Starflight 50, LLC v. Harris County Appraisal District and Harris County Appraisal Review Board

Opinion issued March 26, 2009

Opinion issued March 26,

2009

In The

Court of Appeals

For The

First District of Texas

NOS.

01-08-00234-CV

STARFLIGHT 50, L.L.C., Appellant

v.

HARRIS COUNTY APPRAISAL DISTRICT and

HARRIS COUNTY APPRAISAL REVIEW BOARD, Appellees

On Appeal from the 125th District Court

Harris County, Texas

Trial Court Cause No. 2006-76682

O

P I N I O N

Starflight 50, L.L.C. (“Starflight”)

appeals a take nothing judgment issued in favor of the Harris County Appraisal

District (“HCAD”) and the Harris County Appraisal Review Board (“ARB”),

rendered after a bench trial. Starflight filed suit against HCAD and the ARB

in district court after the ARB denied Starflight’s ad valorem tax protest. We

decide (1) whether Starflight properly first exhausted its administrative

remedies so as to confer jurisdiction on issues of valuation, rendition, and

interstate allocation, (2) whether the evidence is legally and factually

sufficient to support the trial court’s judgment, and (3) whether Starflight

waived its right to allocation because it did not timely submit rendition and

allocation filings to HCAD. We conclude that sufficient evidence supports the

trial court’s findings that Starflight housed its property in Texas for more

than a temporary period as of the rendition date, and that the ARB properly

valued the property based on the evidence presented before it. We therefore

affirm.

Background

The taxable property in

dispute is a 1988

Dassault-Breguet (Falcon 50), SN-51V jet airplane, which Starflight purchased

on March 18, 2004. Before

September 2005, Starflight housed its airplane in a hangar at Lake Front Airport in New Orleans, Louisiana. On the eve of Hurricane Katrina, in late August

2005, Starflight flew the airplane to Houston, where its affiliated corporation

had a business operation.

Hurricane Katrina

destroyed the New Orleans hangar and Starflight’s office. Thereafter,

Starflight and its personnel, including the plane’s pilot, relocated to the Houston area, and it transacted its business out of the Houston offices of its affiliated

companies. Starflight used the airplane solely to serve its Houston-based

affiliated companies. From September to December 2005, Starflight housed the

plane at William P. Hobby Airport. At trial, Starflight maintained that,

during this time and as of January 1, 2006 (the date of determination for the

2005 tax year), it intended to return the airplane to the Lake Front Airport in New Orleans.

In 2006, HCAD discovered

the airplane and placed it on the tax appraisal roll for Harris County. Philip Rundle, Starflight’s manager and the only trial witness, testified that he was

responsible for tax-related issues for Starflight and the airplane. He

testified that he and his partners were unaware of Harris County’s rendition

requirements, and thus they did not render the airplane before the April 15,

2006 rendition deadline. [1]

On August 11, 2006, HCAD

wrote Starflight that the airplane was subject to ad valorem taxes and asked

Starflight to provide information relevant to determining the taxable situs for

the airplane for the 2005 tax year. Starflight responded with a letter dated

August 22, 2006, contesting HCAD’s appraised value of the airplane,

$9,791,000.00.

On September 27, 2006,

HCAD rejected Starflight’s valuation and notified Starflight of the airplane’s

final appraised value. Starflight filed a notice of protest of taxes in Harris County on October 3, 2006, contending that the airplane should not be taxed in Harris County or in Texas. A hearing followed, attended by Mr. Rundle, wherein the ARB heard

issues pertaining to the airplane’s taxable situs. Mr. Rundle also testified

that discussion took place before the ARB regarding rendition issues. On

November 27, 2006, the ARB denied Starflight’s protest. Starflight appealed

the ARB order to the trial court, which rejected it.

Discussion

I. Jurisdiction

At the outset, HCAD

contends that Starflight failed to exhaust its administrative remedies with

respect to its complaints of valuation, rendition and allocation because

Starflight did not contest these issues on its protest form and did not raise

them before the ARB. [2]

Thus, as a threshold matter, we determine whether we have jurisdiction over the

appeal. Kilroy v. Kilroy , 137 S.W.3d 780, 783 (Tex. App.—Houston [1st Dist.] 2004, no pet.)).

