                                               February 8,200O



The Honorable J.E. “Buster” Brown                       Opinion No. JC-0180
Chair, Natural Resources Committee
Texas State Senate                                      Re: Whether section 21.055 of the Tax Code,
P.O. Box 12068                                          which governs the taxation of certain business
Austin, Texas 7871 l-2068                               aircraft used outside this state, applies to the
                                                        assessment of taxes in tax years 1995 through
                                                        1999 (RQ-0136-JC)


Dear Senator Brown:

        You ask whether recently enacted section 21.055 of the Tax Code, which governs the
taxation of certain business aircraft used outside this state, applies to the assessment of ad valorem
taxes in tax years 1995 through 1999. We conclude that section 21.055, which became effective
June 18, 1999, applies to the assessment of taxes in the 1999 tax year, but does not apply to the
assessment of taxes in tax years 1995 through 1998.

         Section 21.055 of the Tax Code provides, in essence, that a taxing unit may not tax that
portion of the fair market value of a business aircraft attributable to its use outside the state and
establishes a formula for determining that portion ofvalue to be allocated to this state. That portion
of the value of a business aircraft attributable to use outside the state may not be taxed. The
legislature added section 21.055 to chapter 21 ofthe Tax Code in 1999.’ To place the new statute
in context, we begin with a brief discussion of the state’s jurisdiction to tax, taxable situs, similar
allocation statutes, and federal constitutional limitations on the taxation ofproperty used in interstate
commerce before turning to your questions about the statute’s effect.

        Under section 11.01(c) of the Tax Code, the state has jurisdiction         to tax tangible personal
property if the property is:

                             (1) located in this state for longer than a temporary period;

                         (2) temporarily located       outside   this state and the owner
                 resides in this state: or


        ‘See infia note 3.
The Honorable    J.E. “Buster” Brown - Page 2             (X-0180)




                         (3) used continually, whether regularly or irregularly, in this
                state.

TEX. TAX CODE ANN.      5 11.01(c) (Vernon 1992). Chapter 21 of the Tax Code governs the taxable
situs of real and personal property for ad valorem tax purposes. As a general matter, tangible
personal property is taxable by a taxing unit if it is located in the unit on January 1 for more than a
temporary period or is normally located in the unit, even though it is outside the taxing unit on
January 1 on a temporary basis. See id. 5 21.02(l), (2) (Vernon Supp. 2000).

          Section 2 1.03 ofthe Tax Code, which dates from 1979: generally requires an appraisal office
to allocate the value of property used outside the state: “If personal property that is taxable by a
taxing unit is used continually outside this state, whether regularly or irregularly, the appraisal office
shall allocate to this state the portion of the total market value of the property that fairly reflects its
use in this state.” Id. 8 21.03(a) (Vernon 1992). Section 21.03 also authorizes the Comptroller to
adopt rules identifying the kinds of property subject to allocation and establishing formulas for
calculating the proportion of total market value to be allocated to this state. See id. 5 21.03(b). A
Comptroller rule provides that property qualities for allocation if it constitutes a commercial
instrument or commercial equipment, is used for a business purpose, has a taxable situs in the
appraisal district, and “is used continually outside Texas in interstate or foreign commerce, whether
regularly or irregularly.”     34 TEX. ADMIN. CODE 5 9,4033(d)(l) (1999). If the chief appraiser
determines that the property was within the taxing jurisdiction of this state and within the taxing
jurisdiction of another state, “he shall allocate to each taxing unit       the portion of the property’s
market value that fairly reflects its use in this state.” Id. 5 9.4033(f).

        A more specific provision, section 21.05 of the Tax Code, establishes an allocation formula
for commercial aircraft, i.e. an aircraft primarily engaged in the transportation of cargo, passengers,
or equipment for others for consideration, such as an aircraft owned by a commercial airline. See
TEX. TAX CODE ANN. 5 21.05(b) (allocation formula), (e) (defining commercial aircraft) (Vernon
1992). The Comptroller has adopted rules reflecting the allocation formula for commercial aircraft.
See 34 TEX. ADMIN. CODE 5 9,4033(f)(l) (1999). The statute you ask about does not apply to
commercial aircraft. See TEX. TAX CODE ANN. 5 21.055(c) (Vernon Supp. 2000).

