HCAD v. Nunu (Tex.App.- Houston [14th Dist.] Aug. 27, 2009)(Seymore)(HCAD appeal,
homestead exemption reduced pro rata for business use of home as law office)
Justice Seymore   
Before Justices Seymore, Brown and Sullivan  
14-08-00528-CV   Harris County Appraisal District and Harris County Appraisal Review Board
v. Paul E. Nunu  Appeal from 151st District Court of Harris County
Trial Court Judge:
Caroline Elizabeth Baker

Reversed and Rendered and Memorandum Opinion filed August 27, 2009.
M E M O R A N D U M   O P I N I O N

In this ad valorem property tax case, appellants, the Harris County Appraisal District (“HCAD") and the Harris
County Appraisal Review Board (“the Review Board"), appeal a judgment by which the trial court ordered
appellants to “correct the tax rolls" for 2000 through 2004, “to reflect a 100% homestead tax exemption" for
property that appellee, Paul E. Nunu, uses as a residence and an office (“the property").  

We conclude, as did HCAD and the Review Board, that twelve percent of the property is “used primarily for
purposes that are incompatible with [Nunu's] residential use."  Tex. Tax Code Ann. § 11.13(k) (Vernon 2008).  
Accordingly, we reverse and render judgment reinstating the Review Board's orders denying Nunu's protests
to HCAD's reduction of Nunu's homestead exemption.[1]

I.  Factual and Procedural Background

Nunu conducts his law practice in the same building in which he and his family live.  In 2005, HCAD denied
Nunu his residential homestead exemption for approximately twelve percent of the value of the property.  Nunu
therefore received only an eighty-eight percent exemption.  Denial of the 100 percent exemption was
retroactive for the tax years 2000 through 2004.  Nunu protested, and the Review Board determined he was
entitled to only the eighty-eight percent exemption.  Nunu then appealed to the district court.[2]

Trial was to the court on an agreed statement of facts.[3]  The agreed facts included the following:

2.         The subject property is located at 1235 Harvard Street in The Heights in Houston, Harris County,
Texas. . . . .  Nunu acquired the subject property in 1982 and has owned it since.

3.         The subject property consists of a lot on which there is a 2-story house.

4.         On the first floor of the 2-story house, there is a hallway, large kitchen, dining room, a formal living
room, study, bedroom and a half-bath.  The second floor consists of a hallway, 2 bedrooms, 2 baths, a sitting
room and a bedroom used as a den.

5.         During all times relevant to this lawsuit, Nunu and his family occupied the property as their principle
[sic] and only residence.

6.         Nunu is a licensed attorney.  During all times relevant to this lawsuit, Nunu has used the property as
both an urban home and as a place to exercise a calling or business, that is as his law office.  The portion of
the structure used as an office was open and accessible to the remainder of the structure during all relevant
time periods.

7.         No part of the second floor is used or has ever been used for Nunu's law practice.  On the first floor,
the dining room is sometimes used to hold conferences or deposition.  The sitting room houses Nunu's hunting
trophies and other memorabilia.  Nunu sometimes interviews clients in the sitting room.  The study is used
entirely for Nunu's office containing desks, computers, copier and file cabinets.  The downstairs bedroom has
tables, chairs, and a computer.  While used primarily for conducting Nunu's law practice, his daughters and
wife also use this area for personal and/or family matters including homework and school activities.

8.         In 2005, pursuant to Section 11.43(h) and (i) of the Texas Tax Code, the District's Chief Appraiser
revoked twelve percent (12%) of Nunu's residential homestead exemption to reflect that portion of the subject
property being used as his law office.  This revocation applied to tax years 2000-2004 and following.  This left
Nunu's residential homestead exemption intact on the remaining eighty-eight percent (88%) of the subject
property for each of those tax years.
. . . .
11.       The subject property qualified as an urban homestead as that term is defined in 41.002 of the Texas
Property Code for each of the relevant tax years 2000-2004.

