               .




                                          The Attorney             General of Texas
                                                            .~uly22, 1983
JIM MATTOX
Attorney General


                                        Mr. Kenneth E. Graeber                 opinion No. m-43
Supreme      Court Building
P. 0. Box 12548
                                        Executive Director
Austin.    TX. 78711. 2548              State Property Tax Board               Re:    Constitutionality     of
5121475.2501                            9501 North Ill-35                      section 115 of House Bill No.
Telex    9101674-1367                   Austin, Texas   78761                  30 enacted by the first ~called
Telecopier     512/475-0266                                                    session of the Sixty-seventh
                                                                               Legislature
1607 Main St., Suite 1400
Dallas,   TX. 75201-4709                Dear Mr. Graeber:
2141742-8944
                                             You have requested our opinion regarding the constitutionality of
4824 Alberta       Ave., Suite    160
                                        section 115 of House Bill No. 30 enacted by the first called session
El Paso. TX.       79905-2793           of the Sixty-seventh Legislature. Section 115 amended the Property
9151533.3464                            Tax Code by adding section 26.011, which became effective on January
                                        1, 1982.
  x20 Dallas Ave., Suite         202
rlouston,   TX. 77002.6986
                                             Section 115 provides the following:

                                                     Sec. 26.011.    LIMITATION ON   APPLICATION OF
                                                  REAPPRAISED VALUES.
806 Broadway,        Suite 312
Lubbock,  TX.       79401-3479
806/747.5236
                                                    (a) If the appraised value of a property in
                                                 any year from 1982 through 1985, after subtracting
                                                 the appraised value of any new or previously
4309 N. Tenth.     Suite 8                       undiscovered improvements, increases for the first
McAllen.     TX. 78501.1685                      time above its assessed value on s taxing unit’s
5121682-4547
                                                 1981 tax roll, the assessor for the unit shall
                                                 limit the appraised value in the year of the
200 Main Plaza, Suite 400                        reappraisal, if the percentage of the increase is
San Antonio.  TX. 78205.2797                     greater than l-1/2 times the percentage of
512/225-4191                                     increase above the 1981 value of all other
                                                 property on the unit’s tax roll in both 1981 and
A” Equal       Opportunityl                      the current year, to an amount that is only l-112
Affirmative      Action     Employer             times greater than the percentage of increase in
                                                 the value of all other property.

                                                     (b) If the appraised value submitted by the
                                                  appraisal district is less than the value required
                                                  to be substituted under Subsection (a) of this
                                                  section, the assessor shall retain the appraised




                                                                    p. 185
                                                                   .     .


Mr. Kenneth E. Graeber - Page 2   (JM-43)




          value submitted by the district instead of
          substituting a value pursuant to this section.

             (c) A tax assessor shall limit increases in
          market values of land appraised as provided by
          Subchapters C, D, E, and F or Chapter 23 of this
          code in the same manner as increases in appraised
          value are limited and shall substitute the limited
          values in the records for purposes of calculating
          additional taxes.

              (d) To be entitled to limitation of an
          increase in appraised value of personal property
          as prescribed by this section, a person must
          present to the tax assessor records establishing
          the kinds, amounts, and values of personal
          property he owned on January 1, 1981, and on
          January 1 of the year in which the increase
          occurs.

             (e) In this section, a new improvement is a*
          improvement made after January 1, 1981, and a
          previously   undiscovered   improvement   is   an
          improvement that was made on or before January 1,
          1981, but was not included on the taxing unit's
          1981 tax roll.

             (f) This section does not apply to a taxing
          unit unless the unit, by ordinance, order, or
          resolution (depending on the requirements of law
          for adoption of a law by that unit), provides that
          it applies.

             (g) The State Property Tax Board shall issue
          rules and regulations necessary for the effective
          implementation of this section.

             (h) This section expires January 1, 1987.

