Over Valued or Under Discounted - Either Way Franchises Are Taking the Hit

With franchise properties, whether it be hotels, restaurants, self-storage facilities, department stores, etc., the value of the franchise is an intangible that should not be taxed.  Although appraisal districts accept the existence of this intangible value for the franchise, some districts discount the property’s franchise value by claiming that the property expenses account for this intangible value.  Most notably, appraisal districts have argued that since royalty fees are included as an expense, the value of the franchise is already assumed into an income capitalization workup.  However, this argument is flawed.  Royalty expenses account for the cost of a franchise, not the value.  The value that the franchise brings to the property must be more than the royalty costs, otherwise the property would not have its flag in the first place.  Property owners have realized that the value of flags are above the fees paid to the franchisor and therefore take on those expenses.  Still though, the problem becomes how to calculate the amount of the value above the royalty fees.  Although there is no doubt that the value is greater than the cost, the difficulty is in determining how much greater is the value over the cost.  In addition, since no two properties are alike, determining this additional value requires a case-by-case review.

Feel free to contact me for more information on this issue.

Niral Gandhi

Simple Procedural Mishap Leads to Costly Judgment

A recent opinion in the Texarkana Court of Appeals reminds us that legal procedure can be very tedious, but critical, even in the field of property tax law.  In Robertson v. Gregg County, No. 06-09-00062-CV, 2009 WL 2971763 (Tex. App.—Texarkana, Sept. 18, 2009) (memo op.), the Court of Appeals affirmed a personal judgment of over $6,000, even though the petition sought under $400 in damages, solely because the taxpayer failed to bring up that fact in his motion for new trial.  The appellate court admitted that an error occurred, but claimed that it did not have jurisdiction to fix the error because the taxpayer, without legal representation, failed to follow the proper procedure to appeal the issue.

Please feel free to contact me for more information on this issue or if you would like to discuss this opinion further.

Niral Gandhi

New Rights for Property Owners

Earlier this year, the Texas Legislature enacted several laws affecting property taxes and the valuation appeal process, and House Bill 1030 contained one of the biggest pro-taxpayer measures.  Section 42.29 previously granted property owners the right have their attorney fees reimbursed only for appeals of board orders under Sections 42.25 (market value) or 42.26 (equity).  Unfortunately, appeals of other types of board orders were not included.  House Bill 1030 adds appeals of board orders under Sections 25.25(c) and 25.25(d) to the list of appeals for which a property owner may be reimbursed reasonable attorney fees.  While appeals under 25.25(d) may have been reimbursable because such appeals are ultimately based on the market value of the property, the right to recover attorney fees for a 25.25(c) case is completely new.

Josh Estes

  

New Caselaw: Travis Central Appraisal District v. Marshall Ford Marina, Inc.

The Texas Tax Code provides an exclusive remedy for both the taxpayer and the appraisal district.  According to a recent decision from the Austin Court of Appeals, the court reaffirmed that Appraisal Districts cannot “re-notice” property after a board order rules in favor of the property owner. (See Travis Cent. Appraisal Dist. v. Marshall Ford Marina, Inc., No. 03-05-00784-CV, 2009 WL 2900743 (Tex. App.—Austin, Sept. 9, 2009), memo op.) Thus, the Appraisal District’s only recourse would be to challenge the Appraisal Review Board ruling in District Court—which is the same exclusive recourse for taxpayers as well.

Please feel free to contact me if you would like to discuss this opinion further.

Niral Gandhi

The Intangible Franchise Value

Every franchise hotel owner will agree that a large portion of their revenue is due to the flag under which they operate.  Whether it be because of people booking reservations on the flag’s home website, franchise award programs, franchise brand marketing, or just people staying at the hotel because of the certainty the flag provides to its clients, clients look for brand names they can trust.  This added value is an intangible that increases the revenue produced by the franchise hotel compared to a comparable independent hotel.  Texas law does not allow the appraisal districts to include the valuation of intangibles in the total market value.  Therefore, this intangible franchise value must be reduced from the total market value of the hotel itself.  A major issue has been how to calculate this value.  In my experience in the hospitality market and just driving up and down any major corridor, it is obvious that independent hotels are becoming a thing of the past.  There are fewer quality, independent hotels across the state and nationally.  This problem adds to the difficulty in calculating the franchise value, but at the same time, proves that this intangible value does exist.

Please feel free to contact me if you would like to discuss this or any other property tax issue.

