Reversed and Remanded in Part and Affirmed in Part and Opinion filed August
25, 2015.




                                        In The

                      Fourteenth Court of Appeals

                                NO. 14-14-00268-CV

         EXLP LEASING, LLC AND EES LEASING, LLC, Appellants

                                          V.
         GALVESTON CENTRAL APPRAISAL DISTRICT, Appellee

                      On Appeal from the 10th District Court
                            Galveston County, Texas
                       Trial Court Cause No. 12-CV-2041

                                   OPINION
      Appellants EXLP Leasing, LLC and EES Leasing, LLC appeal from the trial
court’s amended summary judgment declaring that: (1) sections 23.1241 and 23.1242
of the Texas Tax Code apply to appellants’ rental inventory; (2) those sections are
unconstitutional as applied to that inventory; and (3) Galveston County is the taxable
situs for appellants’ inventory at issue in this appeal. See Tex. Tax Code Ann. §§
23.1241, 23.1242 (West 2015). Appellants challenge the trial court’s second and
third declarations in three issues, which we consolidate into two issues.

      Appellants argue in their first two issues that the trial court erred when it
declared sections 23.1241 and 23.1242 of the Tax Code unconstitutional as applied to
appellants’ inventory.       Appellee, Galveston County Appraisal District (GCAD),
responds that the trial court did not err because it proved, as a matter of law, that the
statutory methodology found in Tax Code section 23.1241 was an unreasonable,
arbitrary, or capricious method for determining the market value of appellants’ rental
inventory.     Because we conclude that neither appellants nor GCAD met their
respective summary judgment burden, we reverse the portion of the trial court’s
amended judgment declaring sections 23.1241 and 23.1242 of the Texas Tax Code
unconstitutional as applied to appellants’ rental inventory and remand this issue to the
trial court for further proceedings consistent with this opinion.

       In their third issue, appellants assert that the trial court erred when it declared
Galveston County the taxable situs of appellants’ inventory at issue in this appeal.
GCAD responds that Tax Code section 23.1241 does not modify the default situs
rules found elsewhere in the Tax Code, and therefore the trial court correctly granted
its summary judgment motion on this issue. We conclude that the trial court correctly
determined that Tax Code section 23.1241 is not a situs statute and that the taxable
situs of the compression units at issue here is Galveston County. We therefore
overrule appellants’ third issue and affirm that part of the trial court’s amended
judgment.1

                                         BACKGROUND

       Appellants are wholly-owned subsidiaries of Exterran Holdings, Inc.
Appellants own compression units that are used to move natural gas from the
production field into a common carrier pipeline. Appellants maintain a storage yard
for their compression units in Washington County, Texas. Appellants lease their
       1
          Because GCAD does not challenge on appeal the trial court’s declaration that sections
23.1241 and 23.1242 of the Tax Code apply to appellants’ rental inventories, we do not disturb that
part of the trial court’s amended judgment.

                                                2
compression units to other wholly-owned Exterran subsidiaries, which then lease the
units to third-party customers who actually use the compression units to deliver
natural gas into a pipeline. The compression units at issue here were reported to be
physically located in Galveston County on January 1, 2012.

       Prior to 2012, GCAD appraised compression units as business personal
property. Appellants annually rendered their compression units that had acquired a
taxable situs in Galveston County to GCAD in sworn rendition statements. GCAD
then used the information in the rendition statements to appraise the value of the
compression units using the cost approach, a recognized method of appraising their
market value.

       In 2011, the Texas Legislature amended section 23.1241 of the Tax Code to
change the method for appraising the value of a dealer’s heavy equipment inventory.
The new method, effective January 1, 2012, appraised the market value of a dealer’s
inventory by dividing the dealer’s prior-year revenue from sales, leases, and rentals
by twelve. See Tex. Tax Code Ann. § 23.1241(b). Dealers are required to file a
declaration stating the name and business address of each location at which it
conducts business. See Tex. Tax Code Ann. § 23.1241(f). Section 23.1242 requires
dealers to make monthly tax payments on their heavy equipment inventory into an
escrow account. See Tex. Tax Code Ann. § 23.1242(b).2