Acts 1981. 67th Leg., 1st C.S., ch. 13, §115, at 163. In other words,
if section 26.011 is adopted by the governing body of a taxing unit,
the appraised value of any individual property in that unit may not
increase by more than one hundred and fifty percent of the average
percentage increase in value of all property in the taxing unit in any
year from 1982 through 1985.

     You submit that the statute could properly be construed in any
one of three different ways -- as a special valuation provision, as a
partial exemption, or as a "reasonable classification of property




                                  p. 186
Mr. Kenneth E. Graeber - Page 3   (JM-43)




within the inherent powers of the legislature." You ask whether,
under any of these.constr"ctions, section 26.011 is constitutional.

     It is clearly the rule that, when a law is attacked as being
unconstitutional, there is a presumption that the law is valid and
doubts as to its constitutionality should be resolved in favor of its
constitutionality. Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968);
Key Western Life Insurance Company v. State Board of Insurance, 350
S.W.2d 839. 849 (Tex. 1961). Moreover, no act of the legislature will
be declared unconstitutional unless some provision of the constitution
can be cited which clearly demonstrates the invalidity of the act.
Duncan v. Gabler, 215 S.W.2d 155, 159 (Tex. 1948); Texas National
Guard Armory Board v. McGraw. 126 S.W.2d 627, 634 (Tex. 1939).
Nevertheless. the lenislature mav not authorize that which the
constitution-prohibits-,Maher v. Lasater, 354 S.W.2d 923, 925 (Tex.
1962), nor may it lawfully act beyond the limitations set out in the
constitution. Travelers' Insurance Company v. Marshall, 76 S.W.2d
1007, 1009 (Tex. 1934). We conclude that section 26.011 of the
Property Tax Code contravenes article VIII, sections 1 and 2 of the
Texas Constitution and would be held unconstitutional by the courts.

     First, we address the contention that section 26.011 should
properly be construed as a special valuation provision. Article VIII,
section 1 of the Texas Constitution provides in pertinent part:

          Taxation shall be equal and uniform. All property
          and tangible personal property in this State,
          whether owned by natural persons or corporations,
          other than municipal, shall be taxed in proportion
          to its value, which shall be ascertained as may be
          provided by law.

Texas courts have repeatedly declared that the term "value" as
employed in article VIII, section 1 means "market value" or the
"reasonable cash market value." Rowland v. City of Tyler, 5 S.W.2d
756, 760 (Tex. Comm'n App. 1928); z tlantic Richfield Company v. Warren
Independent School District, 453 S.W.2d 1910. 197 (Tex. Cl". App. -
Beaumont 1970, writ ref'd n.r.e.); Harlingen Independent School
District v. Dunlap, 146 S.W.2d 235, 237 (Tex. Civ. App. - San Antonio
1940, writ ref'd). See also Whelan v. State, 282 S.W.2d 378, 380
(Tex. 1955); State v. Whittenburg, 265 S.W.2d 569, 572 (Tex. 1954).
The Texas Supreme Court declared in Lively v. Missouri, K. & T.
Railway Company of Texas, 120 S.W. 852, 856 (Tex. 1909):

          Article 8, 51, of the Constitution, contains this
          language: 'All property in this state, whether
          owned by natural persons or corporations, other
          than municipal, shall be taxed in proportion to
          its value, which shall be ascertained as may be




                                  p. 187
Mr. Kenneth E. Graeber - Page 4   (JM-43)




         provided by law.' The rule announced by that
         provision is 'equality and uniformity.' To secure
         this 'uniform and equal' taxatio", the ssme
         sentence prescribes that the property of all
         persons and corporations, other than municipal,
         'shall be taxed in proportion to its value, which
         shall be ascertained as may be provided by law.'
         This is a clearly expressed purpose, that the
         officers charged with the assessment of property
         shall in the manner prescribed by law ascertain
         its value. 'The value of the property is to be
         determined by what it can be bought and sold for.'
         New York State v. Barker, 179 U.S. 287, 21 Sup.
         ct. 124, 45 L. Ed. 194. If it means full market
         value when applied to the intangible assets of a
         railroad company, it means the same thing when
         applied to land, horses, etc. The standard of
         uniformity prescribed by the Constitution being
         the value of the property, taxation cannot be in
         the same proportion to the value of the property,
         unless the value of all property is ascertained by
         the same standard.

