Expo Motorcars, LLC v. HCAD (Tex.App.-Houston [1st Dist.] Jul. 23, 2009)(Jennings)
(tax protest, constitutionality, due process)
AFFIRM TC JUDGMENT: Opinion by Justice Jennings
Before Justices Jennings, Keyes and Higley
01-08-00473-CV Expo Motorcars, LLC. v. Harris County Appraisal District, Harris County
Appraisal Review Board Appeal from 270th District Court of Harris County
EXPO MOTORCARS, L.L.C., Appellant
HARRIS COUNTY APPRAISAL DISTRICT AND HARRIS COUNTY APPRAISAL
REVIEW BOARD, Appellees
On Appeal from the 270th District Court
Harris County, Texas
Trial Court Cause No. 2005-76685
Appellant, Expo Motorcars, L.L.C., challenges the trial court’s summary judgment rendered in favor
of appellees, the Harris County Appraisal District (“HCAD”) and the Harris County Appraisal Review
Board (“the Review Board”), in Expo’s suit challenging the constitutionality of Texas Tax Code
sections 23.121(b) (entitled “Dealer’s Motor Vehicle Inventory; Value”) and 41.44(a)(1) (entitled
“Notice of Protest”) [[Footnote]] as applied to Expo. In three issues, Expo contends that the trial
court erred in denying its summary judgment motion and in granting HCAD’s and the Review Board’
s summary judgment motion on the grounds that Expo was denied meaningful review of its motor
vehicle inventory valuations for tax years 2004 and 2005 in violation of Expo’s due process rights,
[[Footnote]] Expo presented uncontradicted evidence of the actual value of its motor vehicle
inventory in tax years 2004 and 2005, and the statutory formula used to determine the value of
Expo’s motor vehicle inventory violates the Texas Constitution. [Footnote]
Factual and Procedural Background
In its first amended petition, Expo, a motor vehicle dealer, [Footnote] alleged that the “Review
Board unconstitutionally applied . . . the dealer motor vehicle inventory property tax provisions” to
Expo and the Tax Code’s valuation formula violates article VIII, section 1 of the Texas Constitution
by not “fairly, equally, or reasonably” appraising the value of Expo’s motor vehicle inventory. HCAD
had appraised the value of Expo’s motor vehicle inventory, as of January 1, 2004, and, based on
the valuation, Expo’s 2004 taxes were assessed at $149,259.36. However, when Expo paid only
$111,357.99 for the 2004 tax year, the Harris County Tax Assessor-Collector sent Expo a
delinquency notice stating that Expo owed $39,334.46 in taxes and penalties. In May 2005, after
paying the amount owed, Expo, pursuant to Tax Code section 41.41, [Footnote] protested HCAD’s
2004 valuation of its motor vehicle inventory in a hearing in October 2005. However, the Review
Board refused to consider Expo’s protest because Expo had missed by almost one year the
deadline to protest the 2004 appraisal. [Footnote] Expo further alleged that for purposes of the
2005 tax year, HCAD had appraised the value of Expo’s motor vehicle inventory, as of January 1,
2005, and based on the valuation, Expo’s 2005 taxes were assessed at $112,440.02. When Expo
paid only $103,963.00 for the 2005 tax year, the Harris County Tax Assessor-Collector sent to Expo
another delinquency notice stating that Expo owed $11,140.37 in back taxes and penalties. Expo
paid the additional taxes and penalties under protest. The Review Board considered Expo’s protest
of HCAD’s 2005 valuation of Expo’s motor vehicle inventory at the hearing in October 2005. At the
hearing, Expo asserted that the 2005 valuation could not be accurately assessed until the end of
the year, December 31, 2005, when Expo would be able to determine its actual gross sales for
2005. The Review Board ruled that HCAD had properly applied the statutory formula to appraise
Expo’s 2005 motor vehicle inventory as of January 1, 2005.
In the trial court, Expo filed its motion for summary judgment, requesting that the trial court find the
inventory valuations for 2004 and 2005 excessive, reduce the inventory valuations for 2004 and
2005 to match Expo’s actual gross sales for those years, and require HCAD to “correct the tax rolls
accordingly.” In the alternative, Expo requested that the trial court declare Tax Code section 23.121
unconstitutional because HCAD had “subjected [Expo] to unequal, non-uniform, unconstitutional
taxation” and find that the Review Board had denied Expo meaningful review of the valuations for
2004 and 2005.
