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How Some Flood Victims Saved Substantial Tax Dollars

This is a letter to the editor from retired Kingwood resident Bill Fowler. Fowler managed real estate property taxes for one of the world’s largest oil companies for much of his career. His home flooded during Harvey.

An in-depth analysis of 2018 property tax assessments in one flooded neighborhood shows that flooded homeowners who did not protest their appraisals last year were appraised on average higher per square foot than those who did successfully protest. That means if you flooded and did not protest, you could have paid thousands of dollars more in taxes than you should—and may have been assessed inequitably.

Kingwood Greens Evacuation During Harvey by Jay Muscat
Kingwood Greens During Harvey. Photo courtesy of Jay Muscat.

Property Tax Reappraisal Season Starting Now

As Kingwood prepares for its most dreaded annual event, Hurricane Season, let’s not forget another discomforting annual occurrence, Property Tax Reappraisal Season.

Yes, this is your chance to accept the Harris County Appraisal District’s (HCAD) market value of your home or file a protest to seek a lower value.

This article should make it apparent that relying on HCAD to properly value your home can sometimes prove costly. This discussion relates specifically to flooded homes, but non-flooded homeowners should also review their assessments for opportunities to reduce HCAD’s opinion of market value.

Questions to Ensure Fair Appraisal

A majority of homeowners who flooded during Hurricane Harvey have not yet received their 2019 property tax appraisal notices from HCAD. However, some have. When you receive your 2019 assessment notice, keep these questions in mind:  

  • How much did the market value of your home change between January 1, 2018 and January 1, 2019?
  • If you made progress towards, or completed, restoration of your home between January 1, 2018 and January 1, 2019, how much did you increase your home’s market value? 
  • If your repairs are completed, is this year’s proposed value realistic compared to your 2017 pre-flood value?
  • Does HCAD have sufficient comparable post-flood sales data to support its opinion of the appraised value of your home?
  • Is your assessment equitable relative to your neighbors’?

Early Trends in Heavily Flooded Neighborhoods

A review of HCAD’s 2019 online records has revealed early trends in three heavily flooded neighborhoods. Results reported here likely include a mix of both fully and partially repaired homes. Numbers in parenthesis reflect approximate percentage of homes in the neighborhood with published 2019 assessments; HCAD lists all remaining home values as “Pending.” 

  • Kingwood Greens (25%):  Average values are up 40% from 2018. 2019 values are only 5% lower than pre-Harvey 2017 values.  
  • The Barrington (55%):  Average values are up 18% from 2018. 2019 values are only 9% lower than pre-Harvey 2017 values.
  • The Enclave (20%):  Average values are up 21% from 2018. 2019 values are only 7% lower than pre-Harvey 2017 values.

Success of Protests

To illustrate the effect of successfully protesting your assessment, I analyzed the final 2018 property tax year assessments of all Kingwood Greens homes using HCAD’s public information.

On average, Kingwood Greens homeowners who protested their assessments saw significantly greater declines in their 2018 final assessments and  were assessed less per square foot compared to homeowners who chose not to protest.

About half of Kingwood Greens residents chose to accept HCAD’s initial 2018 assessments.  The average reduction in their appraised value was 25% below 2017 and average assessment per square foot was $108.

The other half (despite their assessments being down initially 21% from 2017) protested their assessments. 98% of those who completed the protest process reduced HCAD’s initial proposed assessments. Reductions ranged from as low as $4,000 to more than $500,000.  

At the end of the day, successfully protested homes were appraised 36% lower on average than in 2017 @ $96 per square foot — a far greater average reduction and lower value per square foot than the 25% and $108 per square foot realized on non-protested properties. 

Your Fair Share

To ensure you pay only your fair share of taxes this year, it seems prudent to consider filing a protest when you receive your notice. You have 30 days from the date of the notice to file the protest which can be done either electronically on the HCAD.org website or by mail. Your assessment notice will include instructions on how to protest.

Once HCAD receives your protest, you will receive an informal hearing date. You can also access electronically the sales and other evidence HCAD used to determine your assessment.

You may represent yourself in the protest process or hire a consultant to represent you. Should you hire a consultant, the consultant’s fees can reduce any savings you realize by up to 50%.