"Market value" has been defined as "the amount of money that a person
desiring to sell, but not bound to do so, could, within a reasonable
time procure for such property from a person who desires and is able
to buy, but is not bound to purchase such property." West Texas Hotel
Company v. City of El Paso, 83 S.W.2d 772, 775 (Tex. Cl". App. - El
Paso 1935, writ dism'd). See also Property Tax Code §1.04(7). As
this office has already declared:

         While it can be argued that the portion of article
         8,  section 1, which refers to ascertainment of
         value 'as provided by law' permits the Legislature
         to establish a standard of value for taxation
         purposes other than market value, the courts have
         clearly ruled otherwise. See also Tex. Const.
         art. 8, 520. Accordingly, it is our opinion that
         article 8, section 1 of the Constitution does not
         permit the Legislature to provide for the taxation
         of property other than in proportion to its market
         value.

Attorney General Opinion H-1022 (1977). Exceptions to this market
value standard are found in article VIII, sections l-d and l-d-(a)
providing for the special valuation of agricultural and open space
land. Absent these specific constitutional amendments, however, such
property would have to be valued in accordance with the standard set
forth in article VIII, section 1. Attorney General Opinion H-1022




                                  p. 188
Mr. Kenneth E. Graeber - Page 5   (JM-43)




(1977).    Accordingly, we     conclude that,   absent  a   specific
constitutional provision permitting the special valuation authorized
by section 26.011 of the Property Tax Code, the Texas courts would
declare the code provision unconstitutional.

     Second, you suggest that section 26.011 of the Property Tax Code
could properly be construed in the alternative as a partial exemption
rather than as a special valuation provision. Section 1.04(11) of the
Property Tax Code states that "'[plartial exemption' means an
exemption of part of the value of taxable property." The Texas
Constitution does not provide for or permit any partial exemption
other than those set forth in article VIII, sections l-a (partial
exemption for residential homestead for county taxes if county levies
tax for farm to market roads or for flood control), l-b (residence
homestead partial exemptions), and 2 (disabled veterans' partial
exemption). "[Elxemptions are subject to strict construction since
they are the antithesis of equality and uniformity." Hilltop Village,
Inc. v. Kerrville Independent School District, 426 S.W.2d 943, 948
(Tex. 1968). The legislature is without power to broaden exemptions
beyond those permitted by the constitution. Tex. Const. art. VIII,
section 2; Leander Independent School District v. Cedar Park Water
Supply Corporation, 479 S.W.2d 908, 910 (Tex. 1972); City of Amarillo
v. Love, 356 S.W.2d 325, 327 (Tex. Civ. App. - Amarillo 1962, writ
ref'd n.r.e.). If section 26.011 of the Property Tax Code were
construed to authorize a partial exemption, it would be declared by
the courts to be unconstitutional.

