Texas Property Tax Binding Arbitration: Paddy’s Pub case study - by Daniel L. O’Neil

by News Editor
in Blog
on 07 June 2016
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This post is about one of the practice areas you might not know we handle: property tax binding arbitration in the State of Texas. This is an important area for our friends that are new business owners experiencing rendition for the first time, as well as freshly married couples Post-Obergefell experiencing real property tax in their newly purchased marital home for the first time.

Arbitration is a dirty word since it takes a legal dispute out of the realm of public record. When we file a lawsuit in the traditional State or Federal system all of the filings are public record. These public records provide an open window of transparency into happenings. Reporters use them, family members use them, unhappy employees of a large corporation use them, creditors use them, lawyers use them, and internet-comedians use them. But in arbitration everything happens behind the big business (or government) sponsored velvet curtain and nothing is public record except for our strongest attempts to circumvent arbitration and/or confirm an arbitration award – everything else is a secret, mystery, and abjectly interesting because of that.

Tax is a very broad area. It encompasses payroll, corporate, partnership, employee benefits, self-employed, choice of entity, employee versus contractor, credits, deductions, exclusions, exemptions, filing, nonfiling, penalties, interest, investments, exempt orgs, real estate, O&G, crime, and more. There is “cocktail party advice” like pay your taxes. There are more formalized opinion letters about how the IRS is likely to treat your contemplated action, we drop these into lengthy opinion letters – at the global tax practice of Frye, Oaks, Benavidez & O’Neil, PLLC we have most recently advised on a cross-border transaction involving the country of Chile. Tax cases on the federal side can have a choice of venue everywhere from U.S. District Courts to Bankruptcy Courts to U.S. Tax Court to the Court of Federal Claims; up on appeal to the Federal Circuit; and up to the Supreme Court of the United States.

But there is also state and local taxation – what is cutely termed “SALT” (like the kind the Winchester brothers use to form a circle of salt to protect against Crowley and his demons) and the most common element of that Texans experience annually is property tax – your big bills on behalf of the Harris County Appraisal District (“HCAD”) viewable online as a convenience or one of the other CADs in the county you live and/or operate your business in. The CAD determines if property is taxable and the value of the property for tax purposes, then the appropriate taxing jurisdiction generates the bills for that property – for example: Houston ISD, Harris County, Harris County Flood Control District, Port of Houston Authority, Harris County Hospital District, Harris County Education Department, Houston Community College, City of Houston, and so on.

Property tax in Texas is the real property tax on homeowners but also, not as well known, the business personal property (“BPP”) tax on business owners. Do you know what a rendition is? Did you file it timely? If your business has any property in Texas and these words all sound like Greek to you then you might have a property tax problem. Of course as with every tax controversy case, the facts and specifics matter. No two property tax cases look alike. There are exclusions, exemptions, and other “loopholes” if you have competent CPA and tax lawyer advice that work with you to comb through the particulars of your specific case.

There is a well-known contingent fee-only property tax firm a corporate client of ours had started out their tax controversy life with, not knowing better. This property tax firm was on a contingent fee agreement and ended up doing no work on the file. The taxpayer ended up with an unsurprisingly terrible result going through the Appraisal Review Board (“ARB”) informal hearing and left with the only recourse of going to binding arbitration to settle up. At that point the contingent fee firm became a fired prior-firm since they were unwilling to advance the argument the corporate client and their CPA felt was prudent to defend the tax positions taken.

It was unsurprising when the file was transitioned to us: there literally was no file even after our corporate client reimbursed the property tax firm the binding arbitration fee to free up “the file.” We started from scratch on tight deadlines to take over the binding arbitration and submit all evidence on the other side of the state within the week since the arbitrator had not granted an extension of time even with a substitution in representation.

We don’t do contingent fee agreements because we never will leave you in the lurch like that property tax firm did, prioritizing a “higher dollar case” over another which contingent fee structures necessarily make you do since there are only so many hours in the day. When you pay us on the front end you know you are getting our primary attention on your case. It’s our reputation just as much as it yours when we go into binding arbitration. It has been said in the past that when you have the law on your side, you pound the law – when you have the facts on your side, you pound the facts – and when you have neither the law nor the facts on your side, you pound the table.

As bad of a reputation as arbitration has (it could even take over the other ‘A’ word sewn onto clothing) when we can get involved before you have a bad result we try to uncover the facts, clearly explain the law, and put together our evidence submission package to square up with the CAD challenging you for your hard earned money.

To prove another legal point of necessity, we turn to pop culture. We visited Paddy’s Pub a few months ago and now we are back in South Philadelphia again.

In another recent episode of It’s Always Sunny In Philadelphia Ronald “Mac” McDonald and Charles “Charlie” Kelly discussed the topic of arbitration. Charlie insisted that they would go through the normal arbitration process to resolve the dispute that was brewing between Mac and Dennis Reynolds over ownership and full credit for brainstorming the airline miles, live chickens, and “400” steaks scam. Mac felt he received an unfair result in the prior three arbitration processes with The Gang. This is noteworthy that there was an existing arbitration process and seemingly regardless of facts, evidence, and governing internal (corporate) law the outcomes were predetermined.

If you ever feel like Mac and that the normal arbitration processes aren’t working (especially with property tax firms working on a contingent fee basis and completely ignoring your file!) call us and let us review the facts, the law, and what kind of a nice table we’re talking about if that’s our only option after reviewing the law and the facts.