Judges: GREG ABBOTT, Attorney General of Texas
Filed Date: 8/20/2003
Status: Precedential
Modified Date: 7/6/2016
The Honorable Mike A. Stafford Harris County Attorney Appraisal District Section Post Office Box 920975 Houston, Texas 77292-0975
Re: Valuing repairs made to a residence homestead necessitated by flood, wind, fire, or other damage under sections
Dear Mr. Stafford:
On behalf of the Harris County Appraisal District (the "District"), you ask how, under sections
Section 23.23(a) limits a residence homestead's appraised value:
The appraised value of a residence homestead for a tax year may not exceed the lesser of:
(1) the market value of the property; or
(2) the sum of:
(A) 10 percent of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised;
(B) the appraised value of the property for the last year in which the property was appraised; and
(C) the market value of all new improvements to the property.
Tex. Tax Code Ann. §
In this section, "new improvement" means an improvement to a residence homestead that is made after the appraisal of the property for the preceding year and that increases the market value of the property. The term does not include ordinary maintenance of an existing structure or the grounds or another feature of the property.
Tex. Tax Code Ann. §
All or part of a certain homestead's appraised value may be eligible for an exemption from taxation or for a restriction on the permissible tax. See generally id. ch. 11 ("Taxable Property and Exemptions"). You mention, in particular, section 11.26, which freezes the amount of ad valorem tax a school district may impose on a senior's residence homestead at the amount the school district imposed in the first tax year in which the individual qualified as a senior. See id. § 11.26(a). Thereafter, improvements to the senior's residence homestead, "other than improvements required to comply with governmental requirements or repairs," permit the school district to increase the tax to reflect the improvements' value in the first year the homestead's value is increased on the appraisal roll. Id. § 11.26(b). The tax is then frozen at the increased level unless further improvements are made. See id.
Neither section 23.23 nor section 11.26 appear to use the term "improvements" consistently with the general definition stated in section
Scenario One: The home suffered $15,000 in damage from [T]ropical [S]torm Allison. The damage was not repaired as of January 1, 2002. The appraisal district determined that the [property's] market value . . . was $85,000 for 2002. [Taking the lesser of the homestead's market value and the capped valued ($70,000 + $7,000), in accordance with section 23.23(a),] . . . the 2002 appraised valued would be $77,000, a ten percent increase even though the district had reduced the market value. As of January 1, 2003, the damage was fully repaired[,] and the district estimates that the repairs add $15,000 to the [home's] value. . . . The 2003 market value will be $100,000, back to its pre-flood value. . . . Had there been no damage to the home, [its] appraised value would have been $84,700 for 2003.
Scenario Two: [T]he home in this scenario . . . was completely destroyed by the storm in June 2001. Its 2001 market value was $100,000, of which $20,000 was attributable to the land and $80,000 to the improvement. . . . [T]he capped appraised value for 2001 was $70,000. On January 1, 2002, repairs had not been made[, and t]he appraisal district determined the [property's] market value . . . to be $20,000. [Under section 23.23, the homestead's market value is less than the 2002 capped value ($77,000), so the] appraised value for 2002 [is $20,000]. As of January 1, 2003, a completely new home had been built on the property. The appraisal district estimates that the market value of the new improvement is $80,000 and that the [land's] market value . . . is $20,000. The total market value is $100,000 for 2003. . . . Had [the home not been damaged], the 2003 appraised value would have been $84,700. . . . [The capped value is the sum of the preceding year's value plus ten percent plus the value of the new improvements: $20,000 + $2,000 + $80,000 = $102,000.]
Scenario Three: Assume that in Scenarios One and Two . . . the property owner also qualified for the over-65 "ceiling" on school taxes [under s]ection 11.26. Each owner's school tax levy was fixed at $500 prior to 2001. For 2002, there would be no change in the maximum levy amount, even though the tax for that year might be lower. Unlike the ten percent homestead cap [under section 23.23(a)(2)], reductions in value do not change a frozen school tax levy. The question again concerns how 2003 will be handled.
Scenario Four: [T]he repairs . . . bring the property to a better than pre-flood state as worn or outdated components are replaced with new, up-to-date components. For example, a flood-damaged kitchen might have new cabinets, counter tops, flooring, and appliances installed [, which may enhance] the value of the property over its pre-flood value. Similarly, if the property owner builds a new structure on an elevated foundation, its value may be significantly greater than that of the pre-flood property. The enhancement in value, however, is incidental to the repair; the homeowner . . . simply intend[s] to restore his home to a functional state. . . . Moreover, if the owner makes significant other enhancements, such as adding an extra bath or increasing the size of the home, should value added by these enhancements be treated differently?
Id. at 2-3.
