PARKER COUNTY APPRAISAL DISTRICT, Appellant v. BOSQUE DISPOSAL SYSTEMS, LLC, Agnus SWD Services, L.P., Gordon SWD Services, L.P., and Bob Phillips d/b/a Phillips Water Hauling, Appellees
NO. 02-15-00343-CV
Court of Appeals of Texas, Fort Worth.
DELIVERED: December 1, 2016
Reconsideration En Banc Overruled December 28, 2016
506 S.W.3d 665
Accordingly, we conclude that CPS Energy was not entitled to rely on the provisions of the compliance protocol to exempt it from liability for violating the WMO Rule. Issue Four is overruled.
CONCLUSION
The trial court’s judgment is affirmed.
Joshua W. Carden, Joshua Carden Law Firm, P.C., Irving, TX, for Appellees.
OPINION1
SUE WALKER, JUSTICE
I. Introduction
This appeal from a final judgment incorporating a summary judgment involves whether Appellant Parker County Appraisal District’s assessment of four subsurface saltwater disposal wells separately from and in addition to the tracts of land on which the wells are located is void. The trial court granted summary judgment for the landowners, Appellees Bosque Disposal Systems, LLC; Agnus SWD Services, L.P.; Gordon SWD Services, L.P.; and Bob Phillips d/b/a Phillips Water Hauling (collectively, Owners), who contended that the value of the wells is subsumed within the value of their land; thus, the separate assessment and taxation of the income stream from the operation of those wells resulted in them being taxed twice on the same property. The Appraisal District challenges the trial court’s ruling in a single issue. Because controlling authority compels the conclusion that Owners’ real property interest in the saltwater disposal wells may be separately assessed and taxed, we will reverse the trial court’s judgment, render a summary judgment for the Appraisal District on the controlling question of law, and remand the case to the trial court.
II. Factual and Procedural Background
Owners own tracts of land in Parker County, Texas.2 Subsurface saltwater dis
In their petitions for review, Owners contended that because the Appraisal District had already appraised the real property upon which the wells are located, additional assessment based on the income stream from the wells subjected the land to “multiple appraisals for the same property.”5 Owners sought several remedies: (1) a declaratory judgment that the separate appraisal accounts created for the assessment of the saltwater disposal wells are void; (2) a correction of the appraisal rolls in accordance with
Because the factual basis upon which the Appraisal District separately assessed the wells is undisputed, Owners filed a joint motion for summary judgment contending that as a matter of law, the tax code does not authorize the Appraisal District to separately value and tax the saltwater disposal wells and the fee simple surface tracts. Thus, they sought to have the trial court render a declaratory judgment that the separate accounts and appraised values for the wells are void. After the Appraisal District filed a combined response and competing motion for summary judgment, the trial court granted Owners’ motion and denied the Appraisal District’s, declaring the four accounts related to the saltwater disposal wells “void as illegal double taxation.” One month later, the trial court rendered a final judgment for Owners in which it denied their supplemental request for attorney’s fees. The Appraisal District perfected a timely appeal from the final judgment.
III. Standard of Review
We review a summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could and disregarding evidence contrary to the nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every reasonable inference and re
When both parties move for summary judgment and the trial court grants one motion and denies the other, the reviewing court should review both parties’ summary judgment evidence and determine all questions presented. Mann Frankfort, 289 S.W.3d at 848. The reviewing court should render the judgment that the trial court should have rendered. See Myrad Props., Inc. v. LaSalle Bank Nat‘l Ass‘n, 300 S.W.3d 746, 753 (Tex. 2009); Mann Frankfort, 289 S.W.3d at 848.
When reviewing a summary judgment granted on specific grounds, the summary judgment can only be affirmed if the ground on which the trial court granted relief is meritorious. Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 625–26 (Tex. 1996). But if a party preserves the other grounds presented that were not ruled on by the trial court, a court of appeals may consider these other grounds that the trial court did not rule on. Id. at 626. To preserve the grounds, the party must raise them in the summary judgment proceeding and present them in an issue or cross-point on appeal. Id. at 625–26.
