East Fork Sand Mine in Montgomery County Appraised as Ag/Timber Land

I wish I could get a deal like this! A cardiologist from Nacogdoches named Dr. Prabhakar R. Guniganti (in a trust set up for his family members) owns virtually all the land used for sand mining adjacent to Kingwood on Caney Creek, White Oak Creek and the East Fork of the San Jacinto. Here’s the best part! The land isn’t taxed as industrial land. It’s taxed as agricultural and timberland, even though:

• Almost half of the land does not appear to be used for agriculture or timber any more, and hasn’t been for quite some time.
• Montgomery County and State of Texas Guidelines for Appraisals  seemingly say the land does not qualify for the ag/timber classification.

Guidelines for Appraisals

Among other stringent requirements, State and County guidelines say that if a parcel is clear cut, it cannot go without replanting for more than two years to quality. The guidelines also state that both timber and agricultural land must be used at an intensity comparable to the surrounding area. Additionally, timberland must be used with the intent to produce income from timber and be devoted principally to the production of timber.

Guniganti is not alone; I’m just using him and his trust as an example. Several of the sand mines on the West Fork are also taxed at the same agricultural/timber rate.

$241 in Tax on Ten Acres

I found one 10-acre parcel of Guniganti land that owed a whopping $241.09 in real estate tax for 2017. Deal of the century! It hasn’t had any timber on it for about three years and Montgomery County is still assessing it as timberland for 2018.

See for yourself.

1. Review the land’s history in Google Earth.
2. Go to the Montgomery County Appraisal District website and click on a parcel of land within the sand mine to check its tax history.
3. Cross-check the information against the Montgomery County Tax Assessor/collector’s website. The two sites don’t always agree, but the assessor issues the actual tax bills, so for the purposes of this analysis we’re using the assessor’s info when computing taxes paid.

When I clicked on Guniganti’s 10-acre parcel as discussed in Step 2 above, here’s what I found. A little gray box popped up describing the location and size, plus the owner’s name. In this case, Guniganti no longer owns the property himself; he sold it to a trust in his family’s name, Guniganti Family Property Holdings LLC (limited liability corporation). LLCs are a common strategy that land owners use to insulate themselves from liability that may arise from use of the property.

The blue box shows the boundary of the ten acres within the mine.  Clearly, there is no timber on this land and it is part of the mine.

Clicking on “View property information,” tells you the classification of the property, tax rates that apply to it … and the history of ownership, Note that Guniganti bought this parcel in 2014 and sold it to his LLC in 2017. Also note that, despite the sale, the market value of the property is assessed at $0.00 and its agricultural market value is also assessed at $0.00.
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Because the Montgomery County appraiser classifies this parcel as “Timber,” the County, emergency services, the hospital, college, and school districts will have to split up a grand total of $241.09.

Nevertheless, Montgomery County taxed the 10 acres at $10,000. At a 2.4109% tax rate, the family trust owed $241.09 on this land in 2017. Here’s the actual tax bill for 2017 from the assessor’s web site:

Of course, the land originally contained timber. Montgomery County appraises it as though it still does. That’s sweet if you’re Guniganti – especially when you consider that he owns nearly 2000 acres in the area and all but 217 are classified as Ag & Timber.

Back in 1966 and 1978, the Texas legislature saw the value of ranch, farm and timberland increasing exponentially. Many family farms and ranches were being taxed out of existence. They didn’t make enough money to pay real estate taxes at the normal market value. So the legislature created special exemptions, first for family farms, and then for corporations and trusts.

Fair enough. We certainly need farms and ranches.

But why should sand mines enjoy the Ag/Timber tax break? These are multi-million dollar businesses.

$288 in Tax on 218 Acres

Let’s look at another example of how Guniganti benefitted from an exemption that he didn’t seem to qualify for.

This 218-acre parcel occupies most of the middle of Guniganti’s mine. Though it has some timber on the periphery, approximately 90% of it appears to be used for sand mining.

That parcel has a market value of $439,480, but was appraised at $12,450 because of the agricultural/timber classification.

In this second example, the 2017 tax due on a 218-acre, income-producing property with a market value of nearly half a million dollars is just $287.71. Here’s the actual 2017 tax bill.

Almost 2000 Acres in Two Categories

What about the rest of the mine and the surrounding property which will be used for expansion? As luck would have it – for comparison purposes – the Guniganti Family Trust owns 17 different parcels of land in and around the mine totaling almost 2,000 acres.

Guniganti owns 17 parcels of land in Montgomery County totaling about 2000 acres. For an interactive list, click on the image above.

Most parcels are classified Ag/Timber including approximately 750 acres being mined. However, several are classified as “unimproved rural” and one was “unimproved residential.” Check them for yourself if you have several hours.

This spreadsheet breaks the Guniganti Family Trust properties down into two different categories: Ag/Timber and Other to show the benefits of the ag/timber classification.

The Big Payoff

In 2017, thetaxable value per acre of the ag/timber land was $68 per acre. But the taxable value for the land not receiving any exemption was $3,120 per acre – 46 times more.

The actual tax due for the ag/timber land was $1.83 per acre. But the tax due on other land not receiving the exemption was $102.36 – 56 times more!

Guniganti still enjoys the ag/timber benefit on these properties for the 2018 tax year.

Substantial differences.

Almost 90% of Guniganti’s land is classified as ag/timver. However, he paid seven times more tax on his other land.  Thus, you can see the benefits of the exemption.

In total, Guniganti paid $3,189.61 in tax on 1741 acres receiving the ag/timber classification. Those parcels have a market value in excess of $4 million.

Had that property been taxed at the Montgomery County Appraisal District’s opinion of their market value, he would have had to pay about $120,000 more in tax

I still don’t understand how sand mines qualify for Ag/Timber rates when all the ag and timber is long gone. I hope there’s a reasonable explanation. Not all sand mines in Montgomery County receive the ag/timber exemption. But that’s a story for another day.

As always, these represent my opinions on matters of public policy. They are protected by the First Amendment of the United States Constitution and the Anti-SLAPP statute of the great State of Texas.

Posted 9/26/2018 by Bob Rehak

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