       Beginning in 2012, appellants filed a declaration with GCAD stating that, as a
result of the 2011 amendments to the Tax Code, its compression units located in
Galveston County were now taxable in Washington County, where their business
address and storage yard are located.3 GCAD, arguing the new appraisal method was

       2
         The parties have not addressed whether the monthly tax payments required by section
23.1242 are tied to the market value calculated under section 23.1241. We therefore express no
view on that issue.
       3
           In their brief on appeal, appellants admit that, but for the amendment of section 23.1241 of
                                                   3
unconstitutional, rejected appellants’ declaration and instead appraised appellants’
compression units physically located in Galveston County under the provisions for
general business personal property found in section 23.01 of the Tax Code.

      Appellants filed suit seeking judicial review of GCAD’s 2012 appraisal of their
leased compression units located in Galveston County. See Tex. Tax Code Ann. §§
42.01, 42.21 (West 2015). Each side eventually moved for summary judgment.
GCAD asserted in its motion that it was entitled to judgment as a matter of law for
three reasons. First, GCAD argued it was entitled to summary judgment because Tax
Code sections 23.1241 et seq. are unconstitutional as applied to the valuation and
taxation of appellants’ compression units. GCAD also argued it was entitled to
summary judgment because appellants’ compression units are not “heavy equipment”
as defined by section 23.1241(a)(6) of the Tax Code, and thus the new inventory
appraisal method does not apply to them. See Tex. Tax Code Ann. § 23.1241(a)(6)
(defining heavy equipment as “self-propelled, self-powered, or pull-type equipment,
including farm equipment or a diesel engine, that weighs at least 1,500 pounds and is
intended to be used for agricultural, construction, industrial, maritime, mining, or
forestry uses”). Finally, GCAD argued the taxable situs for the compression units at
issue is Galveston County.

      Appellants, on the other hand, moved for summary judgment asserting that
section 23.1241 is a valid exercise of the Legislature’s constitutional power to
prescribe a method for appraising the value of personal property inventories.
Appellants also argued that they were entitled to summary judgment because their
compression units qualify as heavy equipment as defined in section 23.1241(a)(6).
Finally, appellants asserted that section 23.1241(f) establishes the taxable situs of
their compression unit inventories in Washington County, the location of their
the Tax Code in 2011, Galveston County would be the taxable situs of the compression units at
issue in this appeal.

                                             4
business address and storage yard.

       The trial court granted GCAD’s motion in part and signed a final amended
judgment declaring that: (1) sections 23.1241 and 23.1242 of the Texas Tax Code
apply to appellants’ rental inventory; (2) those sections are unconstitutional as
applied to that inventory; and (3) Galveston County is the taxable situs for appellants’
inventory at issue in this appeal. This appeal followed.

                                            ANALYSIS
       Appellants’ first two issues challenge the trial court’s declaration that sections
23.1241 and 23.1242 of the Texas Tax Code are unconstitutional as applied to their
compression unit rental inventory.4 In their third issue, appellants assert that the trial
court erred when it declared Galveston County to be the taxable situs of the
compression units at issue in this appeal. We address appellants’ issues in order.

I.     Standard of review and applicable law

       We review a trial court’s order granting a traditional summary judgment de
novo. Mid-Century Ins. Co. v. Ademaj, 243 S.W.3d 618, 621 (Tex. 2007). When
both parties move for summary judgment, each party bears the burden of establishing
that it is entitled to judgment as a matter of law. City of Garland v. Dallas Morning
News, 22 S.W.3d 351, 356 (Tex. 2000); see Missouri-Kansas-Texas R.R. Co. v. City
of Dallas, 623 S.W.2d 296, 298 (Tex. 1981) (holding that taxing authority, as
summary judgment movant, had burden to prove as a matter of law that its valuations

       4
         Appellants assert in their second issue that GCAD made only a facial challenge to sections
23.1241 and 23.1242 of the Tax Code because it offered no facts or legal theories in the trial court
that apply uniquely to appellants’ inventory. We regard GCAD’s challenge as an as-applied
challenge because the trial court limited its declaration to a holding that the statutes “are
unconstitutional as applied to Plaintiffs’ compression units at issue in this lawsuit,” which was the
remedy GCAD sought, and because GCAD concedes the statutes are constitutional as applied to
sales of inventory. See A.H.D. Houston, Inc. v. City of Houston, 316 S.W.3d 212, 221–22 (Tex.
App.—Houston [14th Dist.] 2010, no pet.) (explaining differences between facial and as-applied
challenges to the constitutionality of a statute).

