                                         COURT OF APPEALS
                                      EIGHTH DISTRICT OF TEXAS
                                           EL PASO, TEXAS

                                                         §
    MIDCON COMPRESSION, L.L.C,
                                                         §                  No. 08-13-00322-CV
                                   Appellant,
                                                         §                     Appeal from the
    v.                                                   §              143rd Judicial District Court
                                                         §                of Reeves County, Texas
    REEVES COUNTY APPRAISAL
    DISTRICT and LOVING COUNTY                           §
    APPRAISAL DISTRICT,                                                   (TC#12-11-20265-CVR)
                                                         §
                                   Appellees.

                                                 OPINION

         This is an ad-valorem tax case of first impression tried to the bench. The issues in this

appeal, like those in three other cases on our docket, concern the taxation of natural gas pipeline

compressor packages.1 These compressor packages facilitate the production and processing of


1
  These cases are: (1) EXLP Leasing LLC and EES Leasing LLC v. Loving County Appraisal District, No.
08-13-00348-CV; (2) EXLP Leasing LLC and EES Leasing LLC v. Ward County Appraisal District, No.
08-13-00359-CV; and (3) Valerus Compression Services, a Texas Limited Partnership, and Valerus Compression
Services Management, LLC, a Texas Limited Liability Company, General Partner v. Reeves County Appraisal
District and Loving County Appraisal District, No. 08-13-00366-CV. Although this case differs both factually and
procedurally from the others, it raises many of the issues present in those cases. The resolution of these issues is
important to the parties involved in all the cases on our docket because millions of dollars are at stake. See, e.g.,
Ender Reed & Connor McNally, Heavy Equipment Tax Loophole Being Exploited, TEX. ASS’N OF CNTYS. (March 27,
2015),http://county.org/Legislative/news/Pages/County%20Issues%2003-26-15/Companies-Exploit-Heavy-Equipm
ent-Tax-Loophole.aspx (last visited September 21, 2015). It is also important to other entities not parties to these
cases but with a vested interest in their outcome. One such entity is United Rentals, Inc., “the world’s largest
equipment-rental provider,” who submitted an amicus curiae brief in this case and in the others supporting the
“[c]ompressor [c]ompanies.”
natural gas by regulating the pressure necessary to extract it and move it. In this case, the trial

court ruled—as urged by Appellant—that sixty-four compressor packages (twenty-four located in

Reeves County and forty in Loving County on January 1, 2012) qualified as heavy equipment.

But the trial court ruled—as urged by Appellees—that taxable situs lay in Reeves and Loving

Counties, that the statutory formulas for calculating the market value of heavy equipment

inventory held for lease or rent and the tax due on it were unconstitutional as applied, and that

Appellant was not entitled to attorney’s fees. On appeal, Appellant contends that the trial court

erred in so ruling. We affirm, in part, and reverse and render, in part.

                            FACTUAL AND PROCEDURAL BACKGROUND

           Appellant—MidCon Compression Services, L.L.C.—is in the business of renting

compressor packages to third parties from eight yards located throughout Texas. 2 MidCon

maintains a fleet of 3,300 compressor packages, each of which has a useful life of approximately

twenty years.          The sixty-four compressor packages in dispute here were leased to three

entities—Access, Chesapeake, and Concho Oil and Gas—from yards located in Ector and Gray

Counties.        In 2011, MidCon received lease payments in the amount of $6,999,023.00 for

compressor packages assigned to its Ector County yard and $7,252,471.00 for those assigned to its

Gray County yard.

           That same year, the Legislature amended the statutes governing the taxation of heavy

equipment inventory: Sections 23.1241 and 23.1242 of the Texas Tax Code. See Act of May 21,



2
    At trial, the yards were described as:

           [H]ubs of our local operating area. It has our local management. It’s also where we have our
           conversations with customers that have compression needs. That’s where we will size the
           information that they give us to pick the appropriate compressor packages that fits their application,
           perform maintenance on those packages before they go to the jobsite, and then ship it.
                                                             2
2011, 82nd Leg., R.S., ch. 322, §§ 1, 2, 3, 2011 TEX.GEN.LAWS 938, 938-40. Of particular

importance were changes to the statutory definitions of “dealer,” “dealer’s heavy equipment

inventory,” “sales price,” and “total annual sales.” See id. at §§ 1, 2, 2011 TEX.GEN.LAWS 938,

938-40; TEX.TAX CODE ANN. § 23.1241(a)(1)(defining “dealer”), TEX.TAX CODE ANN.

§ 23.1241(a)(2)(defining “dealer’s heavy equipment inventory”), TEX.TAX CODE ANN.

§ 23.1241(a)(7)(defining “sales price”), TEX.TAX CODE ANN. § 23.1241(a)(9)(defining “total

annual sales”)(West 2015). These changes, which became effective January 1, 2012, altered the

formulas for calculating the market value of heavy equipment inventory and the tax due on it. See

id. at §§ 9, 10, 2011 TEX.GEN.LAWS 938, 941; TEX.TAX CODE ANN. § 23.1241(b)(establishing

formula for calculating market value of heavy equipment inventory for ad valorem purposes),

TEX.TAX CODE ANN. § 23.1241(b-1)(clarifying that market value of item of heavy equipment

lease or rented then sold is the sales price plus the lease and rental payments), TEX.TAX CODE ANN.

§ 23.1242(a)(4)(defining     “unit    property       tax   factor”),   TEX.TAX     CODE      ANN.

§ 23.1242(b)(establishing formula for calculating the unit property tax of each item of heavy

equipment).

       Previously, only dealers holding items of heavy equipment inventory for sale (or for lease

or rent with an option to purchase) could calculate the market value of their inventory based on

sales for the previous tax year, divided by twelve. See Act of May 20, 1997, 75th Leg., R.S., ch.

