EXLP Leasing, LLC v. Ward Cnty. Appraisal Dist.

• Decision Date: 23 September 2015
• Docket Number: No. 08–13–00359–CV,08–13–00359–CV
• Citation: 476 S.W.3d 752
• Parties: EXLP Leasing, LLC and EES Leasing, LLC, Appellants/Cross–Appellees, v. Ward County Appraisal District, Appellee/Cross–Appellant.
• Court: Texas Court of Appeals

476 S.W.3d 752

EXLP Leasing, LLC and EES Leasing, LLC, Appellants/Cross–Appellees,

v.Ward County Appraisal District, Appellee/Cross–Appellant.

No. 08–13–00359–CV

Court of Appeals of Texas, El Paso.

September 23, 2015

Paul R. Elliott, Baker Botts L.L.P., Houston, TX, for Appellants.

Christopher Scott Jackson, Austin, TX, for Appellee.

Before McClure, C.J., Rodriguez, J., and Larsen, Senior Judge

OPINION

YVONNE T. RODRIGUEZ, Justice

This is an ad-valorem tax case of first impression. The issues in this appeal, like those in three other cases on our docket, concern the taxation of natural gas pipeline compressor packages.¹ These compressor packages facilitate the production and processing of natural gas by regulating the pressure necessary to extract it and move it. In this case, the trial court ruled—as urged by Appellants/Cross–Appellees—that sixteen compressor packages located in Ward County on January 1, 2012 qualified as heavy equipment. But the trial court ruled—as urged by Appellee/Cross–Appellant—that taxable situs lay in Ward County and that the statutory formulas for calculating the market value of heavy equipment inventory held for lease or rent and the tax due on it were unconstitutional as applied. On appeal, Appellee/Cross–Appellant challenges the heavy-equipment declaration and Appellants/Cross–Appellees challenge the situs and unconstitutional declarations. We affirm, in part, and reverse and render, in part.

FACTUAL AND PROCEDURAL BACKGROUND

Appellants/Cross–Appellees—EXLP Leasing LLC and EES Leasing LLC² —are in the business of leasing compressor packages to two entities: EXLP Leasing Operating and Exterran Energy Solutions, LP, respectively. These four companies are subsidiaries of "Exterran" and their business relationships are governed by two Equipment Master Rental Agreements. Pursuant to these agreements, EXLP Leasing Operating and Exterran Energy Solutions, LP, lease the compressor packages to third parties at an intercompany rate set by Exterran's treasury department. The sixteen compressor packages in dispute here were leased from Appellants' pool of approximately 1025 compressor packages assigned to their Midland County facility. In 2011, Appellants received $15,632,670.00 in rental and lease income from this pool of compressor packages.

That same year, the Legislature amended the statutes governing the taxation of heavy equipment inventory: Sections 23.1241 and 23.1242 of the Texas Tax Code. See Act of May 21, 2011, 82nd Leg., R.S., ch. 322, §§ 1, 2, 3, 2011 TEX. GEN. LAWS 938, 938–40. Of particular importance were changes to the statutory definitions of "dealer," "dealer's heavy equipment inventory," "sales price," and "total annual sales." See id. at §§ 1, 2, 2011 TEX. GEN. LAWS 938, 938–40; TEX. TAX CODE ANN. § 23.1241(a)(1) (defining "dealer"), TEX. TAX CODE ANN . § 23.1241(a)(2) (defining "dealer's heavy equipment inventory"), TEX. TAX CODE ANN. § 23.1241(a)(7) (defining "sales price"), TEX. TAX CODE ANN. § 23.1241(a)(9) (defining "total annual sales") (West 2015). These changes, which became effective January 1, 2012, altered the formulas for calculating the market value of heavy equipment inventory and the tax due on it. See id. at §§ 9, 10, 2011 TEX. GEN. LAWS 938, 941; TEX. TAX CODE ANN. § 23.1241(b) (establishing formula for calculating market value of heavy equipment inventory for ad valorem purposes), TEX. TAX CODE ANN. § 23.124l(b–1)(clarifying that market value of item of heavy equipment lease or rented then sold is the sales price plus the lease and rental payments), TEX. TAX CODE ANN. § 23.1242(a)(4) (defining "unit property tax factor"), TEX. TAX CODE ANN. § 23.1242(b) (establishing formula for calculating the unit property tax of each item of heavy equipment)(West 2015).