Additional Clarifications and Thoughts

  • By law, property must be appraised at Market Value as of January 1 each year, and then taxed at the Appraised Value (less exemptions). Your 2019 assessment is based on market value as of January 1, 2019.
  • Notice that your 2019 assessment notice references two values: Market Value and Appraised Value.
  • Market Value is the price at which a property would transfer for cash or its equivalent under prevailing market conditions. Keep in mind this is the value you will be challenging if you protest, not Appraised Value.
  • The appraisal district compares your property to similar properties that recently sold. Then they adjust for differences to arrive at an opinion of market value. Bottom line: Sales of homes comparable to yours are the basis of assessments.
  • When protesting, make sure HCAD has based its opinion of your home’s market value on properties that are truly comparable.  Valid comparable sales need to be located in the same general neighborhood. Valid adjustments recognize differences such as size, age, condition, quality of construction and additional features (pool vs. no-pool, for example).  
  • Especially important: Flooded home market values should not be based on sales of non-flooded homes (or vice versa).  
  • If your home was still under repair as of January 1, 2019, make sure HCAD recognizes the proper stage of completion of your repairs as of that date. Ensure you are not valued as completely restored or at too great a percentage of completion.
  • Your tax liability depends on your Appraised Value (less any exemptions you qualify for). Its capped at an increase of 10% above the prior year’s Appraised Value (provided you have not improved the property—i.e. increased the size of the property, added a pool, etc. in the past year).
  • Important to note:  If your flooded home was not completely restored by January 1, 2018, for tax year 2019, that cap is 21% above your 2017 assessment, not 2018 assessment.   
  • If you completed flood repairs by January 1, 2018, the 10% cap over last year’s appraised value applies.

Remember: Equity Also Matters

One last issue to bear in mind:  Don’t forget equity! Just as all properties are legally mandated to be valued at market value, the law also requires each appraisal to be equitable in relation to the median level of appraisal of comparable properties (after the adjustments mentioned above). This requires comparing your assessment to those of comparable homes in your neighborhood to ensure you are equitably assessed and paying only your fair share.  An inequitable appraisal is also grounds for protest.

May 7 Flood Victims Must Wait Until Next Year

Any flooding that occurred to homes in early May was past the January 1 assessment date. By law, the 2019 values must be based on market value of properties as of that date and taxing jurisdictions cannot request disaster reappraisals without a disaster declaration. Therefore, the 2019 assessments of people who flooded on May 7 will not reflect losses in market value due to flood damage, but may impact their 2020 assessments.

By Bill Fowler, 6/10/2019

650 Days since Hurricane Harvey

Tax Bill Inequity: How You Make Up for Sand Miners

‘Tis the season…for tax bills. As I paid mine this weekend, I reflected on how Montgomery County’s under-appraisals of sand mines resulted in over-taxation of other properties there and elsewhere. Here’s how.

Lone Star College System Provides Basis for Comparson

The Lone Star College System taxes property in several counties including Montgomery and surrounding counties. That includes northern Harris County. Lone Star’s tax rate is identical in each: 0.107800. However, because Montgomery County consistently under-values sand-mine properties, other property owners there and in surrounding counties must pay more than their fare share of Lone Star taxes to balance Lone Star’s budget.

In September, I ran a series of posts focused on sand mine appraisals in Montgomery County. The first examined the sand mine on the East Fork. The second examined multiple sand mines on the West Fork. The third talked about how Montgomery County consistently under-classified the use of sand-mine land. Of the 53 different parcels of land sampled, not one was classified as a sand mine.

Montgomery County classified:

  • 16 parcels as “Timber” even though there was no or little timber on them and the land was clearly being used for sand mining.
  • 31 parcels as “Vacant” despite mining operations on the property.

To be fair, miners had not yet timbered parts of several parcels intended for expansion.

The Timber Dividend in Sand Mines

I started digging back into the sand-mine property tax bills to see how much of a break these big businesses were getting compared to me.

One 10-acre parcel owned by Guniganti Family Property Holdings on the East Fork (see below) received a timber exemption even though there’s scarcely a tree on the property and the land hasn’t been in timber for years. It clearly doesn’t meet the qualifications for the timber exemption as outlined by the Texas State Comptroller. The official that I talked to in the Montgomery County Appraisal District office agreed.

Montgomery County Parcel R53336, part of the Guniganti mine on the East Fork. Tax due to the Lone Star College system equals $10.78 for all ten acres thanks to a timber exemption. The 10 acres is inside the aqua-colored line.

 

Guniganti LSC tax bill for ten acres above shows $10.78 total for ten acres thanks to the timber exemption.