1184, § 2, 1997 TEX.GEN.LAWS 4564, 4565-68 (amended 1999); Act of May 28, 1999, 76th Leg.,

R.S., ch. 1550, §§ 1, 2, 1999 TEX.GEN.LAWS 5337, 5337 (amended 2011). But beginning

January 1, 2012, dealers holding items of heavy equipment inventory for lease or rent (not subject

to an option to purchase) could calculate the market value of their inventory based on lease or


                                                 3
rental payments for the previous tax year, divided by twelve. Thus, as amended, the formulas for

calculating the market value of heavy equipment inventory and the tax due on it encompassed the

total revenue generated by a dealer’s entire inventory—through sales and lease or rental

payments—for the previous tax year, divided by twelve.                                  See TEX.TAX CODE ANN.

§§ 23.1241(b), 23.1241 (b-1), 23.1242(a)(4), 23.1242(b).3


3
    These subsections read as follows:

           [23.1241](b) For the purpose of the computation of property tax, the market value of a dealer’s
           heavy equipment inventory on January 1 is the total annual sales, less sales to dealers, fleet
           transactions, and subsequent sales, for the 12-month period corresponding to the preceding tax year,
           divided by 12.

           [23.1241](b-1) For the purpose of the computation of property tax on the market value of the
           dealer’s heavy equipment inventory, the sales price of an item of heavy equipment that is sold
           during the preceding tax year after being leased or rented for a portion of that same tax year is
           considered to be the sum of the sales price of the item plus the total lease and rental payments
           received for the item in the preceding tax year.

                                              .                .                .

           [23.1242](a)(4) ‘Unit property tax factor’ means a number equal to one-twelfth of the preceding
           year’s aggregate ad valorem tax rate at the location where a dealer’s heavy equipment inventory is
           located on January 1 of the current year.

           [23.1242](b) Except for an item of heavy equipment sold to a dealer, an item of heavy equipment
           included in a fleet transaction, an item of heavy equipment that is the subject of a subsequent sale, or
           an item of heavy equipment that is subject to a lease or rental, an owner or a person who has agreed
           by contract to pay the owner’s current year property taxes levied against the owner’s heavy
           equipment inventory shall assign a unit property tax to each item of heavy equipment sold from a
           dealer’s heavy equipment inventory. In the case of a lease or rental, the owner shall assign a unit
           property tax to each item of heavy equipment leased or rented. The unit property tax of each item
           of heavy equipment is determined by multiplying the sales price of the item or the monthly lease or
           rental payment received for the item, as applicable, by the unit property tax factor. If the
           transaction is a lease or rental, the owner shall collect the unit property tax from the lessee or renter
           at the time the lessee or renter submits payment for the lease or rental. The owner of the equipment
           shall state the amount of the unit property tax assigned as a separate line item on an invoice. On or
           before the 10th day of each month the owner shall, together with the statement filed by the owner as
           required by this section, deposit with the collector an amount equal to the total of unit property tax
           assigned to all items of heavy equipment sold, leased, or rented from the dealer’s heavy equipment
           inventory in the preceding month to which a unit property tax was assigned. The money shall be
           deposited by the collector to the credit of the owner’s escrow account for prepayment of property
           taxes as provided by this section. An escrow account required by this section is used to pay
           property taxes levied against the dealer’s heavy equipment inventory, and the owner shall fund the
           escrow account as provided by this subsection.

                                                              4
           Relying on the amendments to Sections 23.1241 and 23.1242, MidCon claimed that it was

a dealer of heavy equipment inventory, that the sixty-four compressor packages qualified as heavy

equipment, and that their market value was $1,129,292.00: the sum of $6,299,023.00 in lease

payments for compressor packages assigned to its Ector County yard divided by 12 ($524,919.00

as rounded up) plus $7,252,471.00 in lease payment for compressor packages assigned to its Gray

County yard divided by 12 ($604,373.00 as rounded up). In 2012, MidCon began paying the

taxes due on this amount on a monthly basis to the taxing authorities in Ector and Gray Counties.

As for the sixty-four compressor packages located in Reeves and Loving Counties, MidCon

ascribed no value to them in renditions filed with Appellees—Reeves County Appraisal District

and Loving County Appraisal District.4

           The Appraisal Districts asserted that the compressor packages operating in their respective

counties on January 1, 2012 were taxable as business personal property. See TEX.TAX CODE

ANN. § 23.01(a)(West 2015)(“Except as otherwise provided by this chapter, all taxable property is

appraised at its market value as of January 1.”). Consequently, each district placed on its

appraisal roll the compressor packages located within its taxing jurisdiction and appraised them at

market value. For the 2012 tax year, the twenty-four compressor packages in Reeves County

were valued at $7,019,580.00 and the forty in Loving County at $12,944,000.00. MidCon

protested the determinations that the compressor packages belonged on these counties’ appraisal

rolls and the valuations ascribed to them. The respective appraisal review boards ruled against

MidCon, and it sought judicial review of these rulings.



TEX.TAX CODE ANN. §§ 23.1241(b), 23.1241 (b-1), 23.1242(a)(4), 23.1242(b)(West 2015).
4
    For easy reference, and unless otherwise indicated, we will refer to Appellees collectively as the Appraisal Districts.
                                                             5
          In the trial court,5 the Appraisal Districts argued that Sections 23.1241 and 23.1242 were

unconstitutional on their face and as applied because they yielded “a tax not related to market

value and unequal and not uniform compared to taxation of similar property.” The Appraisal

Districts also contended that, even if these formulas passed constitutional muster, MidCon could

not take advantage of them because their compressor packages did not qualify as “heavy

equipment” as that term is defined in Section 23.1241(a)(6). The Appraisal Districts further

argued that any tax due was payable to Reeves and Loving Counties, not Ector and Gray Counties,

because the compressor packages were located in Reeves and Loving Counties on January 1, 2012

and had been there for an extended period of time. Lastly, the Appraisal Districts asserted that

MidCon was not entitled to attorney’s fees because its lawsuits against them were “not an

excessive value or unequal appraisal” cases. MidCon, of course, advocated the opposite.

