in the alternativeas a partial exemption rather than as a specialvaluationprovision. Section 1.04(11)of the Property Tax Code states that "'[plartial exemption' means an exemption of part of the value of taxable property." The Texas Constitution does not provide for or permit any partial exemption other than those set forth in article VIII, sections l-a (partial exemption for residentialhomestead for county taxes if county levies tax for farm to market roads or for flood control), l-b (residence homestead partial exemptions), and 2 (disabled veterans' partial exemption). "[Elxemptions are subject to strict construction since they are the antithesisof equalityand uniformity." HilltopVillage, Inc. v. Kerrville Independent School District, 426 S.W.2d 943, 948 (Tex. 1968). The legislature is without power to broaden exemptions beyond those permitted by the constitution. Tex. Const. art. VIII, section 2; Leander Independent School District v. Cedar Park Water Supply Corporation, 479 S.W.2d 908, 910 (Tex. 1972);City of Amarillo
v. Love, 356 S.W.2d 325, 327 (Tex. Civ. App. - Amarillo 1962,writ ref'd n.r.e.). If section 26.011 of the Property Tax Code were construed to authorize a partial exemption, it would be declared by the courts tobe unconstitutional.
Third, you suggest that section 26.011 constitutes "s reasonable classification of property within the inherent powers of the Legislature." While the legislature is empowered to make classificationsof property for purposes of taxation so long as such classificationsare not unreasonable,arbitraryor capricious,Bullock
v. ABC InterstateTheatres, Inc., 557 S.W.2d 337, 341 (Tex.Civ. App.

- Austin 1977,writ ref'dn.r.e.), cert. denied, 439 U.S. 894 (1978); American Transferand StorageCompanyv. Bullock, 525 S.W.2d 918 (Tex. Cl". App. - Austin 1975,writ ref'd), relianceon such a principle in supportof the constitutionalityof section 26.011would be misplaced. The caseswhich rely on the principle are concernedwith thepower of the legislature to specify the objects of taxation, not with the

. . mnloved to value oroner'

. e.g.. Tex. Const. standard e

_ ty so taxed. See

_ art. VIII, §li; Bullock v:
. ABC Interstate Theatres, inc., Calvert v. Capital Southwest Corporation, 441 S.W.2d 247 (Tex APP. - Austin 1969,writ ref'dn (1970); Grayson County State Bank **V.** Calvert Cl". App. - Austin 1962, writ ref'd n. I.r.e.),appeal dismissed,397 U.S. 321

:, 357 S.W.Zd 160 (Tex. r.e.); Lockhart v. American Mutual Life InsuranceCompany, 194 S.W.2d 285 (Tex.Civ.App. - Austin 1946,no writ); Gulf StatesUtilitiesCompanyv. State, 46 S.W.2d 1018 (Tex.Cl". App. - Austin 1932,writ ref'd). Indeed, the principle is trnditionally coupled with the principle requiring equality and supra;

. Civ.

P. 189Mr. Kenneth E. Graeber - Page 6 (JM-43)

uniformity in taxationas set forth in articleVIII, section 1 of the Texas Constitution. The legislature is empowered to make such classificationswhen the legislationis reasonableandwhen within the class the legislationoperates equally. Grayson County State Bank v. Calvert, supra, at 162; San Jacinto National Bank V. Sheppard, 125 S.W.2d 715, 716-17 (Tex.Civ.App. - Austin 1938,no writ); Dallas Gas Corn an p y v. State, 261 S.W. 1063, 1069 (Tex.Civ. App. - Austin 1924, writ ref'd);RaymondV. Kibbe, 95 S.W. 727 (Tex.Civ. App. 1906,writ ref'd). The Texas SupremeCourt has in fact declared that, as to the question of equality and uniformity of taxeswithin different classes createdby the state, the requirementsof the equal protection clause of the fourteenth amendment to the U.S. Constitution are essentially the same as the requirementsimposedby the Texas Constitution.

Each requires that all persons fallingwithin the
same class must be taxed alike. Each recognizes the power of the Legislature to make classifications, and each requires that such classifications,when made. must not be unreasonable, arbitrary,or capricious.

Hurt V. Cooper, 110 S.W.2d 896, 901 (Tex. 1937). Again, however, issue as to the permissibility of any classificatory scheme taxation imposed by the state is different from the issue as to standardby,whichproperty so taxed isvalued. the of the

Finally, in connection with this discussion, it has been suggested that the following underscored language of article VIII, section 18 of the Texas Constitutionempowers the legislatureto pass such a statute:

(a) The Legislature shall provide for equalizing, as near as may be, the valuation of all property subject to or rendered for taxation, andmay alsoprovide for the classificationof all landswith reference to theirvalue in the several counties. (Emphasisadded).