                                                 5
were not arbitrary). When the trial court grants one motion and denies the other, the
appellate court reviews both motions and determines all questions presented. City of
Garland, 22 S.W.3d at 356. The reviewing court should either render the judgment
that the trial court should have rendered or reverse and remand if neither party met its
summary judgment burden. Id.

      When examining the constitutionality of a statute, we begin with a presumption
that it is constitutional. Enron Corp. v. Spring Indep. School Dist., 922 S.W.2d 931,
934 (Tex. 1996); Harris County Appraisal Dist. v. United Investors Realty Trust, 47
S.W.3d 648, 651 (Tex. App.—Houston [14th Dist.] 2001, pet. denied). We defer to
the Legislature’s determination of the statute’s wisdom or expediency. Enron Corp.,
922 S.W.2d at 934. We assess the statute’s constitutionality in light of the relevant
and controlling constitutional provisions. United Investors Realty Trust, 47 S.W.3d
at 651. A party challenging the constitutionality of a statute bears the burden of
demonstrating at trial that the enactment fails to meet constitutional requirements.
Enron Corp., 922 S.W.2d at 934. This burden is modified in the summary judgment
context, however, as discussed above.      See Missouri-Kansas-Texas R.R. Co., 623
S.W.2d at 298.

      When construing a statute, a reviewing court looks to the plain and common
meaning of the statute’s terms. Tex. Dept. of Transp. v. City of Sunset Valley, 146
S.W.3d 637, 642 (Tex. 2004). We read a statute as a whole, not just isolated
portions.   Id.   “If the statutory language is unambiguous, we must interpret it
according to its terms, giving meaning to the language consistent with other
provisions in the statute.” Id., see also Tex. Gov’t Code Ann. § 311.011(a) (West
2013) (“Words and phrases shall be read in context and construed according to the
rules of grammar and common usage.”).



                                           6
       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). The Supreme Court of
Texas has held that this provision of the Texas Constitution requires ad valorem tax
rates to be uniform for all types of property. Enron, 922 S.W.2d at 935 (explaining
tax scheme had been held unconstitutional when certain property was taxed on 100%
of its value while other property was taxed at 66 ⅔ % of its value).                          This
constitutional provision also requires that “value” for ad valorem tax purposes “be
based on the reasonable market value of the property.” Id.; see Jones v. Hutchinson
County, 615 S.W.2d 927, 930–31 (Tex. Civ. App.—Amarillo 1981, no writ) (holding
statute requiring certain land to be valued based on its use only for agricultural
purposes violated constitution’s market-value requirement). 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;
Jones, 615 S.W.2d at 935 (“A reasonable discrepancy between the actual value of the
property and the value at which it is assessed for taxes is permissible to allow for a
difference in judgment.”).5

II.    Neither GCAD nor appellants proved entitlement to summary judgment
       on the constitutionality of sections 23.1241 and 23.1242.
       The summary judgment evidence that the parties submitted to the trial court
concerned almost exclusively whether the compression units qualified as heavy
equipment under section 23.1241 of the Tax Code and thus were covered by the new


       5
          We apply this more specific standard rather than a general rational basis standard, as the
supreme court has explained that this provision of the Constitution is more than “a prohibition
against irrational legislation.” In re Nestle USA, Inc., 387 S.W.3d 610, 622 (Tex. 2012).

                                                 7
inventory appraisal method.           The trial court’s summary judgment declared that
appellants’ compression units do qualify as heavy equipment, and GCAD has not
appealed that declaration. The parties’ evidence on this issue is therefore not relevant
to any question we must decide.