          The trial court ruled as follows:

                  The Court finds that Sections 23.1241 and 23.1242 of the Texas Tax Code
          apply to the Compressor Packages and that the property is sitused in Reeves County
          and Loving County respectively as shown on the attached Exhibit A.

                However, it is further ORDERED, ADJUDGED and DECREED that the
          TEX. TAX CODE §§ 23.1241, 23.1242 are held to be unconstitutional as applied to
          the Compressor Packages.

                 It is therefore ORDERED, ADJUDGED and DECREED that Plaintiff take
          nothing and that judgment enter for the Defendants.

                 All costs are taxed to the Plaintiff for which the Defendants may recover.
          This judgment is final and appealable and disposes of all issues and parties in
          dispute herein. All relief not specifically granted is denied.

After MidCon requested, and the trial court issued findings of fact and conclusions of law, MidCon




5
    MidCon’s two lawsuits were consolidated into one.
                                                        6
filed its notice of appeal.6

                                                 MARKET VALUE

         In its first issue, MidCon argues that the trial court erred in declaring that Sections 23.1241

and 23.1242 are unconstitutional as applied to the sixty-four compressors packages in dispute.

We agree.

                                                 Standard of Review

         We presume a tax statute enacted by the legislature is constitutional, and a party

challenging the constitutionality of a tax statute bears the burden to demonstrate its unlawfulness.

See Enron Corp. v. Spring Indep. Sch. Dist., 922 S.W.2d 931, 934, 936 (Tex. 1996). If a tax

statute is reasonably susceptible to different constructions, one of which renders the statute

constitutionally valid and one invalid, then we must adopt the construction upholding the validity

of the enactment. See Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 662

(Tex. 1996).

                                                    Applicable Law

         Section 1 of article VIII of the Texas Constitution establishes the constitutional standard

for taxation:

6
  The Appraisal Districts did not seek appellate review of the trial court’s determination that the compressor packages
qualified as heavy equipment. Nor do they complain of the trial court’s denial of their facial challenge to the
constitutionality of Sections 23.1241 and 23.1242. That being said, the Appraisal Districts invite us to affirm the trial
court’s judgment on that very ground, even though it was not raised in a cross-appeal. They contend that they were
not required to file a cross-appeal raising this ground because they are not seeking more favorable relief than that
granted by the trial court—a take-nothing judgment—but “are merely presenting additional, independent grounds for
affirming the trial court’s judgment in appealing the denial of a facial challenge.” A party may raise an independent
ground for obtaining the same relief awarded in the judgment as a cross-point on appeal. Gotham Ins. Co. v. Warren
E & P, Inc., 455 S.W.3d 558, 566 (Tex. 2014). But a party a seeking greater relief than that awarded in the judgment
must file a notice of appeal. Id. Here, the Appraisal Districts sought a declaration that Sections 23.1241 and
23.1242 were unconstitutional on their face and applied. Although they prevailed on their applied-as challenge, they
did not on their facial challenge. In its final judgment, the trial court ruled that “[a]ll relief not specifically granted is
denied.” By asking us to affirm the trial court’s judgment on a ground expressly denied by the trial court, the
Appraisal Districts are seeking greater relief than that awarded in the judgment. Accordingly, the Appraisal Districts
were required to raise their facial challenge in a cross-appeal. Because they did not, we do not address it.
                                                              7
       Sec. 1. (a) Taxation shall be equal and uniform.

       (b) All 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.
       [Emphasis added].

TEX.CONST. art. VIII, § 1(a) and (b). In accordance with these constitutional directives, ad

valorem tax rates must be uniform for all types of property and ad valorem tax values must be

based on the “market value” of the property. Enron Corp., 922 S.W.2d at 935; Nootsie, 925

S.W.2d at 661.

       But the constitution does not prescribe a particular formula or standard for determining the

“market value” of property. Enron Corp., 922 S.W.2d at 936. Instead, it directs that “value” is

to “be ascertained as may be provided by law.” Id., citing TEX.CONST. art. VIII, § 1(b). “The

phrase ‘as may be provided by law,’ when used in a constitutional provision establishing a general

legal principle or administrative framework, has been held to ‘clearly vest[ ] the Legislature with

the authority to exert substantial control over the mechanics of [the subject matter addressed].’”

Travis Cent. Appraisal Dist. v. FM Properties Operating Co., 947 S.W.2d 724, 733

(Tex.App.--Austin 1997, writ denied).       Because there are no specific requirements in the

constitution for determining the market value of property, “the Legislature may classify property

differently in arriving upon its market value[,]” “as long as the classifications are not

unreasonable, arbitrary, or capricious.” Enron Corp., 922 S.W.2d at 936. If the Legislature

adheres to this maxim in “classify[ing] property differently in arriving upon its market value[,]”

“there is no constitutional impediment to utilizing differing methods for determining market value

for ad valorem tax purposes.” [Emphasis in the original]. Id. Accordingly, “the Legislature

has the constitutional authority to provide for a method of determining the market value of


                                                 8
inventory that differs from the method for arriving upon the market value of other property.”

[Emphasis added]. Enron Corp., 922 S.W.2d at 936.

                                            Discussion

       The Appraisal Districts have failed to demonstrate that Sections 23.1241 and 23.1242 are

unconstitutional as applied to the sixty-four compressor packages in dispute.