IV. Summary Judgment Motions
Owners moved for summary judgment on two grounds: (1) the Appraisal District separately assessed and taxed a nonexistent separate interest in the saltwater disposal wells, and (2) even if a separate property interest exists, the tax code does not permit it to be taxed separately from and in addition to the surface tract. Owners argued that the saltwater disposal wells are not separate estates or interests in land because their surface and subsurface estates have not yet been severed by conveyance. Owners thus contend that the value attributable to the wells is subsumed in the already-appraised value of the land and that by separately appraising an interest related to the subsurface wells, the Appraisal District is essentially taxing the only properly taxable interest, i.e., the land, twice using different appraisal methods. They also contend that the saltwater disposal wells do not fit within any category of taxable real property set forth in the tax code.
The Appraisal District did not request specific relief in its motion for summary judgment and response—such as a final judgment in its favor or the dismissal of all of Owners’ claims; therefore, it appears the Appraisal District sought to have the trial court determine the preliminary legal issue of whether the saltwater disposal well interests can be separately assessed and taxed under the law. See Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222 (Tex. 1999); Tri-County Elec. Coop., Inc. v. GTE Sw. Inc., 490 S.W.3d 530, 546 n.8 (Tex. App.—Fort Worth 2016, no pet.). The arguments in its motion are directly responsive to Owners’ arguments in their motion.
The summary judgment evidence shows that the Appraisal District valued the saltwater disposal wells on each Owner’s tract based on an appraisal performed by Pritchard & Abbott, a tax consulting and appraisal firm that has been hired by several Texas counties. That firm is the only one in Texas that uniformly appraises these types of facilities using an income approach rather than simply placing a value on the personal property associated with the well. The wells were valued based on a uniform formula created by Pritchard & Abbott; the formula takes into account the well’s past and forecasted revenue
Owners included in their summary judgment evidence a Pritchard & Abbott report explaining the firm’s appraisal methods for these types of saltwater disposal facilities. According to the report, a commercial disposal well has both personal and real property requiring valuation. The personal property consists of the aboveground equipment and hardware; “[t]he real property is the interest or rights associated with injection into the subsurface of the land.” In other words, Pritchard & Abbott’s appraisal model values landowners’ “right to inject into [the] subsurface formation” on their land. A Pritchard & Abbott employee testified by deposition that although the Appraisal District could “roll ... up” or include the value of an income-producing saltwater disposal well in an appraisal of the surface land, that “is not done.”
The summary judgment evidence also shows that working interest owners of oil and gas leases often maintain saltwater disposal facilities on the leasehold itself. According to Pritchard & Abbott’s report summary, “[a] leasehold disposal well’s value is already captured in the working interest owner’s mineral interest value which is enhanced by the costs savings derived by not using a commercial vendor (i.e., no middle-man fees).” Thus, Pritchard & Abbott, at least, appears to maintain that the only taxable value of a saltwater disposal well located on leased land and used in connection with a subsurface mineral interest is an enhancement to the fair market value of the mineral estate. In contrast, according to Pritchard & Abbott, valuation of a commercial disposal facility’s ability to inject into the land’s subsurface is “best accomplished with the income approach to value where[in] the appraiser converts an estimated future profitability potential of the property to current market value.” Therefore, “[t]he relevant income to analyze is net of all expenses of operation and taxes; in other words, the profitability (or lack of it).” This income approach lies whether the right to inject is severed or not, but if severed, typically, the owner has no operating expenses to deduct. Using the market approach to appraise the value of such a facility is difficult because Texas does not require purchasers of property interests to disclose how much they paid for those interests.
V. Owners’ Interests in the Saltwater Disposal Wells May be Separately Assessed Under the Texas Constitution and Tax Code
“[T]he Legislature may constitutionally draw distinctions in the manner in which market value of property is determined for ad valorem tax purposes, as long as the classifications are not unreasonable, arbitrary, or capricious.” Enron Corp. v. Spring ISD, 922 S.W.2d 931, 936 (Tex. 1996). The tax code defines “real property” as including land, improvements, mines, quarries, minerals in place, standing timber, or “an estate or interest, other than a mortgage or deed of trust creating a lien on property or an interest securing payment or performance of an obligation,” in land, improvements, mines, quarries, minerals in place, or standing timber.
