Matagorda County Appraisal District v. Coastal Liquids Partners, L.P.

IN THE SUPREME COURT OF TEXAS

IN THE SUPREME COURT OF

TEXAS

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No. 03-1200

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Matagorda County Appraisal

District, Petitioner,

v .

Coastal Liquids Partners,

L.P., Respondent

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On Petition for Review from

the

Court of Appeals for the Thirteenth District

of Texas

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Argued

December 1,

2004

Justice Brister delivered the opinion

of the Court.

We must decide whether salt dome caverns created to store

liquid hydrocarbons may be appraised and taxed separately from the surface land

above them. The question has been here before, but we did not reach it in

Coastal Liquids Transportation, L.P. v. Harris County Appraisal District

because the taxpayer lacked capacity. [1]

Predictably, given the millions of tax dollars involved, [2]

the question has surfaced again.

In this case,

the taxpayer Coastal Liquids Partners, L.P. challenged the Matagorda County

Appraisal District's valuation of the Hiltpold #1 and

Hudson #3 caverns at almost $2

million in value for the tax years 1996 through 1999. The trial court granted

judgment for the District, but the court of appeals reversed, finding the

caverns could not be appraised separately from the surface above them. We

reverse, and remand to the court of appeals.

I

We first must

address the District’s jurisdictional challenge.

Since 1995, a

person leasing property who is contractually obligated to reimburse the owner

for ad valorem taxes can protest an appraisal in the

owner’s place. [3]

It is undisputed that Coastal’s lease of these caverns

from Texas Brine Corporation contains just such an obligation.

But the

statute allows only one protest; the owner and the lessor cannot both do so. [4]

The District argues that the courts have no jurisdiction of Coastal’s claims because Texas Brine filed a protest

concerning fourteen salt dome facilities, including the two it leased to

Coastal. Texas Brine signed agreements with the District settling its

protest.

First, we

disagree that this is a jurisdictional question. It is true a taxpayer’s failure

to pursue an appraisal review board proceeding deprives the courts of

jurisdiction to decide most matters relating to ad valorem taxes. [5]

But there is no question there was such a proceeding here; the only question is

whether there was more than one.

In the first

instance, it is up to a local appraisal board to decide whether there has been

more than one protest relating to the same property. [6]

While a board has no authority to change a settlement reached by a taxpayer and

the chief appraiser, [7]

it certainly has the authority to take note of what property was included. By

entering an order assessing the appraised value of the two caverns here in Coastal’s proceeding, the board impliedly rejected the

District’s claim. [8]

Appeal of an

appraisal board ruling is by trial de novo. [9]

When Coastal appealed the board’s appraisal to the trial court, the District

filed a plea to the jurisdiction. In response, Coastal introduced a tape

transcript from the board hearing and testimony from some of the participants.

While the transcript is imperfect due to the informal nature mandated for such

hearings, [10]

it supports Coastal’s argument that Texas Brine orally

limited its own protest and subsequent settlement to those for which it had to

pay the taxes. A letter from Coastal’s counsel to

Texas Brine also supports this conclusion.

Treating the District’s jurisdictional challenge as one attacking the

legal sufficiency of the evidence to support the trial court’s judgment, [11]

we hold that the District failed to prove as a matter of law that there were

duplicate protests concerning the same property.

II

According to

the transcript of the appraisal board hearing, Coastal initially took the

position that storage caverns like those here are not subject to ad valorem taxes at all. In this appeal, it takes the more

moderate position that the caverns may be taxed, but only as “land” and as a

part of the surface realty to which they are attached. Otherwise, Coastal

argues, the District can improperly tax aspects of

property that are inseparable, and perhaps double tax them. We address each

argument separately.

A

The Property

Tax Code defines “real property” as: (A) land; (B) an improvement; (C) a mine or

quarry; (D) a mineral in place; (E) standing timber; or (F) an estate or

interest in one of the above. [12]

In preparing its records, the Code requires appraisal districts to list

separately (among other things) the appraised value of land, improvements, and

separately taxable estates or interests. [13]

Obviously, a single tract may include several of these aspects of realty, or

perhaps even all.

It has long

been the case that at least some of these aspects of real property can be taxed

separately even though all are part of the same surface tract. Thus, for

example, in 1923 we held that an oil and gas lease was not personalty but an interest in realty that was separately

taxable from the surface estate. [14]

This rule does not depend on whether each aspect is separately owned, as

identical properties cannot be taxed differently depending on whether, for

example, a mineral interest has been legally severed. [15]

But in

Gifford‑Hill & Co. v. Wise County Appraisal District , we held that in

some circumstances subsurface limestone cannot be appraised separately from the

land immediately above it. [16]

Coastal urges us to make a similar ruling here. We agree that Gifford-Hill

is dispositive , but not in the way Coastal

suggests.

