Opinion
No. 04-17-00142-CV
06-06-2018
THE UNITED INDEPENDENT SCHOOL DISTRICT, Appellant v. Jose Luis VILLARREAL and Edula Villarreal d/b/a Villarreal Production Service a/k/a Villarreal Production Service, Inc. a/k/a VPS, Inc., Appellees
MEMORANDUM OPINION
From the 49th Judicial District Court, Webb County, Texas
Trial Court No. 2013TXA002457-D1
Honorable Elma T. Salinas Ender, Judge Presiding Opinion by: Rebeca C. Martinez, Justice Sitting: Karen Angelini, Justice Marialyn Barnard, Justice Rebeca C. Martinez, Justice REVERSED AND REMANDED
The United Independent School District (UISD) appeals a judgment entered in favor of Jose Luis Villarreal and Edula Villarreal d/b/a Villarreal Production Service a/k/a Villarreal Production Service, Inc. a/k/a VPS, Inc. (the "Villarreals") following a bench trial in a lawsuit to recover delinquent taxes. In two related issues, UISD asserts: (1) section 42.09(b)(1) of the Texas Tax Code only provides a defense if the Villarreals did not own any of the equipment and inventory included in the appraisal roll; and (2) a taxpayer cannot avoid in-rem or personal liability by claiming as a defense that the taxpayer did not own specific items of equipment and inventory included in the appraisal roll. Although we hold a taxpayer may assert a section 42.09(b)(1) defense to challenge its ownership of specific items of equipment and inventory, the trial court erred in the relief it granted based on the Villarreals' defense. Accordingly, we reverse the trial court's judgment and remand the cause to the trial court for the entry of a judgment consistent with this opinion.
BACKGROUND
The Villarreals operate an oilfield services company and have a yard in Laredo, Texas, where they store equipment and inventory. On November 22, 2013, UISD filed the underlying lawsuit seeking to collect delinquent ad valorem taxes owing on the equipment and inventory and to foreclose its tax lien against the equipment and inventory. Other taxing entities intervened in the lawsuit, including Webb County, Laredo Community College, and the City of Laredo. In their answer, the Villarreals asserted an affirmative defense, contending they did not own most of the property on which the taxes were imposed.
After a bench trial, the trial court entered a judgment finding the Villarreals did not own certain items of equipment and inventory. The judgment details the items the trial court found the Villarreals did not own. The judgment then grants the following relief:
Plaintiffs are ordered to resubmit through the Webb County Appraisal District their respective assessed base tax value computations only in the amount of $102,050.00 for personal property taxes ... for the years 2011, 2014 and 2015.Only UISD appeals the trial court's judgment.
STANDARD OF REVIEW
"Statutory interpretation is the primary issue in this appeal, and that involves questions of law we review de novo." Cadena Comercial USA Corp. v. Tex. Alcoholic Beverage Comm'n, 518 S.W.3d 318, 325 (Tex. 2017). "In construing a statute, our objective is to determine and give effect to the Legislature's intent." City of San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003). "We determine legislative intent from the entire act and not just its isolated portions." Id. "Thus, we read the statute as a whole and interpret it to give effect to every part." Id. (internal quotation omitted). "When statutory text is clear and unambiguous, we construe that text according to its plain and common meaning unless a contrary intention is apparent from the statute's context." Hoskins v. Hoskins, 497 S.W.3d 490, 493-94 (Tex. 2016). "Taxing statutes are construed strictly against the taxing authority and liberally for the taxpayer." Morris v. Hous. Indep. Sch. Dist., 388 S.W.3d 310, 313 (Tex. 2012).