On those 10-acres, the Guniganti’s paid a total of $10.78 in tax to the Lone Star College System or $1.08 per acre. By comparison, I paid $338 to Lone Star for my one-acre residential lot in northern Harris County. That means, the Guniganti’s paid 313 times less per acre for their income producing property. And they own more than 1700 additional acres of land with the timber exemption.

Another example: Edward Boettcher Jr. from Brenham owns one sixth of a 367-acre parcel on the West Fork also used for sand mining. He received a timber exemption on his property which reduced the LSC taxable value by 96%. That meant he paid a total of $11.28 to the Lone Star College District for his 61-acre share of the income-producing property. He paid $0.18/acre – 1878 times less than I paid. 

Boettcher will pay only $11.28 to LSC on his share of one-sixth share of 367 acres.

Vacant Land That’s Not

And what about that land classified as “Vacant”?  RGI Materials owes Lone Star $296.27 on 134.6 acres of land, or $2.20/acre – 154 times less than I paid as an individual on non-income producing land.

RGI did NOT have a timber exemption so they paid $296.27 to LSC in taxes on 135 acres classified as vacant.

Inconsistencies Abound

The 53 different parcels of land examined in September received 10 different types of classifications even though they were all being used for the same purpose – sand mining. Only one parcel was classified as commercial and only two were classified as industrial. The vast majority were classified as vacant rural land or timberland. After calling these inconsistencies to the attention of the Montgomery County Appraisal District almost two months ago, it appears that little or nothing has changed. Spot checks failed to turn up any reclassifications. Vast differences and inconsistencies remain…even among sand mines.

By the way, the state comptroller’s office says, and I quote, “Sand mines should be classified as sand mines.” That means they should be valued according to their income producing potential. It doesn’t appear that Montgomery County appraises them that way; the values rarely change from year to year – not what you would expect from depleting assets.

Season for Sharing

Yes, ’tis the season for sharing. And those generous sand miners are sharing their tax obligation with you through dubious exemptions, mis-classifications, and valuations that have nothing to do with the income-producing value of the land.

Someone has to make up the difference in the Lone Star College System budget and luckily (for the sand miners), that’s you and me.

These appraisals and tax bills illustrate how we’re all connected. It also underscores the need for consistent appraisals and state oversight of appraisal districts.

Luckily for residents of Harris County, only the Lone Star College portion of tax bills is affected. Residents of Montgomery County, however, take the full hit; all portions of those tax bills are affected.

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

Posted by Bob Rehak on 11/18/2018

447 Days since Hurricane Harvey

PS: I should add that the Lone Star College System has nothing to do with appraisals or exemptions.

 

Montgomery County Says It Will Re-evaluate Sand Mine Appraisals

The Montgomery County Tax Appraiser’s office has indicated it will look into sand mine appraisals after two reports last week by ReduceFlooding.com that showed thousands of acres used for sand mining were not being appraised as sand mines.

Same mine, same use, same owner, radically different appraisals on each side of the county line. Montgomery County granted a timber exemption even though there is practically no timber on the the triangular one behind $56.25 per acre. Harris County appraised the land just inches south at market value. The difference is more than 12X.

17 East Fork Sand Mine Parcels Not Classified as Sand Mines

The first report reviewed 17 parcels of land on the East Fork that comprised one 2000-acre sand mine complex. Seven of those parcels received ag/timber exemptions even though they are used for sand mining. The owner paid only $3,189 in tax on 1741 acres classified as ag/timber, or $1.83 per acre.

Seven other parcels on the East Fork, owned by the same group were classified as “E4 – Vacant Rural Land over 5 acres Non-Ag” or “C1 – All Vacant Res Lts & Vacant Res Tr < 5 Acres.” Of those seven parcels, two were being mined and were definitely not vacant.

Of the 17 East Fork parcels, a total of nine (more than half) were being mined, yet not one of those was classified as being mined. Seven of the parcels being mined received ag/timber exemptions even though they were not “principally” used for agriculture or timber, one of the five standards that land must meet to qualify for that exemption. Two other parcels being mined were classified as “vacant” even though they were clearly not vacant.

35 West Fork Sand Mines Not Classified as Sand Mines

The second report reviewed 36 additional parcels of land on the West Fork. All of those were used for sand mining. However, not one was classified as a sand mine using the code G3 in State Comptroller’s  Texas Property Clasification Guide.