Previously, only dealers holding items of heavy equipment inventory for sale (or for lease or rent with an option to purchase) could calculate the market value of their inventory based on sales for the previous tax year, divided by twelve. See Act of May 20, 1997, 75th Leg., R.S., ch. 1184, § 2, 1997 TEX. GEN. LAWS 4564, 4565–68 (amended 1999); Act of May 28, 1999, 76th Leg., R.S., ch. 1550, §§ 1, 2, 1999 TEX. GEN. LAWS 5337, 5337 (amended 2011). But beginning January 1, 2012, dealers holding items of heavy equipment inventory for lease or rent (not subject to an option to purchase) could calculate the market value of their inventory based on lease or rental payments for the previous tax year, divided by twelve. Thus, as amended, the formulas for calculating the market value of heavy equipment inventory and the tax due on it encompassed the total revenue generated by a dealer's entire inventory—through sales and lease or rental payments—for the previous tax year, divided by twelve.See TEX. TAX CODE ANN. §§ 23.1241(b), 23.1241(b–1), 23.1242(a)(4), 23.1242(b).³

Relying on the amendments to Sections 23.1241 and 23.1242, Appellants claimed that they were dealers of heavy equipment inventory, that their pool of 1025 compressor packages in Midland County qualified as heavy equipment, and that their market value was $1,302,722: the sum of $15,632,670.00 in lease and rental payments attributable to this pool divided by 12, rounded down. In 2012, Appellants began paying the taxes due on this amount on a monthly basis to the taxing authority in Midland County. As to the sixteen compressor packages located in Ward County, Appellants calculated their market value to be $26,527.00 but ascribed no value to them in renditions filed with Appellee/Cross–Appellant—Ward County Appraisal District (hereinafter, "WCAD").

WCAD asserted that the sixteen compressor packages operating in Ward County on January 1, 2012 were taxable as business personal property. See TEX. TAX CODE ANN. § 23.01(a) (West 2015)("Except as otherwise provided by this chapter, all taxable property is appraised at its market value as of January 1."). Consequently, WCAD placed the compressor packages on its appraisal roll and appraised them at market value. For the 2012 tax year, the sixteen compressor packages were valued at $4,651,200.00. Appellants protested the determinations that the compressor packages belonged on WCAD's appraisal rolls and the valuations ascribed to them. The appraisal review board ruled against Appellants, and they sought judicial review of these rulings.

In the trial court,⁴ WCAD argued that Sections 23.1241 and 23.1242 were unconstitutional on their face and as applied because they permit taxation of leased heavy equipment inventory at a value bearing no relationship to any measure of its market value. WCAD also argued that, even if these formulas passed constitutional muster, Appellants could not take advantage of them because their compressor packages did not qualify as "heavy equipment" as that term is defined in Section 23.1241(a)(6). WCAD further argued that any tax due was payable to Ward County, not Midland County, because the compressor packages were located in Ward County on January 1, 2012 and had been there for more than a temporary period.

Appellants, of course, advocated the opposite and moved for summary judgment on these three issues. They succeeded in part, obtaining summary judgment declaring that the compressor packages qualify as heavy equipment:

[T]he Court finds that the Dealer Heavy Equipment Inventory Statute, Section 23.1241 of the Texas Tax Code, applies to Exterran's compressors. The motion is, therefore, GRANTED in part and DENIED in part.

Specifically, the Court finds that there is no genuine issue of material fact that the compressors are self-powered under Section 23.1241(a)(6). The parties did not dispute that the compressors each weighed over 1,500 pounds and were intended to be used for mining or industrial uses under Section 23.1241(a)(6). Exterran's motion for summary judgment is otherwise denied.

The other two issues—taxable situs and the constitutionality of the formulas—were litigated in a bench trial. The trial court found against Appellants on these issues, signing a take-nothing judgment in WCAD's favor:

IT IS THEREFORE ORDERED THAT the Plaintiffs take nothing and that judgment is entered for the Defendant.

IT TS FURTHER ORDERED THAT Texas Tax Code §§ 23.1241, 23.1242 are held to be unconstitutional as applied to the Plaintiffs' compressor packages at issue in this matter. The subject property at issue in this matter had situs in Ward County, Texas as of January 1, 2012.

Although Appellants requested the issuance of findings of fact and conclusions of law, the trial court did not oblige.⁵ Both parties timely appealed.

HEAVY EQUIPMENT

In its sole cross-issue on appeal, WCAD contends that the trial court erred in rendering summary judgment that "the compressors are self-powered under Section 23.1241(a)(6)." We disagree.

Standard of Review

We review a summary judgment de novo. Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 156–57 (Tex.2004). A movant is entitled to summary judgment if it proves that there are no genuine issues of material facts and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c) ; Two Thirty Nine Joint Venture, 145 S.W.3d at 157. Once a movant has proved it is entitled to summary judgment, the non-movant bears the burden of responding to the motion and presenting to the trial court any issues that would preclude summary judgment. Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 511 (Tex.2014).

WCAD does not argue on appeal that summary judgment was improper because genuine issues of material fact exist. Rather, WCAD argues that the compressor packages are not heavy equipment as a matter of law. Appellants urge the contrary. Essentially, each party insists its respective construction of Section 23.1241(a)(6) is the correct one.

Applicable Law

Section 23.1241(a)(6) defines "heavy equipment" as:

[S]elf-propelled, self-powered, or pull-type equipment, including farm equipment or a diesel engine, that weighs at least 1,500 pounds and is intended to be

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