                                 1. In Proportion to its Value

       The Appraisal Districts argue that Sections 23.1241 and 23.1242 violate the constitutional

requirement that property be taxed in proportion to its market value because, for ad valorem

purposes, “market value” means “fair market value,” “cash market value,” or “fair cash market

value” as calculated under the “willing buyer-willing seller” test. Under this test, market value

corresponds to:

       [T]he price which the property would bring when it is offered for sale by one who
       desires, but is not obliged to sell, and is bought by one who is under no necessity of
       buying it, taking into consideration all of the uses to which it is reasonably
       adaptable and for which it either is or in all reasonable probability will become
       available within the reasonable future.

City of Austin v. Cannizzo, 153 Tex. 324, 334, 267 S.W.2d 808, 815 (1954); see TEX.TAX CODE

ANN. § 1.04(7)(A)-(C)(West 2013)(defining “market value” in a similar vein). The Legislature,

according to the Appraisal Districts, acted unreasonably, arbitrarily, and capriciously by ignoring

the willing buyer-willing seller test when amending Sections 23.1241 and 23.1242 because, under

these statutes, taxation “based on a fraction of annual rental income . . . [can] never reflect the

reasonable market value of the property.” The Appraisal Districts’ argument is unavailing.

       To succeed in arguing that Sections 23.1241 and 23.1242 violate the constitutional

requirement that property be taxed in proportion to its market value, the Appraisal Districts must


                                                 9
demonstrate that the only constitutionally-acceptable method for determining the market value of

heavy equipment inventory held for lease or rent as a whole is to ascertain the prices at which each

item of inventory would sell for in an arms-length transaction and aggregate them. See FM

Properties, 947 S.W.2d at 733. Stated another way, the Appraisal Districts must prove that it is

unreasonable, arbitrary, or capricious for the legislature to value heavy equipment inventory held

for lease or rent based on the income generated by the items actually leased or rented. See id.

The Appraisal Districts have failed to so prove. Put simply, it is not unreasonable, arbitrary, or

capricious to determine the market value of heavy equipment inventory held for lease or rent based

on the income generated by the items actually leased or rented. In fact, valuing heavy equipment

inventory in this manner makes sense because inventory, by definition, is different than other types

of property.

       Inventory is an idle stock of physical goods a business holds on hand in the regular course

of business awaiting consumption at a future point in time. See FM Properties., 947 S.W.2d at

728, 730. Although each item of inventory has some economic value in an abstract sense, an

owner does not capture the maximum economic value of each item while it sits idly generating no

revenue. The maximum economic value of an item of inventory is unlocked when it generates

revenue. Correspondingly, because inventory is not intended to be held for any period of time,

capturing its value is difficult given that inventory levels tend to fluctuate significantly throughout

the year.      Enron Corp., 922 S.W.2d at 939-40; Expo Motorcars, L.L.C. v. Harris County

Appraisal Dist., 01-08-00473-CV, 2009 WL 2232017, *4 (Tex.App.--Houston [1st Dist.] July 23,

2009, pet. denied)(mem. op.). Thus, given that the maximum economic value of inventory is tied

to the revenues it generates and that value is a point-in-time estimate, it is neither unreasonable nor


                                                  10
arbitrary nor capricious for the Legislature to require use of a 12-month trailing, revenue-based

method for valuing heavy equipment inventory held for lease or rent.

       This method for valuing inventory of large, expensive goods is neither novel nor unique.

The Legislature, “understand[ing] and correctly appreciate[ing] the needs of” businesses dealing

with this type of inventory has responded by passing laws “directed to problems made manifest by

experience[,]” i.e., the special provisions permitting inventory involving motor vehicles,

watercraft and outboard motors, manufactured housing, and—of course—heavy equipment, to be

valued using a 12-month trailing revenue-based method. [Internal quotation marks and citations

omitted]. See Enron Corp., 922 S.W.2d at 934; TEX.TAX CODE ANN. § 23.121 (motor vehicles),

TEX.TAX CODE ANN. § 23.124 (watercraft and outboard motors), TEX.TAX CODE ANN. § 23.1241

(heavy equipment), TEX.TAX CODE ANN. § 23.127 (manufactured housing).                For inventory

consisting of motor vehicles, watercraft and outboard motors, and manufactured housing, revenues

are based on sales. See TEX.TAX CODE ANN. §§ 23.121, 23.124, 23.127. This sales-based

method for ascertaining the market value of inventory has been upheld as constitutionally

permissible because it is reasonable—not arbitrary or capricious—to require dealers to pay taxes

only on inventory actually sold. See Expo Motorcars, 2009 WL 2232017 at *4-*5 (upholding the

constitutionality of Section 23.121’s method for calculating the market value of motor vehicle

inventory as of January 1 of a tax year based on actual sales from the previous calendar year

because a sales-based method, as opposed to single-date valuation method, achieves a more

accurate reflection of the market value of motor vehicle inventory, since inventory levels fluctuate

widely over the course of a year).

       For heavy equipment inventory, revenues are based on sales and lease or rental payments.


                                                11
See TEX.TAX CODE ANN. § 23.1241. The Appraisal Districts do not contend that the sales-based

portion of the formula for calculating the market value of heavy equipment inventory is

unconstitutional, likely because such a contention would be futile. See Expo Motorcars, 2009

WL 2232017, at *4-*5.7 Instead, they contend that the lease- (and rental-) based portion of the

formula is unconstitutional as applied to the sixty-four compressor packages in dispute because it

“results in a valuation of 0% to 8.3% of their true market value.” But just as it is eminently

reasonable to require dealers of inventory held for sale in the ordinary course of business to pay

taxes only on inventory actually sold, it is eminently reasonable to require dealers of inventory

held for lease or rent in the ordinary course of business to pay taxes only on inventory actually

leased or rented. The nature of the beast dictates this outcome.

