Untitled Texas Attorney General Opinion ( 2004 )

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
January 13,2004
The Honorable Ben W. “Bud” Childers Opinion No. GA-01 34
Fort Bend County Attorney
301 Jackson Street, Suite 728 Re: Whether a tax abatement agreement entered
Richmond, Texas 77469-3 108 into under the Property Redevelopment and Tax
Abatement Act, chapter 312, Tax Code, may be
amended retroactively (RQ-008 1-GA)
Dear Mr. Childers:
On behalf of the Fort Bend County tax assessor-collector, you ask whether Fort Bend County
may retroactively amend a tax abatement agreement entered into under chapter 3 12 of the Tax Code,
the Property Redevelopment and Tax Abatement Act.’
Chapter 3 12 of the Tax Code permits a commissioners court to enter into tax abatement
agreements with owners of real property located in a reinvestment zone if it “has established
guidelines and criteria governing tax abatement agreements by the taxing unit and a resolution
stating that [the county] elects to become eligible to participate in tax abatement.” TEX. TAX CODE
ANN. § 3 12.002(a) (Vernon Supp. 2004). A commissioners court may not enter into a tax abatement
agreement unless it finds that the “terms of the agreement and the property subject to the agreement
meet the applicable guidelines and criteria.” Id. § 3 12.002(b). The terms of an agreement must
include: “the kind, number, and location of all proposed improvements of the property”; county
access to assure that improvements are made; limitations on the permissible uses of the property;
provisions for recapture of lost property tax revenue if the agreement is not kept; a recitation of all
the terms to which the owner of the property has agreed; a provision requiring annual compliance
certification by the owner; and a provision that the agreement may be cancelled or modified if the
owner fails to comply. Id. 5 312.205(a) (Vernon 2002); see also id. 8 3 12.402(a) (Vernon Supp.
2004) (county tax abatement agreement terms governed by section 3 12.205).
Section 3 12.208(a) provides that a tax abatement agreement may be modified or terminated
by the parties at any time before its expiration to “include other provisions that could have been
included in the original agreement or to delete provisions that were not necessary to the original
agreement.” Id. 9 3 12.208(a) (Vernon 2002); see also id. 9 3 12.402(e) (Vernon Supp. 2004) (county
‘See Letter from Honorable Ben W. “Bud” Childers, Fort Bend County Attorney, to Honorable Greg Abbott,
Texas Attorney General, at 1 (July 17,2003) (on file with Opinion Committee) [hereinafter Request Letter].
The Honorable Ben W. “Bud” Childers - Page 2 (GA-0134)
tax abatement agreement maybe modified as provided by section 3 12.208). “The modification must
be made by the same procedure by which the original agreement was approved and executed.” Id.
5 3 12.208(a) (Vernon 2002).
As you explain the situation giving rise to your request, in 2000 Fort Bend County entered
into a tax abatement agreement with an entity called RTRON, Ltd. See Request Letter, supra note
1, at 1.2 Among the conditions of this agreement were that the “Certified Appraised Value of the
Improvements and Tangible Personal Property, excluding inventory, shall be not less than
$7,250,000.00 for the term of this agreement” and that “tangible personal property [installed or
located on the property] shall have a total Certified Appraised Value of not less than $2,000,000.00,
of which at least $600,000.00 shall be new and not have been subject to taxation prior to the date of
execution of this agreement.” Agreement, supra note 2, at 3 (paragraph 4(b), (e)). On December
17, 2002, RTRON requested that the agreement be amended to decrease these appraised value
figures to $5,750,000.00 and $1,400,000.00, respectively, and that the amendments be made
retroactive to January 1,2002, so as to apply to the 2002 tax year. See Request Letter, supra note
1, at l-2.
Before any such amendment of the agreement was made, “the taxes for tax year 2002 became
due. The taxes were assessed at full value because RTRON Ltd. did not meet the requirements of
the tax abatement for tax year 2002.” Id. at 2. We presume from your description of the situation
that taxes were assessed at full value because the value of the properties fell below the’minimum
amounts stipulated in the tax abatement agreement. RTRON paid taxes in the amount of
$163,160.35. See id.
