KEY ENERGY SERVICES, LLC, Appellant v. SHELBY COUNTY APPRAISAL DISTRICT, Appellee.
No. 12-13-00075-CV.
Court of Appeals of Texas, Tyler.
Jan. 15, 2014.
Rehearing Overruled May 21, 2014.
426 S.W.3d 133
Peter William Low, Andrew E. Lemanski, Houston, for Appellee.
Panel consisted of WORTHEN, C.J., GRIFFITH, J., and HOYLE, J.
OPINION
JAMES T. WORTHEN, Chief Justice.
Key Energy Services, LLC appeals from the trial court‘s judgment affirming Shelby County Appraisal District‘s (SCAD) valuations of two saltwater disposal wells owned by Key. In seven issues, Key contends the trial court erred in refusing to reduce the valuations, allowing SCAD‘s expert to testify, determining it had no jurisdiction over Key‘s challenge to the 2007 tax year assessment, granting SCAD‘s motion for partial summary judgment, and failing to file findings of fact and conclusions of law. We affirm the trial court‘s judgment.
BACKGROUND
Davis Vacuum Services purchased a tract of land and the saltwater disposal well located on it on April 18, 2007. This well was known as the Davis #2. In December 2010, Davis merged with Key Energy Services, LLC. Key calls this well the Davis #5. Key leases the land on which its saltwater disposal well, known as the Davis #3, is located pursuant to a lease with John and Deborah Leggett, the owners of the land. The lease has been in effect since December 2005. Prior to
Key filed a declaratory judgment action asking the trial court to declare that its protests to the 2007 tax year appraisal and assessment were timely and that the appraisal roll entries for the two wells for the 2007, 2008, 2009, and 2010 tax years are void. Key argued that the appraisal roll entries are void because they fail to appraise the wells in the manner required by law and fail to describe the property accurately or in proper categories. Alternatively, Key challenged the assessments for 2007, 2008, 2009, and 2010 as excessive. Key filed a motion for summary judgment requesting judgment on the 2007 tax year for the well known as the Davis #5 and that the appraisals and assessments for both wells for all four tax years are void for failure to properly describe and categorize the property. Alternatively, Key requested judgment that its challenges concerning the 2007 tax year were timely. SCAD filed a motion for partial summary judgment asking the court to find that the wells are real property subject to taxation. The trial court sent a letter to the parties, on December 17, 2010, asking one of the attorneys to prepare an order reflecting a ruling that Key‘s motion for summary judgment was denied and SCAD‘s motion was granted. Key filed a second motion for partial summary judgment requesting a declaratory judgment that the wells are personalty or that the Davis #3 be taxed to the landowner, John Leggett.
SCAD filed a third party petition for declaratory judgment against John and Deborah Leggett, the owners of the land on which the Davis #3 sits, requesting the court determine if the property is taxable to Key or the Leggetts. In response, the Leggetts sought rescission of Key‘s lease and attorney‘s fees.
The case was submitted to the trial court without a jury. At the close of the trial, the Leggetts nonsuited their claims against Key. The court denied Key‘s request to change the valuation of the wells for any of the years under review and denied Key‘s claims with respect to the 2007 valuation due to lack of jurisdiction. Further, the court denied all requests for relief pursuant to the Uniform Declaratory Judgments Act and ordered each party to bear its own costs and attorney‘s fees. Key requested findings of fact and conclusions of law but none were filed. Key appealed the trial court‘s judgment.1
2007 TAX YEAR
In its sixth issue, Key asserts that the trial court erred when it determined that it lacked jurisdiction to consider Key‘s claims concerning the 2007 tax year due to Key‘s failure to exhaust the required administrative remedies. Relying on tax code
Applicable Law
Subject matter jurisdiction is essential to the authority of a trial court to decide a case. Tex. Ass‘n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993). The existence of subject matter jurisdiction is a legal question and the standard of review is de novo. Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 928 (Tex. 1998). The failure to exhaust the tax code‘s exclusive administrative remedies deprives the trial court of jurisdiction to review most adverse ad valorem tax decisions.