         As the Texas Supreme Court has recognized, sections 21.03 and 21.05 reflect the Texas
Legislature’s attempt to allocate the value ofproperty used in interstate commerce as required by the
United States Constitution. See AppraisalReview Bd. v. Tex-Air Helicopters, Inc., 970 S.W.2d 530,
535 (Tex. 1998) (holding that section 21.05 “is not an unauthorized exemption but an attempt to
comply with United States constitutional mandates”); see also id. at 534 (disapproving “of the
court’s constitutional analysis of facial invalidity” of section 21.03 of the Tax Code in Aransas
CountyAppraisalReviewBd.        v. Texas Gulf Shrimp Co., 707 S.W.2d 186 (Tex. App.-Corpus Christi



         ‘See Act of May 26, 1979,66th Leg., R.S., ch. 841, 5 1, sec. 21.03, 1979 Tex. Gen. Laws 2217.2247.
The Honorable J.E. “Buster” Brown - Page 3              (JC-0180)




1986, writ ref d n.r.e.)). Both the Due Process Clause and the Commerce Clause ofthe United States
Constitution limit the authority of this state to tax personal property used in interstate commerce.
“[Dlue process requires at least a minimal jurisdictional connection with a state. The due process
limitation on taxing instrumentalities of commerce demands that the tax in practical operation bear
some relation to opportunities, benefits, or protection conferred or afforded by the taxing state.” Id.
at 533 (citing Moorman Mfg. Co. v. Bair, 437 U.S. 267, 272-73 (1978); BraniffAirways,            Inc. v.
Nebraska State Bd. of Equalization &Assessment, 347 U.S. 590,600 (1954)). To be valid under the
Commerce Clause, a state tax must: “1) apply to an activity having a substantial nexus with the
taxing state; 2) be fairly apportioned; 3) not discriminate against interstate commerce; and 4) be
fairly related to the services provided by the state.” Vinmar, Inc. v. Harris County Appraisal Dist.,
947 S.W.2d 554, 555 (Tex. 1997) (citing Complete Auto Transit, Inc. v. Brady, 430 U.S. 274,
279-287 (1977)).

         Significantly, however, allocation of value, or apportionment of a taxpayer’s tax liability, is
not required by the United States Constitution unless the property has actually acquired a taxable
situs in another state. See Central R.R. Co. v. Pennsylvania, 370 U.S. 607, 611-12 (1962) (“[A]
railroad or other taxpayer owning rolling stock cannot avoid the imposition of its domicile’s property
tax on the full value of its assets merely by proving that some determinable fraction of its property
was absent from the State for part of the tax year. This Court has consistently held that the State of
domicile retains jurisdiction to tax tangible personal property which has ‘not acquired an actual situs
elsewhere.“‘) (citation omitted); see also Jet Fleet Corp. v. Dallas County Appraisal Dist., 773
S.W.2d 744,748 (Tex. App.-Dallas 1989, no writ) (holding apportionment of tax liability was not
required under the Due Process Clause or the Commerce Clause because taxpayer had failed to
establish that property had acquired a taxable situs in another state). Thus, the United States
Constitution does not require an allocation of value in every case that allocation may be required
under a statute like section 21.03. Furthermore, when allocation is required by the United States
Constitution, no particular formula or method need be used and great deference is accorded to the
formulaor method chosen. See GeneralDynamics Corp. Y. Sharp, 919 S.W.2d 861,868 (Tex. Civ.
App.-Austin      1996, writ denied) (“states are entitled to great latitude in devising formulas to
apportion their tax bases”) (citing Moorman Mfg. Co. Y. Bair, 437 U.S. at 274). An objecting
taxpayer has the burden to demonstrate by “clear and cogent evidence” that the income attributed
to the state is in fact out of all appropriate proportions to the business transacted in that state, or has
led to a grossly distorted result. See Moorman Mfg. Co. v. Bair, 437 U.S. at 274.

         Section 21.055, the provision at issue in your request, governs the allocation of value for
“business aircraft.” A business aircraft is an aircraft, like a corporate jet, that is used for a business
purpose by the owner, see TEX. TAX CODE ANN. 5 21.055(a) (Vernon Supp. 2000) (limiting
section’s applicability to aircraft used for business purpose of the owner), but, unlike a commercial
aircraft, is not used to transport cargo, passengers, or equipment for others for consideration, see id.
9 21.055(c) (“This section does not apply to a commercial aircraft as defined by Section 21.05.“).
If a business aircraft taxable by a taxing unit “is used continually outside this state, whether regularly
or irregularly,” id. 5 21.055(a), section 21.055 requires an appraisal office to allocate to this state the
The Honorable J.E. “Buster” Brown - Page 4                (JC-0180)




portion of the fair market value of a business aircraft that “fairly reflects its use in this state,” id,
Subsection (b) of section 21.055 provides:

                            The allocable portion of the total fair market value of [a
                   business] aircraft      is presumed to be the fair market value of the
                   aircraft multiplied by a fraction, the numerator ofwhich is the number
                   of departures by the aircraft from a location in this state during the
                   year preceding the tax year and the denominator of which is the total
                   number of departures by the aircraft from all locations during the year
                   preceding the tax year.