12.       Pursuant to 26 U.S.C. 280A(c)(1)(A) Nunu deducted on IRS tax returns a percentage of his utilities for
that portion of the property used by Nunu for his law office as business expenses for each of the relevant tax
years 2000-2004.

13.       Nunu maintained tangible personal property that was held or used for the production of income for
each of the relevant tax years 2000-2004.  The personal property included property that was identified on the
Harris County Appraisal District appraisal rolls . . . .

Based on these facts, the trial court found Nunu owned and occupied the property as his principal residence.  
The court further ordered appellees to “correct the tax rolls for the years 2000, 2001, 2002, 2003, and 2004
and subsequent years if applicable to reflect a 100% homestead tax exemption for Paul E. Nunu on . . . the
real property."

II.  Standard of Review

The parties submitted the case to the court on agreed facts.  See Tex. R. Civ. P. 263.  “[A] case submitted to
the court upon an agreed stipulation of facts under [Rule] 263 is in the nature of a special verdict and 'is a
request by the litigants for judgment in accordance with the applicable law.'"  Unauthorized Practice of Law
Comm. v. Jansen, 816 S.W.2d 813, 814 (Tex. App.- Houston [14th Dist.] 1991, writ denied) (quoting Brophy v.
Brophy, 599 S.W.2d 345, 347 (Tex. Civ. App. -Texarkana 1980, no writ)).   The question on appeal is
therefore limited to the correctness of the trial court's application of the law to the admitted facts.  Id. at 814-
15.  Because the issue is purely a question of law, we apply a de novo standard of review.  SLW Aviation, Inc.
v. Harris County Appraisal Dist., 105 S.W.3d 99, 102 (Tex. App.- Houston [1st Dist.] 2003, no pet.).

III.  Analysis

In issue one, appellants argue the trial court incorrectly applied the Tax Code to the agreed facts by exempting
Nunu's law office from ad valorem taxation.  In issue two, appellants argue that, because only the
governmental body of a taxing unit can change a tax roll, the trial court erred in ordering HCAD to correct the
tax rolls.  For the reasons below, we sustain appellants' first issue.  We therefore need not address their
second issue.

Texas Constitution Article VIII provides the legal authority for imposing ad valorem taxes and exempting
residence homesteads from taxation.  See Tex. Const. art. VIII,  1, 1-b.  The constitution requires taxation to
“be equal and uniform."  Id.  1.  Courts therefore narrowly and strictly construe claims for tax exemptions.  
Davies v. Meyer, 541 S.W.2d 827, 829 (Tex. 1976).  As the San Antonio Court of Appeals recently explained:

It has long been established that exemptions from taxation are strictly construed and that all doubts are
resolved against the exemption.  See N. Alamo Water Supply Corp. v. Willacy County Appraisal Dist., 804 S.W.
2d 894, 899 (Tex. 1991) (holding that “[s]tatutory exemptions from taxation are subject to strict construction
because they undermine equality and uniformity by placing a greater burden on some taxpaying businesses
and individuals rather than placing the burden on all taxpayers equally"); see also Hilltop Village, Inc. v.
Kerrville Ind. Sch. Dist., 426 S.W.2d 943, 948 (Tex. 1968) ( “tax exemptions are subject to strict construction
since they are the antithesis of equality and uniformity").  Accordingly, an exemption cannot be raised by
implication, but must be affirmatively shown, resolving all doubts in favor of the taxing authority and against the
claimant.  Bullock v. Nat'l Bancshares Corp., 584 S.W.2d 268, 272 (Tex. 1979).

Jim Wells County Appraisal Dist. v. Cameron Village, Ltd., 238 S.W.3d 769, 772 (Tex. App.- San Antonio 2007,
pet. filed); see also City of Austin v. Univ. Christian Church, 768 S.W.2d 718, 721-22 (Tex. 1988) (Mauzy, J.,
dissenting) (explaining history of strong sentiment against exemptions and constitutional response to

Texas Tax Code section 11.13 sets forth the residence homestead exemption and defines “residence
homestead" as:

a structure (including a mobile home) or a separately secured and occupied portion of a structure (together
with the land, not to exceed 20 acres, and improvements used in the residential occupancy of the structure, if
the structure and the land and improvements have identical ownership) that:        

(A) is owned by one or more individuals, either directly or through a beneficial interest in a qualifying trust;

(B) is designed or adapted for human residence;

(C) is used as a residence;  and

(D) is occupied as his principal residence by an owner . . . .