Property owners are entitled to administratively protest certain actions to the appraisal review board pursuant to
However, tax code
(c) The appraisal review board, on motion of the chief appraiser or of a property owner, may direct by written order changes in the appraisal roll for any of the five preceding years to correct:
- clerical errors that affect a property owner‘s liability for a tax imposed in that tax year;
- multiple appraisals of a property in that tax year; or
- the inclusion of property that does not exist in the form or at the location described in the appraisal roll.
Act of May 26, 1979, 66th Leg., ch. 841, § 1, 1979 TEX. GEN. LAWS 2218, 2276 (amended 1981, 1989, 1991, 2001, and 2011) (current version at
Further,
Analysis
The record shows that the subject properties were not included in the original 2007 appraisal roll or tax roll. However, by notice dated September 7, 2007, SCAD notified Davis Vacuum Services of the 2007 appraisal of each well. That notice letter advised Davis that it had until October 9, 2007, to file a written protest with the appraisal review board and even enclosed a form to send in for that purpose. SCAD certified supplemental appraisal records regarding the subject properties on December 26, 2007. On January 10, 2008, SCAD delivered to the Shelby County Tax Assessor-Collector the supplemental ap-
Protest Deadline
Property owners have the right to protest the appraised value of their property under
If a property owner fails to meet the deadline for a
Date of Delinquency
Here, the parties disagree about the applicable delinquency date. Generally, taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in which the taxes were imposed.
Key asserts that the applicable deadline is provided for in
If a tax bill is mailed that includes taxes for one or more preceding tax years because the property was erroneously omitted from the tax roll in those tax years, the delinquency date provided by Section 31.02 is postponed to February 1 of the first year that will provide a period of at least 180 days after the date the tax bill is mailed in which to pay the taxes before they become delinquent.
While we appreciate Key‘s efforts to follow the plain language of the statute, there is a distinction to be made here. As SCAD explains, this was a supplemental appraisal decision, not an omitted property question. Robert Pigg, Chief Appraiser at SCAD, testified by deposition that the two properties had “existed in some form in the past.” He explained that the reason the appraisal notices were late was that Pritchard & Abbott (P & A), the private evaluation consulting firm hired by SCAD, was “trying to gather some information to value these the way they felt they should be valued.” The critical point is that the appraisal record was supplemented in 2007. The fact that the tax roll was supplemented in 2008 did not turn a late appraisal into an omitted one. Thus, because the property was not “erroneously omitted from the tax roll” in 2007,
EXPERT TESTIMONY
In its fourth issue, Key asserts that the trial court erred in denying Key‘s motion to exclude the testimony of Rodney Kret, SCAD‘s expert witness. Key contends that (1) Kret‘s expertise was as a mineral interest appraiser and there is no mineral interest at issue in this case, (2) Kret‘s appraisal commingles real property and personal property, (3) he used the same framework to appraise both wells even though one was located on land owned by Key and one was located on land leased by Key, (4) he erroneously valued the property based on the gross business revenue received by Key, and (5) Kret testified that P & A categorized the property as personal property, but used the income method to appraise the property.
Standard of Review
We review a trial court‘s evidentiary rulings for abuse of discretion. Bay Area Healthcare Group, Ltd. v. McShane, 239 S.W.3d 231, 234 (Tex. 2007). A trial court abuses its discretion when it acts without regard for any guiding principles. E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 558 (Tex. 1995).
