Expo Motorcars, LLC v. HCAD (Tex.App.-Houston [1st Dist.] Jul. 23, 2009)(Jennings)
(tax protest, constitutionality, due process)
AFFIRM TC JUDGMENT: Opinion by Justice Jennings   
Before Justices Jennings, Keyes and Higley  
01-08-00473-CV    Expo Motorcars, LLC. v. Harris County Appraisal District, Harris County Appraisal
Review Board   Appeal from 270th District Court of Harris County

EXPO MOTORCARS, L.L.C., Appellant

V.

HARRIS COUNTY APPRAISAL DISTRICT AND HARRIS COUNTY APPRAISAL REVIEW
BOARD, Appellees

On Appeal from the 270th District Court
Harris County, Texas
Trial Court Cause No. 2005-76685

MEMORANDUM OPINION

Appellant, Expo Motorcars, L.L.C., challenges the trial court’s summary judgment rendered in favor of
appellees, the Harris County Appraisal District (“HCAD”) and the Harris County Appraisal Review Board
(“the Review Board”), in Expo’s suit challenging the constitutionality of Texas Tax Code sections 23.121
(b) (entitled “Dealer’s Motor Vehicle Inventory; Value”) and 41.44(a)(1) (entitled “Notice of Protest”)
[[Footnote]] as applied to Expo. In three issues, Expo contends that the trial court erred in denying its
summary judgment motion and in granting HCAD’s and the Review Board’s summary judgment motion on
the grounds that Expo was denied meaningful review of its motor vehicle inventory valuations for tax
years 2004 and 2005 in violation of Expo’s due process rights, [[Footnote]] Expo presented
uncontradicted evidence of the actual value of its motor vehicle inventory in tax years 2004 and 2005,
and the statutory formula used to determine the value of Expo’s motor vehicle inventory violates the
Texas Constitution. [Footnote]

We affirm.

Factual and Procedural Background

In its first amended petition, Expo, a motor vehicle dealer, [Footnote] alleged that the “Review Board
unconstitutionally applied . . . the dealer motor vehicle inventory property tax provisions” to Expo and the
Tax Code’s valuation formula violates article VIII, section 1 of the Texas Constitution by not “fairly,
equally, or reasonably” appraising the value of Expo’s motor vehicle inventory. HCAD had appraised the
value of Expo’s motor vehicle inventory, as of January 1, 2004, and, based on the valuation, Expo’s 2004
taxes were assessed at $149,259.36. However, when Expo paid only $111,357.99 for the 2004 tax year,
the Harris County Tax Assessor-Collector sent Expo a delinquency notice stating that Expo owed
$39,334.46 in taxes and penalties. In May 2005, after paying the amount owed, Expo, pursuant to Tax
Code section 41.41, [Footnote] protested HCAD’s 2004 valuation of its motor vehicle inventory in a
hearing in October 2005. However, the Review Board refused to consider Expo’s protest because Expo
had missed by almost one year the deadline to protest the 2004 appraisal. [Footnote] Expo further
alleged that for purposes of the 2005 tax year, HCAD had appraised the value of Expo’s motor vehicle
inventory, as of January 1, 2005, and based on the valuation, Expo’s 2005 taxes were assessed at
$112,440.02. When Expo paid only $103,963.00 for the 2005 tax year, the Harris County Tax Assessor-
Collector sent to Expo another delinquency notice stating that Expo owed $11,140.37 in back taxes and
penalties. Expo paid the additional taxes and penalties under protest. The Review Board considered Expo’
s protest of HCAD’s 2005 valuation of Expo’s motor vehicle inventory at the hearing in October 2005. At
the hearing, Expo asserted that the 2005 valuation could not be accurately assessed until the end of the
year, December 31, 2005, when Expo would be able to determine its actual gross sales for 2005. The
Review Board ruled that HCAD had properly applied the statutory formula to appraise Expo’s 2005 motor
vehicle inventory as of January 1, 2005.

In the trial court, Expo filed its motion for summary judgment, requesting that the trial court find the
inventory valuations for 2004 and 2005 excessive, reduce the inventory valuations for 2004 and 2005 to
match Expo’s actual gross sales for those years, and require HCAD to “correct the tax rolls accordingly.”
In the alternative, Expo requested that the trial court declare Tax Code section 23.121 unconstitutional
because HCAD had “subjected [Expo] to unequal, non-uniform, unconstitutional taxation” and find that
the Review Board had denied Expo meaningful review of the valuations for 2004 and 2005.