A. Standard of Review

District courts in Texas have general jurisdiction to hear and decide suits, absent statutory exception. See

Tex. Const . art. V., § 8; Appraisal

Rev. Bd. of Harris County Appraisal Dist. v. O’Connor & Assocs. , 267

S.W.3d 413, 416 (Tex. App.—Houston [14th Dist.] 2008, no pet.) (citing Subaru

of Am., Inc. v. David McDavid Nissan, Inc ., 84 S.W.3d 212, 220 (Tex. 2002)). An administrative agency, however, has exclusive jurisdiction to decide matters

within its purview if a pervasive regulatory scheme indicates that the

Legislature intends for the regulatory process to be the exclusive forum to

settle disputes. Id . (citing Subaru , 84 S.W.3d at 221 ). If an

agency has exclusive jurisdiction, a party must typically exhaust any

administrative remedy before seeking judicial review of the agency’s action. Id . The Tax Code is a pervasive regulatory scheme, vesting the ARB with exclusive

original jurisdiction over property tax appraisals. O’Connor & Assocs. ,

267 S.W.3d at 416–17. In the Property Tax Code, t he exhaustion of remedies provisions, found in section 42.09 , are mandatory and jurisdictional. Koll Bren Fund VI, LP v. Harris County Appraisal Dist. ,

No. 01-07-00321-CV, 2008 WL 525799 , at *4 (Tex. App.—Houston [1st Dist.] Feb.

28, 2008, pet. denied) (mem. op.); see Tex.

Tax Code Ann . § 42.09 (Vernon 2008). A trial court thus lacks subject matter

jurisdiction, and must dismiss the claims within the agency’s exclusive

jurisdiction, until the party seeking relief exhausts all of its administrative

remedies. O’Connor & Assocs. , 267 S.W.3d at 416 . Accordingly, before

seeking relief in district court, Starflight must have exhausted its

administrative remedies. Id.

B. Matters raised

before the ARB

Starflight protested that

Harris County was not the taxable situs for its airplane, sent HCAD a letter

dated August 22, 2006, disputing HCAD’s appraised value of the airplane,

attended the ARB, and received an order from the ARB denying its protest. See

Tex. Tax Code Ann . §§

41.41(A) (Vernon 1999), 41.43 (Vernon 2007), 42.01(1)(A) (Vernon 1998) ; O’Connor & Assocs. , 267 S.W.3d at 416 . We have no record of the protest

proceeding, but note that HCAD’s counsel admitted to the trial court that as a

practical matter the ARB panel would have considered issues of valuation and

timely rendition of allocation information during Starflight’s proceeding.

Because Starflight filed

its protest in accordance with the Tax Code and because the ARB considered the

substantive matters ultimately appealed to the district court, we hold that

Starflight exhausted its remedies as to these matters, obtained an order

denying them, and thus could seek judicial review of the ARB order. Zapata

County Appraisal Dist. v. Coastal Oil & Gas Corp. , 90 S.W.3d 847, 851 (Tex. App.—San Antonio, 2002 pet. denied); O’Connor & Assocs. , 267 S.W.3d at 417

(citing MAG-T, L.P. v. Travis Cent. Appraisal Dist ., 161 S.W.3d 617, 624

(Tex. App.—Austin 2005, pet. denied)); see Tex. Tax

Code Ann. § 42.23(a)

(Vernon 2005). The trial court therefore properly asserted subject matter

jurisdiction over this suit. O’Connor & Assocs. , 267 S.W.3d at 417 .

II. Legal and Factual

Sufficiency

First, Starflight

complains that the trial court’s finding of fact that it housed its airplane in

Harris County, Texas, as of January 1, 2006, on more than a temporary basis, is

against the overwhelming weight and evidence so as to be manifestly unjust.

A. Standard of Review

We review the trial

court’s findings for legal and factual sufficiency of the evidence using the

same standards we apply in reviewing evidence supporting a jury’s verdict. Aguiar

v. Segal , 167 S.W.3d 443, 449 (Tex. App.—Houston [14th Dist.] 2005, pet.

denied); see Davis v. City of Austin , 632 S.W.2d 331, 333

(Tex. 1982). A party who attacks the legal sufficiency of an adverse finding

on an issue on which that party has the burden of proof must demonstrate on

appeal that the evidence establishes, as a matter of law, all vital facts in

support of the issue. Dow Chem. Co. v. Francis , 46 S.W.3d 237, 241 (Tex. 2001).

In determining whether legally

sufficient evidence supports the finding under review, we must consider

evidence favorable to the finding if a reasonable fact finder

could consider it, and disregard evidence contrary to the finding unless a

reasonable fact finder could not disregard it. City of Keller v. Wilson , 168 S.W.3d 802, 827 (Tex. 2005).