       As to the constitutional question whether the Legislature’s new method of
valuing rental inventory in section 23.1241 is based on the reasonable market value of
the compression units, the parties relied largely on legal arguments. GCAD argued
that basing the market value of compression units held for lease on only one month’s
rent is unreasonable, arbitrary, and capricious because it “inherently [cannot be] the
market value of the item being leased.”6 In GCAD’s view, the statutory method of
dividing prior-year sales revenue by twelve provides a reasonable approximation of
the market value of inventory held for sale on any particular date given the regular
turnover of such inventory, but dividing rental revenue by twelve has no such
reasonable approximating function with respect to rental inventory and merely
produces an arbitrarily low value. To support its view, GCAD points to records
showing that the new method of dividing by twelve significantly reduced the
appraised value of individual compression units, sometimes to zero if a unit was not
leased at all during the year. More generally, according to testimony given to a
legislative committee, dealers that leased compression units were paying under the

       6
          GCAD also argued that the new method of appraising the value of heavy equipment
inventory is unconstitutional as applied to compressor rental inventories because it does not operate
equally among dealers of heavy equipment. But merely establishing a different method of valuing
property when it is held as inventory is not alone sufficient to hold the statute unconstitutional, as
the supreme court has concluded that “the Legislature has the authority to establish a method of
determining the market value of inventory that differs from the method of valuing other property for
ad valorem tax purposes.” Enron, 922 S.W.2d at 941; see also Travis Central Appraisal Dist. v.
FM Props. Operating Co., 947 S.W.2d 724, 728 (Tex. App.—Austin 1997, writ denied) (rejecting
argument that “by treating owners of real estate inventory differently from owners of other real
property, the statute violates the constitutional requirement that taxation be ‘equal and uniform’”).
To the extent GCAD’s unequal taxation argument is based on the Legislature’s failure to require
dealers to pay taxes based on the market value of their rental inventory, it is addressed below.

                                                  8
new method only 3% of the property taxes they paid before the 2011 amendment.7
GCAD also points out that the new method further reduced appellees’ taxes because
that method calculated value based on the rate at which appellees leased the
compression units to their related companies, which then leased the same units to
third parties at higher rates.

       GCAD did not support these arguments, however, with evidence showing as a
matter of law that the lower value of rental inventory calculated under the new
statutory method is arbitrary, capricious, or unreasonable. GCAD did provide an
affidavit from appraiser Hugh Landrum, who opined regarding the compression
units’ higher value under the cost approach, a common and recognized method of
valuation. Landrum stated that he was also familiar with the income method of
valuation, but was “not aware of any recognized application of [that method] under
which the previous year’s rentals generated by a particular piece of property are
divided by twelve (12) to yield its current market value.” Landrum did not show
conclusively, however, that no generally accepted method of calculating market value
could support the value calculated under the statute.8                Nor did he address how
GCAD’s additional criticisms of the statutory calculation would impact the value of
rental inventory under accepted valuation methods.9                  Thus, the trial court had

       7
           Appellants attached a copy of this testimony to their summary judgment motion. The
witness testified: “[T]he special inventory tax works fine when it’s a sales price. But the way this
bill got written in 2011 it taxes [rental inventory] at one month’s rental income. We did an analysis
within some of the counties that we work. The difference between what [dealers renting heavy
equipment are] taxed on [after the 2011 amendments] and their [sic] actual market value that they
paid tax on in 2011 is 97%. So [renting dealers] are paying 3% of the property taxes by trying to file
under [section 23.1241 as amended]” compared to the tax they paid on the same compression units
prior to the amendment.
       8
          Cf. City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 182–83 (Tex. 2001)
(discussing traditional approaches to determining market value of land and analyzing whether
expert’s method was valid); Travis Central Appraisal Dist., 947 S.W.2d at 728, 733 (discussing
generally accepted methods of valuing real property inventory).
       9
           For example, Landrum did not address how (if at all) recognized appraisal methods take
                                                  9
insufficient information to determine as a matter of law—as it had to do to grant
GCAD summary judgment—that the value of the compression units calculated under
the statutory method was not “based on the[ir] reasonable market value.” Enron, 922
S.W.2d at 935.

