                             ATTORNEY GENERAL OF TEXAS
                                          GREG        ABBOTT




                                            September 30, 2010



The Honorable Kurt Sistrunk                             Opinion No. GA-0805
Galveston County Criminal District Attorney
600 59th Street, Suite 1001                             Re: Proper method of appraising the value of
Galveston, Texas 77551-4137                             residence homesteads damaged by Hurricane Ike
                                                        in 2008 (RQ-0851-GA)

Dear Mr. Sistrunk:

       You ask about the proper method of appraising the value of residence homesteads damaged
by Hurricane Ike in 2008. 1

       Section 23.23 of the Tax Code provides, in relevant part:

                (a) Notwithstanding the requirements of Section 25.18 and
                regardless of whether the appraisal office has appraised the property
                and determined the market value of the property for the tax year, an
                appraisal office may increase the appraised value of a residence
                homestead for a tax year to an amount not to exceed the lesser of:

                     (1) the market value of the property for the most recent tax
               year that the market value was determined by the appraisal office; or

                      (2) the sum of:

                         (A) 10 percent of the appraised value of the property for
               the preceding tax year;

                          (B)     the appraised value ofthe property for the preceding
               tax year; and

                            (C)   the market value of all new improvements to the
               property.

TEx. TAX CODE ANN. § 23.23(a) (West Supp. 2010). Thus, under this provision, a particular
residence homestead may not be appraised for a particular tax year at an amount that exceeds by


       'Request Letter (available at http://www.texasattorneygeneral.gov).
The Honorable Kurt Sistrunk - Page 2           (GA-0805)



more than ten percent of the property's appraised value for the preceding tax year plus "the market
value of all new improvements to the property." Id. § 23.23(a)(2)(C).

        Subsection (e) of section 23.23 provides the following:

               (e) In this section, "new improvement" means an improvement to
               a residence homestead made after the most recent appraisal of the
               property that increases the market value of the property and the value
               of which is not included in the appraised value of the property for the
               preceding tax year. The term does not include repairs to or ordinary
               maintenance of an existing structure or the grounds or another feature
               of the property.

Id. § 23.23(e).    Prior to its 2007 amendment, subsection (e) provided that the term "new
improvement" does not include "ordinary maintenance of an existing structure or the grounds or
another feature of the property." Tex. Att'y Gen. Op. No. GA-0091 (2003) at 2; see Act of June 1,
1997, 75th Leg., R.S., ch. 1039, § 47, 1997 Tex. Gen. Laws 3897, 3918. A 2003 opinion of this
office declared that the term '''new improvement' includes repairs made following a natural disaster
because the repairs are not 'ordinary maintenance.'" Tex. Att'y Gen. Op. No. GA-0091 (2003) at
8. The Eightieth Legislature amended subsection (e) to its present version by adding the words
"repairs to or." See Act of May 22,2007, 80th Leg., R.S., ch. 1355,2007 Tex. Gen. Laws 4644,
4644-45. As a consequence, under the amended version of subsection (e), the term "new
improvement" does not "include repairs ... to an existing structure."

      In 2009, because of extensive damage to structures in several coastal counties, the Legislature
amended subsection (t), which now provides:

               (t) Notwithstanding Subsections (a) and (e) and except as provided
               by Subdivision (2), an improvement to property that would otherwise
               constitute a new improvement is not treated as a new improvement if
               the improvement is a replacement structure for a structure that was
               rendered uninhabitable or unusable by a casualty or by wind or water
               damage. For purposes of appraising the property under Subsection
               (a) in the tax year in which the structure would have constituted a
               new improvement:

                     (1) the appraised value the property would have had in the
               preceding tax year if the casualty or damage had not occurred is
               considered to be the appraised value of the property for that year,
               regardless of whether that appraised value exceeds the actual
               appraised value of the property for that year as limited by Subsection
               (a); and

                    (2) the replacement structure      IS   considered to be a new
               improvement only if:
The Honorable Kurt Sistrunk - Page 3             (GA-0805)



                           (A) the square footage of the replacement structure
                exceeds that of the replaced structure as that structure existed before
                the casualty or damage occurred; or

                           (B) the exterior of the replacement structure is of higher
                quality construction and composition than that of the replaced
                structure.

TEx. TAX CODE ANN. § 23 .23(f) (West Supp. 2010). As a result of the enactment of subsection (f),
a residence homestead that has been "rendered uninhabitable or unusable by a casualty or by wind
or water damage" is treated for appraisal purposes in a special manner.