When a party

attacks the factual sufficiency of an adverse finding on an issue on which that

party had the burden of proof, that party must show on appeal that the adverse

finding is against the great weight and preponderance of the evidence. Francis,

46 S.W.3d at 242 .

B. Analysis

Texas Tax Code section

11.01(c) provides that the State of Texas has jurisdiction to tax tangible

personal property

located in this state for longer than a temporary period, unless exempt by

law. The determination whether property is located within a taxing unit

depends upon the facts of the case. City of Dallas v. Overton , 363

S.W.2d 821, 825 (Tex. Civ. App.—Waco 1963, writ ref’d n.r.e.) (holding that the

question of whether or not the property in question is “more or less permanent”

depends upon factual situation in each case); see also Lawson v.

Groves , 487 S.W.2d 439, 442 (Tex. Civ. App.—Beaumont 1972, no writ)

(holding that question of tax situs is factual and dependent on situation in

each case). The determination of whether property is located within a taxing

unit depends on the status of the property as of January 1 of the following

year.

In reviewing the record

for evidence as to whether the plane was more or less permanent, the following

evidence supported the trial court’s finding that Starflight’s airplane was

present in Harris County, Texas for more than a temporary period as of January

1, 2006:

·

Starflight’s August 22, 2006

letter to HCAD admitted that “the . . . aircraft was

relocated from Louisiana to Texas after Hurricane Katrina. As of 01/01/06,

this aircraft was located in Harris County, Texas[,]” and Starflight’s trial

witness testified to the same;

·

Starflight housed its plane at Hobby Airport, in Harris County, Texas after Hurricane Katrina;

·

After September 1, 2005,

Starflight entered into a non-written agreement with Enterprise Aviation at Houston’s Hobby Airport to house the plane;

·

Starflight’s plane served only the

owners and partners of its Houston affiliates exclusively, and did not charter

to any other parties;

·

Starflight’s owners and affiliate

corporation have had a place of business in Houston since 2002;

·

Hurricane Katrina destroyed

Starflight’s New Orleans hangar, the hangar was not rebuilt;

·

Starflight’s employees, including

the plane’s pilot, relocated to Houston after Hurricane Katrina;

·

Starflight admitted “[t]he

aircraft was being hangared at Hobby Airport . . . until adequate hangar space

can be built in New Orleans”;

·

Starflight’s flight log, though

never submitted to the ARB, reflected that it was used regularly in Harris County where a majority percentage of the plane’s 2005 flights departed from Houston;

·

Starflight offered no

documentation at trial indicating its business transactions occurring at

offices other than the Houston addresses of its affiliated companies or that it

rendered the plane for tax purposes at any other locale;

·

Starflight’s New Orleans office

maintained pilot log books, aircraft maintenance records and paperwork; and

after Hurricane Katrina, such documents were maintained at the pilot’s house in

Texas;

·

As of January 1, 2006, the

airplane remained at Houston’s Hobby Airport as part of a lease agreement

Starflight had executed to store the plane; and

·

Starflight is a corporation

authorized to do business under the laws of the State of Texas.

We hold that this

evidence is legally sufficient to support the trial court’s finding that the

airplane was not kept in Harris County, Texas purely on a temporary basis. Overton ,

363 S.W.2d at 826 (holding that where planes received servicing and maintenance

at Addison, remained available there for owner’s business trips, and when such

trips are completed, they are returned to Addison, planes are not “temporarily”

kept at Addison).

Although relocation to Houston was unplanned, unintended, and unavoidable, the course of events following the

storm overshadowed Starflight’s intention, and the plane’s removal to Houston was something more than temporary. The Texas Supreme Court has held that a party’s

intentions and preparatory acts are legally insufficient evidence to establish a

plane’s situs for tax purposes in the face of objective facts demonstrating

it. See Davis v. City of Austin , 632 S.W.2d 331, 334 (Tex. 1982).

In a factual sufficiency

review, we consider all of the evidence presented on tax situs, including

Rundle’s testimony that Starflight did not intend to house the plane in Harris County permanently. Aside from Rundle’s testimony, however, nothing in the record

shows the plane’s return to Louisiana as of January 1, 2006. In light of the

other evidence presented, we hold that factually sufficient evidence supports

the trial court’s finding.

III. Rendition and Allocation

Second, Starflight

complains that the district court erred in holding that Starflight failed to

timely render the property and thus waived its right to an allocation and that

it failed to adjudicate the issue of allocation. Starflight in particular

appeals the trial court’s conclusions of law pertaining to rendition and

allocation, which state:

7.

Rendition of the airplane,

including allocation information, if any, was mandatory.

8.

Under 34 Texas Administrative Code

Ann., Section 9.4033 rendition requires that the owner provide enough

information necessary to prove the entitlement to allocation and to permit the

chief appraiser to apply an allocation formula appropriate to the airplane. For

the year 2006 the rendition must have been provided by April 15, 2006.