       Appellants, on the other hand, made a broad-based argument in defense of the
amended statute. Appellants argued that the Legislature has authority to determine
the best method for appraising the value of personal property for ad valorem tax
purposes, and it is not bound to a system using the “willing-buyer, willing-seller test.”
Appellants pointed out that the supreme court has upheld the Legislature’s authority
to value inventories differently from other personal property. Enron, 922 S.W.2d at
941. Appellants also asserted that the new method addressed a perceived problem in
how to tax dealer inventories that the Legislature approached in a rational,
deliberative manner; it established a simple, efficient, and uniform method for taxing
heavy equipment inventories, both sales and rental. But appellants did not offer
evidence of the market value of the compression units under any recognized appraisal
method, leaving the trial court unable to determine conclusively that the value of
appellants’ rental units calculated under the statutory method was based on their
reasonable market value.

       In sum, reasonableness is ordinarily a question of fact. See Wong v. Tenet
Hospitals, Ltd., 181 S.W.3d 532, 539 (Tex. App.—El Paso 2005, no pet.) (“In
general, reasonableness determinations are highly fact intensive and involve issues
well suited for a jury.”).        Neither side produced summary judgment evidence

related-company transactions into account in determining the market value of inventory held for
lease. Nor did he address how (if at all) such methods take into account the frequency with which
inventory held for lease turns over. We do not offer these examples as a checklist of the kind of
testimony GCAD would need to provide to obtain summary judgment. Rather, we use them to
illustrate that the trial court (and this Court) have insufficient information to evaluate GCAD’s
additional points regarding related-company transactions and turnover because GCAD did not offer
evidence of how (if at all) those matters impact value under recognized appraisal methods.

                                               10
demonstrating, as a matter of law, that the method of appraising compression unit
rental inventories embodied in sections 23.1241 and 23.1242 of the Tax Code is
either a reasonable or unreasonable method of calculating their reasonable market
value. Because GCAD did not produce evidence conclusively demonstrating that the
statutory method of appraising the value of compression unit rental inventories is
unreasonable, arbitrary, or capricious, we conclude the trial court erred when it
granted GCAD’s motion for summary judgment. We therefore reverse the portion of
the trial court’s judgment declaring sections 23.1241 and 23.1242 unconstitutional as
applied to the compressor units at issue here. See Missouri-Kansas-Texas R.R. Co.,
623 S.W.2d at 298.

       We cannot render judgment in favor of appellants, however, because they
similarly did not produce summary judgment evidence establishing, as a matter of
law, that sections 23.1241 and 23.1242 of the Tax Code create a reasonable method
of appraising the market value of compression unit rental inventories. See id. (stating
that a summary judgment movant, even one enjoying presumptions in its favor, must
nevertheless “establish [its] entitlement to a summary judgment on the issues
expressly presented to the trial court by conclusively proving all essential elements of
[its] cause of action or defense as a matter of law”). We therefore must remand for
further proceedings on the constitutionality of sections 23.1241 and 23.1242 as
applied to the compression unit rental inventories at issue. See City of Garland, 22
S.W.3d at 356.

III.   The trial court did not err in granting GCAD summary judgment on the
       taxable situs of appellants’ compression unit inventories.
       In their third issue, appellants assert that the trial court erred when it granted
GCAD’s motion for summary judgment in part and declared Galveston County to be
the taxable situs of the compression units at issue in this appeal. In appellants’ view,
section 23.1241(f) of the Tax Code, as well as “the entire structure of the statute,
                                           11
establishes tax situs in Washington County, where [appellants’] inventory of
compressors held for lease in Galveston County and other Gulf Coast counties is
located.” In response, GCAD asserted that section 23.1241(f) does not address the
taxable situs of inventories, which is governed by the default situs rules found in
section 21.02(a)(1) of the Tax Code. See Tex. Tax Code Ann. §§ 21.02(a), 23.1241
(West 2015). We agree with GCAD.