The Court’s

concern in Gifford‑Hill was that a blanket rule taxing limestone

separately “would subject thousands of unsuspecting farmers and ranchers to

increased tax liability and frustrate the Constitution’s intent ‘[t]o promote

the preservation of open space land . . . devoted to farm or ranch purposes.’” [17]

But we did not hold that subterranean resources could never be appraised

separately from the surface; to the contrary, we remanded for the trial court to

determine which part of the limestone in that case could be separately

appraised. [18]

Instead,

Gifford‑Hill recognized a distinction between limestone currently under

production as part of a quarry, and lands containing limestone where extraction

was merely a future possibility:

We agree

that the term “quarry” means more than merely the excavation existing during the

extraction of a source of supply or left after a source of supply has been

extracted. However, the opening of a quarry on a tract of land does not

automatically subject the entire tract to ad valorem

taxation as a quarry. We recognize

that a deposit of limestone may extend beyond the area from which limestone is

presently being produced. Some adjacent land may be in the path of the quarry

and its limestone deposit may reasonably be deemed to be producing and thus

considered as part of the quarry. Also, if any phase of the operation of the

quarry is conducted on surface land, such land may constitute part of the

producing quarry. However, other land surrounding a quarry may not be included

as part of the existing quarry even though the land's value increases because

the extent of the limestone is known with some certainty. The value of the land

containing non‑producing limestone should be determined by applying a per acre

value to the number of acres covered by the interest rather than by an intrinsic

price based upon the market price of the limestone per ton. [19]

We remanded

for the trial court to value separately the limestone that was part of a

producing quarry (appraised at $6,000 per acre) and the limestone that was not

(taxed at the open-space value of $57 per acre). [20]

The

reasoning in that case requires a different result under the facts in this one.

The storage caverns here were not awaiting future development; they were and had

been in active commercial use, separate and apart from whatever uses were taking

place on the surface above. Evidence at trial indicated Coastal pays almost

$500,000 annually to rent and use the caverns, and contractually agreed to pay

any ad valorem taxes associated with them. Assessing

these caverns separately from the surface does not burden any unsuspecting

farmers or ranchers with tax liability for an asset unlikely to be

exploited.

Coastal

argues that separately assessing the storage caverns here could lead to separate

assessment of a house and its scenic view or access to a beach. We agree that

many aspects of property cannot be separately assessed from the value of the

surface land, and that when the latter reflects the former a separate assessment

would tax them twice.

But

it is difficult to state a precise rule about what property can be separately

assessed because of the multitude of possible circumstances and the hundreds of

Tax Code provisions that may govern them. Perhaps the most that can be said is

that each property should be appraised “based upon the individual

characteristics that affect the property's market value.” [21]

While the constitution requires that “[t] axation shall

be equal and uniform,” [22]

that mandate may render different appraisal methods appropriate in different

circumstances. Because the circumstances here differ from those in

Gifford-Hill , we apply the same reasoning but reach a different

result.

B

Coastal

also argues that the District’s listing of the storage caverns as “Improvements”

for 1999 and as “Other” for previous tax years must be presumed to be double

taxation. The argument appears to be that (1) the Property Tax Code requires

property to be appraised in one of six mutually exclusive categories, (2) the

only category applicable to these storage caverns is “land,” and thus (3) the

additional categories used here must be double taxation as the caverns were

already included in the “land” assessment. Though the trial court sitting as

trier -of-fact found no evidence of any multiple or

overlapping appraisal, Coastal insists that the statutory requirements mean that

“no evidence of overlap is necessary.”

We

disagree with each of these propositions. First, the Property Tax Code does not

expressly require real property to be listed in the six categories used to

define it. To the contrary, the Code explicitly requires separate records of the

appraised value of land, improvements, and separate interests, but not of mines,

minerals, or timber. [23]

Further,

some of the categories used to define real property clearly overlap. [24]

And in some cases, it is difficult to draw the line between these categories, as

we struggled to do between “mineral in place” and “quarry” in

Gifford-Hill . [25]

It

is true that in the latter opinion we referred somewhat skeptically to the

appraisal district’s use of “a new category of taxable property, previously

unknown in the law, entitled ‘rock reserve.’” [26]

But we certainly did not conclude that such property should escape taxation

entirely because it was unclear which of the Code’s appellations should apply.

