ATTORNEY GENERAL OF TEXAS GREG ABBOTT

September 30, 2010

The Honorable Kurt Sistrunk Galveston County Criminal District Attorney 600 59th Street, Suite 1001 Galveston, Texas 77551-4137

Dear Mr. Sistrunk: Opinion No. GA-0805 Re: Proper method of appraising the value of residence homesteads damaged by Hurricane Ike in 2008 (RQ-0851-GA)

You ask aboutthe proper method ofappraising the value ofresidence homesteads damaged by Hurricane Ike in 2008. 1 Section 23.23 ofthe Tax Code provides, in relevant part: (a) Notwithstanding the requirements of Section 25.18 and regardless ofwhether the appraisal office has appraised the property and determined the market value ofthe property for the tax year, an appraisal office may increase the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of: (1) the market value ofthe property for the most recent tax year thatthe market value was determined bythe appraisal office; or (2) the sum of: (A) 10 percent ofthe appraised value ofthe property for the preceding tax year; (B) the appraised value ofthe property for the preceding tax year; and (C) the market value of all new improvements to the property. TEx. TAX CODE ANN. § 23.23(a) (West Supp. 2010). Thus, under this provision, a particular residence homestead may not be appraised for a particular tax year at an amount that exceeds by
'Request Letter (available athttp://www.texasattorneygeneral.gov).The Honorable Kurt Sistrunk

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more than ten percent ofthe property's appraised value for the preceding tax year

### plus "themarket value ofall new improvements to the property." 

### Id. § 23.23(a)(2)(C). Subsection (e) ofsection 23.23 provides the following: (e) Inthis section, "new improvement" means an improvement to a residence homestead made after the most recent appraisal ofthe propertythat increases the market value ofthe property and the value ofwhich is not included inthe appraised value oftheproperty for the preceding tax year. The term does not include repairs to or ordinary maintenance ofanexisting structure orthe grounds oranotherfeature ofthe property. 

### Id. § 23.23(e). Prior to its 2007 amendment, subsection (e) provided that the term "new improvement" does not include "ordinary maintenance ofan existing structure or the grounds or another feature ofthe property." Tex. Att'y Gen. Op. No. GA-0091 (2003) at 2; 

### see Act ofJune 1, 1997, 75th Leg., R.S., ch. 1039, § 47, 1997 Tex. Gen. Laws 3897, 3918. A 2003 opinion ofthis office declared thatthe term '''newimprovement' includes repairs made following a natural disaster because the repairs are not 'ordinary maintenance.'" Tex. Att'y Gen. Op. No. GA-0091 (2003) at 8. The Eightieth Legislature amended subsection (e) to its present version by adding the words "repairs to or." 

### See Act ofMay 22,2007, 80th Leg., R.S., ch. 1355,2007 Tex. Gen. Laws 4644, 4644-45. As a consequence, under the amended version of subsection (e), the term "new improvement" does not "include repairs

... to an existing structure." In2009, becauseofextensivedamageto structuresinseveral coastalcounties,theLegislature amended subsection (t), which now provides: (t) Notwithstanding Subsections (a) and (e) and exceptas provided by Subdivision (2), animprovementto propertythatwould otherwise constitute a new improvementis nottreated as a new improvement if the improvement is a replacement structure for a structure that was rendered uninhabitable or unusable by a casualty orbywind orwater damage. For purposes ofappraising the property under Subsection (a) in the tax year in which the structure would have constituted a new improvement: (1) the appraised value the property would have had in the preceding tax year if the casualty or damage had not occurred is considered to be the appraised value ofthe property for that year, regardless of whether that appraised value exceeds the actual appraised value ofthe property for that year as limited by Subsection (a); and (2) the replacement structure IS considered to be a new improvement only if:The Honorable Kurt Sistrunk

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(A) the square footage of the replacement structure exceeds that ofthe replaced structure as that structure existed before the casualty or damage occurred; or (B) the exterior ofthe replacement structure is ofhigher quality construction and composition than that of the replaced structure. TEx. TAX CODEANN. 