An expert‘s testimony must be relevant to the issues and based upon a reliable foundation. See
Analysis
Rodney Kret received a petroleum engineering degree in 1983 and immediately entered the ad valorem tax appraisal industry. He is a registered professional appraiser, employed by P & A, an evaluation consulting firm. See
Kret explained that the subject property, that being valued, is the same in the Davis #3 and the Davis #5. In both cases, the interest being valued is “the right to inject into a subsurface formation.” He clarified that a fee simple inter-
The tax code directs the appraisal district to consider the cost, income, and market data comparison methods of appraisal and use the most appropriate method. See
Finally, Kret testified that the “right to inject” is an “estate or interest in land,” a category of real property under
Kret, a registered professional appraiser with close to thirty years of experience at the time of trial, explained P & A‘s methodology. P & A applied their formulas, principles, and economic theories to the specific facts surrounding each saltwater disposal well at issue here to determine the appraised value of each well. Essentially, Key‘s complaints about Kret‘s testimony go to its weight, not its admissibility. See Ford Motor Co. v. Ledesma, 242 S.W.3d 32, 40-41 (Tex. 2007). Kret‘s calculations were based on quantitative foundational data and followed the methodology approved by
CATEGORIZATION AND DESCRIPTION
In its first issue, Key contends the trial court erred by allowing SCAD to value Key‘s saltwater disposal facilities as categorized and described when SCAD admitted that the facilities were made up of both personal and real property and the descriptions were impermissibly vague. Key argues that SCAD was required to
Analysis
The tax code requires appraisal records to be in a particular form and to include certain specified information. See
The tax notices we found in the record specified the SCAD property identification number, the name of the well, and the Railroad Commission identification number. Other documents contain the name, the general location, and the Railroad Commission identification number. Kret testified that the real property component was valued separately from the personal property component and then the values were combined. We conclude that SCAD provided sufficient notice as to what it was taxing. Even assuming that sending a tax bill stating the full amount of tax owed without itemizing is error, the supreme court has ruled that including property in an incorrect category does not exempt it from taxation. See Matagorda Cnty. Appraisal Dist. v. Coastal Liquids Partners, L.P., 165 S.W.3d 329, 335 (Tex. 2005). We overrule Key‘s first issue.
PARTIAL SUMMARY JUDGMENT
In its third issue, Key asserts that the trial court erred as a matter of law by granting SCAD‘s motion for partial summary judgment and holding that the facilities were composed entirely of real property. Key‘s argument is based on the faulty assumption that a letter sent to counsel for both parties constitutes a ruling on the motion.
Generally, a judgment is rendered when the decision is officially announced orally in open court, by memorandum filed with the clerk, or otherwise announced publicly. Garza v. Tex. Alcoholic Beverage Comm‘n, 89 S.W.3d 1, 6 (Tex. 2002). The words used by the trial court must clearly indicate the intent to render judgment at the time the words are expressed. S & A Rest. Corp. v. Leal, 892 S.W.2d 855, 858 (Tex. 1995) (per curiam). A letter to counsel may constitute the pronouncement of judgment if it is in sufficient detail to state the court‘s decision on all the matters at issue and filed with the clerk. Gregory v. Foster, 35 S.W.3d 255, 257 (Tex. App.—Texarkana 2000, no pet.). A letter is not a rendition of judgment if it only indicates the court‘s intention to render judgment in a certain way and sets out guidelines by which counsel are to draw a judgment. Id. Similarly, if a letter contains the language of command that identifies an order, it is an order of the court. Id.
More than two years before the final judgment was rendered, SCAD filed a motion for partial summary judgment requesting the court find that the subject
I am DENYING Plaintiff‘s Motion for Summary Judgment.
I am GRANTING Defendant‘s Motion for Partial Summary Judgment.
Mr. Low is directed to prepare an appropriate Order(s) reflecting my rulings for my signature.
