The dispute involves the ad valorem tax treatment of natural-gas compressors that Archrock holds for lease. In 2011, the Texas Legislature amended the Texas Tax Code to streamline the appraisal process for all such “heavy equipment inventory” that is held by a dealer for sale or lease. Archrock sought to comply with the new statute, but the Galveston Central Appraisal District (GCAD), and over 100 other appraisal districts, refused to follow it. The appraisal districts contend that the statute does not tax heavy equipment inventory at fair market value, and thus violates Article VIII, Section 1 of the Texas Constitution.
Friday's decision unambiguously rejected the appraisal districts’ constitutional arguments. The Court instead adopted Archrock’s argument that, because the Texas Constitution expressly requires that all personal property be valued “as may be provided by law,” the Legislature may prescribe methods for valuation that are binding on appraisal districts. The statutory amendments replaced a cumbersome, complicated, and expensive appraisal system with a far simpler method that ensures all dealers are taxed in exactly the same way, based on the amount of income their inventory generates. The new statute severely penalizes any dealer who seeks to hide or underreport its sales or leases, and eliminates prior county-by-county discrepancies. All of this, the Court said, was well within the Legislature’s constitutional authority.
This decision will affect hundreds, even thousands, of lawsuits pending across Texas. Since 2012, Baker Botts alone has filed over 800 lawsuits, suing more than 100 Texas appraisal districts that have refused to follow the statute. The Court’s message Friday was clear: appraisal districts, just like taxpayers, must follow the law as written, not as how they wish it had been written.
The Baker Botts team was led by Houston Tax partner, Renn Neilson. The team included Austin Partner, Evan Young, who argued the appeal both in the Fourteenth Court of Appeals and before the Texas Supreme Court; Paul Elliott (Houston, Partner), who handled the district court litigation and advised on the appeals; Thomas R. Phillips (Austin, Partner); and Ben Geslison (Houston, Senior Associate) from the Litigation Department, who was the primary author of the briefs at all levels. From the Tax Department, in addition to Mr. Neilson, were Matt Larsen (Dallas, Partner); and Derek Young (Associate, New York).
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