### § 23 .23(f) (West Supp. 2010). As a result ofthe enactment ofsubsection (f), a residence homestead that has been "rendered uninhabitable orunusable by a casualty or by wind or water damage" is treated for appraisal purposes in a special manner. Inconstruing a statute, ourprimary objective, likethat ofthe courts, is "to ascertain and give effect to Legislature's intent." City of Marshall v. City ofUncertain, 206 S.W.3d 97, 105 (Tex. 2006). Legislative intentis best "expressedbythe statute's language andthe words used, unless the contextnecessarilyrequires a different constructionor a different constructionis expresslyprovided by statute." Hernandez v. Ebrom, 289 S.W.3d 316, 318 (Tex. 2009). "Unambiguous statutory language is interpreted according to its plain language unless such an interpretation would lead to absurd results." 

### Id. Subsection (f) is triggered when a "replacement structure" has been built to replace a residence thatwas "rendered uninhabitable orunusable by a casualty or bywind or water damage." TEx. TAX CODE ANN. 

### § 23.23(f) (West Supp. 2010). The statute declares that such a "replacement structure" is not considered a "new improvement" under subsection (e), and it sets forth the parameters for "appraising the property under Subsection (a) in the tax year in which the structure would have constituted a new improvement." 

### Id. The statute does not define the terms "uninhabitable" or "unusable." Subsection (f) establishes a formula to be applied to the replacement structure for purposes of appraising the property under subsection (a). First, under subdivision (f)(1), the property is assessed at "the appraised value thepropertywouldhavehad intheprecedingtaxyear ifthe casualty or damage had not occurred." 

### Id. That value is then used in calculating the maximum appraised value for the current tax year. 

### Id. Second, the replacement structure is considered to be a "new improvement" underthe subsection (a) calculation only ifitmeets the requirements ofsubdivision (f)(2). 

### Id. With this background, we tum to the three scenarios you pose. Scenario 1 A homesteadhas an appraisedvalue of$300,000 onJanuary 1,2008. The homestead is partially damaged by Hurricane Ike in September 2008. As a result, the homestead's value on January 1, 2009 is appraisedbythe CAD at $150,000. During 2009, renovations restore the homestead to its pre Hurricane Ike status. Request Letter at 4.The Honorable Kurt Sistrunk

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In this scenario, you have not indicated that the structure was "rendered uninhabitable or unusable," andwe will, for purposes ofyour question, presumethatitwasnot. Becausethe structure was not "rendered uninhabitable or unusable," subsection 

### (f) is not applicable. Ifthe renovations to the property are reasonably determined to constitute "repairs to" an existing structure, the renovations, by virtue ofsubsection (e), fall outside the definition of"new improvement." Inthat case, the appraised vaiue ofthe property for the 2010 tax year is calculated under subsection (a) in the following manner: $150,000 (the 2009 appraised value);plus a maximum of$15,000 (the cap established by subsection (a)(2). Ifonthe otherhandthe renovations are reasonably determined not to constitute "repairs to" an existing structure, such renovations must be treated as a "new improvement." Inthat event, the appraised value for tax year 2010 is calculated under subsection (a) inthe following manner: $150,000 (the 2009 appraised value); plus a maximumof$15,000 (the cap established by subsection (a)(2)); plus "the market value of all new improvements to the property." Whether the renovation ofany particular structure constitutes mere "repairs" or a "new improvement" is a fact question whose resolution is inappropriate to the opinion process?



### Id at 4-5. Scenario 2 A homestead has an appraised value of$300,000 on January 1,2008. The homestead is extensively damaged by Hurricane Ike in September 2008 and is uninhabitable. As a result, the homestead's value on January 1,2009 is appraised by the CAD at $100,000. The homestead is restored to its pre Ike condition in 2009.

Inthis scenario, the structure has beenrendered uninhabitable by stormdamage. As aresult, thereplacement structure will be valuedinaccordance with subsection 

### (t). The determination ofthe appraised value for tax year 2010 is calculated, pursuant to subdivision 

### (t)(l) by assuming a value that the property "would have had [in 2009] ifthe casualty or damage had not occurred," and using such value inthe subsection (a) calculation. It is unclear whatthe Legislature intended byits use of the phrase "would have had." Because the appraisal district is statutorily charged with the duty of "appraising property in the district," the appraisal district should, in the first instance and in accordance with subdivision 