The trial court‘s letter does not clearly indicate the intent to render judgment at the time the letter was signed. See Greene v. State, 324 S.W.3d 276, 282-83 (Tex. App.—Austin 2010, no pet.) (judge‘s letter including present tense language that “judgment is rendered” indicates intent to render judgment at that time). Furthermore, the letter, if a judgment, could only have been interlocutory and its terms were not incorporated in the court‘s final judgment. The court‘s letter indicates only the court‘s intention to render judgment in a certain way in the future and instructed counsel to draft an order for the court‘s signature. Thus, the letter was not a rendition of judgment. Gregory, 35 S.W.3d at 257. We overrule Key‘s third issue.
ESTATE OR INTEREST
In its second issue, Key contends the trial court erred by allowing SCAD to attribute taxable value to Key by categorizing each facility as an “estate or interest” in land when the taxes on the land had already been assessed to Key for one facility and to the Leggetts for the other facility. Specifically, Key argues that by allowing SCAD to attribute a value to the “right to inject” as an estate or interest in real property, the trial court erred as a matter of law because lesser estates are generally nontaxable as separate interests. Key asserts that the value of the entire fee necessarily contains the lesser value of the leasehold the fee contains. Key argues that the tax code prevents its leasehold interest in Davis #3 from being taxed apart from the Leggetts’ fee simple interest; otherwise, invalid double taxation results. Likewise, Key asserts, taxing both the facility under its “lesser interest” theory and the land where the #5 is located, which Key owns, caused Key to be taxed twice on the same land.
Applicable Law
For taxation purposes, real property includes land, improvements, mines, quarries, minerals in place, standing timber, or any estate or interest, other than a security interest, in any of the above.
Analysis
Kret explained that the interest at issue here is “the subsurface interest, the
Robert Pigg, SCAD‘s chief appraiser, also testified that the wells at issue are categorized as an estate or interest in land pursuant to
The appraisal of this real property (the rights associated with ownership of land) should not be confused with appraisal of the land itself. The ‘bundle of rights’ that are embedded within fee simple ownership of land require a separate appraisal when monetized to the extent that additional value is evident.
Adding to the confusion is the fact that the “estate or interest” at issue here is a “right” rather than a physical thing. We note other rights have been identified as being an “estate or interest.” See Evans v. Ropte, 128 Tex. 75, 96 S.W.2d 973, 974 (1936) (right to enter upon land and appropriate water is interest in land); Davis v. Vidal, 105 Tex. 444, 151 S.W. 290, 293 (1912) (right of re-entry is estate or interest in land); Lochte v. Blum, 10 Tex.Civ.App. 385, 30 S.W. 925, 927 (1895) (grantor‘s estate or interest in mortgaged property may be sold, subject to lien created by mortgage); Shepard v. Galveston, Houston & Henderson Ry. Co., 2 Tex.Civ.App. 535, 22 S.W. 267, 268 (1893) (right of way is easement, which is estate or interest in land).
Key owns the saltwater wells, which are, like the storage caverns in Coastal Liquids, in active commercial use. See Coastal Liquids, 165 S.W.3d at 334-35. A
EXCESSIVE VALUATION
In its fifth issue, Key asserts that the trial court erred as a matter of law by refusing to reduce the excessive valuation of the two saltwater disposal wells. It argues that Rodney Kret‘s testimony is inadmissible and therefore should be disregarded, leaving only the testimony of Key‘s expert, Trey Cobb. Key also asserts that Kret erred by valuing the property based on the gross business revenue received by Key. Key argues that this amounts to valuing the business concern and not the ad valorem value of the real and personal property at issue. Further, Key asserts that Kret‘s testimony is at odds with the court‘s prior ruling that the property is all real property.
Standard of Review
When the party who had the burden of proof at trial attacks the legal sufficiency of an adverse finding, that party must show that the evidence establishes, as a matter of law, all vital facts in
Applicable Law
The Texas constitution mandates that no property in this state shall be assessed for ad valorem taxes at a greater value than its fair cash market value.