9.

The chief appraiser of HCAD has

the nondiscretionary duty to include the airplane on the 2006 appraisal roll.

10.

The airplane was not and has not

been rendered by Starflight for the tax year 2006.

11.

The plaintiff should recover

nothing against the defendants in this case.

A. Standard of Review

We review de novo

a trial court’s conclusions of law, and we uphold the judgment if it can be

sustained on any legal theory supported by the evidence. Holloway-Houston,

Inc. v. Gulf Coast Bank & Trust Co ., 224 S.W.3d 353, 357 (Tex. App.—Houston [1st Dist.] 2006, no pet.) (citing BMC Software Belgium, N.V. v. Marchand , 83 S.W.3d 789, 794 (Tex. 2002)) ; In re Moers , 104 S.W.3d 609,

611 (Tex. App.—Houston [1st Dist.] 2003, no pet.). An appellant may not

challenge a trial court’s conclusions of law for lack of factual sufficiency,

but we review the legal conclusions drawn from the facts to determine their

correctness. Holloway-Houston, 224 S.W.3d at 357 (citing BMC

Software , 83 S.W.3d at 794 ).

B. Analysis

Rendition “is the

reporting of taxable property by the owner to the appraiser” and is thus

procedural in nature. Harris County Appraisal Dist. v. Texas Gas

Transmission Corp ., 105 S.W.3d 88, 94 (Tex. App.—Houston [1st Dist.] 2003,

pet. denied) (en banc). Section 22.01(a) of the Tax Code requires that an

owner of tangible personal property used to produce income shall render the

property for taxation on January 1 of the tax year. See T ex. Tax Code Ann . § 22.01(a)

(Vernon 2008). The word “shall” in section 22.01(a) is mandatory, not

discretionary. Texas Gas Transmission Corp ., 105 S.W.3d at 91 (citing Robinson

v. Budget Rent-A-Car Sys., Inc. , 51 S.W.3d 425 , 430–31 (Tex. App.—Houston [1st Dist.] 2001, pet. denied)).

A taxpayer must file its

rendition form after January 1 and not later than April 15. See T ex. Tax Code Ann . § 22.23(a). Upon

written request by the property owner, the chief appraiser shall extend the

deadline to May 15, and for good cause shown in writing may further extend the

deadline an additional 15 days. See id. § 22.23(a) and (b). In an

effort to encourage timely filings, in 2003 the Texas Legislature enacted

section 22.28, which imposes a mandatory penalty of 10 percent of the

property’s final appraised value for late filing of a rendition statement. [3]

See id. § 22.28(a).

Starflight first argues

that its failure to render was the result of HCAD’s failure to publicize Harris County’s rendition requirements. Starflight offers no support from the record for

its contention that HCAD failed to meet its notice requirements under section

22.21 of the Tax Code, and it did not offer any authority for its theory that

such failure is a legal defense or condition precedent to Starflight’s

non-compliance with section 21.01(a). Tex.

R. App. P. 38.1(h); T ex. Tax Code

Ann. § 22.21(a); Sterner v. Marathon Oil Co ., 767 S.W.2d 686 ,

689–90 (Tex. 1989). We hold that Starflight waived this issue on appeal. Tex. R. App. P . 38.1(h).

Starflight next argues

that its August 22, 2006 letter constitutes a rendition statement. Both

Starflight and HCAD agree that Starflight did not file a rendition statement by

April 15, 2006 under section 22.23(a). Starflight never requested or received

permission to late file a rendition statement under section 22.23(b).

Starflight’s only trial witness testified that “I don’t think it’s ever been

rendered . . . .” The trial court concluded that

Starflight filed no rendition statement for tax year 2006. We hold that

legally sufficient evidence supports the trial court’s conclusion of law that

Starflight did not timely render the property for the 2006 tax year.

Starflight further

contends that, as to its August 22, 2006 “late filed rendition” letter, the

late filing does not bar it from seeking interstate allocation of the value of

the plane for the time Starflight used it outside Texas. Even if we assume

that Starflight’s August 22 letter constituted a rendition filing, Starflight

did not submit any allocation information with the letter and did not submit

any allocation information until December 2006. Tex. Tax Code Ann. §§ 21.01(a) (Vernon 2006), 21.055 (Vernon

2008).

