Untitled Texas Attorney General Opinion ( 2000 )

OFFICE OF THE ATTORNEY GENERAL. STATE OF TEXAS
JOHN CORNYN
October 10,200O
The Honorable Gary L. Walker Opinion No. JC-0290
Chair, Land & Resource
Management Committee Re: Legality of a business that locates property
Texas House of Representatives omitted from the appraisal rolls for a percentage
P.O. Box 2910 of the amount of tax generated for a local taxing
Austin, Texas 78768-2910 unit (RQ-0218-JC)
Dear Representative Walker:
A constituent has contacted you “concerning the legality of a business he is interested in
starting. The business would involve locating omitted property for a fee that would be based on the
tax generated to the local taxing units. These units might include city, county, and school taxing
entities,“’ You inquire whether such a business, which we assume would be organized solely for
the purpose you describe, is legal. See Request Letter, note 1, at 1. Because you describe the
business as one that would receive a contingent fee “based on the tax generated to the local taxing
units,” we consider only a business that is compensated on a contingent fee basis.
Although the business you propose is not illegal, no taxing unit, including a home-rule
municipality, may contract with a private entity to locate property omitted from the appraisal rolls
on a contingent fee basis. No statute expressly authorizes a taxing unit to enter a contingent fee
contract in these circumstances, as we believe is necessary for a taxing unit to execute a contingent
fee contract of this type.
We begin by responding to your question “regarding the legality of a business that” locates
property that has been omitted from the tax rolls. Id. A for-profit corporation may be organized for
any legal purpose. See TEX. BUS. CORP. ACT ANN. art. 2.01(A) (Vernon Supp. 2000). Nothing
deems the purpose your constituent proposes illegal.
But no taxing unit may contract with a private corporation to locate property that has been
omitted from the tax rolls ifthe corporation will be compensated on a contingent fee basis. A taxing
unit includes a county, a municipality, a school district, a special district or authority, and any other
‘Letter from Honorable Gary L. Walker, Chair, Land & Resource Management Committee, Texas House of
Representatives, to Honorable JolmComyn, Texas Attorney General (Mar. 23,200O) (on file withGpinionCommittee)
[hereinafter Request Letter].
The Honorable Gary L. Walker - Page 2 (X-0290)
political unit of the state. See TEX. TAX CODE ANN. 4 1.04(12) (Vernon Supp. 2000) (defining
“taxing unit”).
We begin by placing the type of contract about which you ask in the property-taxation
context. A taxing unit generally may not employ a person to appraise property for taxation purposes.
See id. $ 1.15. Rather, the appraisal district of which a taxing unit is a part appraises property
throughout a taxing unit. See id. 5 6.01 (b) (Vernon 1992). Using renditions received from property
owners in the appraisal district, the district’s chief appraiser annually prepares “appraisal
records listing all property that is taxable in the district and stating the appraised value of each.” Id.
5s 22.27(a), (b), 25.01(a) (Vernon 1992 & Supp. 2000); see id. $5 6.01(a), .02(a) (Vernon 1992 &
Supp. 2000) (establishing appraisal districts and articulating boundaries). The chief appraiser must
add to the appraisal records any real or personal property that he or she discovers has been omitted
in previous years:
Ifthe chief appraiser discovers that real property was omitted
from an appraisal roll in any one of the five preceding years or that
personal property was omitted from an appraisal roll in one of the two
preceding years, he shall appraise the property as of January 1 of each
year that it was omitted and enter the property and its appraised value
in the appraisal records.
Id. 5 25.21(a) (Vernon 1992).
The type of contract you describe, wherein a private entity contracts with a taxing unit to
locate property omitted from the tax rolls, is known as a tax ferret contract. See White v. McGill, 114
S.W.2d 860,861 (Tex. 1938); see also Marquart v. Harris County, 117 S.W.2d 494,502 (Tex. Civ.
App.-Galveston 1938, writ dism’d); V OXFORDENGLISHDICTIONARY844 (2d ed. 1989) (defining
“to ferret out” as “[t]o search out, discover, bring to light”); cf: Whitney v. City of Terre& 278
S.W.2d 909, 911 (Tex. Civ. App.-Waco 1955, no writ) (evaluating contract that does not provide
for collecting delinquent taxes, and that is not, therefore, tax ferret contract); Crosby V. Marquess
& Co., 226 S.W.2d 461, 463-64 (Tex. Civ. App.-Beaumont 1950, writ ref d n.r.e.) (describing
contract that is not tax ferret contract).