Analysis
Robert Pigg, SCAD‘s chief appraiser, explained that there was a change in the way saltwater disposal wells were valued between 2006 and 2007. He did not think they were being valued correctly so he asked P & A to look at the valuations to try to determine if they were correct. He explained that the wells are being taxed as a real property interest. The wells are real property and the tanks and pumps are personal property, but they are not taxed separately. They combined them with assessments of the wells.
Rodney Kret testified that the tax code does not promulgate any particular method for valuing any particular property. P & A uses the income approach for valuing saltwater disposal wells. The income approach is a projection of future income. Kret explained that the appraised value is a compilation of several different, separate appraisals. Included are various items of personal property along with some real property. They appraise real and personal property separately but do not list them separately. He further explained that the real property interest involved here is not a fee simple interest. The thing being valued is the right to inject and that right to use the property as disposal wells was appraised separately from the fee. Kret explained that historically appraisals of
The record includes exhibits indicating the use of the “Income Approach Discounted Cash Flow Calculation” that resulted in “the present value of the future net income.” The report includes the salvage value of the replacement cost new of the well. Kret explained that embedded in that salvage value is a depreciation component. The unit value includes both real and personal property and is the cost to construct that facility, including drilling and completing the well and installation of surface equipment. The creation of the hole is part of the installation cost. Kret explained that they valued the cost of the facility and drilling the well and applied a percentage to find salvage value, which takes into account all forms of depreciation. He explained that installation cost is a component part of “replacement cost new” for property that is installed somewhere. He clarified that the replacement cost new captures all costs to create this facility, including all the engineering and overhead, all the labor costs and materials, and the tangible personal property. He explained that they do not list specific pumps, pipes, and tanks. Instead, they use a mass appraisal figure that includes what is typical for the type of property they are appraising. They used a linear cost, dollars per foot, related to the depth of the well. They consulted Railroad Commission records to determine the volume of water that has been disposed of in each well.
Summing up the approach used by P & A, Kret stated, “The conclusion of value was, in this case, the replacement cost new limit that we put on the cash flow, the income projection of net income discounted to present value.” This is a discounted cash flow analysis. The calculations include a ten year projection of future net revenue. He explained that number of barrels times price equals gross revenue stream. Expenses of operation are allowed against the gross revenue to arrive at a net income stream. Future net income figures are discounted to present value. Kret stated that income derived on an income producing property is the basis of the appraisal. He explained that the wasting asset in the saltwater disposal well is the ability of the reservoir to accept the water. P & A applied the same estimated expense burden to both wells. Due to the absence of a payment to the landowner in the case of well #5, this amounted to a greater expense burden on the #5 than actually existed, which Kret characterized as a gift to the taxpayer. Clarifying, Kret stated that they used the income approach to value the property but they applied a limit on that concluded value. They used a different approach as a limiting factor. The replacement cost new approach was used as a limit on the income approach indicator of value to determine the certified value.
Among numerous documents SCAD introduced is a paper Kret authored describing the process of appraising saltwater disposal properties for ad valorem tax purposes. In it, he explained that a replacement cost new less depreciation cost approach methodology is best suited for appraising the tangible personal property component of saltwater disposal wells. However, the income approach to value is the most appropriate way to appraise the real property of a saltwater disposal facility, which is the interest or right that allows the injection to take place. The relevant income to analyze is net of all expenses of operation and taxes; in other
In arguing this issue, Key first urges us to disregard Kret‘s testimony. As we have already explained, that testimony was admissible and we shall not disregard it. We have also already determined that the trial court did not render judgment that the wells are solely real property, and the wells were properly identified as a
Key asserts that the controlling case on valuation is Gregg County Appraisal District v. Laidlaw Waste Systems, Inc., 907 S.W.2d 12 (Tex. App.—Tyler 1995, writ denied). That case concerned valuing a 250 acre tract of land used as a landfill, but the discussion of the appraisal methodology was in the context of whether the appraisal reports were admissible. This court held that the trial court had properly excluded evidence that focused on Laidlaw as a going concern including its state permit and private contracts, which constitute intangible personal property. Id. at 19. Further, the proffered appraisal testimony commingled the value of the business with the value of the property. Id. at 20. The excluded appraisal reports did not identify what part of Laidlaw‘s income was derived from the land and what part was attributable to the other assets, such as contracts and business acumen in running the company. The appraisal reports were deemed inadmissible because they included some factors that would confuse the jury. Id.
