Polk County v. Tenneco, Inc.

• Decision Date: 22 June 1977
• Docket Number: No. B-6278,B-6278
• Citation: 554 S.W.2d 918
• Parties: POLK COUNTY et al., Petitioners, v. TENNECO, INC., Respondent.
• Court: Texas Supreme Court

Page 918

554 S.W.2d 918

POLK COUNTY et al., Petitioners, v. TENNECO, INC., Respondent.

No. B-6278.

Supreme Court of Texas.

June 22, 1977.

As Corrected On Denial of Rehearing

July 20, 1977.

E. L. McClendon, Jr., Livingston, Elvin E. Tackett, Bedford, for petitioners.

Reynolds, White, Allen & Cook, Stanley B. Binion, Houston, for respondent.

GREENHILL, Chief Justice.

This tax suit was filed by Tenneco, Inc., against petitioners Polk County, the County Tax Assessor-Collector, and the County Board of Equalization. Tenneco sought, among other things, an injunction and a writ of mandamus to compel the defendants to set aside the 1975 ad valorem tax assessment of Tenneco's pipelines lying within Polk County. Trial was to the court, which rendered judgment that Tenneco take nothing. The court of civil appeals reversed that judgment and vacated the County's assessment of Tenneco's pipelines for the year 1975. 546 S.W.2d 63. We granted the writ of error because the court of civil appeals equated the net book value of the pipelines with the market value of the pipelines. It is our view that it erred in doing so; and accordingly, we reverse its judgment. The cause is remanded to that court for the consideration of points not heretofore ruled upon.

Tenneco, through its Tennessee Gas Pipeline Division, owns and operates an interstate natural gas transmission system. Underground gas pipelines make up a major part of this system, and portions of three of these pipelines are located in Polk County, Texas. These three pipelines run parallel through the county and total approximately 61.90 miles in length. Their size, age, location and original costs are undisputed, as is the fact that they comprise .198 percent of the value of Tenneco's entire gas transmission system.

For the years 1970 through 1974, the county's tax plan was to tax property in the county on the basis of 17 percent of market value. During those years, Tenneco rendered its pipelines to the county at a value of $534,830. The county accepted these renditions and taxed the pipelines on that value, and Tenneco paid the taxes so levied without protest.

In 1975, the County Commissioners' Court decided to change the assessment ratio for the 1975 tax year. The court determined that property would be assessed at 25 percent, rather than 17 percent, of market value for county tax purposes. In order to increase the valuation of Tenneco's property to reflect the increased assessment ratio, the Commissioners' Court, sitting as the County Board of Equalization ¹ (hereafter called the Board), multiplied Tenneco's 1975 rendition of $534,830 by a factor of 1.47. The result was an assessment of Tenneco's pipelines at $786,220 for the 1975 tax year. ²

Upon learning of the Board's action, Tenneco instituted this direct attack by filing suit to set aside the increased assessment. The Board thereupon agreed to vacate its previous assessment and to reconvene and hear evidence on the market value of Tenneco's pipelines. The hearing was held, and both sides put on witnesses who gave their opinions of the pipelines' market value. After hearing the evidence, the Board unanimously agreed to assess the pipelines at $786,220. Tenneco then continued with this suit, which had been postponed pending the outcome of the Board hearing.

Articles 7211 and 7212 are the statutory bases for the authority of boards of equalization to increase renditions and to equalize assessments. Article 7211 provides that when an assessor has increased a taxpayer's rendition, and the taxpayer objects, the county commissioners' court "shall hear evidence and determine the true value of such property. . . ." Article 7212(A) authorizes boards of equalization to increase or diminish property valuations if satisfied that those valuations are not in accordance with the laws of the state. The statute further provides:

(W)hen any assessor in this State shall have furnished the said Board with a rendition as provided for in the preceding Article it shall be the duty of such court to call before it such persons as in its judgment may know the market value or true value of such property as the case may be by proper process, who shall testify under oath the character, quality, quantity of such property as well as the value thereof. Said court after hearing the evidence shall fix the value of such property in accordance with the evidence so introduced and as provided in the preceding Article and their action in such case or cases shall be final . . . . (Emphasis added).

