Second Chance Appeals in Texas and Kansas: 25.25’s and PUPS

BY DARYL SMITH AND TYLER ROGNLIE

Texas real property owners and tenants who miss the annual property tax appeal deadline of May 15, or 30 days after the Notice of Appraised Value, have a second and final chance to challenge their current tax assessment under Texas Property Tax Code 25.25 (https://statutes.capitol.texas.gov/Docs/TX/htm/TX.25.htm). This type of appeal can be filed any time before the current year’s taxes become delinquent: February 1 following the assessment year. Taxpayers may file a 25.25(d-2) written protest to the Appraisal Review Board, seeking a reduction in appraised value. This type of appeal requires the commercial property owner or tenant to prove the appraisal district’s error resulted in the subject property being overvalued by at least one-third (1/3). It also requires that there was not a protest filed on the property in the same assessment year, and that the property is not delinquent on any taxes currently owed on the property (See Texas Property Tax Code 25.26).

The Texas Tax Code 25.25 also provides a similar mechanism for challenging business personal property assessments that may had not been previously challenged during the tax year. The 25.25 protest can be utilized by business owners or representatives to challenge a valuation that is believed to be at least one-third (1/3) overvalued.

Case Studies/Examples:

1. A small retail strip center in Ellis County, TX, failed to appeal their 2019 property tax value after the appraised value doubled from the prior year. After contracting with PVS to represent the property, a 25.25(d) appeal was filed by PVS’ licensed Texas agents, who reduced the appraised value by over $400,000. This resulted in $30,000 in tax savings to the property owner.

2. A hotel in Harris County, TX, did not appeal their 2020 property tax value after the assessment increased instead of decreasing due to Covid-19. After engaging PVS, we used a 25.25(d) appeal to reduce the appraised value by over $400,000, which resulted in tax savings of over $40,000 to the hotel operator. 

3. An imaging center in Dallas County sold its equipment mid-year, at a price below the assessor’s assessment. PVS filed a 25.25 (d) correction motion to the Dallas County ARB to lower the value on this taxpayer’s business personal property, to better align with the true market value of the equipment that they sold. PVS was able to reduce the value from over $800,000 to $420,000, saving this taxpayer nearly $10,000 in business personal property taxes.

The Texas tax code also allows for a real property owner or tenant to file a written protest to correct a clerical error that affects the tax liability on a real commercial property and business personal property under Section 25.25(c) of the Property Tax Code. This applies to the current assessment year and five proceeding years, provided there are no delinquent taxes outstanding. Various types of clerical errors qualify, including a mistake in calculation or mathematical error, multiple appraised values being applied to the same property (duplicate taxation), and taxation of non-existent property. Common examples include inaccurate gross or net leasable area on income producing properties (office, MOB, retail, warehouse), valuation of shell or unfinished space as fully complete square footage, an error in land square footage or calculation of value on site improvements (asphalt, exterior lighting) and more. 

The same appeal mechanism is also applicable to business personal property assessments.  A 25.25(c) motion can be filed to the Appraisal Review Board to request a correction to the information on file in the appraisal district’s records, or an error in calculating the assessment, the correction of a duplicate appraisal, or the assessment of equipment no-longer present.

Case Studies/ Examples:

1. The gross square footage and number of units for a large apartment complex were inaccurately recorded in county records. This is crucial information that must be corrected, as most counties use this data to calculate the value of apartment complexes on the cost, income, and sales comparison value approaches.   

2. An office building closed prior to the personal property tax lien date, but the property owner failed to note this fact on their annual personal property return filed to Harris County. PVS filed a 25.25(c) correction motion to Harris County, and ultimately received a favorable decision from the Appraisal Review Board, who agreed to remove the assessment and tax bill for the property. This saved the taxpayer over $4,000 in property taxes.

3. It is not uncommon for appraisal districts to errantly create a duplicate account for a business, perhaps based on an address or ownership change, leaving a property with two active business personal property accounts. Often these duplicate accounts do not become apparent until receiving two separate personal property tax bills in the mail at the end of the year.  In situations like these, PVS has filed 25.25(c) correction motions to correct the duplication and remove/close the erroneous account. 