First Issue: Whether Post-Flood Rehabilitation is a "NewImprovement" for Purposes of Tax Code Section
The pivotal issue in determining how to value recent reconstructive work on a homestead is to decide whether the work is a "new improvement," which by definition "increases" the property's market value, under section 23.23(e). See Tex. Tax Code Ann. §
Section 23.23(e) excludes from the scope of work that is a new improvement "ordinary maintenance." Compare id. § 11.26(b) withid. § 23.23(e). We find no helpful case law defining the term "ordinary maintenance," but the term "ordinary" by itself signifies "usual or common." El Paso Elec. v. Real Estate Mart,Inc.,
Given its common meaning, the term "ordinary maintenance" does not include substantial repairs and reconstruction necessitated by an extraordinary event like a tropical storm or hurricane. Whether repairs necessitated by other causes, such as termite infestation, constitute ordinary maintenance is a question of fact that the opinion process cannot resolve. SeeTex. Att'y Gen. Op. No.
For those improvements that increase a property's market value and that are not ordinary maintenance, we are compelled to read section 23.23(a)(2) to require the appraiser to include their value in the calculation of the residence homestead's appraised value. See id. § 23.23(a), (e).
You suggest that the term "ordinary maintenance," which is excepted from new improvements that increase a homestead's appraised value, should be defined to mean "repairs," which are excepted from improvements for purposes of section
Moreover, the legislature has evaluated property loss that occurs due to a natural disaster and has determined that the appropriate remedy is not to adjust the homestead's appraised value in the way you suggest, but to allow a taxing unit to authorize the damaged property's reappraisal immediately following the disaster. Section
A new subsection (f), added to section 23.23 in 2003 by the Seventy-eighth Legislature, does not apply to the homeowners in your hypotheticals, all of whom repaired or reconstructed their damaged homesteads by January 1, 2003. The new section 23.23(f) excludes from the class of improvements that would otherwise constitute new improvements under subsection (e) "a replacement structure for a structure that was rendered uninhabitable or unusable by a casualty or by mold or water damage." Act of June 1, 2003, 78th Leg., R.S., S.B. 340, § 9 (to be codified at Tex. Tax Code Ann. §
You also ask, in the fourth scenario, how improvements that increase the pre-flood value of the house, such as new countertops, new appliances, an extra bath, or additional square footage, affect a homestead's valuation under section 23.23 when the improvements are made in the course of repairs from a tropical storm or similar disaster. Upgrades to the residence homestead that increase its market value are not ordinary maintenance and are plainly new improvements for purposes of section 23.23(a). Their value must be included in the capped value calculation.
Whether Post-Flood Rehabilitation is an "Improvement" forPurposes of Tax Code Section
You similarly ask whether the restorations described in scenarios one and two trigger a school tax increase under section
The term "repair," which is not defined for purposes of section 11.26, must be defined consistently with its "common usage." Tex. Gov't Code Ann. §
In a particular case, an appraiser must determine in the first instance whether work done on a particular structure constitutes repair. In the two scenarios you have set out, one residence suffered $15,000 in damage, while the other was completely destroyed. In accordance with the definition of the term "repair," the latter cannot be repaired; it must be rebuilt, and the rebuilt structure is an improvement for purposes of section 11.26(b). According to section 11.26's plain language, the tax may be increased accordingly. See Tex. Tax Code Ann. §
You also ask about those situations in which a homeowner "bring[s] the property to a better than pre-flood state as worn or outdated components are replaced with new, up-to-date components" or makes significant other upgrades, above and beyond replacing old components with new, modern components. Memorandum Brief, supra note 1, at 3. In either case, you state that the residence's post-restoration value exceeds its pre-flood value.See id.
Ultimately, the decision regarding whether a residence homestead has been repaired or improved for purposes of section 11.26 involves fact determinations that the appraiser must resolve in the first instance. We provide only guidance in this regard.
In the first situation you posit, upgrading fixtures and appliances constitutes repair for purposes of section 11.26 so long as the components of the original structure "preponderate."See Micromatic Hone Corp.,
On the other hand, building a new structure on an elevated foundation is not a repair because the structure is new; you tell us that the original structure was completely destroyed. See GulfCity St. Ry. Real Estate Co.,
Adding an extra bath or increasing the size of the home, which you list as examples of "significant other enhancements" that a senior homestead owner may make in the course of restoring the residence, are not repairs under section 11.26. The term "repair" does not include enhancements to a residence's value. Consequently, a school district may increase the tax proportional to the increase in value. See Tex. Tax Code Ann. §
For purposes of section
Very truly yours,
GREG ABBOTT Attorney General of Texas
BARRY R. McBEE First Assistant Attorney General
DON R. WILLETT Deputy Attorney General — General Counsel
NANCY S. FULLER Chair, Opinion Committee
Kymberly K. Oltrogge Assistant Attorney General, Opinion Committee