Indeed, such an interpretation would raise difficult constitutional questions. [27]

We

agree with Coastal that the statutory categories are important, and that

appraisal districts generally should not abandon them in favor of creative

alternatives. But the Code primarily requires that property “be described in the

appraisal records with sufficient certainty to identify it.” [28]

“Ordinarily a description is sufficient when the property sought to be assessed

may be identified from the description given.” [29]

So long as the District’s records gave Coastal notice of what property was

included in each tax account (and thus some assurance that it was not included

twice), including these caverns under an incorrect category would not exempt

them from taxation.

Second,

we disagree that the only category applicable to these caverns is “land.” The

Property Tax Code defines “improvement” to include “a building, structure,

fixture, or fence erected on or affixed to land.” [30]

While the undisturbed limestone involved in Gifford-Hill could not be

characterized as an “improvement,” the caverns here can.

Generally,

a “structure” is “[a] ny construction, production, or

piece of work artificially built up or composed of parts purposefully joined

together.” [31]

Salt-dome storage caverns may exist naturally, [32]

but the ones here were clearly man-made. There was evidence that more than $1

million was spent to leach salt from them, creating storage space for about 6

million barrels of liquid hydrocarbons. Though the parties disputed whether

these costs should be attributed to salt extraction or cavern creation (as the

one accomplishes the other), the annual rent of almost $500,000 shows that the

resulting “structure” had substantial value.

In

the valuation case that we reversed for lack of capacity, the First Court of

Appeals held that a storage cavern could not be an “improvement” because the

Natural Resources Code defines a “salt dome storage facility” as both the

formation itself and buildings and equipment used to operate it. [33]

In the first place, this imports a definition from a different statute adopted

for different purposes. But even if that were appropriate, by defining the

facility to include both the cavern and associated fixtures (Coastal concedes

the latter may be taxed as an “improvement” [34] ),

the implication is that both should be treated the same. At least for purposes

of the Property Tax Code, the caverns here could be categorized as improvements.

Finally,

we disagree with the proposition that cases asserting double taxation should be

determined by presumption rather than proof. In an appeal from an appraisal

board determination, “[t]he district court shall try all issues of fact and law

raised by the pleadings in the manner applicable to civil suits generally.” [35]

While the appraisal district “has the burden of establishing the value of the

property by a preponderance of the evidence,” [36]

nothing in the trial of civil suits generally suggests that we should ignore

evidence about what property was or was not included. [37]

* * *

Unquestionably,

a huge storage facility constructed aboveground to hold millions of barrels of

hydrocarbons would be taxable as an “improvement.” We find no logical reason to

assess such facilities differently when it is more practical to build them

below.

Accordingly,

we reverse the court of appeals’ judgment that the caverns here could not be

separately appraised. We remand to the court of appeals to consider Coastal’s remaining issues. [38]

____________________________

Scott

Brister

Justice

OPINION

DELIVERED: May 27,

2005

[1] See 46 S.W.3d 880, 885-86

( Tex. 2001) .

[2] Testimony at trial indicated that

Texas has more than 500 of such

facilities.

[3] Tex . Tax Code ' 41.413(b); see also id. ' 42.015(a) (“A person leasing property who is

contractually obligated to reimburse the property owner for taxes imposed on the

property is entitled to appeal an order of the appraisal review board . . .

.”).

[4] Id . ' 41.413(b).

[5] Tex . Tax Code ' 42.09 (providing that tax protest procedures are

exclusive means of asserting tax claims except defenses of nonownership or that property is in a different

jurisdiction); Robstown Indep . Sch . Dist. v. Anderson , 706 S.W.2d 952, 953 (Tex. 1986)

(per curiam ) (holding that failure to file protest to

assessments after Tax Code’s January 1, 1982 effective date waives complaint). While we held twenty

years ago that compliance with the statutory requirements for appeal from an

appraisal review is jurisdictional, Appraisal Review Bd. v. Int’l Church of

Foursquare Gospel , 719 S.W.2d 160, 160 (Tex. 1986) (per curiam ), we have yet to address whether that holding

survives Dubai Petroleum Co. v. Kazi , 12 S.W.3d

71, 76-77 (Tex. 2000) (holding that compliance with statutory requirements for

asserting wrongful death claim was case-determinative but not jurisdictional

question).

[6] Tex . Tax Code ' 41.45(a) (“If more than one protest is filed relating

to the same property, the appraisal review board shall schedule a single hearing

on all timely filed protests relating to the property.”); see also id.