      This issue was recently addressed by the Tyler Court of Appeals in a
remarkably similar case.     See Valerus Compression Services v. Gregg County
Appraisal Dist., 457 S.W.3d 520 (Tex. App.—Tyler 2015, no pet.). In that case,
Valerus owned a rental inventory of compressor units and other equipment. Id. at
523. Valerus argued its inventory qualified as heavy equipment as defined in Tax
Code section 23.1241 and that it should be taxed in Harris County, its principal place
of business.     Id.    The appraisal district, asserting section 23.1241 was
unconstitutional, did not appraise Valerus’s inventory using the formula found in that
section and also argued that the property’s taxable situs was in Gregg County, not
Harris County. Id.

      In the ensuing litigation, both sides moved for summary judgment. Id. The
trial court granted both motions in part. Id. The trial court determined that Valerus’s
compressors qualified as heavy equipment and that Valerus was a heavy equipment
dealer as defined in the statute. Id. The trial court also concluded that Tax Code
sections 23.1241 and 23.1242 were unconstitutional as applied to Valerus’s
compressors because they created a valuation not based on reasonable market value.
Id. Finally, the trial court determined that the taxable situs of the compressors was
Gregg County, not Harris County. Id. Both sides appealed.

      Of note here is the Tyler Court of Appeals’ handling of the trial court’s situs
determination. On appeal, Valerus argued that section 23.1241(f) is a specific situs

                                          12
statute placing the taxable situs of its rental inventory in Harris rather than Gregg
County because it directed the state comptroller to adopt a dealer’s heavy equipment
inventory declaration form listing each location where the declarant conducts
business. Id. at 524. Valerus asserted that this directive, combined with the resulting
comptroller’s Form 50-265, indicated that the taxable situs of the inventory was the
inventory owner’s business location. Id. The Tyler Court of Appeals rejected these
arguments and concluded “that the legislature did not intend for Section 23.1241(f) to
function as a situs statute.” Id. at 526. It went on to hold that the general situs statute
for tangible personal property, Tax Code section 21.02, controlled the taxable situs
location for Valerus’s compressor inventory. Id. The court ultimately did not reach
the constitutional issue, holding that Valerus did not meet its summary judgment
burden to prove as a matter of law that its compressors met the statutory definition of
heavy equipment. Id. at 531.

      Appellants make the same situs arguments in the present case that Valerus
previously made and the Tyler Court of Appeals ultimately rejected. We agree with
the Tyler Court’s reasons for rejecting these arguments. See id. at 525–27. Chapter
21 of the Tax Code is entitled “Taxable Situs,” and appellants have not offered any
examples of the Legislature enacting a situs rule located outside of that chapter.
Section 23.1241(f) is located in Chapter 23, entitled “Appraisal Methods and
Procedures.” That section does not use the terminology found in the situs rules of
Chapter 21; it does not use the technical term situs or address when “property is
taxable by a taxing unit.”        Cf. Tex. Tax Code Ann. §§ 21.01–21.02, 21.06.
Accordingly, we hold that section 23.1241(f) does not create a specific situs rule for
appellants’ inventory.    Instead, its situs is determined under the general rule of
section 21.02.

      Appellants did not argue in the trial court, and do not argue on appeal, that the


                                            13
compressor units at issue here were located outside Galveston County on January 1,
2012.    Indeed, appellants admit in their appellate briefing that but for their
interpretation of section 23.1241(f), the taxable situs of the compressor units would
be in Galveston County. We therefore overrule appellants’ third issue on appeal and
affirm the portion of the trial court’s summary judgment declaring Galveston County
to be the taxable situs of the compressor units at issue.

                                     CONCLUSION

        Having concluded that neither GCAD nor appellants met the summary
judgment burden regarding the constitutionality of Tax Code sections 23.1241 and
23.1242 as applied to appellants’ rental inventory, we reverse the part of the trial
court’s amended judgment declaring those sections unconstitutional as applied and
remand that issue to the trial court for further proceedings consistent with this
opinion. We affirm the remainder of the trial court’s amended judgment.




                                        /s/        J. Brett Busby
                                                   Justice



Panel consists of Justices Jamison, Busby, and Brown.




                                              14