In our opinion, any taxing unit’s powers relating to property taxation are coextensive with
title 1 of the Tax Code. A taxing unit other than a home-rule municipality has, by its very nature,
only those powers that the constitution or statutes expressly confer or those necessarily implied from
the express powers. See Texas Roofing Co. v. Whiteside, 385 S.W.2d 699, 701 (Tex. Civ.
App.-Amarillo 1965, writ ref d n.r.e.); see also Canales Y. Laughlin, 214 S.W.2d 451, 453 (Tex.
1948) (discussing county powers); Tri-City Fresh WaterSupply Dist. v. Mann, 142 S.W.2d 945,946
(Tex. 1940) (discussing powers of special-purpose district); Jackson County Hosp. Dist. v. Jackson
County Citizensfor ContinuedHosp. Care, 669 S.W.2d 147,154 (Tex. App.-Corpus Christi 1984,
no writ) (discussing hospital district’s powers); Harlingen Zndep. Sch. Dist. v. C.H. Page & Bras.,
48 S.W.2d 983, 986 (Tex. Comm’n App. 1932, holding approved) (discussing school district’s
The Honorable Gary L. Walker - Page 3 (JC-0290)
powers). All taxing units, including home-rule municipalities, are subject to section 1.02 ofthe Tax
Code, which strictly circumscribes a taxing unit’s authority to adopt a law that differs from the Tax
Code:
This title applies to a taxing unit that is created by or pursuant
to any general, special, or local law enacted before or after the
enactment of this title unless a law enacted after enactment of this
title by or pursuant to which the taxing unit is created expressly
provides that this title does not apply. This title supersedes zany
provision of a municipal charter or ordinance relating to property
taxation.
TEX. TAX CODE ANN. 3 1.02 (Vernon 1992). Thus, title 1 of the Tax Code supersedes even a home-
rule municipality’s enactments relating to property taxation.
Judicial opinions issued before the 1979 adoption of the Tax Code determined that a
contingent fee, tax ferret contract relates to “the collection of delinquent taxes” and that a taxing unit
might enter one in strict compliance with applicable law. See Wlzite, 114 S.W.2d at 863; Marquart,
117 S.W.2d at 501. Because the law has been substantially amended since the tax ferret cases were
decided, the cases do not dispose of the issue you raise. See Grand Prairie Hosp. Dist. v. Dallas
CountyAppraisalDist., 730 S.W.2d 849,851 (Tex. App.-Dallas 1987, writ ref d n.r.e.) (stating that
adoption of Tax Code repeals all inconsistent general, local, and special laws).
We believe the legislature intends to closely regulate contingent fee contracts involving
taxing units. According to the 1938 White decision, the legislature has reasons to restrict a taxing
unit’s use of a contract under which a tax ferret is paid on a contingent fee basis. See white, 114
S.W.2d at 862-63. Prior to 1930, a commissioners court legally could enter a contingent fee, tax
ferret contract. See id. at 862. But the contracts many counties entered “shocked the public
conscience as being unfair and exorbitant.” Id. Immediately after some courts upheld these
contracts, “the Legislature took steps to declare the public policy of this State with respect to” this
kind of contract. Id. “[T]o avoid the execution of contracts calling for excessive and unreasonable
compensation,” the legislature adopted statutes limiting the compensation to no more than fifteen
percent of the amount collected and establishing an approval process for the contracts. Id.
The Legislature found that the laws on the statute books [before
19301 permitted contracts to be made that were unfair and unjust
to the public. It was desired that such evils should be stopped. Hence
the Legislature enacted these articles for that purpose, and limited the
compensation to be paid in an amount not to exceed 15[%] of the sum
collected. It also further provided that such contracts must be
approved by both the Comptroller and the Attorney General, and,
unless such contracts were executed in compliance with the
provisions of the act, same should be void.
The Honorable Gary L. Walker - Page 4 (JC-0290)
Id. at 863.
In those rare circumstances where such a contingent fee contract is permitted, it is expressly
allowed by a statute that circumscribes the amount of compensation a private entity may receive.
Section 6.30 of the Tax Code, for example, strictly regulates the percentage by which a taxing unit
may compensate an attorney who contracts with the taxing unit to enforce the collection of
delinquent taxes. TEX. TAX CODE ANN. 3 6.30 (Vernon 1992). Subsection (c) permits any taxing
unit to contract with a competent attorney to enforce the collection of delinquent taxes. See id.