“Allocating” is

determining the ratio of usage of personal property within each taxable situs

when the property has more than one taxable situs. Texas Gas Transmission

Corp ., 105 S.W.3d at 91 n.3. The owner of an airplane used for business

purposes may seek a reduction in the amount of total taxes owed upon the

airplane by showing that another state or jurisdiction has acquired the right to

tax the same airplane. T ex. Tax Code

Ann. §§ 21.03, 21.055 (Vernon 2008); Appraisal Rev. Bd. of Galveston

County v. Tex-Air Helicopters, Inc., 970 S.W.2d 530, 534 (Tex. 1998). The actual taxes owed in Texas on a business airplane thus will be reduced proportionately

to reflect the amount of use in Texas, and the appraisal office shall allocate

to this state the portion of the total market value of the property to fairly

reflect its use in this state. See T ex.

Tax Code Ann. §§ 21.03(a), (b)(1), (b)(2); Texas Gas

Transmission Corp ., 105 S.W.3d at 91 n.3.

I n Texas Gas we held that a

taxpayer who seeks allocation under the Tax Code must provide information

showing entitlement to allocation at the time of rendition . Texas

Gas Transmission Corp., 105 S.W.3d at 94 (“[A] taxpayer claiming

entitlement to allocation must provide supporting information when he submits

his rendition form.”); SLW Aviation, Inc. v. Harris County Appraisal Dist. ,

105 S.W.3d 99, 102 (Tex. App.—Houston [1st Dist.] 2003, no pet.). Starflight

argues that allocation is a constitutional entitlement; nevertheless, even a

constitutional entitlement to allocation can be waived when a party fails to

follow the implementing legislation. Aramco Assoc’d Co. v. Harris County

Appraisal Dist ., 33 S.W.3d 361, 364 (Tex. App.—Texarkana 2000, pet.

denied).

Under Aramco and Texas

Gas , it is not Starflight’s failure to render which waived any interstate allocation.

Instead, it was Starflight’s failure to file any allocation information contemporaneously

with a rendition statement which precluded its argument for allocation in the

trial court. Texas Gas Transmission Corp., 105 S.W.3d at 94 .

Starflight’s failure to submit allocation information until December 2006 did

not meet its burdens under Texas Gas , Aramco or statutory law to

establish an entitlement to allocation. Tex.

Tax Code Ann. §§ 21.055, 22.01(a); Tex.

Admin. Code § 9.4033(e); Texas Gas Transmission Corp ., 105 S.W.3d

at 93 .

Having failed to meet its

burden, the district court properly found in its conclusions of law that

Starflight did not provide information from which HCAD could have determined

entitlement to allocation and thus failed to prove its entitlement to

allocation. Aramco, 33 S.W.3d at 364 ; Texas Gas Transmission Corp .,

105 S.W.3d at 93–94.

Starflight argues that it

submitted allocation information to HCAD when it filed its appeal of the ARB

order in the trial court and that because the trial court’s review is de novo [4]

the trial court erred in not adjudicating the issue of allocation. Starflight

contends that “[a]ll parties agree HCAD received sufficient information to

enable it to allocate the Airplane’s use in late December 2006, when Starflight

filed suit in district court.” But, as the trial court found and as we have discussed,

such submission was not filed with rendition and came too late. See Tex. Tax

Code Ann . §§ 22.01(a),

21.055; Tex. Admin. Code § 9.4033(e); Texas Gas Transmission Corp ., 105 S.W.3d at 93 .

Thus, we hold Starflight waived its right to allocation. See Texas Gas Transmission , 105 S.W.3d at 93–94; Aramco , 33 S.W.3d at 364 .

Conclusion

Having considered

Starflight’s issues on appeal, we affirm judgment of the trial court.

Jane Bland

Justice

Panel consists of Justices Jennings,

Hanks and Bland.

Justice Jennings, dissenting.

[1] Tex.

Tax Code Ann . §§ 22.01 (rendition), 22.23 (filing date) (Vernon 2008).

[2]

HCAD raised this objection during trial, but the

trial court never ruled on it. Sparks v. Booth , 232 S.W.3d 853 , 862–63

(Tex. App.—Dallas 2007, no pet.); Tex.

R. App. P . 33.1(a). Nevertheless, we may not ignore a lack of

jurisdiction issue. Kilroy v. Kilroy , 137 S.W.3d 780, 783 (Tex. App.—Houston [1st Dist.] 2004, no pet.).

[3]

T ex. Tax

Code Ann. § 22.28(a) (“[T]he chief appraiser shall impose a penalty on a

person who fails to timely file a rendition statement . . . as required by this

chapter in an amount equal to . . . .”).

[4]

See Cherokee Water Co. v. Gregg County

Appraisal Dist., 801 S.W.2d 872, 877

(Tex. 1990).