Contrary to Owners’ argument in their motion for summary judgment, the supreme court has squarely held that the separate taxation of different aspects of the same tract of land “does not depend on whether each aspect is separately owned, as identical properties cannot be taxed differently depending on whether, for example, a mineral interest has been legally severed.” Coastal Liquids, 165 S.W.3d at 332 (citing State v. Fed. Land Bank of Houston, 160 Tex. 282, 329 S.W.2d 847, 849 (1959)). In State v. Federal Land Bank of Houston, the supreme court held that a county’s taxing system of separately assessing severed mineral estates but not separately assessing unsevered mineral estates was illegal under the equal and uniform clause of the Texas constitution. 329 S.W.2d at 848–50; see also Duval Cty. Ranch Co. v. State, 587 S.W.2d 436, 444 (Tex. Civ. App.—San Antonio 1979, writ ref’d n.r.e.) (concluding that it was not improper for county to assess taxes separately on surface and subsurface mineral estates of land even when there had not yet been a conveyance of any part of the mineral estate to a third party), cert. de
Owners contend that a taxable estate or interest cannot merely “spring into existence” for taxation purposes without some legal act such as a conveyance and that their permit from the Railroad Commission does not create a taxable interest under the tax code. But the possibility of using the subsurface of their land to dispose of saltwater brine byproduct if they could obtain the necessary permits was already included as part of their rights in the fee simple estates they own. See Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 382–83 (Tex. 2012) (“The ‘bundle of rights’ concept is appropriate because property does not refer to a thing but rather to the rights between a person and a thing.“).
Owners further contend that the descriptions of the types of real property that may be taxed is limited by and must fit squarely into one of the types of interests listed in chapter 25 of the tax code; otherwise, those interests may not be valued and taxed separately from the land. See
The Tyler court of appeals has considered the same issue in a 2014 appeal involving the same type of disposal wells and the same method of appraisal by Pritchard & Abbott. In Key Energy Services, LLC v. Shelby County Appraisal District, a jury trial case, the Tyler court considered whether the trial court had erred as a matter of law by allowing the Shelby County Appraisal District to attribute a separate value to the right to inject saltwater into the land’s subsurface “because lesser estates are generally nontaxable as separate interests.” 428 S.W.3d 133, 145 (Tex. App.—Tyler 2014, pet. denied). Relying primarily on Coastal Liquids, but not engaging in a detailed analysis, the Tyler court held that the landowners’ right to inject into wells that were “in active commercial use” was a taxable estate or interest under
Owners rely on Cherokee Water Co. v. Gregg County Appraisal District for the proposition that the saltwater disposal wells may not be taxed separately and must be included in the land value. 801 S.W.2d 872 (Tex. 1990). The plaintiff in Cherokee Water Co. owned all of Lake Cherokee and numerous acres surrounding the lake that it leased to its shareholders; many of the lessees had built homes and other improvements on the leased land. Id. at 873–74. The Gregg County Appraisal District appraised the property based on its potential development use, but Cherokee Water Co. contended that it should only be assessed a reversionary interest in the land because all of the land was encumbered by leases, thus limiting the
Although Owners contend that the case held that the
Owners also rely on Gregg County Appraisal District v. Laidlaw Waste Systems, Inc. in support of their argument that the tax code does not authorize the separate valuation and taxation of a right to inject into the subsurface. 907 S.W.2d 12 (Tex. App.—Tyler 1995, writ denied) (op. on reh’g). In Laidlaw, the court of appeals held that the trial court did not abuse its discretion by refusing to admit for the jury’s consideration on
Owners contend that the Appraisal District assessed their saltwater disposal wells based on the value of their Railroad Commission permits allowing them to use the land for regulated injection purposes and that the assessment is thus faulty for the same reason as the appraisal evidence in Laidlaw. But the summary judgment evidence does not show that the Appraisal District placed any value on the Railroad Commission’s permits or other intangible property in valuing the interest associated with the saltwater wells. Instead, the Appraisal District based its assessment on the Pritchard & Abbott appraisal that calculated a three-year average revenue and deducted forty-five percent for estimated operating expenses. An income-based ap
We hold that the trial court erred by granting judgment for Owners on the ground that the Appraisal District illegally subjected them to multiple assessments on the same property. We also hold that the trial court erred by denying the Appraisal District’s motion for summary judgment on the ground that the accounts are not void because it separately assessed Owners’ interests in the saltwater disposal wells. Therefore we sustain the Appraisal District’s sole issue.
VI. Conclusion
Because controlling authority does not support the preserved ground upon which Owners filed their motion for summary judgment—that they were subject to illegal multiple assessments for the same land,10 we hold that the trial court erred by granting Owners a summary judgment declaring the accounts void as illegal double taxation. Because the trial court also erred by denying the Appraisal District’s motion for summary judgment seeking to resolve the legal question of the propriety of its separate assessment of the land and associated saltwater disposal wells, we render summary judgment for the Appraisal District solely on that issue as raised in its motion. Because the final judgment was based on the summary judgment for Owners, we reverse the trial court’s judgment, and we remand the case to the trial court for further proceedings consistent with this opinion.