4 6.30(c). But the subsection restricts the amount of compensation the attorney may receive: “The
attorney’s compensation is set in the contract, but the total amount of compensation provided may
not exceed 20[%] of the amount of delinquent tax, penalty, and interest collected.” Id. Any
“contract with an attorney that does not conform to” the contingent fee limitations is void. Id.
4 6.30(e).
By contrast, section 25.01 of the Tax Code expressly forbids a chief appraiser to enter a
contract for private appraisal services under which the private appraisal firm is compensated on a
contingent fee basis:
The chief appraiserwith the approval ofthe board ofdirectors
of the district may contract with a private appraisal firm to perform
appraisal services for the district, subject to his approval. A contract
for private appraisal services is void if the amount of compensation
to be paid the private appraisal firm is contingent on the amount of or
increase in appraised, assessed, or taxable value ofproperty appraised
by the appraisal firm.
TEX. TAX CODE ANN. $25.01(b) (Vernon 1992).
The legislature has spoken further on the issue of contingent fee contracts involving
governmental entities as recently as 1999. In 1999 the legislature adopted chapter 2254, subchapter
C ofthe Government Code, which restricts the authority of a state governmental entity, the attorney
general, or the state to enter a contingent fee contract for legal services:
(a) A state governmental entity that has authority to enter into a
contract for legal services in its own name may enter into a
contingent fee contract for legal services only if [two requirements]:
(b) The attorney general may enter into a contingent fee contract
for legal services in the name of the state . only if the [referring]
state governmental entity approves and signs the contract in
accordance with Subsection (a).
The Honorable Gary L. Walker - Page 5 (JC-0290)
(c) A state governmental entity, including the state, may enter
into a contingent fee contract for legal services that is not described
by Subsection (a) or (b) only if the governor approves and signs the
contract.
TEX. GOV’T CODE ANN. 9 2254.103(a)-(c) (Vernon 2000).
No similar statute authorizes a taxing unit to enter a contingent fee, tax ferret contract.
Certainly, nothing expressly grants the authority. Moreover, we find nothing that necessarily implies
the authority.
Section 6.24 of the Tax Code comes the closest, but, ultimately, it does not authorize a
contingent fee, tax ferret contract between a taxing unit and a private corporation. That section
authorizes a taxing unit to enter a contract with another taxing unit under the Interlocal Cooperation
Act, chapter 791 of the Government Code, “to perform duties relating to the assessment or collection
of taxes.” TEX. TAX CODEANN. § 6.24(a), (b) (Vernon 1992). By referring to all contracts “relating
to the . collection of taxes,” section 6.24 mirrors the statutory language examined in White and
Mm-quart, under which the court found that a taxing unit had strictly circumscribed powers to enter
a contingent fee, tax ferret contract. See white, 114 S.W.2d at 863; Marquart, 117 S.W.2d at 501;
see also Whitney, 278 S.W.2d at 911. But the language of section 6.24 is insufficient to authorize
a contingent fee contract. First, section 6.24 contains none of the safeguards that were built into the
statute considered in White and Marquart. For example, at the time of White and Mat-quart the
statute limited the compensation a ferret could receive to no more than fifteen per cent of the amount
of delinquent taxes collected. See White, 114 S.W.2d at 862 (quoting TEX. REV. CIV. STAT. ANN.
art. 7335a and citing id. art. 7264a). In addition, a contingent fee contract at the time of White and
Marquart had to be approved by the state comptroller and the attorney general. See id. (quoting
TEX. REV. CIV. STAT. ANN. art. 7335a). Second, section 6.24 does not specifically authorize a taxing
unit to enter a contingent fee contract.
We conclude that, without express authority, no taxing unit, including a home-rule
municipality, may enter a contingent fee, tax ferret contract. See TEX. TAX CODE ANN. 3 1.02
(Vernon 1992)~(prohibiting taxing unit from adopting law that varies f?om Tax Code). In light of
the legislative policy against a taxing unit entering a contingent fee contract, authority to do SO
should not be implied. Because there is no such express authority, a taxing unit may not enter a
contingent fee, tax ferret contract.
The Honorable Gary L. Walker - Page 6 (JC-0290)
SUMMARY
A corporation that locates property that has been omitted from
the appraisal rolls in return for a percentage of the increase in tax
revenues may be organized, but no taxing unit may enter a contingent
fee, tax ferret contract with the corporation.
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
CLARK KENT ERVIN
Deputy Attorney General - General Counsel
SUSAN D. GUSKY
Chair, Opinion Committee
Kymberly K. Oltrogge
Assistant Attorney General - Opinion Committee