         An operating lease or rental transaction involving an item of heavy equipment is the

purchase of a service produced by the lessor, not the purchase of a sale of a good. The lessee or

renter is purchasing the right to use an item of heavy equipment for a specific period of time, and

the item’s value is derived from its use at that given moment in time. To the owner of an item of

inventory producing lease or rental income, the value of such an item is the present worth of the

future payments expected over the item’s remaining service life. See FM Properties, 947 S.W.2d

at 734. Given this economic reality, it is reasonable to calculate the market value of such an item,

the efficiency and service life of which is declining during the lease or rental period, based on the

current income generated by the item. By directing that the value of heavy equipment inventory

held for lease and rent is equivalent to the income generated by the lease and rental payments,

Section 23.1241 and 23.1242 “essentially require[] nothing more than that the inventory of a

7
  In their brief, the Appraisal Districts explained that “the vehicle inventory tax at issue in Expo does not bear the
constitutional infirmities that leased heavy equipment, and particularly MidCon’s Compressor Packages, suffers from
heavy equipment dealer inventory tax.”
                                                         12
business should, for taxation purposes, be considered as income-producing property and its market

value determined pursuant to the income approach.” See FM Properties, 947 S.W.2d at 734.

Arguably, employing a 12-month trailing, revenue-based method for valuing heavy equipment

inventory held for lease is inherently fairer and more likely to reflect the market value of that

inventory than other approaches.       Indeed, the Appraisal Districts’ proposed method for

determining the market value of MidCon’s inventory—the sum of the prices each item of

inventory would command if sold in arms-length transactions regardless of income generated by

the inventory as a whole—is arguably unreasonable. Why insist on taxing an item of heavy

equipment inventory held for the sole purpose of generating income based on a formula better

suited for determining the market value of individual goods held for sale?

       The answer, according to the Appraisal Districts, is because Sections 23.1241 and 23.1242

create a loophole permitting dealers of heavy equipment inventory held for lease or rent to escape

taxation by mandating that the value of inventory as a whole does not include items not leased or

rented, even though these items have substantial value if sold or owned outright. But that result is

not determinative of whether Sections 23.1241 and 23.1242 are arbitrary, unreasonable, or

capricious classifications by the Legislature. This is because the Legislature has the authority to

implement tax policy inuring to the benefit of the taxpayer rather than to the state. See Enron

Corp., 922 S.W.2d at 939. As explained above, it is not unreasonable, arbitrary, or capricious to

calculate the taxable value of heavy equipment inventory held for lease or rent based on the

revenues generated by the portions of inventory actually leased or rented.

       The Appraisal Districts, citing FM Properties, maintain that “[a]n amount that no willing

buyer would pay for property is simply not market value.” See FM Properties, 947 S.W.2d at


                                                13
732, citing City of Saginaw v. Garvey Elevators, Inc., 431 S.W.2d 575, 579 (Tex.Civ.App.--Fort

Worth 1968, writ ref’d n.r.e.). But FM Properties does not hold, and does not stand for the

proposition, that the market value of inventory held for the sole purpose of generating income is

determined by the sum of the prices each item of inventory would command if sold in arms-length

transactions. In fact, the court in FM Properties renounced this approach in valuing real estate

inventory held for sale in the ordinary course of a trade or business. The court concluded that

valuing inventory as a unit based on “what a purchaser would pay for property at the present time

in a single transaction,” rather than on “what might be paid by dozens or even hundreds of

purchasers if the property were sold in pieces over an extended period of time[,]” “is inherently

fairer and more likely to produce true market value than other approaches such as multiplying the

total number of inventory items on hand by the retail price of each individual item.” FM

Properties, 947 S.W.2d at 729, 731. It was in this context in which the court opined that “the

number of lots times retail price of each lot” formula did not capture the inventory’s “[m]arket

value, as determinable through application of the ‘willing buyer-seller test’” because this valuation

method produced “[a]n amount that no willing buyer would pay for . . . [the] entire inventory of

lots at a given point in time.” See id. at 732.

       FM Properties actually supports the proposition that it is constitutionally permissible to

determine the market value of heavy equipment inventory held for lease or rent based on the

revenues generated by the portions of inventory actually leased or rented. FM Properties, 947

S.W.2d at 731-34 (upholding the constitutionality of statutory method for calculating the market

value of real estate inventory based on what a purchaser would pay for all of the inventory in a

single transaction because this valuation method achieves a more accurate reflection of the market


                                                  14
value of real estate inventory held for as a unit for the purpose of generating income, since method,

among other reasons, more painstakingly accounts for the net income that a potential purchaser

might anticipate deriving from the purchase of the property, after the deduction of development

and marketing costs and with due regard for the time value of money, rather than merely

recognizing a gross income figure that might be anticipated from the sale of each particular parcel

over a designated period of time without accounting for the inherent costs). Viewing FM

Properties in this light is consistent with the constitutional requirement that value is “ascertained

as may be provided by law” and is in accord with the Supreme Court’s pronouncement in Enron

Corp. that inventory may be valued differently than other types of property, as long as the standard

for ascertaining its value is neither unreasonable, arbitrary, or capricious.