On March 25,2003, the commissioners court approved the amendments that RTRON had
requested, including the request that the amendment be made retroactive to January of 2002. See id.
RTRON has since sought a refund of the taxes it paid for the 2002 tax year on the ground that under
the amended terms of the tax abatement agreement it did not owe them. See id.
Both your request letter and a brief provided by RTRON3 argue that nothing in the language
of chapter 3 12 precludes the possibility of an-rending the abatement agreement retroactively. See
Request Letter, supra note 1, at 2-3. While that may be true, this argument does not address either
section 11.42 of the Tax Code or whether, in this instance, such a retrospective amendment would
violate article III, section 55 of the Texas Constitution.
Chapter 11 of the Tax Code provides that the owner of real property subject to a chapter 3 12
tax abatement agreement is entitled to a tax exemption as provided by the agreement. See TEX. TAX
CODE ANN. 8 11.28 (Vernon 2001). Section 11.42(a) of the Tax Code generally provides that
“eligibility for and amount of an exemption authorized by this chapter for any tax year are
2See also “Tax Abatement Agreement Between Fort Bend County [and] RTRON LIMITED” (attached to
Request Letter) [hereinafter Agreement].
3See Brief from Michael J. Noonan, Attorney at Law, to Nancy S. Fuller, Chair, Opinion Committee, Offke of
Attorney General, at l-2 (Aug. 4,2003) [hereinafter RTRON Briefj.
The Honorable Ben W. “Bud” Childers - Page 3 (GA-0134)
determined by a claimant’s qualifications on January 1.” Id. 8 11.42(a) (Vernon Supp. 2004). “A
person who does not qualify for an exemption on January 1 of any year may not receive the
exemption that year.” Id. This language clearly does not contemplate a post facto alteration of tax
exemption qualifications. Nor does section 312.208(a) indicate that the power to amend the terms
of a tax abatement agreement includes the power to modify this statutory rule. See id. 8 3 12.208(a)
(Vernon 2002).
Even assuming such a modification were permissible, however, the proposed amendment
would be forbidden by article III, section 55 of the Texas Constitution. Article III, section 55 reads:
The Legislature shall have no power to release or extinguish,
or to authorize the releasing or extinguishing, in whole or in part, the
indebtedness, liability or obligation of any corporation or individual,
to this State or to any county or defined subdivision thereof, or other
municipal corporation therein, except delinquent taxes which have
been due for a period of at least ten years.
TEX. CONST.art. III, 8 55.
As the Interpretive Commentary on section 55 notes, “It was the purpose of the framers of
the constitution to render impossible every form of governmental favoritism, including the
abandonment by the state of the collection of delinquent taxes.” Id. art. III, § 55 inter-p. commentary
(Vernon 1997). “They were careful not to provide the legislature with power to extinguish the
liability . . . for taxes levied and assessed in a case where the vast majority of other citizens had paid
their part of the taxes thus levied.” Id.
“A tax that has been levied and has become a liability matured under a tax statute is an
indebtedness or obligation within the meaning of this provision of the Constitution.” Smith v. State,
420 S.W.2d 204,209 (Tex. Civ. App.-Austin 1968), afjd, 434 S.W.2d 342 (Tex. 1968). “[Tlaxes
due are clearly an obligation to a taxing entity that cannot be forgiven under article III, section 55.”
Corpus Christi People’s Baptist Church, Inc. v. Nueces County Appraisal Dist., 904 S.W.2d 621,
625 (Tex. 1995).
Significantly, the constitutional provision that chapter 3 12 implements does not modify
article III, section 55, and chapter 3 12 may not be construed to authorize the county to violate that
constitutional prohibition. Chapter 3 12 was enacted as the enabling legislation for article VIII,
section l-g of the Texas Constitution, which permits the legislature by general law to authorize
“cities, towns, and other taxing units to grant exemptions or other relief from ad valorem taxes on
property located in a reinvestment zone for the purpose of encouraging development or
redevelopment and improvement of the property.” TEX. CONST.art. VIII, 8 l-g(a); see also Tex.