Id. 5 21.055(b).

          You ask about the effect of section 21.055 on the assessment of taxes in tax years 1995
through 1999. First, you ask whether section 21.055 applies to the 1999 tax year. Second, you ask
whether a taxpayer may tile a motion to change the appraisal roll consistent with the section 21.055
allocation formula under section 25.25(c)(3) of the Tax Code for tax years 1995 through 1998.
Section 21.03 of the Tax Code, which applied in tax years 1995 through 1999, requires an appraisal
office to allocate to this state a portion of the total market value of certain property, and appears to
have applied to business aircraft now subject to section 21.055. See TEX. TAX CODE ANN. 3
21.03(a) (Vernon 1992); 34 TEX. ADMIN. CODE 5 9.4033(d)(l) (1999) (requiring allocationofvalue
ofproperty that constitutes a commercial instrument or commercial equipment, is used for a business
purpose, has a taxable situs in the appraisal district, and is used continually outside Texas in
interstate or foreign commerce, whether regularly or irregularly). Because appraisal offices had a
duty to allocate the value of business aircraft used outside the state in tax years prior to the enactment
of section 21.055, your questions go to the allocation formula to be used for business aircraft in tax
years 1995 through 1999 rather than whether the value of business aircraft must be allocated in the
first place.

        Section 21.055 was enacted in the last legislative session by two bills, House Bill 2574,
which contained an emergency clause and became effective on June 18,1999, and House Bill 3549,
which became effective on September 1,1999.’ Neither bill contained any language specifying the
tax years to which section 21.055 would apply! However, because section 2 1.055 became effective
on June 18, 1999, we believe that as of that date appraisal offices were obligated to follow section
21.055 in allocating the total fair market value of business aircraft for tax year 1999. Although ad
valorem taxes are imposed as of January 1, the amount of taxes assessed is not determined until later



        ‘See House Bill 2574, Act of May 26, 1999,76th Leg., R.S., ch. 970, $5 1,2 (emergency clause), 1999 Tex.
Gen. Laws 3720; House Bill 3549, Act of May 30, 1999,76th Leg., R.S., ch. 1481, 5 7, 1999 Tex. Gen. Laws 5097,
5098.

        ‘See id.
The Honorable J.E. “Buster” Brown - Page 5              (X-0180)




in the year and tax bills need not be mailed until October 1. See, e.g., TEX. TAX CODE ANN. 55
21.02,26.01,26.05,31.01     (Vernon Supp. 2000).

         If an appraisal office fails to allocate the value of a qualifying business aircraft for tax year
1999 according to section 2 1.055, the taxpayer may petition the appraisal review board to correctthe
appraisal roll under section 25.25(c)(3) ofthe Tax Code, as construed by the court in Himont U.S.A.,
Inc. v. Harris County Appraisal District, 904 S.W.2d 740 (Tex. App.-Houston [lst Dist.] 1995, no
writ).

        Subsection   (c) of section 25.25 provides as follows:

                        At any time before the end of five years after January 1 of a
                tax year, the appraisal review board, on the motion of the chief
                appraiser or of a property owner, may direct by written order changes
                in the appraisal roll to correct:

                    (1) clerical errors that affect a property owner’s liability for a tax
                imposed in that tax year;

                     (2) multiple appraisals of a property in that tax year; or

                    (3) the inclusion of property that does not exist in the form or at
                the location described in the appraisal roll.