       The Appraisal Districts also claim that MidCon is estopped from arguing that Section

23.1241 produces a reasonable estimate of market value or from denying that value as calculated

under Section 23.01 is anything other than a property’s true market value because “MidCon

stipulated to ‘market value’ of its Compressor Packages under § 23.01.” But the Appraisal

Districts mischaracterize the nature of MidCon’s stipulation and misstate its effect. MidCon did

not stipulate that the value of the compressor packages as calculated under Section 23.01, as

opposed to Section 23.1241, is the measure of their true market value. Instead, MidCon merely

stipulated that, if Section 23.01 applied to the compressor packages, the Appraisal Districts’

method would generate certain values on a unit-by-unit basis:

       75. The parties hereto stipulate that the information on the attached spreadsheets,
       Exhibit 1 for Loving County and Exhibit 2 for Reeves County, are true and correct.
       The several columns therein represent the following information:

                                           .       .       .


                                                  15
       2012—                                              The approximate amount of
       HEDIT:                                             taxes remitted by the plaintiff on
                                                          that    particular   compressor
                                                          package under § 23.1241,
                                                          23.1242 Texas Property Tax
                                                          Code for 2012.

       Sec. 23.01                                         The amount of ad valorem tax
       Tax:                                               that was individually assessed
                                                          against      the      particular
                                                          compressor package for 2012
                                                          under an appraisal pursuant to §
                                                          23.01 of the Texas Property Tax
                                                          Code.

       2012                                               The calculation under § 23.01 of
       Calculation                                        the Texas Property Tax Code
       Under                                              with respect to the particular
       § 23.01:                                           compressor packages for 2012.

       2012                                               The calculation under Texas
       Calculation                                        Property Tax Code § 23.1241
       Under                                              with respect to the particular
       § 23.1241:                                         compressor packages for 2012.

       Based on the foregoing discussion, we conclude that the Appraisal Districts have failed to

demonstrate that Sections 23.1241 and 23.1242, as applied in this case, run afoul of the

constitutional requirement that all property be taxed in proportion to its value. Accordingly, the

trial court erred in concluding otherwise.

                                     2. Equal and Uniform

       The Appraisal Districts also contend that Sections 23.1241 and 23.1242 violate the

constitutional requirement that taxation be equal and uniform because whereas similarly situated

heavy equipment—owned pumps used at saltwater disposal wells—in Loving and Reeves

Counties is appraised at full market value, leased compressor packages “would be appraised at a

fraction of their annual leasing income[.]” The Appraisal Districts maintain that the principles of

                                                16
equality and uniformity demand that the value of all property must be ascertain by the same

standard, i.e., market value under the willing buyer-willing seller test, even if property within the

same class is taxed at the same rate.          Thus, according to them, the Legislature acted

unconstitutionally in “carv[ing] out a category of property for which it ignores the market value

standard of taxation, while holding all other categories to the market value standard.” The

Appraisal Districts’ contention is without merit.

       The constitutional mandate of equality and uniformity requires only that all persons falling

within the same class be taxed alike. Hurt v. Cooper, 130 Tex. 433, 110 S.W.2d 896, 901 (1937).

In other words, a tax system must operate equally within each class. The relevant class here is

dealers of heavy equipment inventory. Sections 23.1241 and 23.1242 apply even-handedly to

this class because the amount of tax due on this type of inventory is always based upon the

previous year’s revenue, divided by 12. Because there is no evidence that this valuation method

is not applied equally and uniformly to dealers of heavy equipment inventory, there is no disparate

treatment within the class. That Sections 23.1241 and 23.1242 may produce disparate appraisal

values among differently-situated taxpayers does not prove that are unequal and non-uniform.

       We conclude that the Appraisal Districts have failed to prove that Sections 23.1241 and

23.1242, as applied in this case, violate the constitutional requirement that taxation be equal and

uniform. Accordingly, the trial court erred in concluding otherwise.

       MidCon’s first issue is sustained.

                                        TAXABLE SITUS

       In its second issue, MidCon contends that the trial court erred in declaring that taxable situs

of the sixty-four compressor packages in dispute lay in Reeves and Loving Counties. We


                                                 17
disagree.

                                                  Applicable Law

           Although not identified as such in the trial court’s judgment, Section 21.02(a) of the Tax

Code is the statutory basis for the trial court’s conclusion that taxable situs lay in Reeves and

Loving Counties. This statute, which codifies the so-called “mobilia” rule and its exceptions,8

provides that:

           (a) [Except for certain inapplicable exceptions,] tangible personal property is
           taxable by a taxing unit if:

           (1) it is located in the unit on January 1 for more than a temporary period;

           (2) it normally is located in the unit, even though it is outside the unit on January 1,
           if it is outside the unit only temporarily;

           (3) it normally is returned to the unit between uses elsewhere and is not located in
           any one place for more than a temporary period; or

           (4) the owner resides (for property not used for business purposes) or maintains the
           owner’s principal place of business in this state (for property used for business
           purposes) in the unit and the property is taxable in this state but does not have a
           taxable situs pursuant to Subdivisions (1) through (3) of this section.

TEX.TAX CODE ANN. § 21.02(a)(1)-(4)(West 2015); see TEX.CONST. art. VIII, § 11 (requiring that

property be assessed for taxation and that taxes be paid in the county where it is situated).

           As a general rule, courts presume that “the personalty in question has a tax situs within the

taxing unit’s jurisdiction.” Davis, 632 S.W.2d at 335. To rebut this presumption, the taxpayer

must present evidence that the property has not acquired situs in the jurisdiction and the taxpayer is

not domiciled there, or that the property has acquired situs outside the tax authority’s boundaries,

or that a statute directs the property be taxed elsewhere. Id. Otherwise, the presumption

becomes conclusive. Id.
8
    See Davis v. City of Austin, 632 S.W.2d 331 (Tex. 1982).
                                                         18
                                             Discussion

       MidCon has failed to rebut the presumption that, on January 1, 2012, taxable situs of the

sixty-four compressor packages in dispute lay in Reeves and Loving Counties.