### (f)(I), determine the value thatthe property "wouldhave had [in 2009]

'Attorney General Opinion GA-0091 considered the argument that the tenn "ordinary maintenance" was synonymous with the tenn "repairs," but rejected that contention largely because the word "maintenance" was modified bythe word "ordinary." Tex. Att'y Gen. Op. No. GA-0091 (2003) at 5. This construction has been snperseded by the Legislature's 2007 amendment of subsection (e), which specifically excluded "repairs" from the definition of "new improvement." See id at 2-3. Opinion GA-0091 also noted that section 11.26 ofthe Tax Code, which limits the appraisedvalue of renovated homesteads ownedbytheelderly or disabled, requires thatthe appraiser detenninewhether a structure has been totally, or only partially, destroyed. The opinion suggestedthat, if"the value ofthe damage totaled less than halfofthe homestead's original value, an appraiser reasonably could fmd that the homestead was repaired" rather than fully reconstructed. I d at 7. In view ofthe present language ofsection 23 .23(e), this suggestion shouldnot necessarily be regarded as persuasive. In any event, as we have noted, a determination of whether any particular renovation constitutes a "repair" or a "new improvement" is a question offact.The Honorable Kurt Sistrunk

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ifthe casualtyordamage had not occurred.,,3 

### See TEx. TAX CODEANN. 

### § 6.01 (b) (West2008) ("The [appraisal] district is responsible for appraising property in the district for ad valorem tax purposes ofeach taxing unit that imposes ad valorem taxes onproperty in the district."). In addition to the calculation used by the appraisal district in determining the value a particularproperty "wouldhave had"in2009, subsection (a) ofsection 23.23 authorizes anappraisal district to "increase the appraised value ofa residence homestead for a tax year not to exceed the lesser of: (I) the marketvalue ofthe property for the most recent tax year that the market value was determined by the appraisal office"; or (2) the sum of(A) the value the property "would have had" in2009 as determined by the appraisal district; (B) 10percentofthatvalue; and (C)themarketvalue ofall new improvements to the property." Because you have indicated in this scenario that there were no "newimprovements"to theproperty in 2010, the appraisal district may add to its appraised value for tax year 2010 a maximum often percent ofthe value the property "would have had" in 2009, as determined by the appraisal district. Scenario 3 A homestead has an appraised value of$300,000 onJanuary 1,2008. The homestead is extensively damaged by Hurricane Ike in September 2008 and is uninhabitable. As a result, the homestead's value on January 1, 2009 is appraised by the CAD at $100,000. The homestead is renovated; but in making the renovations, the owner changes the exterior ofthe structure or increases the square footage ofthe homestead.

. . . . Request Letter at 5. Inthis scenario, the structure has been rendered uninhabitable by storm damage. When the structure is replaced, either the square footage is increased 

### or the exterior of the replacement structure is ofhigher quality construction and composition than was the previous structure. In such a situation, the determination ofthe 2010 appraised value under subsection (a) is governed first by the application ofsubdivision (f)(I), which establishes the appraised value for tax year 2009 at the value that the property "would have had [in 2009] ifthe casualty or damage had not occurred," and thenby the application ofsubdivision (f)(2), whichrequires thatthereplacement structure be treated as a "new improvement." TEx. TAX CODE ANN. 

### § 23.23(f)(1)-(2)(West Supp. 2010). As a result, the calculation of the 2010 appraised value is determined by subsection (a): the value that the property "would have had [in 2009] ifthe casualty or damage had not occurred; 

### plus a maximum often percent ofthat value under subsection (a);

### plus "the market value ofall new improvements to the property" that are described by subdivision (f)(2).

'Under your second scenario, it does not appear that the replacement structure will be considered a "new improvement" under subdivision (1)(2).The Honorable Kurt Sistrunk

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### SUMMARY Calculation of the 2010 appraised value of a residence homestead damaged by Hurricane Ike in 2008 and renovated to its pre-storm status is determinedby section23 .23(f) ofthe Tax Code so long as the structure was "rendereduninhabitable orunusable." lfthe structure was not rendered uninhabitable or unusable, calculation of the 2010 appraised value is dependent upon whether the renovations may reasonably be said to constitute a mere "repair" or a "new improvement" under section 23.23(e). lfthe structure was rendered uninhabitable or unusable, calculation ofthe 2010 appraised value is dependent upon the appraised value the property would have had in 2009 but for the storm damage, together with the market value ofall new improvementstotheproperty as describedby subdivision (f)(2).

DANIEL T. HODGE First Assistant Attorney General DAVID J. SCHENCK Deputy Attorney General for Legal Counsel NANCY S. FULLER Chair, Opinion Committee Rick Gilpin Assistant Attorney General, Opinion Committee