TEX. TAXCODEANN. 5 25.25(c) (Vernon Supp. 2000) (emphasis added). In Himont, a taxpayer tiled
a petition under section 25.25(c)(3) to challenge the appraisal district’s refusal to account for the
interstate allocation of the taxpayer’s railway cars, as required under the Tax Code. See, e.g., id. 5
2 1.03 (Vernon 1992); id. 5 24.34(a) (“If the railroad operates in another state or country, the chief
appraiser shall allocate to this state the proportion of the total market value of the rolling stock that
fairly reflects its use in this state during the preceding tax year.“). After noting that interstate
allocation involves both the use and location of property, the court concluded that the portion of the
taxpayer’s railcars allocable to interstate commerce did not exist at the location described in the
appraisal roll. The court held that the taxpayer was entitled to tile a section 25.25(c)(3) petition to
correct the appraisal roll on the basis that the property did not exist “at the location described in the
appraisal roll,” id. 5 25.25(c)(3) (V emon Supp. 2000), and ordered the trial court to order the
appraisal review board to correct the appraisal roll to reflect the allocated value of the taxpayer’s
railcars. See Himont, 904 S.W.2d at 743-44. Although at least one court appears to have questioned
the Himont court’s construction of section 25.25(c)(3) in passing, see Titanium Metals Corp. Y.
Dallas CountyAppraisal Dist., 3 S.W.3d 63,66 (Tex. App.- Dallas 1999, no pet.), that case did not
involve a petition to change an appraisal roll based upon allocation of value. Because we have no
reason to question the Himont court’s construction of section 25.25(c)(3) for purposes of petitions
The Honorable J.E. “Buster” Brown - Page 6              (~~-0180)




to correct appraisal rolls based on allocation of value, we conclude that a taxpayer would be entitled
to file a section 25.25(c)(3) petition to correct a 1999 appraisal roll to reflect only that portion ofthe
value of a business aircraft allocable to this state under section 21.055.

          You also ask about the application of section 21.055 to tax years 1995 through 1998. We
conclude that section 2 1.055 does not apply to prior tax years. In this state, in the absence of an
express statement of legislative intent, statutes are generally presumed to operate prospectively. See
TEX. GOV’T CODE ANN. 5 3 11.022 (Vernon 1998) (“A statute is presumed to be prospective in its
operation unless expressly made retrospective.“).      Although one of the two bills enacting section
2 1.055 contained an emergency clause and became immediately effective, neither bill specified that
it should be applied retroactively to prior tax years. See note 3 supra; see also Houston Indep. Sch.
Dist. Y. Houston Chronicle Publ’g Co., 798 S.W.2d 580,587 (Tex. App.-Houston [lst Dist.] 1990,
writ denied) (“an emergency clause [coupled with no express provision regarding retroactivity] tends
to suggest that the legislature did not intend the bill to affect matters determined before [statute’s
effective date]. The legislature’s sole enacted pronouncement on the effective date of the bill is the
emergency ‘effective immediately’ clause; if the legislature believed the provision could be applied
retroactively, there would be no reason to make it effective immediately.“).      Although procedural
and remedial legislation may apply retrospectively, see Brooks v. Texas Employers Ins. Ass ‘n, 358
S.W.2d412,415-16        (Tex. Civ. App.-Houston 1962, writ refd n.r.e.); see also Danielv. Daniel, 779
 S.W.2d 110, 113 (Tex. App.-Houston [14th Dist.] 1989, no writ), we believe that section 21.055,
because it prescribes amethod to allocate value, which in some cases is required by the United States
Constitution, and affects the amount of taxes owed by a taxpayer, is a substantive rather than a
procedural or remedial statute, see Brooks, 358 S.W.2d at 4 14 (“Substantive law, as constitutionally,
 legislatively, and judicially recognized, includes those rules and principles which fix and declare
the primary rights of individuals as respects their persons and their property     .“); see also Reames
 v. Police Officers’ Pension Bd. ofHouston, 928 S.W.2d 628,63 1 (Tex. App.-Houston [14th Dist.]
  1996, no writ) (concluding that amendments to statute that fixed amount of pension were substantive
 rather than procedural or remedial).

         We also note that the United States Constitution does not require the retroactive application
of section 21.055. If an allocation of value is required by the United States Constitution, it must be
a “fair apportionment,” but states are given great latitude in devising allocation formulas. See
discussion supra page 3. Although the allocation formula set forth in section 21.055, like the
formula set forth in 21.05, clearly reflects the legislature’s attempt to satisfy federal constitutional
requirements, the section 21.055 formula is not the only allocation formula for business aircraft that
would satisfy the United States Constitution. Because section 2 1.03 required appraisal offices to
allocate the value of business aircraft in tax years 1995 through 1998, it is not necessary to apply
section 21.055 retroactively to protect taxpayers’ rights under the United States Constitution.

        Finally, it has been suggested that section 21.055 may apply to tax years prior to 1999
through the operation of section 25.25(c)(3). We disagree. Section 25.25(c) permits a taxpayer to
The Honorable J.E. “Buster” Brown - Page 7               (JC-0180)




petition to change an appraisal roll to correct errors based only on facts in existence, and law in
effect, during the tax year at issue and does not permit a taxpayer to petition to change an appraisal
roll based on subsequently effective law.