       MidCon does not contend that Reeves and Loving Counties cannot tax the compressor

packages because it neither conducts business nor maintains facilities in these counties. Nor does

it contend that the compressor packages were not located in these counties for a sufficient amount

of time to comply with the requirements of Section 21.02(a). To the contrary, MidCon asserts

that fixing situs in accordance with Section 21.02(a) would run afoul of the “Legislature’s intent to

value heavy equipment inventory as a whole” and would be logistically impractical for taxing

authorities in light of the transitory nature of the compressor packages. These potential pitfalls,

according to MidCon, do not arise when situs is fixed at the business location from which each

item of heavy equipment is rented as mandated by Section 23.1241(f) and the conforming

administrative form promulgated by the comptroller. Proceeding under this theory, MidCon

maintains that taxable situs of the sixty-four compressor packages in dispute lies in Gray and Ector

Counties because these are the business locations of the compressor inventory. MidCon is

mistaken.

       Nothing in Section 23.1241(f) refers to taxable situs. The statutory language does not

unambiguously direct that heavy equipment inventory be taxed at the business address of each

location at which the dealer conducts business. Indeed, the statute does not even mandate that the

dealer file the form with the appraisal district in which the inventory’s business location is situated.

So far as “business location” is concerned, Section 23.1241(f) fails to define this term and to

distinguish between a dealer’s principal place of business and other business locations. Nor, as


                                                  19
one of our sister courts noted in analyzing this statute, does it “provide instruction for a business to

determine where, among different counties, it must pay taxes.” Valerus Compression Servs. v.

Gregg Cnty. Appraisal Dist., 457 S.W.3d 520, 526 (Tex.App.--Tyler 2015, no pet.). Section

23.1241(f) merely directs a dealer of heavy equipment to file an inventory declaration form and

identifies the information that the dealer must report to the taxing authorities:

          The comptroller by rule shall adopt a dealer’s heavy equipment inventory
          declaration form. Except as provided by Section 23.1242(k), not later than
          February 1 of each year, or, in the case of a dealer who was not in business on
          January 1, not later than 30 days after commencement of business, each dealer shall
          file a declaration with the chief appraiser and file a copy with the collector. The
          declaration is sufficient to comply with this subsection if it sets forth:

          (1) the name and business address of each location at which the declarant conducts
          business;

          (2) a statement that the declarant is the owner of a dealer’s heavy equipment
          inventory; and

          (3) the market value of the declarant’s heavy equipment inventory for the current
          tax year as computed under Subsection (b).

TEX.TAX CODE ANN. § 23.1241(f).

          Likewise, nothing in the form promulgated by the state comptroller, Form 50-265, refers to

taxable       situs.    See     Dealer’s      Heavy       Equipment        Inventory      Declaration,

http://www.comptroller.texas.gov/taxinfo/taxforms/50-265.pdf.          Labeled      “Dealer’s    Heavy

Equipment Inventory Declaration,” this form does not direct that heavy equipment inventory be

taxed at the business address of each location at which the dealer conducts business. See id. Nor

does it identify where taxes are to be paid. See id. Significantly, the form does not contain any

information whatsoever helpful in determining taxable situs under Section 23.1241(f). See id.

Due to these shortcomings, Form 50-265, according to the Tyler Court of Appeals, “cannot be


                                                  20
considered the comptroller’s construction of Section 23.1241(f).” Valerus, 457 S.W.3d at 525.

In essence, the form “is nothing more than a form[:]”

         [R]equir[ing] the dealer’s name, mailing address, and the ‘name and physical
         business address of the business location of the inventory’ . . . [and] instruct[ing]
         dealers to attach a list with the name and business address of each location at which
         it conducts business . . . [and] to provide the number of units for the business
         location and a breakdown of sales, leases, and rental amounts for the previous
         twelve month period.

Id.,        citing         Dealer’s           Heavy            Equipment            Inventory           Declaration,

http://www.comptroller.texas.gov/taxinfo/taxforms/50-265.pdf.

         MidCon has failed to demonstrate that the Legislature intended to fix taxable situs of heavy

equipment inventory at the business location from which each item of heavy equipment is rented.

Accordingly, the trial court did not err in concluding that taxable situs of the sixty-four compressor

packages in dispute lay in Reeves and Loving Counties, not Ector and Gray Counties. See EXLP

Leasing, LLC v. Galveston Cent. Appraisal Dist., No. 14-14-00268-CV, 2015 WL 5025534, at

*6-*7 (Tex.App.--Houston [14th Dist.] Aug. 25, 2015, no pet. h.)(holding that Section 23.1241(f)

does not address the taxable situs of heavy equipment inventory); Valrus, 457 S.W.3d at 523-27

(same).9

         MidCon’s second issue is overruled.


                                             ATTORNEY’S FEES

         In its third issue, MidCon maintains that it is entitled to trial attorney’s fees and appellate

9
  Appellees, in a letter brief to the Court, posits that EXLP v. Galveston stands for the proposition the application of
Section 23.1241 does not “result in a reasonable market value[.]” However, the EXLP court did not reach the
question of the constitutionality of Section 23.1241 and Section 23.1242, but rather concluded that neither party
carried “their respective summary judgment burden[.]” EXLP, 2015 WL 5025534, at *1. The case was remanded to
the trial court for “further proceedings on the constitutionality of Sections 23.1241 and 23.1242 as applied to the
compression unit rental inventories at issue” because the trial court had “insufficient information to determine as a
matter of law” that the statute’s method of calculation “was not ‘based on the[ir] reasonable market value.’” EXLP,
2015 WL 5025534, at *5-*6, citing Enron, 922 S.W.2d at 935.
                                                          21
costs under Sections 42.29 and 42.07, respectively, of the Texas Tax Code because “[t]he dispute

over the correct appraisal value of the compressors was at the heart of the trial.” We disagree.