Given the various types of 25.25 appeals and their specific requirements for application, it is essential to hire an experienced property tax agency such as Property Valuation Services, with proven success in Section 25.25 appeals. 

Kansas: Payment Under Protest 

Property owners in Kansas may appeal their real property or business personal property’s classification and/or appraised value in one of two ways: the value may be appealed by way of an informal appeal filed to the local assessor’s office in the spring after the appraiser has notified the taxpayer of the property’s current appraised value; or the value may be appealed when taxes are paid, typically in December of the assessment year. The latter appeal is referred to as a Payment Under Protest, or PUP for short. The property assessment may only be appealed once per tax year by either appeal method, but not both. 

Case Studies/Examples

1. A Johnson County, KS hotel owner missed the informal equalization appeal deadline in late March for their real property. This owner contacted PVS to see if we could still appeal his property. PVS was allowed to use the KS Payment under Protest appeal to appeal his property in early December.

A Payment Under Protest (PUP) must be filed to the local treasurer’s office when taxes are paid. Kansas owners have the option of paying taxes in two installments: one is due by December 20 and the second half is due by the following May 10. A PUP can be filed with either payment, but it is not necessary to file with both.  If the owner’s mortgage company pays property taxes directly, an appeal may be filed with the county treasurer at any time after the tax bills have been mailed, but before January 31. All Payments Under Protest must originate with the county treasurer, not the property appraiser’s office.

It is important to note that the PUP appeal is not designed for appeals concerning land devoted to agricultural use or commercial and industrial machinery and equipment, because such property is not valued based upon its fair market value but on its agricultural use of the land and flat rates for machinery and equipment.

The same approaches to value that are used in a standard Kansas spring appeal are used in a Payment Under Protest for commercial real estate: the cost, income, and sales comparison approach. Equity or ‘equalization’ is also important to consider, so be sure the subject being appealed is not assigned a higher tax assessment than similar properties in the same county. This is especially useful in a PUP appeal, as most comparable properties are likely to have been appealed and resolved through the spring appeal process, and thus their assessments are already reduced upon appeal. This allows a property owner or their representative to utilize those lower assessments in comparison to the subject being appealed through a PUP in December. 

The procedure for a PUP is nearly identical to the annual appeal procedure. The county appraiser will conduct an informal hearing with the property owner or their representative, to review and discuss any evidence the owner has to support their claim for a reduction. Additional small claims or formal litigation appeal options are available to taxpayers who are not satisfied with their PUP informal hearing results. 

Case Studies/Examples

1. In Saline County, KS, an assisted living facility was being mischaracterized as a traditional apartment complex. After contacting PVS and filing a Payment Under Protest, the value of the property was reduced by $2,400,000 and the property owner enjoyed a $40,000 reduction in their tax bill. 

The Payment Under Protest procedure is less commonly utilized for business personal property tax, as compared to real property. Due to a phasing out of business personal property tax, businesses are no longer paying property tax on equipment purchased after June 30, 2006, leaving only the older equipment still being subjected to property taxation. With this exemption covering so many years of equipment purchases, there is decreased necessity for personal property tax appeals in Kansas.

“All commercial and industrial machinery and equipment acquired by qualified purchase or lease made or entered into after June 30, 2006, shall be exempt from property tax. All commercial and industrial machinery and equipment transported into this state after June 30, 2006, for the purpose of expanding an existing business or the creation of a new business shall be exempt from property tax.” (https://www.ksrevenue.org/prtaxincentives-proptaxabate.html

(http://www.ksrevisor.org/statutes/chapters/ch79/079_002_0023.html)

Due to this exemption and the intricate nature of an annual appeal vs. PUP appeal, the most reliable method of reducing business personal property tax liability is to file an accurate and timely rendition prior to the March 15 annual due date. CPA and general accounting firms are not always well versed in local tax law or procedure and may not have the necessary appeal experience should an error occur on a return. It is crucial to hire a property tax-specific agency such as Property Valuation Services, with proven success in Kansas appeals, to both prepare your return and handle any subsequent appeals.