         First, we note the purpose of a section 25.25(c) petition is “to correct” an appraisal roll. See
TEX. TAX. CODE ANN. 5 25.25(c) (Vernon Supp. 2000). While the statute does not define “correct,”
its ordinary meaning, which we are required by the Code Construction Act to use, see TEX. GOV’T
CODE ANN. 5 3 11 .O1 l(a) (Vernon 1998) (“Words and phrases shall be read in context and construed
according to the rules of grammar and common usage.“), necessarily involves the notion of error.
See III OXFORD ENGLISH DICTIONARY 961 (2d ed. 1989) (defining “correct” as “1. To set right,
amend (a thing); to substitute what is right for the errors or faults in         2. To set right, rectify,
amend (an error or fault).“). Section 25.25(c) sets out, in short, a procedure to correct errors. The
correctness of an appraisal roll must be judged according to the facts in existence and the law in
effect in the relevant tax year. An item on an appraisal roll correctly reflecting then existing facts
and based on law then in effect cannot be said to be in error.

          Furthermore, that section 25.25(c) permits a taxpayer to petition to change an appraisal roll
to correct errors based only on facts in existence and law in effect in the tax year at issue is explicit
in subsections (c)( 1) and (2) which include the phrase “in that tax year.” See TEX. TAX CODE ANN.
$25,25(c)(l), (2) (Vernon Supp. 2000) (permitting petition to correct appraisal roll based on clerical
error or multiple appraisals “in that tax year”). The absence of the phrase in subsection (c)(3), which
permits a petition to change an appraisal roll to correct “the inclusion of property that does not exist
in the form or at the location described in the appraisal roll,” id. 5 25.25(c)(3), is not significant,
however. Subsections (c)(l) and (2) date from 1979,’ and the language “in that year” was added to
the end of each subsection in 1989, when subsection (c) was amended to permit a property owner
to petition for a change in the appraisal roll “[a]t any time before the end of three years after January
 1 of a tax year.“6 Subsection (c)(3) was added to section 25.25 in 1989 by another bill, which made
no reference to the changes made by the bill amending subsections (c)(l) and (2).7 The bill analysis
for the 1989 legislation adding subsection (c)(3) states:

                At this time there is no clear authority for an appraisal review board
                to remove nonexistent property from the tax roll. Nonexistent
                property includes the property of businesses which have gone out of
                business prior to the beginning of the tax year and property




        ‘See Act of May 26, 1979,66th Leg., RX, ch. 841, 5 I, sec. 25.25, 1979 Tex. Gen. Laws 2247,2276.

        %%eAct of May 28, 1989,7lst Leg., R.S., ch. 796,s 28, sec. 25.25, 1989 Tex. Gen. Laws 3591,3599-600.

        ‘See Act of May 22, 1989,71st Leg., R.S., ch. 829, 5 I, 1989 Tex. Gen. Laws 3787.
The Honorable J.E. “Buster” Brown       - Page 8       (JC-0180)




                improvements which were either demolished          or moved before the
                beginning of the tax year.

SENATEFINANCECOMM., BILL ANALYSIS, Tex. S.B. 379, 71st Leg., R.S. (1989). We believe it is
clear from this legislative history that the legislature intended subsection (c)(3), like subsections
(c)(l) and (2), to permit a taxpayer to petition to change an appraisal roll to correct an error based
on facts in existence and law in effect in the tax year at issue.

         Our construction of section 25.25(c) not to permit a taxpayer to petition to change an
appraisal roll based on subsequently effective law is entirely consistent with Himont. That case
involved a petition to correct an appraisal roll based on facts in existence and law in effect in the tax
year at issue; it did not involve a petition based on a subsequent change in the law. In short, Himont
does not support the contention that section 25.25(c)(3) permits changes based on a subsequently
effective statute. Of course Himont would support a section 25.25(c)(3) petition to change an
appraisal roll in a prior tax year based on an appraisal office’s failure to allocate the value of a
business aircraft under section 21.03.
The Honorable J.E. “Buster” Brown - Page 9          (Jc-0180)




                                       SUMMARY

                       Section 2 1.055 ofthe Tax Code, which became effective June
               18, 1999, applies to the taxation of business aircraft in the 1999 tax
               year, but not in tax years 1995 through 1998.




                                              JOHN     CORbYN
                                              Attorney General of Texas



ANDY TAYLOR
First Assistant Attorney General

CLARK RENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General - Opinion Committee