        In construing a statute, our primary objective, like that of the courts, is "to ascertain and give
effect to Legislature's intent." City of Marshall v. City of Uncertain, 206 S.W.3d 97, 105 (Tex.
2006). Legislative intent is best "expressed by the statute's language and the words used, unless the
context necessarily requires a different construction or a different construction is expressly provided
by statute." Hernandez v. Ebrom, 289 S.W.3d 316, 318 (Tex. 2009). "Unambiguous statutory
language is interpreted according to its plain language unless such an interpretation would lead to
absurd results." Id.

        Subsection (f) is triggered when a "replacement structure" has been built to replace a
residence that was "rendered uninhabitable or unusable by a casualty or by wind or water damage."
TEx. TAX CODE ANN. § 23.23(f) (West Supp. 2010). The statute declares that such a "replacement
structure" is not considered a "new improvement" under subsection (e), and it sets forth the
parameters for "appraising the property under Subsection (a) in the tax year in which the structure
would have constituted a new improvement." Id. The statute does not define the terms
"uninhabitable" or "unusable."

         Subsection (f) establishes a formula to be applied to the replacement structure for purposes
of appraising the property under subsection (a). First, under subdivision (f)(1), the property is
assessed at "the appraised value the property would have had in the preceding tax year if the casualty
or damage had not occurred." Id. That value is then used in calculating the maximum appraised
value for the current tax year. Id. Second, the replacement structure is considered to be a "new
improvement" under the subsection (a) calculation only if it meets the requirements of subdivision
(f)(2). Id. With this background, we tum to the three scenarios you pose.

                Scenario 1

                A homestead has an appraised value of$300,000 on January 1,2008.
                The homestead is partially damaged by Hurricane Ike in September
                2008. As a result, the homestead's value on January 1, 2009 is
                appraised by the CAD at $150,000. During 2009, renovations restore
                the homestead to its pre Hurricane Ike status.

Request Letter at 4.
The Honorable Kurt Sistrunk - Page 4                     (GA-0805)



         In this scenario, you have not indicated that the structure was "rendered uninhabitable or
unusable," and we will, for purposes of your question, presume that it was not. Because the structure
was not "rendered uninhabitable or unusable," subsection (f) is not applicable. If the renovations
to the property are reasonably determined to constitute "repairs to" an existing structure, the
renovations, by virtue of subsection (e), fall outside the definition of "new improvement." In that
case, the appraised vaiue of the property for the 2010 tax year is calculated under subsection (a) in
the following manner: $150,000 (the 2009 appraised value); plus a maximum of$15,000 (the cap
established by subsection (a)(2). If on the other hand the renovations are reasonably determined not
to constitute "repairs to" an existing structure, such renovations must be treated as a "new
improvement." In that event, the appraised value for tax year 2010 is calculated under subsection
(a) in the following manner: $150,000 (the 2009 appraised value); plus a maximum of$15,000 (the
cap established by subsection (a)(2)); plus "the market value of all new improvements to the
property." Whether the renovation of any particular structure constitutes mere "repairs" or a "new
improvement" is a fact question whose resolution is inappropriate to the opinion process?

                   Scenario 2

                   A homestead has an appraised value of$300,000 on January 1,2008.
                   The homestead is extensively damaged by Hurricane Ike in
                   September 2008 and is uninhabitable. As a result, the homestead's
                   value on January 1,2009 is appraised by the CAD at $100,000. The
                   homestead is restored to its pre Ike condition in 2009.

Id at 4-5.

        In this scenario, the structure has been rendered uninhabitable by storm damage. As a result,
the replacement structure will be valued in accordance with subsection (t). The determination of the
appraised value for tax year 2010 is calculated, pursuant to subdivision (t)(l) by assuming a value
that the property "would have had [in 2009] if the casualty or damage had not occurred," and using
such value in the subsection (a) calculation. It is unclear what the Legislature intended by its use of
the phrase "would have had." Because the appraisal district is statutorily charged with the duty of
"appraising property in the district," the appraisal district should, in the first instance and in
accordance with subdivision (f)(I), determine the value that the property "would have had [in 2009]