     Third, you suggest that section 26.011 constitutes "s reasonable
classification of property within the inherent powers of the
Legislature."    While   the   legislature is     empowered   to make
classifications of property for purposes of taxation so long as such
classifications are not unreasonable, arbitrary or capricious, Bullock
v. ABC Interstate Theatres, Inc., 557 S.W.2d 337, 341 (Tex. Civ. App.
- Austin 1977, writ ref'd n.r.e.), cert. denied, 439 U.S. 894 (1978);
American Transfer and Storage Company v. Bullock, 525 S.W.2d 918 (Tex.
Cl". App. - Austin 1975, writ ref'd), reliance on such a principle in
support of the constitutionality of section 26.011 would be misplaced.
The cases which rely on the principle are concerned with the power of
the legislature to specify
                      .    .  the objects of taxation, not with the
standard emnloved
           _      to value oroner'ty so taxed. See ._ e.g.. Tex. Const.
art. VIII, §li; Bullock v: ABC .   Interstate Theatres, inc. , supra;
Calvert v. Capital Southwest Corporation, 441 S.W.2d 247 (Tex. Civ.
APP. - Austin 1969, writ ref'd nI.r.e.), appeal dismissed, 397 U.S. 321
(1970); Grayson County State Bank V. Calvert:, 357 S.W.Zd 160 (Tex.
Cl". App. - Austin 1962, writ ref'd n.r.e.); Lockhart v. American
Mutual Life Insurance Company, 194 S.W.2d 285 (Tex. Civ. App. - Austin
1946, no writ); Gulf States Utilities Company v. State, 46 S.W.2d 1018
(Tex. Cl". App. - Austin 1932, writ ref'd). Indeed, the principle is
trnditionally coupled with the principle requiring equality and




                                  P. 189
Mr. Kenneth E. Graeber - Page 6   (JM-43)




uniformity in taxation as set forth in article VIII, section 1 of the
Texas Constitution. The legislature is empowered to make such
classifications when the legislation is reasonable and when within the
class the legislation operates equally. Grayson County State Bank v.
Calvert, supra, at 162; San Jacinto National Bank V. Sheppard, 125
S.W.2d 715, 716-17 (Tex. Civ. App. - Austin 1938, no writ); Dallas Gas
Corn
   pany v. State, 261 S.W. 1063, 1069 (Tex. Civ. App. - Austin 1924,
writ ref'd); Raymond V. Kibbe, 95 S.W. 727 (Tex. Civ. App. 1906, writ
ref'd). The Texas Supreme Court has in fact declared that, as to the
question of equality and uniformity of taxes within different classes
created by the state, the requirements of the equal protection clause
of the fourteenth amendment to the U.S. Constitution are essentially
the same as the requirements imposed by the Texas Constitution.

          Each requires that all persons falling within the
          same class must be taxed alike. Each recognizes
          the   power   of    the   Legislature   to   make
          classifications, and each requires that such
          classifications, when made. must not be unreason-
          able, arbitrary, or capricious.

Hurt V. Cooper, 110 S.W.2d 896, 901 (Tex. 1937). Again, however, the
issue as to the permissibility of any classificatory scheme of
taxation imposed by the state is different from the issue as to the
standard by,which property so taxed is valued.

     Finally, in connection with this discussion, it has been
suggested that the following underscored language of article VIII,
section 18 of the Texas Constitution empowers the legislature to pass
such a statute:

             (a) The    Legislature   shall    provide   for
          equalizing, as near as may be, the valuation of
          all property subject to or rendered for taxation,
          and may also provide for the classification of all
          lands with reference to their value in the several
          counties. (Emphasis added).

     The above underscored language was included in the Texas
Constitution of 1876; however, it has never been construed by Texas
courts. The statute implementing section 18 was, however, twice
construed. Article 7206, V.T.C.S., contained the following:

             3. They shall equalize improved lands in three
          classes, first-class to embrace the better quality
          of land and improvements, the second-class to
          embrace   the   second  quality   of   lands   and
          improvements, and the third-class to embrace lands
          of but small value or inferior improvements. The




                                  P. 190
.   ,

        Mr. Kenneth E. Graeber - Page 7   (JM-43)




                  unimproved lands shall embrace first, second and
                  third class, and all other property made as nearly
                  uniform as possible.

