Ward County Appraisal District v. Ees Leasing LLC and Exlp Leasing Llc

IN THE SUPREME COURT OF TEXAS
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No. 15-0965
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WARD COUNTY APPRAISAL DISTRICT, PETITIONER
v.
EES LEASING LLC AND EXLP LEASING LLC, RESPONDENTS
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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE EIGHTH DISTRICT OF TEXAS
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PER CURIAM
EXLP Leasing owns and leases out compressor stations used to deliver natural gas into
pipelines. Some of these compressors are in use in Ward County. In response to a 2012 amendment
to the Tax Code that included leased heavy equipment in a statutory formula used to value heavy
equipment held by dealers for sale, EXLP began paying taxes on the compressors located in Ward
County to Midland County, where EXLP contends it “maintain[s] a yard from which its inventory
in the Permian Basin region is leased, to which leased compressors are returned after leases expire,
and where the inventory in the area is serviced.” But Ward County continued to place the
compressors on its appraisal roll at full market value, arguing that their presence within the county
fixes taxable situs there.
An appraisal review board sided with the county and EXLP sought judicial review. In the
trial court, the county argued Tax Code sections 23.1241 and 23.1242—the provisions the
legislature amended in 2012—are unconstitutional on their face and as applied because the
statutory formula for valuing leased heavy equipment bears no relationship to any measure of
market value as required by the Texas Constitution. The county also argued that taxes on the
compressors were due to Ward County, not Midland County. Finally, it argued that the
compressors are not “heavy equipment” under Tax Code section 23.1241(a)(6), and therefore do
not fall under the challenged statutory framework. The trial court sided with the county on the first
two issues but with EXLP on the third.
Both parties appealed. The court of appeals reversed the trial court’s determination that
sections 23.1241 and 23.1242 are unconstitutional but affirmed its conclusion that the
compressors’ taxable situs is Ward County rather than Midland County. See 476 S.W.3d 752, 763–
770 (Tex. App.—El Paso 2015). It also affirmed the trial court’s judgment that EXLP’s
compressors qualify as “heavy equipment.” Id. at 759–63.
Both parties sought our review, and this case was consolidated for briefing with four other
similar cases. On March 2, 2018, we issued an opinion in EXLP Leasing, LLC v. Galveston Central
Appraisal District, 554 S.W.3d 572 (Tex. 2018). That opinion is dispositive of two of the three
issues presented in this petition for review.
In EXLP Leasing, we considered the same constitutional challenges considered by the court
of appeals in this case and held that the Galveston County appraisal district failed to rebut the
presumed constitutionality of Tax Code sections 23.1241 and 23.1242. Specifically, we rejected
the district’s argument that “for constitutional purposes, ‘value’ under article VIII, section 1(b)
means the actual market value a willing buyer would pay a willing seller for the compressors at
issue.” Id. at 576. Instead, we acknowledged that it is the legislature’s province to set valuation for
tax purposes so long as it does not act unreasonably, arbitrarily, or capriciously. Id. at 576–81. We
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also rejected the same argument made in this case that sections 23.1241 and 23.1242 violate the
constitution’s equal-and-uniform provision found in article VIII, section 1(a). Id. at 580–81.
The court of appeals in this case likewise concluded that “the constitution does not
prescribe a particular formula or standard for determining the ‘market value’ of property.” 476
S.W.3d at 762. Noting that the method for valuing leased heavy equipment in sections 23.1241
and 23.1242 is “neither novel nor unique,” the court of appeals considered it “eminently reasonable
to require dealers of inventory held for lease or rent in the ordinary course of business to pay taxes
only on inventory actually leased or rented.” Id. at 764–65. The court of appeals went further than
we did by considering the reasonableness of the underlying statutory framework. Cf. EXLP
Leasing, 554 S.W.3d at 580 (concluding we “need not consider” EXLP’s “vigorous defense of
sections 23.1241 and 23.1242 as an efficient and equitable statutory scheme” because “[t]he county
made its stand on the idea that the constitution compels a market-value approach” and “offers no
other reason why the statute is unconstitutional”). Nonetheless, the court of appeals’ holding that
the Ward County appraisal district failed to establish sections 23.1241 and 23.1242 are
unconstitutional on the basis that property must be taxed in proportion to its market value is
consistent with our opinion in EXLP Leasing. Similarly, its conclusion that the county failed to
establish that those provisions violate the constitution’s equal-and-uniform provision is consistent
with our rejection of that argument in EXLP Leasing. Id. at 580–81. On these issues, the court of
appeals’ judgment is affirmed.