Tex. Tax Code Ann.  11.13(j)(1) (Vernon 2008).

Subsection (k) then describes the effect multiple uses of a residence have on the homestead exemption:

A qualified residential structure does not lose its character as a residence homestead if a portion of the
structure is rented to another or is used primarily for other purposes that are incompatible with the owner's
residential use of the structure.  However, the amount of any residence homestead exemption does not apply
to the value of that portion of the structure that is used primarily for purposes that are incompatible with the
owner's residential use. Id.  11.13(k) (emphasis added).

The question in the present case, therefore, is whether Nunu uses any portion of his residence “primarily" for a
purpose “incompatible" with “residential" use.  Accordingly, we must construe section 11.13(k) to determine
how it applies to Nunu's use of the property.  In doing so, we are guided by the Code Construction Act.  See
id.  1.03 (stating Code Construction Act applies to the Texas Tax Code).

“Primarily," “incompatible," and “residential" are not defined in the Tax Code.  We therefore read these words
in context and construe them according to common usage.  Tex. Gov't Code Ann.  311.011(a) (Vernon 2005).  
Additionally, whether or not the statute is ambiguous on its face, we may consider, among other matters, the
object to be attained, administrative construction of the statute, and the consequences of a particular
construction.  See id.  311.023.

In common usage, “primarily" means “fundamentally," “principally," or “in the first place."  Webster's Third New
International Dictionary 1800 (1993).  “Residential" refers to a building serving as a residence, a dwelling
place, or a home.  See id. at 1931.  “Incompatible" refers to an incapability of existing together without discord
or disharmony.  See id. at 463, 1114.  “Incompatible" may also refer to a situation involving mutually
inconsistent demands.  See id. at 1114.   In the context of physical space, therefore, incompatible would refer
to uses that could not occur harmoniously in the same space, uses  such as intimate family conversations and
client conferences or loud children's play and legal study.

In the present case, Nunu agreed he “sometimes" held conferences or depositions in the dining room and
“sometimes" interviewed clients in the sitting room.  In the United States, the home is generally associated with
the freedom to engage in private conduct in which one would not engage before strangers or business
acquaintances.  It is reasonable to conclude that, when Nunu was using the dining room and sitting room to
accommodate business acquaintances or strangers to the family, such use was incompatible with residential

Nunu also agreed he used the downstairs study “entirely" for his office and used the downstairs bedroom
“primarily" for conducting his law practice.  By virtue of Nunu's own agreement and the common definitions of
the statutory terms, at a minimum, the downstairs study and bedroom were used primarily for purposes that
are incompatible with Nunu's residential use.

The preceding interpretation and application of the statute are also consistent with an attorney general's
opinion and the authority cited therein, particularly interpretations by the comptroller of public accounts.  In
that opinion, the Texas Attorney General concluded rental constituted a purpose “incompatible with the
owner's residential use."  The attorney general reasoned:

The first sentence of subsection (k) provides that a qualified residence does not lose its homestead character
“if a portion of the structure is rented to another or is used primarily for other purposes that are incompatible
with the owner's residential use of the structure."  Tex. Tax Code Ann.  11.13(k) (Vernon Supp. 2001)
(emphasis added).  The second sentence provides that “the amount of any residence homestead exemption
does not apply to the value of that portion of the structure that is used primarily for purposes that are
incompatible with the owner's residential use."  Id.  11.13(k) (emphasis added).  Rental of a portion of the
structure to another, in the first sentence, is equated with use of the structure “primarily for purposes that are
incompatible," given use of the term “other" qualifying the latter phrase.  See Osterberg [v. Peca, 12 S.W.3d
31, 38 (Tex. 2000)] (legislative intent discerned from actual language used); Tex. Gov't Code Ann.  311.011(a)
(Vernon 1998) (words and phrases are to be “read in context and construed according to the rules of grammar
and common usage").  The second sentence then disallows the exemption for that portion of the homestead
used for incompatible purposes. Because rental is equated with incompatible purposes, the second sentence
necessarily disallows the exemption for the portion that is rented.  See also Carole Keeton Rylander,
Comptroller of Public Accounts, Texas Property Taxes: Taxpayer's Rights, Remedies & Responsibilities, at 2
(Jan. 2000) (“Renting part of your home or using part of it for a business doesn't disqualify the rest of your
home for the exemption.") (emphasis added); Carole Keeton Rylander, Comptroller of Public Accounts, Texas
Property Tax: Appraisal Review Board Manual, at 24 (2000) ( “Normally the exemption applies to those
portions of the house actually used for residential, as opposed to business, purposes.").

Our construction above comports with the homestead-exemption provisions of section 11.13 (j), (k), and (l).
See Jones v. Fowler, 969 S.W.2d 429, 432 (Tex. 1998) (legislative intent to be determined from entire act not
simply isolated portion of act); Sayre [v. Mullins, 681 S.W.2d 25, 27 (Tex. 1984)] (statute to be read as a
whole, giving consideration to entire act, its nature and object, and consequences that would follow from
particular construction). The apparent purpose of section 11.13 is to exempt from taxation a residence that the
owner uses as his home, in other words, where the owner lives.  See Tex. Tax Code Ann.  11.13(j) (Vernon
Supp. 2001) (“residence homestead" is “used as a residence" and “occupied as his principal residence by an
owner"); id.  11.13(l) (residence homestead does not lose that status if owner is temporarily absent, does not
establish different principal residence, and intends to return to residence and use it as principal residence).  
Keeping with this apparent intent, subsection (k) preserves the tax exemption, even if a part of the residence is
not used primarily as the owner's home, but only with respect to that part that the owner continues to use
primarily as his or her home.

Op. Tex. Att'y Gen. No. JC-0415, 2001 WL 1141874, at *5-6 (2001).  Implicit in this interpretation, and explicit
in the cited authority, is the principle that business use of a designated space is incompatible with residential
use of the same space.

Finally, the conclusion that Nunu used portions of his residence for purposes incompatible with his residential
use is consistent with Nunu's own reporting on his federal tax returns.  Nunu agreed that, during tax years
2000 through 2004, he deducted, as a business expense, a percentage of his utilities for that portion of the
property he used for his law office.  He did so pursuant to 26 United States Code section 280A, which provides
in relevant part:

(a) General rule. - Except as otherwise provided in this section, in the case of a taxpayer who is an individual
or an S corporation, no deduction otherwise allowable under this chapter shall be allowed with respect to the
use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.
    . . . .
(c) Exceptions for certain business or rental use; limitation on deductions for such use.-

(1) Certain business use. - Subsection (a) shall not apply to any item to the extent such item is allocable to a
portion of the dwelling unit which is exclusively used on a regular basis -

(A) as the principal place of business for any trade or business of the taxpayer, [or]

(B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the
taxpayer in the normal course of his trade or business . . . .
26 U.S.C.A.  280A(a), (c)(1), (A), (B) (West 2002).  