             In both State v. Mallet Land & Cattle Company, Inc., 88 S.W.Zd
        471 (Tex. 1935) and Taylor v. Alanreed Independent School District,
        138 S.W.2d 149 (Tex. Civ. App. - Amarillo 1940, no writ), a taxpayer
        alleged that the failure of a board of equalization to strictly comply
        with subdivision 3 of article 7206, V.T.C.S., resulted in an illegal
        assessment and in excessive, non-uniform, unequal and discriminatory
        valuation. In both instances, the courts declared that compliance
        with subdivision 3 was permissible, that the requirements of article
        VIII, section 1 effectively supercede the requirements of article
        7206. "It is our opinion that where the equalization is equal and
        uniform, and in proportion to value, and no discrimination is shown,
        as found by the jury in this case, the mere failure to follow the
        statute in detail would not render the Iudament of the board of
        equalization void." state V. Mallet Land- &-Cattle Company, Inc.,
        supra, at 432.     See also Taylor v. Alanreed Independent School
        District, supra, at 150.

             While the mere failure to adopt a classification scheme will not
        result in an illegal assessment if the valuation is equal, uniform,
        and in proportion to market value, the failure to value property in
        accordance with article VIII, section 1 principles will result in an
        illegal assessment even though a classification scheme is adopted.
        The constitutional guarantee of equality and uniformity of taxation
        controls of the method the legislature may prescribe for ascertaining
        taxable values under the statutes providing for equalization of
        assessments. Aycock v. City of Fort Worth, 371 S.W.Zd 712, 715 (Tex.
        Civ. App. - Fort Worth 1963, writ ref'd n.r.e.).          Courts have
        repeatedly held assessments illegal and void when such assessments
        were the result of classification schemes which Droduced values which
        were not in accord with market values. See, 'e.g., Sierra Blanca
        Independent School District v. Sierra Blanca Corporation, 514 S.W.Zd
        782 (Tex. Civ. App. - El Paso 1974, writ ref'd n.r.e.); Duffey v.
        Union Hill Independent School District, 490 S.W.Zd 201 (Tex. Civ. App.
        - Texarkana 1973, writ ref'd n.r.e.); Atlantic Richfield Company v.
        Warren Independent School District, 453 S.W.2d 190 (Tex. Civ. APP. -
        Beaumont 1970, writ ref'd n.r.e.); Dietrich v. Phipps, 438 S.W.2d.900
        (Tex. Civ. App. - Houston [lst Dist.] 1969, no writ); City of Saginaw
        v. Garvey Elevators, Inc., 431 S.W.2d 575 (Tex. Civ. App. - Fort Worth
        1968, writ ref'd n.r.e.).

             It should be noted that article 7206, V.T.C.S., was repealed by
        the Property Tax Code, effective January 1, 1982. Acts 1979, 66th
        Leg., ch. 841, §6 at 2329. There is presently no implementation of
        article VIII, section 18 in the code.           Arguably, the land
        classification scheme imposed by section 23.52 of the Property Tax




                                          p. 191
                                                                    .    .   .

Mr. Kenneth E. Graeber - Page 8    (JM-43)




Code upon land receiving special valuation as "open-space land" is
authorized by article VIII, section 18, but it is important to note
that any classificatory scheme which results in a value other than
market value is unconstitutional absent a specific constitutional
provision permitting it. See Attorney General Opinions H-1220 (1978);
H-1022 (1977). In orderx       meet this requirement, article VIII,
sections l-d and l-d-(a) were proposed and adopted.

     While the legislature may establish classifications for purposes
of taxation, it clearly may not use such a means to circumvent the
constitutional principle that all property must be valued for purposes
of taxation at market value, unless the constitution otherwise
permits.

                               SUMMARY

            Section 115 of House Bill No. 30 enacted by the
         first   called   session of    the   Sixty-seventh
         Legislature amending the Property Tax Code by
         adding section 26.011 is unconstit~utional.




                                         J--w
                                         Very truly your
                                                a

                                     f
                                     -JIM       MATTOX
                                        Attorney General of Texas

TOM GREEN
First Assistant Attorney General

DAVID R. RICHARDS
Executive Assistant Attorney General

Prepared by Jim Moellinger
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Rick Gilpin, Acting Chairman
Jon Bible
Susan Garrison
Ben Harrison
Jim Moellinger




                                   p. 192