SECTION 42.09(b)"The [Texas] Tax Code establishes a detailed set of procedures that property owners must abide by to contest the imposition of property taxes." Morris, 388 S.W.3d at 313 (citing TEX. TAX CODE §§ 41.01-43.04). "Under section 42.09(a) of the Code, those procedures are exclusive and a taxpayer must exhaust the remedies provided in order to raise most grounds of protest in defense of a suit to collect taxes or as a basis for a claim for relief." Id. "Section 42.09(b)(1), however, allows a person sued for delinquent taxes to assert as an affirmative defense 'that the defendant did not own the property on which the tax was imposed' if the suit is to enforce personal liability." Id. (quoting TEX. TAX CODE § 42.09(b)(1)). "While Section 42.09(b)(1) refers to non-ownership as an affirmative defense, it evidences the Legislature's intention to provide taxpayers with an opportunity to avoid tax liability for property that they do not own." Id. In fact, Section 42.09(b) of the Code was amended by the Legislature in 1987 in response to Robstown Indep. Sch. Dist. v. Anderson, 706 S.W.2d 952 (Tex. 1986), which held a non-ownership defense was waived because the taxpayer did not exhaust his administrative remedies. Barnett v. Cty. of Dall., 175 S.W.3d 919, 922 (Tex. App.—Dallas 2005, no pet.) (citing Gen. Elec. Capital Corp. v. City of Corpus Christi, 850 S.W.2d 596, 602 (Tex. App.—Corpus Christi 1993, writ denied)). That amendment further clarified the Legislature's intent "that it desires the taxpayer to always have available the defense that he did not own the property." Gen. Elec. Capital Corp., 850 S.W.2d at 602.
Section 42.09(b)(1) provides:
A person against whom a suit to collect delinquent property tax is filed may plead as an affirmative defense:TEX. TAX CODE ANN. § 42.09(b)(1) (West 2015).
(1) if the suit is to enforce personal liability for the tax, that the defendant did not own the property on which the tax was imposed on January 1 of the year for which the tax was imposed[.]
"PROPERTY"
UISD asserts the term "property" as used in section 42.09(b)(1) refers to the inventory and equipment against which taxes were assessed as a whole and does not permit a taxpayer to assert as a defense that the taxpayer did not own specific items of inventory and equipment. In support of this argument, UISD cites Bauer-Pileco, Inc. v. Harris Cty. Appraisal Dist., 443 S.W.3d 304 (Tex. App.—Houston [1st Dist.] 2014, pet. denied). In Bauer-Pileco, Inc., however, the Houston court was construing a different section of the Code involving motions to correct the appraisal roll, specifically motions to correct "the inclusion of property that does not exist in the form or at the location described in the appraisal roll." 443 S.W.3d at 310 (construing section 25.25(c)(3) of the Code). Citing the Dallas court's opinion in Titanium Metals Corp. v. Dall. Cty. Appraisal Dist., 3 S.W.3d 63, 66 (Tex. App.—Dallas 1999, no pet.), the Houston court held section 25.25(c)(3) of the Code allows the correction of the appraisal roll "when the appraisal roll erroneously reflects that a particular form of property exists at a specified location and, in fact, no such property exists at that location." Bauer-Pileco, Inc., 443 S.W.3d at 311 (quoting Titanium Metals Corp., 3 S.W.3d at 66). The Houston court concluded, "Section 25.25(c) does not authorize correction of the appraisal records on the basis that a portion of the property owner's property was not located within the taxing district." Id. at 313. Because Bauer-Pileco, Inc. construed a different section of the Code that contained different language than the language used in section 42.09(b)(1), it is readily distinguishable and does not provide support for UISD's issues in this appeal.
The Villarreals assert this court's analysis should be guided by the Corpus Christi court's opinion in City of Pharr v. Boarder to Boarder Trucking, Svc., Inc., 76 S.W.3d 803 (Tex. App.—Corpus Christi 2002, pet. denied). We agree.
In City of Pharr, several taxing entities sued to collect delinquent taxes in 1992 which was after the Legislature amended section 42.09(b)(1) to permit a taxpayer to assert the affirmative defense of non-ownership. 76 S.W.3d at 804, 806. The taxes were based on personal property valued at $768,653, "of which $754,800 is attributed to twelve vehicles, all of which [the taxpayer] denie[d] ownership." Id. at 805. "Following a bench trial, the District Court ruled [the taxpayer] did not own personal property having a value as great as had been assessed to it for taxation. The judgment reduced the taxes owed to reflect the [taxpayer's] non-ownership of the twelve vehicles." Id. at 805. After holding the taxpayer was entitled to assert the section 42.09(b)(1) defense of non-ownership, the Corpus Christi court affirmed the trial court's judgment, holding the evidence was sufficient to support the trial court's finding that the taxpayer did not own the twelve vehicles. Id. at 806-07. Therefore, both the trial court and the appellate court construed section 42.09(b)(1) to permit a taxpayer to assert he did not own some of the equipment included in the overall value of personal property against which the taxes were assessed.