Thus, to have claimed a federal income tax deduction for utilities for a portion of his residence, Nunu was
required to have “exclusively" used that portion “on a regular basis" for business purposes.  Exclusive use of a
designated space for business purposes necessarily means that space is not being used for residential

Nunu, however, relies on the following definition of “homestead" found in Texas Property Code section 41.002
(a):  “If used for the purposes of an urban home or as both an urban home and a place to exercise a calling or
business," the “homestead" consists of not more than ten acres of one or more contiguous lots and the
improvements on those lots.   Tex. Prop. Code Ann.  41.002(a) (Vernon 2000). (emphasis added).  Citing
section 41.002(c), Nunu observes the foregoing definition “applies to all homesteads in this state whenever
created."  Id.  41.002(d).  Nunu then argues his business use of his homestead “is expressly authorized and
cannot be incompatible [with residential use] as a matter of black letter law."[4]

Nunu, however, overlooks the different policies and protections reflected by the homestead exemptions in the
Property and Tax Codes, respectively.  In Hutson v. Tri-County Properties, LLC, a case involving an attempted
redemption of property after a tax sale, the court rejected the appellant's arguments that the property code's
definition of “homestead" was irreconcilable with the tax code's definition of “residence homestead" and that
the trial court, in determining the appropriate redemption period, should have applied the property code's
definition instead of the tax code's.  240 S.W.3d 484, 488-89 (Tex. App.- Fort Worth 2007, pet. denied).[5]  
The court explained:

The Constitution itself treats property differently depending on whether it is being sold to pay the owner's
debts or to pay taxes on the property.  And nothing in the Constitution prevents the Legislature from defining
what property may be kept from forced sale differently from property that may be redeemed after the sale,
especially when the protection from forced sale (by general creditors) and opportunity for redemption (after a
tax sale) arise in very distinct circumstances.

Because the Constitution does not require that “homestead" and “residence homestead" be defined the same,
and because it does not define the term “residence homestead," the Legislature was free to provide such a
definition.  It did so in Texas Tax Code section 11.13(j)(1).  Because the protection given to a “homestead"
(the prevention of a forced sale to pay general debts) and the protection given to a “residence homestead"
(allowing for redemption after the Constitution-sanctioned tax sale) arise in distinct contexts, the definition of
“homestead" in the property code and the definition of “residence homestead" in the tax code are not
irreconcilable.  The trial court therefore did not err by relying on the definition of “residence homestead" in the
tax code rather than the definition of “homestead" found in the property code. Id.

Just as the Hutson court declined to apply the property code homestead definition to a situation involving a tax
sale, we decline to apply the property code definition to an ad valorem tax exemption.  As discussed above,
given the Texas Constitution's requirement of equal and uniform taxes, we construe tax exemptions narrowly.  
That exercise of one's calling or business in one's “urban home" does not nullify the exemption of that home
from seizure for creditors' claims does not mean that a taxpayer using part of his home for business purposes
should be treated differently from a taxpayer who conducts his business in a building separate from his home
or that he should be treated the same as a taxpayer who uses his entire home exclusively for purposes
consistent with residential use.

For the preceding reasons, we sustain appellants' first issue.  Accordingly, we reverse and render judgment
reinstating the Review Board's orders denying Nunu's protests to HCAD's reduction of Nunu's homestead
exemption.  We therefore need not address appellants' second issue, directed at the trial court's order
directing appellees to “correct the tax rolls."

Charles W. Seymore


Panel consists of Justices Seymore, Brown, and Sullivan.

[1]  Because the dispositive issues are clearly settled in law, we issue this memorandum opinion.  Tex. R. App.
P. 47.4.

[2]  See Tex. Tax Code Ann.  42.01 (Vernon 2008).

[3]  See Tex. R. Civ. P. 263.

[4]  Nunu also argues that, because no part of the property is “a separately secured and occupied portion of
the structure," Tex. Tax Code Ann.  11.13(j)(1), all of the property therefore qualifies for the residence
homestead exemption.  Section 11.13(k), however, specifically carves from the exemption for a “qualified
residential structure," the value “of that portion of the structure" used primarily for purposes incompatible with
residential use.  Id.  11.13(k).  There is no requirement in section 11.13(k) that the portion of the structure be
separately secured and occupied for that portion to be capable of use for purposes incompatible with
residential use.

[5]  The statute providing for redemption after a tax sale uses the definition of “residence homestead" found in
Tax Code section 11.13(j)(1).  Tex. Tax Code Ann.  34.21(g)(4) (Vernon 2008).