Niral Gandhi

Replacing ad valorem taxes

Most property owners would love to see an end to property taxes in Texas, but no one can agree on what should replace it.  While waiting to testify at the House Ways & Means Committee hearing last night, I got to hear testimony on HB 508 authored by Representative Lois Kolkhorst (R-Brenham).  HB 508 would direct the comptroller to conduct a study examining the implementation of a transaction tax in Texas. 

What is a transaction tax? The bill defines it as a tax that:(1) taxes every transaction that occurs in this state; and (2) is electronically collected by financial institutions using banking data systems that are used in other economies for that purpose."

Witnesses testifying in support of the bill went on to describe it as a tax that would take a percentage of every single electronic financial transaction affecting Texas accounts.  These could include debit card transactions, check payments, payroll direct deposits, brokerage account transactions, and many more. If you want to hear for yourself, view the video here and skip ahead to the 1:48:00 mark. (it is 4/29/09 - 7:05 p.m. to 10:53 p.m.).

Josh Estes

2009 Outlook for Dallas County appraised values

Some major appraisal districts across the state have already sent notices of appraised value, but we have not yet seen any from Dallas.  Last week, Ken Nolan, Chief Appraiser of Dallas Central Appraisal District, participated in a panel discussion at the State Bar of Texas Property Tax Section Annual Meeting in Austin. While most of the conversation dealt with other issues facing appraisal districts, Mr. Nolan did address, in very general terms, the values we will see on notices of appraised value coming out this week.  

On the residential side, he stated that southern Dallas County has been hardest hit by foreclosures, and noticed values in that sector will be down.  In North Dallas, values will remain flat, but values will actually go up slightly in northwest Dallas County.  The appraisal district has much available data for residential properties, and he noted that these changes are supported by the data from these zones. 

For commercial property, he anticipates a one-to-two percent increase, but he stressed that commercial property has the biggest potential for heavy decreases as a result of protests.  A recent sale for an amount lower than the 2008 appraised value indicates that the market value of office buildings has gone down, and lower values may also result from the financial documentation that property owners will provide to support their requests for lower values.  For commercial property owners, this year's protest will be critical because the lack of information available to the appraisal district will mean potential savings are greater than ever.

         As always, please do not hesitate to call or email me with questions or comments.

Josh Estes

Battle brewing over wind energy windfall.

The good news:  Texas is the leading producer of wind energy in the United States, and the current boom in green energy has created explosive growth of wind farms in Texas.  This growth has been profitable landowners and producers, and now taxing entities have begun to see increased tax bases as a result.  

The bad news:  For many school districts experiencing heavy capital investments in wind energy, the additional tax money would be sent to the state under the Robin Hood plan.  Rather than seeing the money sent away, many districts are entering into abatement agreements with the producers and then immediately agreeing to Payment in Lieu of Tax (PILOT) agreements.  The cumulative effect?  So far 44 school districts have granted $700 million in abatements and will receive back $248 million over the next ten years.  

Is this a good thing?  That probably depends on your perspective.  You can read the full Associated Press article by Danny Robbins here.

Josh Estes

Major Change for the Appraisal Review Board

Among other proposals, the House Select Committee on Property Tax Relief and Appraisal Reform will recommend changes that make the Appraisal Review Board more independent from the appraisal district.  During the meetings held across the state this summer, the Committee recognized the biggest complaint to be the lack of independence of the Appraisal Review Board.  Quite simply, many taxpayers testified the Appraisal Review Board hearing is a kangaroo court that does not give proper consideration to protests.  One proposed change will be to remove the hearings from the same building as the appraisal district and make the Appraisal Review Board a distinct governmental entity whose administration is totally separate from the appraisal district.  Legislators would like to create a positive impression of the Appraisal Review Board because they believe property owners will file fewer appeals if those owners feel like the board gave fair consideration to the protest, regardless of the actual outcome.  Fewer appeals would make appraisal districts very happy as well.

Josh Estes

Financial Crisis for Retailers Has Trickle Down Effect on Property Values

Owners of commercial property portfolios with heavy emphasis on retail space are starting to feel the effects of the credit crunch that their retailer tenants have been struggling with for months.  General Growth Properties may be facing bankruptcy as a result of high debt they took on in 2004 (full story here.) As retailers continue to see sales and revenue plummet, can the decline in property valuations of mall and shopping center properties be far behind?

John Brusniak, Jr.