          'Attorney General Opinion GA-0091 considered the argument that the tenn "ordinary maintenance" was
synonymous with the tenn "repairs," but rejected that contention largely because the word "maintenance" was modified
by the word "ordinary." Tex. Att'y Gen. Op. No. GA-0091 (2003) at 5. This construction has been snperseded by the
Legislature's 2007 amendment of subsection (e), which specifically excluded "repairs" from the definition of "new
improvement." See id at 2-3. Opinion GA-0091 also noted that section 11.26 of the Tax Code, which limits the
appraised value ofrenovated homesteads owned by the elderly or disabled, requires that the appraiser detennine whether
a structure has been totally, or only partially, destroyed. The opinion suggested that, if"the value of the damage totaled
less than half of the homestead's original value, an appraiser reasonably could fmd that the homestead was repaired"
rather than fully reconstructed. I d at 7. In view of the present language of section 23 .23(e), this suggestion should not
necessarily be regarded as persuasive. In any event, as we have noted, a determination of whether any particular
renovation constitutes a "repair" or a "new improvement" is a question of fact.
The Honorable Kurt Sistrunk - Page 5               (GA-0805)



if the casualty or damage had not occurred. ,,3 See TEx. TAX CODE ANN. § 6.01 (b) (West 2008) ("The
[appraisal] district is responsible for appraising property in the district for ad valorem tax purposes
of each taxing unit that imposes ad valorem taxes on property in the district. ").

         In addition to the calculation used by the appraisal district in determining the value a
particular property "would have had" in 2009, subsection (a) of section 23.23 authorizes an appraisal
district to "increase the appraised value of a residence homestead for a tax year not to exceed the
lesser of: (I) the market value of the property for the most recent tax year that the market value was
determined by the appraisal office"; or (2) the sum of (A) the value the property "would have had"
in 2009 as determined by the appraisal district; (B) 10 percent of that value; and (C) the market value
of all new improvements to the property." Because you have indicated in this scenario that there
were no "new improvements" to the property in 2010, the appraisal district may add to its appraised
value for tax year 2010 a maximum often percent of the value the property "would have had" in
2009, as determined by the appraisal district.

                 Scenario 3

                 A homestead has an appraised value of$300,000 on January 1,2008.
                 The homestead is extensively damaged by Hurricane Ike in
                 September 2008 and is uninhabitable. As a result, the homestead's
                 value on January 1, 2009 is appraised by the CAD at $100,000. The
                 homestead is renovated; but in making the renovations, the owner
                 changes the exterior of the structure or increases the square footage
                 of the homestead. . . .                             .

Request Letter at 5.

         In this scenario, the structure has been rendered uninhabitable by storm damage. When the
structure is replaced, either the square footage is increased or the exterior of the replacement
structure is of higher quality construction and composition than was the previous structure. In such
a situation, the determination of the 2010 appraised value under subsection (a) is governed first by
the application of subdivision (f)(I), which establishes the appraised value for tax year 2009 at the
value that the property "would have had [in 2009] if the casualty or damage had not occurred," and
then by the application of subdivision (f)(2), which requires that the replacement structure be treated
as a "new improvement." TEx. TAX CODE ANN. § 23.23(f)(1)-(2)(West Supp. 2010). As a result,
the calculation of the 2010 appraised value is determined by subsection (a): the value that the
property "would have had [in 2009] if the casualty or damage had not occurred; plus a maximum
often percent of that value under subsection (a); plus "the market value of all new improvements
to the property" that are described by subdivision (f)(2).




       'Under your second scenario, it does not appear that the replacement structure will be considered a "new
improvement" under subdivision (1)(2).
The Honorable Kurt Sistrunk - Page 6         (GA-0805)



                                      SUMMARY

                      Calculation of the 2010 appraised value of a residence
              homestead damaged by Hurricane Ike in 2008 and renovated to its
              pre-storm status is determined by section 23 .23(f) of the Tax Code so
              long as the structure was "rendered uninhabitable or unusable." lfthe
              structure was not rendered uninhabitable or unusable, calculation of
              the 2010 appraised value is dependent upon whether the renovations
              may reasonably be said to constitute a mere "repair" or a "new
              improvement" under section 23.23(e). lfthe structure was rendered
              uninhabitable or unusable, calculation of the 2010 appraised value is
              dependent upon the appraised value the property would have had in
              2009 but for the storm damage, together with the market value of all
              new improvements to the property as described by subdivision (f)(2).




DANIEL T. HODGE
First Assistant Attorney General

DAVID J. SCHENCK
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General, Opinion Committee