  • 2 were classified as “A1 – Single-family residential.”
  • 6 were classified as “D1 – Qualified Ag/Timber.”
  • 1 was classified as “E3 – Other Improvements over 5 acres Non-Ag.”
  • 24 were classified as “E4 – Vac Rural Land over 5 acres Non-Ag”
  • 1 was classified as “F1 – Commercial (real).”
  • 2 were classified as “F2 – Industrial (real).”

“That’s not right.”

Altogether, I sampled 53 different sand mine parcels in Montgomery County.

All 53 were classified as something other than sand mines.

When these inconsistencies were called to the attention of a representative of the Montgomery County Appraisal District, he seemed genuinely upset – not only by the inconsistencies, but by the apparent misclassifications. After reviewing several examples, he said, “That’s not right!” He vowed to look into the issue, asked me to send him a list of the misclassified properties, and said, “I pay my fair share of tax and want to make sure everyone else does to.”

“They Should Be Classified as What They Are – Sand Mines.”

Another official at the State Comptroller’s office verified that G3, the classification for sand mines, was still active and appropriate.

When asked if counties had the discretion to appraise mines as something else, he said, “They should be classified as what they are – sand mines.”

Regarding coding, the State Comptroller’s office does allow counties to create their own designations, for instance S for sand. However, they must report the mines to the state as G3. A quick check of neighboring counties found that some, do indeed, use alternative designations. For instance, Liberty County classifies several sand pits as “S.” Harris County just calls them sand pits. I could see no comparable alternative in Montgomery County.

Multiple Classifications Used for Similar Properties

“Multiple classifications for similar properties are highly unusual,” the official in the State Comptroller’s office said. “And you wouldn’t classify an occupied property as vacant. Maybe at one point in time they were vacant or in timber. But they no longer are. Sounds like they slipped under the radar of the chief appraiser.”

Need for Uniform Standards of Appraisal

He further stated that such appraisals are usually based on estimates of reserves, much like oil and gas. When asked if there was a specific procedure to follow for such appraisals, he said, “There are several appraisal standards and methods such as USPAP. Counties just have to pick one and stick with it, so they can be consistent and justify their appraisals.” USPAP stands for Uniform Standards of Professional Appraisal Practice.

“Usually, sand mine appraisals are based on tonnage, remaining reserves, and a formula for discounted cash flow. The law says you must use standard methods and appraisal practices,” said the source in the Comptroller’s office.

Most Likely an Oversight

The Montgomery County Appraisal District office also felt the appraisal inconsistencies were most likely an oversight. “The number of sand mines out there is minuscule compared to the number of homes, businesses, ranches and farms. They probably just slipped through the cracks. We rely a lot on self-reporting for these types of properties. Owners are supposed to tell us when the use of a piece of property changes.” Other counties also seem plagued by inconsistencies when it comes to sand mine appraisals, though not to the degree Montgomery County is.

Ready for a Rollback?

Mines that were receiving the ag/timber exemption which requires a special application, may be in for a large surprise if the mines are reappraised. According to state guidelines, the properties are subject to a rollback tax dating to the change of use or five years. Reappraisal equals the difference between the timber valuation and the market valuation plus 7% interest per year. Some mines have been using the ag/timber exemption for many years so penalties could add up quickly. See the State of Texas Guidelines for Appraisal of Timberlands in Chapter 2 and the rollback procedures in Chapter 3.

Same Land, Same Owner, Same Use on Different Sides of County Line – A 12X Difference

To put this issue in perspective, let’s look at the lone mine on the East Fork owned by the Guniganti Family Property Holdings LLC. The Harris/Montgomery County line bisects the lower part of the mine.

The land on the Montgomery County side is assessed as “ag/timber” even though it has been a sand pit for thirteen years. Because of the ag/timber exemption, Montgomery County taxes the land based on an assessed value of $56.25 per acre.

Montgomery County appraised the pit as timber even though it contained none.

Just inches to the south, land on the Harris County side used in an identical fashion is classified as a sand pit. That pit is taxed at its market value, which is $701.73 per acre. That’s more than a 12x difference in the taxable value for land on the same property.

Inches to the south, Harris County appraised the same land at its MARKET value for 12X more.

Montgomery County schools and hospitals could have a nice Christmas this year if all that so-called vacant land and timber land in sand mines gets re-appraised.

As always, these are my opinions on matters of public policy, protected the the First Amendment of the U.S. Constitution and the Anti-SLAPP statute of the Great State of Texas.

Posted 10/1/18 by Bob Rehak

398 Days since Hurricane Harvey

 

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:

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.
.

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 $287.71Here’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

393 Days since Hurricane Harvey