MEIER, J., filed a dissenting opinion, in which GARDNER and SUDDERTH, JJ., join.
The Owners’ use of the saltwater disposal wells generates taxable value as interests in land under property code section 1.04(2)(F), but the interests should not have been appraised and taxed separately from the fee simple estates of which the wells are included. Because the majority concludes otherwise, I respectfully dissent.
“Ordinarily one’s entire interest in a particular tract of land should be assessed for tax purposes as a unit. The assessor should not divide said interest into various portions and assess the same separately.” Victory v. Hinson, 71 S.W.2d 365, 367 (Tex. Civ. App.—Waco 1934, no writ); see Humble Oil & Ref. Co. v. West, 508 S.W.2d 812, 815 (Tex. 1974) (observing that ownership of land in fee simple includes not only the surface and mineral estates but also “the matrix of the underlying earth, i.e., the reservoir storage space“). But this approach is by no means absolute; separate assessments of different aspects of the same property are permissible under certain circumstances. See Matagorda Cty. Appraisal Dist. v. Coastal Liquids Partners, L.P., 165 S.W.3d 329, 333–34 (Tex. 2005); Gifford-Hill & Co. v. Wise Cty. Appraisal Dist., 827 S.W.2d 811, 816 (Tex. 1991); see also
The Appraisal District posits that it was justified in separately appraising and taxing the saltwater disposal wells because the surface and subsurface estates of the properties “are used for different purposes.” The argument appears to simply echo the supreme court’s reasoning in Coastal Liquids that the manmade salt dome storage caverns at issue there could be appraised and taxed separately as improvements because “they were and had been in active commercial use, separate and apart from whatever uses were taking place on the surface above.” 165 S.W.3d at 333. A closer look at the observation reveals that while it might provide guidance in some circumstances involving subsurface activity, it is not susceptible to automatic application in all.
The supreme court’s use/non-use or active commercial use/awaiting future development dichotomy stemmed from its decision in Gifford-Hill, in which the court concluded that unlike limestone that was under production as part of a quarry, non-producing subsurface limestone could not be appraised separately from the land immediately above it. 827 S.W.2d at 815–16. At the core of the distinction were money and equity, as the limestone that was part of a producing quarry had been appraised at $3,000 per acre, but the limestone that was not under production was taxed at the considerably less open-space value of $56 per acre. Id. at 813. The financial implications were evident: “[A] blanket rule taxing limestone separately ‘would subject thousands of unsuspecting farmers and ranchers to increased tax liability and frustrate the Constitution’s intent “[t]o promote the preservation of open space land ... devoted to farm or ranch purposes.“’” Coastal Liquids, 165 S.W.3d at 333. The decision to separately appraise and tax some but not all of the limestone thus
The same concerns are not even remotely present in this case. There is no threat of increased tax liability to unassuming landowners, nor are there any underlying equitable or constitutional concerns that favor separate taxation. And unlike in Coastal Liquids, the Owners are injecting water into the naturally occurring saltwater wells solely to dispose of it, not to store it. If there is any “active commercial use” taking place, it is at the surface, where the Owners are exercising their “right to inject,” not underground, where the water is merely combined with the earth for all eternity—not so unlike perpetually undisturbed limestone located under the surface. Accordingly, the Gifford-Hill use/non-use dichotomy is inapposite under the facts of this case.1
The Appraisal District alternatively contends that separate appraisals were permitted because the values of the surface and subsurface “are determined by different methods,” but mathematical convenience alone does not justify a separate appraisal. The Appraisal District and its consulting firm are fully capable of considering the income derived from the saltwater injection wells as a factor in accurately valuing each of the fee simple estates. See Houston R.E. Income Props. XV, Ltd. v. Waller Cty. Appraisal Dist., 123 S.W.3d 859, 861–63 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (reasoning that use of more than one appraisal method was permitted, so long as “the appraisal method as a whole constitutes relevant and reliable evidence of market value“); cf. Missouri-Kansas-Texas R.R. Co. v. City of Dallas, 623 S.W.2d 296, 299–301 (Tex. 1981) (observing that in determining railroad value, “[n]o one criteria is usually solely determinative“).
The individual characteristics of the properties here do not warrant separate appraisals and taxation. See
GARDNER and SUDDERTH, JJ., join.