UISD asserts City of Pharr is distinguishable because the taxpayer in that case filed a protest which was denied. We disagree. The court's analysis in City of Pharr was based on the section 42.09(b)(1) non-ownership defense, not on an appeal from a protest. Although the court addressed the exhaustion of administrative remedies in the opinion, the court recognized that "42.09 makes [it] clear that the legislature desires that the taxpayer 'have available the defense that he did not own the property.'" 76 S.W.3d at 806 (quoting Gen. Elec. Capital Corp., 850 S.W.2d at 599); see also Gen. Elec. Capital Corp., 850 S.W.2d at 602 (rejecting taxing authorities' argument that "for those accounts containing a single, grand total assessment upon multiple units, [the taxpayer] was required to prove it did not own each and every unit in the account in order to show it was not responsible for the tax assessed on that account" because "the clear intent of § 42.09 as evidenced by the legislature's amendment after Robstown would be frustrated by the taxing authorities' reading of the statute").
Having reviewed the applicable authorities, we agree section 42.09(b)(1) evidences the Legislature's intent to always provide taxpayers with an opportunity to avoid tax liability for property they do not own. Although taxing authorities are permitted "to assess multiple units of property, such as inventory, in a single account," id., the manner in which the property is assessed cannot be used as a basis for thwarting the Legislature's intent to provide taxpayers with non-ownership as an affirmative defense. Therefore, when a taxpayer challenges its ownership of some of the property against which the taxes were assessed and the trial court finds the taxpayer did not own certain property, the appropriate remedy is for the trial court to determine the total amount of the taxes owed on the property the trial court finds the taxpayer did own and enter a judgment reducing the amount of taxes the taxpayer is required to pay. See City of Pharr, 76 S.W.3d at 805.
IN-REM V. PERSONAL LIABILITY
UISD's second issue challenges a taxpayer's ability to avoid both in-rem and personal liability by asserting the taxpayer did not own specific items of equipment and inventory. In discussing the trial court's judgment, UISD asserts, "The district court did not even award an in-rem judgment in favor of the taxing entities." In its reply brief, UISD clarifies, "While Section 42.09 provides a defense to personal liability for non-ownership of property, it does not provide a defense to in-rem liability." The Villarreals respond that UISD "did not plead/pray for an award of In-rem liability judgment against [their] equipment and inventory."
UISD's pleading contained the following allegation:
To secure the payment of said taxes, penalties and interest, there has existed a first lien, superior to all others, on all the property of Defendant set out herein from January 1 of each of the years sued for, and such lien still exists, and Plaintiffs assert said lien on each separately described property to secure the payment of all due taxes, penalties, interests [sic], attorneys fees, costs of court, and abstract fees.In the prayer for relief, UISD requests a monetary judgment and "foreclosure of its tax lien as a first, prior, and superior lien securing said taxes, penalties and interest on the property hereinabove described." Therefore, we hold UISD did plead and pray for an in-rem judgment.
With regard to the law, UISD is correct. Although section 42.09(b)(1) provides an affirmative defense for non-ownership, the defense is only available "if the suit is to enforce personal liability for the tax." TEX. TAX CODE § 42.09(b)(1); Hydrogeo, LLC v. Quitman Indep. Sch. Dist., 483 S.W.3d 51, 60 (Tex. App.—Texarkana 2016, no pet.) (holding affirmative defense of non-ownership does not apply in suit for foreclosure of in-rem tax lien); Waller Indep. Sch. Dist. v. Miller, No. B14-87-00821-CV, 1988 WL 75757, at *1 (Tex. App.—Houston [14th Dist.] July 21, 1988, no writ) (not designated for publication) (holding defense did not apply where "action was one to foreclose a lien securing payment, not one to enforce personal liability for the tax").
CONCLUSION
The trial court correctly applied the section 42.09(b)(1) non-ownership defense, and UISD does not challenge the sufficiency of the evidence to support the trial court's findings regarding the items of inventory and equipment the Villarreals did not own. However, because the trial court erred in the nature of the relief it granted, the trial court's judgment is reversed, and the cause is remanded to the trial court for the entry of a judgment consistent with this opinion. On remand, the trial court should determine the amount of the taxes owed on the property the trial court found the Villarreals owned and enter a judgment reducing the total amount of taxes the Villarreals are required to pay. Although only UISD appealed the trial court's judgment, the relief granted in the judgment with regard to the Villarreals' personal liability must be corrected as to all the taxing entities. Because only UISD appealed, however, only UISD is entitled to an in-rem judgment on remand.
Rebeca C. Martinez, Justice