On the question of where the compressors at issue are properly taxed, however, the court
of appeals’ conclusion differs from ours in EXLP Leasing. We concluded that “sections 23.1241
and 23.1242, read together, reflect the legislature’s intent to fix the situs of dealer-held heavy
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equipment at the location where the dealer maintains its inventory, rather than at the various
locations where the equipment might otherwise by physically located.” Id. at 583. Accordingly,
we held that Tax Code section 21.02, which contains default provisions for determining taxable
situs, “does not control the taxable situs of property covered by section 23.1242.” Id. at 585. The
court of appeals, however, concluded that EXLP failed to rebut the presumption that Ward County
is the compressors’ taxable situs under section 21.02. See 476 S.W.3d at 768–70. Because we held
differently in EXLP Leasing, we reverse the court of appeals’ judgment on the issue and render
judgment that the taxable situs of the compressors located in Ward County is controlled by Tax
Code sections 23.1241 and 23.1242.
We further hold that EXLP properly paid taxes on the compressors at issue in Midland
County. In its motion for summary judgment, EXLP argued that “because the legislature requires
a taxpayer to report heavy equipment inventory values to the appraisal district in which they have
business locations, the proper tax situs for a dealer’s heavy equipment is the dealer’s business
location where the dealer conducts business by, for example, maintaining inventory for sale or
lease, storing the equipment when not in use, where parts for the equipment are sold, and where
services are provided to repair and maintain the equipment, whether at the dealer’s business
location or in the field.” An EXLP vice president provided affidavit testimony that the compressors
at issue “are assigned to [EXLP’s] business location and storage yard in Midland County, Texas,
where they are returned upon termination of a lease if not needed elsewhere under a different
lease.” EXLP neither “expects nor intends for the compressors located in Ward County . . . to
permanently remain in Ward County, but instead move from time to time between leases and
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storage yards.” The vice president further stated that EXLP neither maintains a storage yard nor a
principal place of business in Ward County.
We agree with EXLP that the compressors at issue here are properly taxed in Midland
County. We similarly held in EXLP Leasing that the compressors at issue there, which were
physically located in Galveston County, were properly taxable in Washington County because they
were part of EXLP’s “Gulf Coast Region fleet” and, as such, were “assigned” to EXLP’s “business
location and storage yard in Washington County,” which EXLP used to “manage the inventory of
compressors in the Gulf Coast region.” 554 S.W.3d at 585–86. Significantly, Ward County has
made no argument in the course of litigating this case that Midland County should not be the
compressors’ taxable situs if Tax Code sections 23.1241 and 23.1242 control. See id. at 586 (noting
Galveston County did not argue Washington County should not be the taxable situs for the
compressors if sections 23.1241 and 23.1242 control instead of section 21.02).
The court of appeals considered an additional issue in this case that was not present in any
of the other cases that were consolidated for briefing: whether EXLP’s compressors are “heavy
equipment” under Tax Code section 23.1241(a)(6). If not, they cannot be valued under the
statutory framework contained in sections 23.1241 and 23.1242. This issue was briefed in the
consolidated briefing, but as it was not at issue in EXLP Leasing, LLC v. Galveston Central
Appraisal District, we did not address it in that opinion.
“Heavy equipment” is defined as “self-propelled, self-powered, or pull-type equipment,
including farm equipment or a diesel engine, that weighs at least 1,500 pounds and is intended to
be used for agricultural, construction, industrial, maritime, mining, or forestry uses.” TEX. TAX
CODE § 23.1241(a)(6). The county argues “self-powered” means “a piece of machinery or
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equipment supplied with mechanical power through its own internal fuel source.” And according
to the county’s expert witness, EXLP’s compressors “do not contain integrated fuel-systems and
must be stationary, affixed to a foundation and natural gas fuel source in order to operate.”
Like the trial court, the court of appeals rejected this argument. It concluded that “the
context of Section 23.1241 indicates that the Legislature intended ‘self-powered’ to mean a piece
of a machinery or equipment supplied with mechanical power through an internal motor or
engine.” 476 S.W.3d at 760. Because it found “no indication that the Legislature intended to define
the term” in a “narrower and more technical sense,” the court of appeals held the compressors met
the statutory definition. Id. at 761. For the reasons explained in the court of appeals’ opinion, we
agree. We further note the infeasibility of the county’s proposed construction in light of the
statute’s own reference to diesel engines as an example of a self-powered item. See TEX. TAX
CODE § 23.1241(a)(6). A diesel engine needs fuel to run—it lacks the “internal fuel source” the
county argues is required to meet the definition—yet it is considered “self-powered” under the
statute. We agree with EXLP that “the compressors at issue here are, therefore, just as ‘self-
powered’ as any piece of heavy equipment that relies on an integrated combustion engine.” We
affirm the court of appeals’ judgment on this issue.
For these reasons, and without hearing oral argument, see TEX. R. APP. P. 59.1, we affirm
the court of appeals’ judgment in part and reverse in part, rendering judgment that sections 23.1241
and 23.1242 control the taxable situs of the compressors at issue in this case and that Midland
County is the taxable situs of the compressors at issue.
OPINION DELIVERED: November 16, 2018
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