Binding Arbitration in Texas Property Tax cases - by Daniel L. O’Neil

by News Editor
in Blog
on 29 June 2016
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You lost in the ARB hearing, now what?

This is part of our series on business personal property tax. Please take a quick look at our prior posts in the series if you are so inclined.

Certain cases are eligible for binding arbitration. This is good – you get a chance to regroup and argue in a new venue. But this is bad because it is arbitration. Arbitration is inherently unfair for taxpayers, consumers, and everyone on the plaintiff side.

You see, the way arbitration works is that “frequent customers” (such as Central Appraisal Districts) of arbitration have a yuge advantage that they are frequent customers of arbitrators; meanwhile you as a Sunday driver might go to arbitration once in your home owner/business owner life and never again. Who do you think the arbitrator is favoring before they have even seen any evidence? Probably the party they want to like them, since they will be seeing them again and again and again in new cases for many tax years in the future. The best leverage against this is having a tax lawyer on your side who does these cases often and has been in front of many of the arbitrators.

Arbitrators that want to get hired again have to demonstrate they are impartial and looking at the facts and evidence – the benefit of someone like me is that we know who the very biased arbitrators are and we can object to their assignment so they never get to touch your case. If you opt for the DIY method and represent yourself you might not have the knowledge and experience to know which arbitrator to object to and which one offers you the best chance at impartiality so you can argue your case and know the arbitrator is listening to it and deciding it based on the law and the facts.

Nuts and bolts to consider:

Binding arbitration is your option under Texas Tax Code Section 41A.01 if the property qualifies as your residence homestead or the appraised or market value of the property determined by the ARB order is $3,000,000 or less.

To properly appeal an ARB order under this chapter, a property owner must file with the appraisal district not later than the 45th day after the date the property owner receives notice of the order: a completed request for binding arbitration under this chapter on Form AP-219; and an arbitration deposit made payable to the comptroller in the amount required based on the appraised or market value (the deposit ranges from $450 for property $500,000 and less, all the way up to a $1,050 deposit for property in the $2-3 million range.) If you file your request with the Comptroller (wrong!) instead of the appraisal district, you will probably miss the 45 day deadline and lose your access to binding arbitration!

The only reason an appraisal district can reject your request for arbitration (before they process it within 10 days and send to the Comptroller’s office) is if you don’t pay the fee. All other determinations are made by the Comptroller’s office.

The Comptroller’s office then might reject your request for a number of reasons: more than 45 days have passed since the order of determination was received and the appraisal district did not receive the request; the property owner's agent is not qualified to represent the property owner; the taxes on the subject property are (or have become) delinquent; the disputed real or personal property is appraised at more than $3 million by the order of determination, unless the property is a residence homestead; the issue in dispute is not about appraised or market value or equality and uniformity, but exemption qualification, or another matter; the order of determination was for a correction to the appraisal roll under Texas Tax Code Section 25.25; the deposit is not included or the amount of the deposit is incorrect; or the property owner or agent does not provide additional information requested by the Comptroller's office within 10 days of the request. If rejected, the Comptroller's office will refund the deposit for a rejected request for binding arbitration, less the Comptroller's $50 fee.

Be careful considering your arbitrator at the outset. Since you most likely have never used a property tax arbitrator before and the CAD has, the first person they pick off the registry is probably someone you do not want. You can object to the arbitrator. If you and the CAD can’t settle on someone then you ask the Comptroller to appoint one under Texas Tax Code Section 41A.07(b)(2), and randomness of that selection is more often than not a better idea for you as the taxpayer than someone the CAD knows that they wanted.

Arbitrators qualified to hear these kinds of cases are probably never going to be a lawyer – they are most often real estate appraisers. Rules of evidence that lawyers are used to do not apply and almost all sorts of evidence and provocative arguments are likely to be made by the CAD you are squaring up against. The arbitrator sets some basic ground rules, usually defaulting to the very basic outlines include in Comptroller’s Rule 9.804.

If you have a lawyer representing you, you can completely disregard Form 50-791 since that is only for people you hire to represent you that are NOT lawyers. That’s something worth noting just that lawyers and non-lawyers have different paperwork requirements, likely for a few reasons since the non-lawyers are regulated much differently (and have been responsible for a wide range of scams on property owners in the past.)

The nuclear option the arbitrator holds over you is that they can kill your arbitration, you lose the deposit, and the arbitration is dismissed. So it is important to follow Comptroller rules, relevant provisions of the Texas Tax Code, and the arbitrator’s specific rules and procedures if there are any. There is a way to be confrontational without being offensive as a zealous advocate; and then there are wrong ways to conduct your business in the evidence package submissions and at the formal hearing if there is one.

Depending on the type of case and level of agreement on basic items, the property owner and appraisal district can agree to have the case decided solely upon submission of documents. This works really well in some cases, not in all cases of course. If this is not a case where that is a good idea then you are going to have that formal hearing – either in person (in your county) or by teleconference, especially if the arbitrator is on the other side of the state. Depending on the arbitrator the teleconference might not even be an option, they have the power to require that the arbitration is conducted in person. The in-person arbitrations are the most professional and the best forum if the case can’t be decided on submission. Teleconferences are the least favorable since there can be static on the phone, you can’t see how much the arbitrator is paying attention (or not), and the other side can ask you to constantly repeat yourself that they wouldn’t need to do if you were in person and looking at each other.

The arbitration proceedings are binding. An arbitration award may be vacated under limited situations found in Texas Civil Practices and Remedies Code Section 171.088 – the award was obtained by corruption, fraud, or other undue means; the rights of a party were prejudiced by evident partiality by an arbitrator appointed as a neutral arbitrator, corruption in an arbitrator, or misconduct or willful misbehavior of an arbitrator; or the arbitrator exceeded their powers, refused to postpone the hearing after a showing of sufficient cause for the postponement, refused to hear evidence material to the controversy, or conduct the hearing in a manner that substantially prejudiced the rights of a party; or other limited situations. An appeal of the arbitrator's award in district court cannot be filed if you are simply dissatisfied with the value determination.

The good news if you are having a bad day in arbitration following a bad day at the ARB hearing: the chief appraiser may only correct the appraisal roll if the arbitration award is below the order of determination.

If you need help with binding arbitration in a Texas property tax case consider starting the conversation with us.