Because the statutory language is clear that valuations made by boards of equalization "shall be final," and because decisions made by the boards are quasi-judicial in nature, Bernhardt v. Port Arthur Independent School District, 159 Tex. 488, 324 S.W.2d 163 (1959), State v. Houser, 138 Tex. 28, 156 S.W.2d 968 (1941), the courts of this state will not set aside board valuations absent compelling circumstances. On the other hand, the boards do not possess absolute discretion in valuing property; they must follow both constitutional and statutory directives. See, e. g., Article V, Sections 1 and 20 of the Texas Constitution, and Articles 7174 and 7212.

Perhaps the most quoted statement of these ideas is found in State v. Whittenburg, 153 Tex. 205, 265 S.W.2d 569 (1954). This Court there stated:

It is now well settled that the assessment of property for tax purposes is a quasi-judicial function of boards of equalization and that no attack on valuations fixed by such boards can or will be sustained in the absence of proof of fraud, want of jurisdiction, illegality, or the adoption of an arbitrary and fundamentally erroneous plan or scheme of valuation. (citing cases). Moreover, when their official action is attacked it will be presumed that such boards discharged their duties as public agencies according to law and acted in good faith. (citing cases). 265 S.W.2d at 572-73.

Tenneco, therefore, assumed a heavy burden in attempting to set aside the Board's valuation of the pipelines. ³

The principal arguments made by Tenneco in the trial court were that the Board's assessment of the pipelines at $786,220 was grossly excessive and, alternatively, that the assessment was actually and substantially discriminatory because other property in the county was assessed at a lower percentage of market value. ⁴ The basis of both of these arguments was Tenneco's allegation that the market value of its pipelines in Polk County was $2,139,320. If that figure was accurate, then Tenneco's 1975 rendition of $534,830 was 25 percent of market value; and it was argued that the Board's assessment of $786,220 was therefore "grossly excessive." Similarly, if Tenneco's market value figure was accurate, then the Board's assessment of $786,220 was approximately equal to 37 percent of market value. Since it was undisputed that the county's tax plan was to assess all taxable property in the county at 25 percent of market value, then Tenneco's property was argued to be subject to an unequal and discriminatory assessment ratio. The defendants, on the other hand, contended that the market value of Tenneco's pipelines was $3,144,880. If that was the true value, then the Board's valuation was neither grossly excessive nor unequal and discriminatory.

It is therefore evident that the controversy between the parties centered on the question of the market value of Tenneco's pipelines. When the question of market value is central to the taxpayer's claim, as here, that question is one of fact for the fact finder. The questions of gross excessiveness and of substantial discrimination, however, are ones of law for the court. The court must decide as a matter of law whether the assessment by the taxing authority was so excessive or so discriminatory as to warrant the setting aside of that assessment. Cf. Whelan v. State, 155 Tex. 14, 25, 282 S.W.2d 378, 385 (1955).

In this case, the questions of substantial discrimination and gross excessiveness were not briefed by the parties. We therefore decline to decide whether Tenneco would have been entitled to the relief sought even had it been able to prove its allegation that the market value of its Polk County pipelines was $2,139,320. In view of the disposition we make of this case, however, we believe it would be a pertinent inquiry by the court of civil appeals on remand. In considering the question, the court may find helpful those cases which have involved allegedly unequal and discriminatory assessments, e. g., Bernhardt v. Port Arthur Independent School District, 159 Tex. 488, 324 S.W.2d 163 (1959), Dallas County v. Dallas National Bank, 142 Tex. 439, 179 S.W.2d 288 (1944); and those cases which have decided whether assessments in excess of market value were grossly excessive. See City of Waco v. Conlee Seed Co., 449 S.W.2d (Tex.1969) and cases cited therein.

The market value of Tenneco's pipelines was highly contested at trial, and it was not an easy question to resolve. Segments of natural gas pipelines, such as those which lie in Polk County, are rarely sold; and their market value therefore generally cannot be determined by comparing the prices brought by sales of similar properties. This fact makes the assessment of pipelines by the taxing authority a difficult task, because market value is defined as "the price which the property would bring when it is offered for sale by one who desires, but is not obliged to sell, and is bought by one who is under no necessity of buying it . . .." City of Austin v. Cannizzo, 153 Tex. 324, 334, 267 S.W.2d 808, 815 (1954). See also Article 7174, and State v. Carpenter, 126 Tex. 604, 89 S.W.2d 194 (1936). Thus, the "comparable sales" method of appraising property is of little use in valuing pipelines; and two other methods of appraisal must be used in assessing those properties. These two methods are the cost approach to value and the income approach to value.

The cost approach to value assumes...