Att’y Gen. Op. Nos. JC-0092 (1999) at 2 (chapter 3 12 enacted to implement Texas Constitution,
article VIII, section l-g); DM-456 (1997) at 1 (same). This office considered and rejected the
argument that chapter 3 12 of the Tax Code permitted the retrospective abatement of property taxes
in Attorney General Letter Opinion 95-090. Finding, as it noted, “nothing in the explicit language
The Honorable Ben W. “Bud” Childers - Page 4 (GA-0134)
of article VIII, section l-g suggesting a legislative intent to authorize a municipality to abate
delinquent property taxes,” the opinion concluded that construing chapter 3 12 to permit such a
practice “would contravene article III, section 55 of the constitution.” Tex. Att’y Gen. LO-95-090,
at 3-4.
We note that this office has considered whether an economic development grant calculated
on the basis of municipal sales taxes that a business had collected would violate article III, section
55. See Tex. Att’y Gen. Op. No. GA-0071 (2003). The city provided those grants under a specific
statutory scheme enacted pursuant to article III, section 52-a of the constitution, which “establishes
that economic development is a legitimate public purpose for public spending.” Id. at 3. The
opinion concluded that the grant program did not violate section 55 because the “municipality has
not released or extinguished an obligation to the state or municipality if the business has collected
and remitted the sales tax as required by law.” Id. at 2. Granting of such rebates is, as Opinion
GA-0071 notes, entirely distinct from extinguishing obligations. See id. at 2-4.
Here we do not address a county’s authority to make economic development grants. Rather,
we consider whether a county may retroactively amend a tax abatement agreement to provide the
taxpayer a basis to seek a refund of monies paid to satisfy a tax obligation. Article III, section 55
prohibits the release of tax obligations, and chapter 3 12 may not be construed to permit it.
In the instant case, there is no dispute that, as of the date when taxes for 2002 became due,
RTRON had failed to meet the terms of the tax abatement agreement, and that consequently it owed
Fort Bend County the amount in question. As you note, “While the request for the amendment was
pending with Fort Bend County, the taxes for tax year 2002 became due.” Request Letter, supra note
1, at 2. RTRON agrees that your request letter is “a fair and accurate rendition of the facts and
circumstances.” RTRON Brief, supra note 3, at 1. Accordingly, the amendment approved on March
25, 2003, after 2002 taxes became due, would in effect retroactively expunge a liability. The fact
that the debt in question was paid after it became due does not alter the terms of this analysis. Once
the debt had become due and owing, it could not be cancelled, but is, in the terms of Smith, “an
indebtedness or obligation within the meaning of’ article III, section 55. Smith, 420 S.W.2d at 209.
A subsequent attempt to change the conditions under which that debt became such an obligation
cannot alter the fact that the taxpayer owed it when it was paid or release the taxpayer from having
been under an obligation to pay it. The release of obligations is forbidden by the express language
of article III, section 55 of the Texas Constitution. Moreover, to permit a refund to RTRON on the
ground that a tax that was proper when paid had somehow been cancelled by a later action by the
cornmissioners court would render article III, section 55 a nullity. See Spradlin v. Jim Walter
Homes, Inc., 34 S.W.3d 578, 580 (Tex. 2000) (constructions that “render any constitutional
provision meaningless or nugatory” are to be avoided).
The Honorable Ben W. “Bud” Childers - Page 5 (GA-0134)
SUMMARY
Section 3 12.208 of the Tax Code, permitting amendment of
tax abatement agreements, does not modify the rule established by
section 11.42(a) of the Tax Code that a “person who does not qualify
for an exemption on January 1 of any year may not receive the
exemption that year.” TEX. TAX CODEANN. 9 11.42(a) (Vernon Supp.
2004). In addition, a retroactive amendment of a tax abatement
agreement that extinguishes an existing tax liability violates article
III, section 55 of the Texas Constitution.
BARRY R. MCBEE
First Assistant Attorney General
DON R. WILLETT
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
James E. Tourtelott
Assistant Attorney General, Opinion Committee