Expo attached to its motion the affidavit of Patrick O’Kelley, Expo’s accounting manager. O’Kelley testified
that in his attached spreadsheet he set out “for each year of Expo’s operations through 2006, the total
dollar value of the sales of motor vehicles to the public (not including wholesale deals to other dealers),
the inventory taxes Expo paid,” and the calculated motor vehicle inventory tax. In pertinent part, O’Kelley’
s spreadsheet reads as follows:

Calendar Year
   
2001
   
2002
   
2003
   
2004
   
2005

Previous Year’s Gross Sales [Footnote]
   
$4.5 M
   
$29.4 M
   
$50.9 M
   
$60.5 M
   
$45.1 M

Motor Vehicle Inventory Tax Assessed
   

$10,772
   
$72,510
   
$125,678
   
$149,259
   
$112,440

Motor Vehicle Inventory Tax Paid
   
$70,921
   
$123,465
   
$149,157
   
$111,358
   
$103,963

In their cross motion for summary judgment, HCAD and the Review Board argued that they were entitled
to summary judgment because Expo had failed to timely protest HCAD’s 2004 valuation of its motor
vehicle inventory and that Tax Code sections 23.121(b) and 44.44(a)(1) are constitutional.

Standard of Review

To prevail on a summary judgment motion, a movant has the burden of proving that it is entitled to
judgment as a matter of law and that there are no genuine issues of material fact. Tex. R. Civ. P. 166a(c);
Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995). When both parties move for summary judgment and
the trial court grants one motion and denies the other, the reviewing court should review the summary
judgment evidence presented by both sides, determine all questions presented, and render the judgment
that the trial court should have rendered. Tex. Workers’ Comp. Comm’n v. Patient Advocates of Tex., 136
S.W.3d 643, 648 (Tex. 2004).

“Meaningful Review”

In its first issue, Expo argues that it was improperly denied a protest hearing under the Tax Code and
denied due process because the Review Board ruled that Expo’s protest of HCAD’s valuation of Expo’s
motor vehicle inventory was untimely as it was not made “prior to June 1” of the year in which HCAD made
the valuation. Expo asserts that it could not determine the accuracy of HCAD’s valuation for a given year
until the end of that year, when Expo could determine its actual motor vehicle sales for the year.

A property owner may protest an appraisal district’s valuation of property before an appraisal review
board. See Tex. Tax Code Ann. § 41.41(a) (Vernon 2008). However, to be entitled to a hearing and a
determination of a protest, the property owner initiating the protest must file written notice of the protest
with the appraisal review board before June 1st or not later than the 30th day after the date that notice
was delivered to the property owner. Id. § 41.44(a) (Vernon 2008).

Expo concedes that HCAD’s valuations of Expo’s motor vehicle inventory for the 2004 and 2005 tax years
were correctly calculated according to the statute. See id. § 23.121(b) (Vernon 2008). Expo argues that
the deadline imposed by Tax Code section 41.44 denied Expo a meaningful review of its complaint
because Expo was unable to gather evidence and appraisals needed to determine the actual market
value of its motor vehicle inventory and “present a developed body of evidence thereafter as to why the
valuation is other than that assessed.”

However, the actual market value of a motor vehicle dealer’s inventory for a given year is not based on
the dealer’s actual sales in that calendar year. Rather, the Legislature has determined that the actual
market value of a dealer’s motor vehicle inventory is ascertained on January 1 of the tax year based on
the dealer’s sales in the previous calendar year. Id. § 23.121(b). Thus, Expo’s actual sales in the
calendar year of 2004 are irrelevant to its protest regarding HCAD’s valuation of Expo’s motor vehicle
inventory as of January 1, 2004 for the 2004 tax year. See id. HCAD’s valuation was correctly based on
Expo’s sales in 2003. Accordingly, we hold that the trial court did not err in concluding that Expo was not
improperly denied a hearing under the Tax Code and that Expo was not denied due process.

We overrule Expo’s first issue.

Actual Value

In its second issue, Expo argues that it is entitled to a reduction in the valuation of its motor vehicle
inventory for the 2004 and 2005 tax years because Expo presented the “actual data showing the
valuation of the inventory sold for tax years 2004 and 2005.” Expo asserts that the statutory formula
relied upon by HCAD and the Review Board “establishes a value for property based on something
arbitrary.” However, as noted above, the actual market value of a motor vehicle dealer’s inventory for a
given tax year is not based on the dealer’s actual sales in that calendar year. Rather, the valuation is
determined as of January 1 of the tax year based on the dealer’s sales in the previous calendar year.
Expo’s motor vehicle inventory is always valued based on its gross sales in the previous calendar year,
regardless of the inventory it actually sells during the given tax year. See id. The statutory formula in a
given tax year does not provide an estimate of market value; it provides the actual market value using the
previous calendar year’s gross sales. See id. Accordingly, we hold that Expo is not entitled to a reduction
in the valuation of its motor vehicle inventory based on its actual sales in 2004 and 2005.

We overrule Expo’s second issue.