Expo attached to its motion the affidavit of Patrick O’Kelley, Expo’s accounting manager. O’Kelley
testified that in his attached spreadsheet he set out “for each year of Expo’s operations through
2006, the total dollar value of the sales of motor vehicles to the public (not including wholesale
deals to other dealers), the inventory taxes Expo paid,” and the calculated motor vehicle inventory
tax. In pertinent part, O’Kelley’s spreadsheet reads as follows:
Previous Year’s Gross Sales [Footnote]
Motor Vehicle Inventory Tax Assessed
Motor Vehicle Inventory Tax Paid
In their cross motion for summary judgment, HCAD and the Review Board argued that they were
entitled to summary judgment because Expo had failed to timely protest HCAD’s 2004 valuation of
its motor vehicle inventory and that Tax Code sections 23.121(b) and 44.44(a)(1) are constitutional.
Standard of Review
To prevail on a summary judgment motion, a movant has the burden of proving that it is entitled to
judgment as a matter of law and that there are no genuine issues of material fact. Tex. R. Civ. P.
166a(c); Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995). When both parties move for summary
judgment and the trial court grants one motion and denies the other, the reviewing court should
review the summary judgment evidence presented by both sides, determine all questions
presented, and render the judgment that the trial court should have rendered. Tex. Workers’ Comp.
Comm’n v. Patient Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004).
In its first issue, Expo argues that it was improperly denied a protest hearing under the Tax Code
and denied due process because the Review Board ruled that Expo’s protest of HCAD’s valuation
of Expo’s motor vehicle inventory was untimely as it was not made “prior to June 1” of the year in
which HCAD made the valuation. Expo asserts that it could not determine the accuracy of HCAD’s
valuation for a given year until the end of that year, when Expo could determine its actual motor
vehicle sales for the year.
A property owner may protest an appraisal district’s valuation of property before an appraisal
review board. See Tex. Tax Code Ann. § 41.41(a) (Vernon 2008). However, to be entitled to a
hearing and a determination of a protest, the property owner initiating the protest must file written
notice of the protest with the appraisal review board before June 1st or not later than the 30th day
after the date that notice was delivered to the property owner. Id. § 41.44(a) (Vernon 2008).
Expo concedes that HCAD’s valuations of Expo’s motor vehicle inventory for the 2004 and 2005 tax
years were correctly calculated according to the statute. See id. § 23.121(b) (Vernon 2008). Expo
argues that the deadline imposed by Tax Code section 41.44 denied Expo a meaningful review of
its complaint because Expo was unable to gather evidence and appraisals needed to determine the
actual market value of its motor vehicle inventory and “present a developed body of evidence
thereafter as to why the valuation is other than that assessed.”
However, the actual market value of a motor vehicle dealer’s inventory for a given year is not based
on the dealer’s actual sales in that calendar year. Rather, the Legislature has determined that the
actual market value of a dealer’s motor vehicle inventory is ascertained on January 1 of the tax
year based on the dealer’s sales in the previous calendar year. Id. § 23.121(b). Thus, Expo’s actual
sales in the calendar year of 2004 are irrelevant to its protest regarding HCAD’s valuation of Expo’s
motor vehicle inventory as of January 1, 2004 for the 2004 tax year. See id. HCAD’s valuation was
correctly based on Expo’s sales in 2003. Accordingly, we hold that the trial court did not err in
concluding that Expo was not improperly denied a hearing under the Tax Code and that Expo was
not denied due process.
We overrule Expo’s first issue.
In its second issue, Expo argues that it is entitled to a reduction in the valuation of its motor vehicle
inventory for the 2004 and 2005 tax years because Expo presented the “actual data showing the
valuation of the inventory sold for tax years 2004 and 2005.” Expo asserts that the statutory
formula relied upon by HCAD and the Review Board “establishes a value for property based on
something arbitrary.” However, as noted above, the actual market value of a motor vehicle dealer’s
inventory for a given tax year is not based on the dealer’s actual sales in that calendar year.
Rather, the valuation is determined as of January 1 of the tax year based on the dealer’s sales in
the previous calendar year. Expo’s motor vehicle inventory is always valued based on its gross
sales in the previous calendar year, regardless of the inventory it actually sells during the given tax
year. See id. The statutory formula in a given tax year does not provide an estimate of market
value; it provides the actual market value using the previous calendar year’s gross sales. See id.
Accordingly, we hold that Expo is not entitled to a reduction in the valuation of its motor vehicle
inventory based on its actual sales in 2004 and 2005.
We overrule Expo’s second issue.
Constitutionality of Tax Code Section 23.121
In its third issue, Expo argues that section 23.121’s tax valuation formula is unconstitutional as
“applied to Expo because it created unequal, non-uniform taxation among motor vehicle dealers.”