                                          Applicable Law

       Section 42.29 provides: “A property owner who prevails in an appeal to the court under

Section 42.25 or Section 42.26 . . . may be awarded reasonable attorney’s fees.” TEX.TAX CODE

ANN. § 42.29(a)(West 2015). Section 42.25 states: “If the court determines that the appraised

value of property according to the appraisal roll exceeds the appraised value required by law, the

property owner is entitled to a reduction of the appraised value on the appraisal roll to the

appraised value determined by the court.” [Emphasis added]. TEX.TAX CODE ANN. § 42.29.

Section 42.26, which pertains to remedies for “unequal appraisals,” is not in issue here. See

TEX.TAX CODE ANN. § 42.26. Section 42.07 reads: “The reviewing court in its discretion may

charge all or part of the costs of an appeal . . . against any of the parties.” TEX.TAX CODE ANN.

§ 42.07.

                                             Discussion

       MidCon cannot invoke Section 42.29 to collect trial attorney’s fees because it did not

prevail on a claim under Section 42.25.

       Although MidCon contends that the dispute in this case concerns the correct appraisal

value of the sixty-four compressor packages, the dispute is not so much about whether the

appraised value is excessive as it is about whether Reeves and Loving Counties can tax the

compressor packages as business personal property at all. In essence, MidCon is protesting the

inclusion of the compressor packages on the appraisal rolls of these two counties, and this is borne

out by its prayers for relief in its petitions against the Appraisal Districts. Because a challenge to


                                                 22
the inclusion of property on an appraisal roll cannot be characterized as one relating to excessive or

unequal appraisal, attorney’s fees for this type of protest are not recoverable under Section 42.29.

See Midland Cent. Appraisal Dist. v. BP Am. Prod. Co., 282 S.W.3d 215, 225-26

(Tex.App.--Eastland 2009, pet. denied)(taxpayer was not entitled to attorney’s fees under Section

42.29 because successful challenge to ad valorem taxation on oil temporarily located in the county

could not be categorized as a challenge regarding excessive or unequal appraisal); Brazos Cnty.

Appraisal Dist. v. Bryan-College Station Regional Ass’n of Realtors, Inc., 419 S.W.3d 462, 466-67

(Tex.App.--Waco 2013, pet. denied)(taxpayer was not entitled to attorney’s fees under Section

42.29 because successful challenge to denial of property tax exemption could not be categorized as

a challenge regarding excessive or unequal appraisal).

       Furthermore, “Section 42.25 clearly contemplates a comparison of existing and

court-determined values for the tax years at issue . . . .” Dallas Cent. Appraisal Dist. v. Seven Inv.

Co., 835 S.W.2d 75, 79 (Tex. 1992). Here, as in Seven Inv., the trial court made no determination

that the appraised value was excessive, thus requiring a reduction. MidCon suggests that the trial

court did, in fact, make this determination because the trial court “agreed that Tax Code section

23.1241 supplied the correct appraisal value for the compressors[]” and because “[t]he parties

stipulated to an estimate of this appraisal amount.” But trial court was not asked to determine the

value of the compressor packages, and nothing in the trial court’s judgment or its findings of fact

and conclusions of law establish that the trial court made this determination. Indeed, the trial

court concluded that “[t]his suit is not a value dispute under TEX. TAX CODE §§ 42.25 OR 42.26

but rather concerns the classification of the Compressor Packages for a special appraisal under

TEX. TAX CODE § 23.1241.”


                                                 23
       Likewise, MidCon cannot invoke Section 42.07 to recover its appellate costs. This statute

grants us the discretion to award appellate costs against any of the parties. See TEX.TAX CODE

ANN. § 42.07. Absent extraordinary circumstances, costs under Section 42.07 should be awarded

to the prevailing party, just as costs under Rule 131 of the Texas Rules of Civil Procedure are

awarded to the prevailing party. See Estepp v. Miller, 731 S.W.2d 677, 680 (Tex.App.--Austin

1987, writ ref’d n.r.e.)(“No court has yet interpreted [Section 42.07], but we find the use of the

word ‘costs’ is substantially similar to Tex.R.Civ.P.Ann. 131 . . . .”). A prevailing party is one

who is vindicated by the judgment rendered on the main issue or issues even if not to the extent of

its original contentions. See In re S.E.C., No. 05-08-00781-CV, 2009 WL 3353624, at *3

(Tex.App.--Dallas Oct. 20, 2009, no pet.)(mem. op.); Hawkins v. Ehler, 100 S.W.3d 534, 544

(Tex.App.--Fort Worth 2003, no pet.). In this case, both parties prevailed because the judgment

vindicates both. The general policy embodied by the appellate rules is to award costs in line with

the results of the appeal. See TEX.R.APP.P. 43.5 (appellate costs should be awarded to prevailing

party unless different disposition is required by law or for good cause). It is thus fair to require

each party to pay its own costs when, as here, there is a mixed judgment. Accordingly, we

exercise our discretion and direct the parties to bear their own costs on appeal.

       MidCon’s third issue is overruled.

                                          CONCLUSION

       The portion of the trial court’s judgment declaring that Sections 23.1241 and 23.1242 are

unconstitutional as applied to MidCon’s compressor packages is reversed, and judgment is

rendered that these two statutes are not unconstitutional as applied. In all other respects, the trial

court’s judgment is affirmed.


                                                 24
September 23, 2015
                                           YVONNE T. RODRIGUEZ, Justice

Before McClure, C.J., Rodriguez, J., and Larsen, Senior Judge
Larsen, Senior Judge (Sitting by Assignment)




                                              25