The above underscored language was included in the Texas Constitution of 1876; however, it has never been construed by Texas courts. The statute implementing section 18 was, however, twice construed. Article 7206,V.T.C.S., containedthe following:

3. They shall equalize improved lands in three classes, first-classto embrace thebetter quality of land and improvements, the second-class to embrace the second quality of lands and improvements,and the third-classto embrace lands of but smallvalue or inferior improvements. The

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Mr. Kenneth E. Graeber - Page 7 (JM-43)

unimproved lands shall embrace first, second and third class, and all otherpropertymade as nearly uniform as possible.

In both State v. Mallet Land & Cattle Company, Inc., 88 S.W.Zd 471 (Tex. 1935) and Taylor v. Alanreed Independent School District, 138 S.W.2d 149 (Tex. Civ. App. - Amarillo 1940,no writ), a taxpayer alleged that the failureof a board of equalizationto strictlycomply with subdivision 3 of article 7206, V.T.C.S., resulted in an illegal assessment and in excessive, non-uniform, unequal and discriminatory valuation. In both instances, the courts declared that compliance with subdivision 3 was permissible, that the requirements of article VIII, section 1 effectively supercede the requirements of article 7206. "It is our opinion that where the equalization is equal and uniform, and in proportion to value, and no discrimination is shown,
as found by the jury in this case, the mere failure to follow the statute in detail would not render the Iudament of the board of equalization void." state V. Mallet Land-&-Cattle Company, Inc., supra, at 432. See also Taylor v. Alanreed Independent School District,supra, at 150.

While themere failure to adopt a classificationschemewill not result in an illegal assessment if the valuation is equal, uniform, and in proportion to market value, the failure to value property in accordancewith article VIII, section 1 principleswill result in an illegal assessment even though a classification scheme is adopted. The constitutional guarantee of equality and uniformity of taxation controls of themethod the legislaturemay prescribe for ascertaining taxable values under the statutes providing for equalization of assessments. Aycock v. City of Fort Worth, 371 S.W.Zd 712, 715 (Tex. Civ. App. - Fort Worth 1963, writ ref'd n.r.e.). Courts have repeatedly held assessments illegal and void when such assessments
were the result of classificationschemeswhich Droducedvalues which
were not in accord with market values. See,'e.g., Sierra Blanca Independent School District v. Sierra Blanca Corporation, 514 S.W.Zd 782 (Tex. Civ. App. - El Paso 1974, writ ref'd n.r.e.); Duffey v. UnionHill IndependentSchoolDistrict, 490 S.W.Zd 201 (Tex.Civ.App.

- Texarkana 1973, writ ref'd n.r.e.); Atlantic Richfield Company v. 190 (Tex. Civ. APP. - Warren Independent School District, 453 S.W.2d Beaumont 1970,writ ref'd n.r.e.); Dietrichv. Phipps, 438 S.W.2d.900 (Tex.Civ. App. - Houston [lstDist.] 1969,no writ); City of Saginaw
v. Garvey Elevators, Inc., 431 S.W.2d 575 (Tex.Civ.App. - FortWorth 1968,writ ref'dn.r.e.).

It should be noted that article 7206, V.T.C.S.,was repealed by the Property Tax Code, effective January 1, 1982. Acts 1979, 66th Leg., ch. 841, §6 at 2329. There is presently no implementation of article VIII, section 18 in the code. Arguably, the land classification scheme imposed by section 23.52 of the Property Tax

p. 191Mr. Kenneth E. Graeber - Page 8 (JM-43) . . .

Code upon land receiving special valuation as "open-space land" is authorized by article VIII, section 18, but it is important to note that any classificatory scheme which results in a value other than market value is unconstitutional absent a specific constitutional provisionpermitting it. SeeAttorneyGeneralOpinionsH-1220 (1978); H-1022 (1977). In orderx meet this requirement, article VIII, sections l-d and l-d-(a)were proposedand adopted.

While the legislaturemay establish classifications for purposes of taxation, it clearly may not use such a means to circumvent the constitutionalprinciple that all propertymust be valued forpurposes of taxation at market value, unless the constitution otherwise permits.

SUMMARY

Section 115 of House BillNo. 30 enactedby the first called session of the Sixty-seventh Legislature amending the Property Tax Code by adding section 26.011 isunconstit~utional.

Very trulyyour 

# J--w

a

f -JIM MATTOX AttorneyGeneral of Texas

TOM GREEN FirstAssistantAttorneyGeneral

DAVID R. RICHARDS ExecutiveAssistantAttorneyGeneral
Preparedby JimMoellinger AssistantAttorneyGeneral

APPROVED: OPINION COMMITTEE
Rick Gilpin,Acting Chairman Jon Bible SusanGarrison Ben Harrison JimMoellinger

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