Expo asserts that the taxing formula unconstitutionally imposes higher taxes on those dealers
whose sales actually decrease in a tax year after the valuation has been determined as of January
1 of the tax year.
In evaluating whether a statute is constitutional, we begin by presuming the statute’s
constitutionality and defer to the Legislature’s determinations of a statute’s wisdom or expediency.
Enron Corp. v. Spring Indep. School Dist., 922 S.W.2d 931, 934 (Tex. 1996). We further presume
that the Legislature “understands and correctly appreciates the needs of its own people, that its
laws are directed to problems made manifest by experience, and that its discriminations are based
upon adequate grounds.” Id. (quoting Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968)). A party
who challenges the constitutionality of a statute bears the burden of demonstrating that the
enactment fails to meet constitutional requirements. Id.
Article VIII, section 1 of the Texas Constitution, provides that “[t]axation shall be equal and uniform”
and that “[a]ll real property and tangible personal property in this State . . . shall be taxed in
proportion to its value, which shall be ascertained as may be provided by law.” Tex. Const. art. VIII,
§ 1(a), (b). According to this provision of the Texas Constitution, ad valorem tax rates must be
uniform for all types of property. Enron, 922 S.W.2d at 935. In determining how to ascertain the
market value of property for ad valorem tax purposes, the Legislature may use different methods
for different types of property so long as these methods are not “unreasonable, arbitrary, or
capricious.” Enron, 922 S.W.2d at 935–36.
Fairly ascertaining the market value of inventory can be difficult because the value of a taxpayer’s
inventory tends to fluctuate significantly throughout the year. See Enron, 922 S.W.2d at 939–40
(discussing difficulty in appraising value of inventory). Generally, the Legislature has chosen to use
a single-date appraisal method, appraising the value of inventory for a given year based on the
market value of the inventory property on a specific date. E.g. Tex. Tax Code Ann. § 23.01 (Vernon
2008) (generally prescribing that on January 1, taxable property is appraised at its market value).
However, in ascertaining the market value of a dealer’s motor vehicle inventory, the Legislature has
adopted a sales-based method. [Footnote] See id. §§ 23.121(b), 23.122(b) (Vernon 2008). This
sales-based approach captures the value of inventory over time better than a single-date
evaluation. See Enron, 922 S.W.2d at 940. Even though the value of a dealer’s motor vehicle
inventory can fluctuate drastically throughout the year, the sales-based approach only requires
dealers to pay taxes on the motor vehicle inventory that they actually sell. See Tex. Tax Code Ann.
In the 2004 and 2005 tax years, Expo’s motor vehicle inventory tax was assessed in the same
manner as the motor vehicle inventory tax of other dealers: the aggregate tax rate was applied to
one twelfth of Expo’s gross sales from the previous year. See id. Whether a dealer’s sales decline
or increase during the tax year, its motor vehicle inventory tax is always calculated based on its
gross sales in the prior calendar year. See id. Although a dealer’s motor vehicle inventory could be
valued based on actual sales during the year taxed, the Legislature has determined otherwise. See
Tex. Tax Code Ann. § 23.121(b); see Enron, 922 S.W.2d at 934 (stating that appellate courts defer
to Legislature’s determinations of statute’s wisdom or expedience). The Legislature has determined
that the value of a dealer’s motor vehicle inventory on January 1 of the tax year is based on the
actual sales in the previous calendar year, not based on actual sales in the tax year. See Tex. Tax
Code Ann. § 23.121(b). Section 23.122 creates a collection mechanism using actual sales in the
tax year, but this collection mechanism does not determine the value of a dealer’s motor vehicle
inventory for the tax year. See id. §§ 23.121(b), 23.122(b), 31.11 (Vernon 2008).
The Legislature’s method of determining the value of a dealer’s motor vehicle inventory for the
purpose of assessing property taxes is not the only method that could be used, but it is no more
arbitrary than choosing to value a taxpayer’s inventory on a single date. See id. § 23.01 (adopting
January 1 as date when inventory will typically be valued). Although the Legislature’s method may
not be perfect, we cannot conclude that the Legislature’s chosen method is unconstitutional as
applied to Expo. See Enron, 922 S.W.2d at 939. Accordingly, we hold that section 23.121(b)’s
motor vehicle inventory tax valuation formula is not unconstitutional as applied to Expo.
We overrule appellant’s third issue.
We hold that the trial court did not err in denying Expo’s summary judgment motion and granting
HCAD’s and the Review Board’s summary judgment motion. Accordingly, we affirm the judgment of
the trial court.
Panel consists of Justices Jennings, Keyes, and Higley.