' 41.01(a )( 6) (providing that

appraisal review board shall “make any other determination that this title

specifically authorizes or requires”).

[7] Id . ' 41.01(b) (providing that board may not review or reject

agreements between property owners and chief appraiser pending an appeal to the

board).

[8] Id. ' 41.47(a) (“The appraisal review board hearing a protest

shall determine the protest and make its decision by written

order.”).

[9] Id . ' 42.23(a) (“Review is by trial de novo. The district

court shall try all issues of fact and law raised by the pleadings in the manner

applicable to civil suits generally. ” ).

[10] The Property Tax Code provides that “[h] earing procedures to the greatest extent practicable shall

be informal.” Id . ' 41.66(b). While witnesses must be

sworn, id. ' 41.67(a), they may appear by affidavit.

Id. ' 41.45(b).

[11] See Dubai , 12 S.W.3d at 76 .

[12] Tex . Tax Code

' 1.04(2).

[13] Id . ' 25.02(a).

[14] Stephens

County v. Mid‑Kansas Oil & Gas

Co. , 254 S.W. 290, 292, 294-95

( Tex. 1923).

[15] State v. Federal Land Bank of

Houston , 329 S.W.2d 847, 849

( Tex. 1959).

[16] 827 S.W.2d 811, 814, 817

( Tex. 1991).

[17] 827 S.W.2d at 817 n.8,

822-23 .

[18] Id . at 817.

[19] Id . at 815-16 (citations

omitted). See also

Tex . Tax Code ' 23.17 (“An interest in a mineral that may be removed by

surface mining or quarrying from a deposit and that is not being produced is

appraised at the price for which the interest would sell while the mineral is in

place and not being produced.”).

[20] 827 S.W.2d at

825 .

[21] See Tex . Tax Code ' 23.01 (“The same or similar appraisal methods and

techniques shall be used in appraising the same or similar kinds of property.

However, each property shall be appraised based upon the individual

characteristics that affect the property's market

value.”).

[22] Tex . Const .

art. VIII,

' 1(a).

[23] Compare Tex . Tax Code

' 1.04(2), with

id. ' 25.02(a).

[24] As a fee-simple interest is clearly

“an estate or interest . . . in property,” id . ' 1.04(2 )( F), this last category

necessarily overlaps to some degree with all the former

ones.

[25] 827 S.W.2d at

816 .

[26] Id. at 813.

[27] Tex . Const .

art. VIII,

' 1(a)

(“Taxation shall be equal and uniform.”); id. ' 1(b) (“All real property and tangible personal property

in this State, unless exempt as required or permitted by this Constitution . . .

shall be taxed in proportion to its value, which shall be ascertained as may be

provided by law.”).

[28] Tex . Tax Code

' 25.03(a).

[29] Electra Indep . Sch . Dist. v. W. T. Waggoner

Estate , 168 S.W.2d 645, 650

( Tex. 1943).

[30] Tex . Tax Code ' 1.04(3 )( A).

[31] See Black’s Law Dictionary 1464 (8th ed.

2004).

[32] Amicus Chambers County Appraisal District discloses in

its brief that it taxes man-made storage caverns as “improvements” but does not

tax natural ones. As only the former are before us, we express no opinion as to

the latter.

[33] Harris County Appraisal Dist. v. Coastal Liquids

Transp ., L.P. , 7 S.W.3d 183, 190 (Tex. App . C Houston [1st Dist.] 1999), rev’d , 46 S.W.3d 880

( Tex. 2001); see Tex .

Nat .

Res . Code ' 211.001(4) (“‘Salt dome storage facility’ includes any

new or existing salt formation or bedded salt formation storage cavern and any

equipment, facility, or building used or intended for use in the storage of a

hazardous liquid in the salt formation cavern.”) .

[34] See Coastal Liquids Transp . , 7 S.W.3d at 190

n.8 .

[35] Tex . Tax Code

' 42.23(a).

[36] Id. ' 41.43(a).

[37] See, e.g.,

El Paso Cent. Appraisal Dist. v. Montrose

Partners , 754 S.W.2d 797, 799 ( Tex.App . C El Paso 1988, writ denied) (holding that appraisal of

improvements that mistakenly included swimming pool but excluded building was

not merely incorrect valuation, and could be

amended).

[38] The court of appeals did not reach Coastal’s complaints regarding the factual and legal

sufficiency of the evidence to support the trial court’s valuation, or its claim

for attorney’s fees.