Constitutionality of Tax Code Section 23.121

In its third issue, Expo argues that section 23.121’s tax valuation formula is unconstitutional as “applied to
Expo because it created unequal, non-uniform taxation among motor vehicle dealers.” Expo asserts that
the taxing formula unconstitutionally imposes higher taxes on those dealers whose sales actually
decrease in a tax year after the valuation has been determined as of January 1 of the tax year.

In evaluating whether a statute is constitutional, we begin by presuming the statute’s constitutionality and
defer to the Legislature’s determinations of a statute’s wisdom or expediency. Enron Corp. v. Spring
Indep. School Dist., 922 S.W.2d 931, 934 (Tex. 1996). We further presume that the Legislature
“understands and correctly appreciates the needs of its own people, that its laws are directed to
problems made manifest by experience, and that its discriminations are based upon adequate grounds.”
Id. (quoting Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968)). A party who challenges the
constitutionality of a statute bears the burden of demonstrating that the enactment fails to meet
constitutional requirements. Id.

Article VIII, section 1 of the Texas Constitution, provides that “[t]axation shall be equal and uniform” and
that “[a]ll 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.” Tex. Const. art. VIII, § 1(a), (b). According
to this provision of the Texas Constitution, ad valorem tax rates must be uniform for all types of property.
Enron, 922 S.W.2d at 935. In determining how to ascertain the market value of property for ad valorem
tax purposes, the Legislature may use different methods for different types of property so long as these
methods are not “unreasonable, arbitrary, or capricious.” Enron, 922 S.W.2d at 935–36.

Fairly ascertaining the market value of inventory can be difficult because the value of a taxpayer’s
inventory tends to fluctuate significantly throughout the year. See Enron, 922 S.W.2d at 939–40
(discussing difficulty in appraising value of inventory). Generally, the Legislature has chosen to use a
single-date appraisal method, appraising the value of inventory for a given year based on the market
value of the inventory property on a specific date. E.g. Tex. Tax Code Ann. § 23.01 (Vernon 2008)
(generally prescribing that on January 1, taxable property is appraised at its market value). However, in
ascertaining the market value of a dealer’s motor vehicle inventory, the Legislature has adopted a sales-
based method. [Footnote] See id. §§ 23.121(b), 23.122(b) (Vernon 2008). This sales-based approach
captures the value of inventory over time better than a single-date evaluation. See Enron, 922 S.W.2d at
940. Even though the value of a dealer’s motor vehicle inventory can fluctuate drastically throughout the
year, the sales-based approach only requires dealers to pay taxes on the motor vehicle inventory that
they actually sell. See Tex. Tax Code Ann. § 23.121(b).

In the 2004 and 2005 tax years, Expo’s motor vehicle inventory tax was assessed in the same manner as
the motor vehicle inventory tax of other dealers: the aggregate tax rate was applied to one twelfth of Expo’
s gross sales from the previous year. See id. Whether a dealer’s sales decline or increase during the tax
year, its motor vehicle inventory tax is always calculated based on its gross sales in the prior calendar
year. See id. Although a dealer’s motor vehicle inventory could be valued based on actual sales during
the year taxed, the Legislature has determined otherwise. See Tex. Tax Code Ann. § 23.121(b); see
Enron, 922 S.W.2d at 934 (stating that appellate courts defer to Legislature’s determinations of statute’s
wisdom or expedience). The Legislature has determined that the value of a dealer’s motor vehicle
inventory on January 1 of the tax year is based on the actual sales in the previous calendar year, not
based on actual sales in the tax year. See Tex. Tax Code Ann. § 23.121(b). Section 23.122 creates a
collection mechanism using actual sales in the tax year, but this collection mechanism does not determine
the value of a dealer’s motor vehicle inventory for the tax year. See id. §§ 23.121(b), 23.122(b), 31.11
(Vernon 2008).

The Legislature’s method of determining the value of a dealer’s motor vehicle inventory for the purpose
of assessing property taxes is not the only method that could be used, but it is no more arbitrary than
choosing to value a taxpayer’s inventory on a single date. See id. § 23.01 (adopting January 1 as date
when inventory will typically be valued). Although the Legislature’s method may not be perfect, we cannot
conclude that the Legislature’s chosen method is unconstitutional as applied to Expo. See Enron, 922 S.
W.2d at 939. Accordingly, we hold that section 23.121(b)’s motor vehicle inventory tax valuation formula
is not unconstitutional as applied to Expo.

We overrule appellant’s third issue.

Conclusion

We hold that the trial court did not err in denying Expo’s summary judgment motion and granting HCAD’s
and the Review Board’s summary judgment motion. Accordingly, we affirm the judgment of the trial court.

Terry Jennings

Justice

Panel consists of Justices Jennings, Keyes, and Higley.