EXLP Leasing, LLC v. Galveston Cent. Appraisal Dist.
554 S.W.3d 572
| Tex. | 2018Background
- EXLP Leasing (subsidiary of Exterran) owns compressors leased into pipelines; some units physically located in Galveston County.
- 2012 Texas amendments (Tex. Tax Code §§ 23.1241-.1242) require dealer-held heavy equipment inventory be valued for tax purposes by dividing total annual lease/sales revenue by 12 (inventory-wide, not unit-by-unit).
- Chapter 23 prescribes an annual dealer declaration and monthly prepayments to a single collector based on the location where the dealer’s inventory is maintained.
- Galveston County continued taxing compressors in its borders at full market value and sued/declared the statute unconstitutional as applied; EXLP sued seeking declaration that Washington County (where EXLP’s yard/office is) is the taxable situs and that the statutes are constitutional.
- Trial court held statutes unconstitutional as applied and found Galveston the situs; court of appeals reversed in part, remanding on constitutionality but affirmed Galveston as situs. Texas Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument (EXLP) | Defendant's Argument (Galveston County) | Held |
|---|---|---|---|
| Constitutionality of §§ 23.1241-.1242 valuation method | Legislature may classify dealer-held inventory and use income-based formula; statutes are constitutional | Formula values compressors at a tiny fraction of actual market value, violating TX Const. art. VIII equal & uniform and value clauses | Statutes are presumptively constitutional; county failed to rebut. Legislature can prescribe valuation method; no constitutional requirement that "value" equal willing-buyer/willing-seller market value. |
| Whether valuation scheme must approximate market value | Not required; legislature may adopt alternative valuation methods for classes of property | Scheme is arbitrary/unreasonable because it divorces taxation from market value | Court rejects market-value-only requirement; burden on challenger unmet; statute sustained. |
| Equal & uniform challenge based on different treatment of leased vs. owner-used compressors | Classification of dealer inventory is permissible if not arbitrary | Differential treatment is grossly disparate and unconstitutional | Classification between classes is allowed; county offered no argument showing classification is arbitrary. |
| Taxable situs for dealer-held heavy equipment covered by §§ 23.1241-.1242 | Situs fixed at county where dealer conducts business/maintains inventory (Washington County) per chapter 23 reporting/prepayment scheme | Default situs rules (Tex. Tax Code § 21.02) make Galveston County the situs for units physically located there on Jan 1 | Sections 23.1241-.1242 create a specific, inventory-wide situs scheme that supersedes chapter 21 default; Washington County is proper taxable situs for EXLP’s inventory. |
Key Cases Cited
- In re Nestle USA, Inc., 387 S.W.3d 610 (Tex. 2012) (presumption of constitutionality for tax statutes).
- Enron Corp. v. Spring Indep. Sch. Dist., 922 S.W.2d 931 (Tex. 1996) (legislature may reasonably classify taxpayers and prescribe valuation methods).
- Mo., K. & T. Ry. Co. of Tex. v. Shannon, 100 S.W. 138 (Tex. 1907) (legislature has discretion to adopt modes of ascertaining value for taxation).
- Republic Ins. Co. v. Highland Park Indep. Sch. Dist., 102 S.W.2d 184 (Tex. 1937) (fixing valuation standards is legislative discretion).
- State v. Whittenburg, 265 S.W.2d 569 (Tex. 1954) (statutory market-value requirement enforced where legislature prescribed that method).