Here, Kret specifically stated that P & A did not appraise the business itself; they appraised the use of the property. The appraisal is based on the use of the land for commercial saltwater disposal purposes. Key overlooks the fact that, in Laidlaw, the trial court had explained that it would allow evidence dealing with the usage of the property and residual values, but that evidence was not offered in that case. Id. at 19.
In Laidlaw, the trial court properly admitted into evidence an appraisal using the income method that involved estimating future lease proceeds, deducting appropriate expenses, and then discounting the figures to the present worth. Id. at 18. Here, P & A used an income method involving the future profit potential, deducting expenses of operation, and applying the replacement cost new approach as a limit to determine the certified value. See
Each property should be appraised based on the individual characteristics that affect the property‘s market value. Coastal Liquids, 165 S.W.3d at 334. It is undisputed that the wells are income producing. SCAD presented evidence that it is appropriate to use the income approach to value income producing property. The income approach is a generally accepted appraisal method. See
Key presented as its expert Trey Cobb, a licensed property tax consultant. He explained that, prior to 2007, saltwater disposal wells were appraised as business personal property and the only thing being appraised and assessed was the surface equipment. He stated that the cost approach, and not the income approach, is used to value business personal property.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
In its seventh issue, Key contends the trial court erred in failing to file findings of fact and conclusions of law. Key argues that it timely filed a request for findings of fact and conclusions of law and later a notice of past due findings and conclusions. Because the trial judge stepped down from the bench before responding, Key argues that it is unable to “effectively brief against the findings and conclusions that will now never come.” Key asserts that injury is presumed and remand for a new trial is warranted.
A request for findings of fact and conclusions of law must be filed within twenty days after the judgment is signed.
The judgment was signed on December 21, 2012. Key‘s request for findings of fact and conclusions of law was due on January 10, but filed on January 11, 2013. The notice of past due findings of fact and conclusions of law was due on February 11,3 but filed on February 15, 2013. Thus, because Key‘s request was not timely, the trial court was not required to file findings of fact and conclusions of law. See Williams v. Kaufman, 275 S.W.3d 637, 642 (Tex. App.—Beaumont 2009, no pet.). Furthermore, automatic reversal would not be warranted here even if Key‘s requests had been timely. A trial court‘s failure to file findings and conclusions is not harmful error if the record before the appellate court affirmatively shows that the complaining party suffered no injury. Cherne Indus., Inc. v. Magallanes, 763 S.W.2d 768, 772 (Tex. 1989). The error is harmful if it prevents an appellant from properly presenting a case to the appellate court. Tenery v. Tenery, 932 S.W.2d 29, 30 (Tex. 1996). Thus, an appellant is harmed if it must guess the reason or reasons the judge ruled against it. Holmes v. Williams, 355 S.W.3d 215, 222 (Tex. App.—Houston [1st Dist.] 2011, no pet.). On page 62 of its brief, Key asserts that it “is left without the ability to effectively brief against the findings and con-
CONCLUSION
The trial court did not have jurisdiction to consider Key‘s claims concerning the 2007 tax year. SCAD provided adequate notice as to what was being taxed and properly categorized the wells as an estate or interest in land. The trial court‘s letter to the parties did not constitute a ruling on SCAD‘s motion for partial summary judgment. The trial court did not err in admitting SCAD‘s expert‘s testimony, refusing to reduce the valuation of the wells, or by failing to file findings of fact and conclusions of law. Accordingly, we affirm the trial court‘s judgment.
JAMES T. WORTHEN
CHIEF JUSTICE