2. Equal and Uniform Issues for Industrial Properties
David Hugin, Partner
Sebastian Rodrigano, Director
Popp, Gray and Hutcheson, LLP

3. Originally enacted as a stand-alone provision as § 42.26(d)
Tex. Tax Code § 42.26(a)(3)
Originally enacted as a stand-alone provision as § 42.26(d)
Seen as a part of then-Governor Bush’s tax reform initiatives; held to be “remedial” statute

4. Tex. Tax Code § 42.26(a)(3)
The district court shall grant relief on the ground that a property is appraised unequally if: . . .the appraised value of the property exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted.

5. Similarities to Comparable Sales Approach to Value
Properties used to determine equity must be comparable to subject
Properties must be adjusted to subject
Properties should be in the same “neighborhood”
Assessed values are used in place of sales

6. Differences to Comparable Sales Approach to Value
Median appraised value is to be used rather than weighting of properties according to comparability
All values assessed as of January 1st of the year for which equity is being tested
Comparables limited to the State of Texas

7. Adjustments Size Technology Location Others
RCN adjustment for economies of scale
Different operating cost basis for different economies of scale
Technology
Feedstock, route, process type, complexity, heat rate
Location
NOx non attainment zone vs. compliant
Water access vs. landlocked
Others

8. Measures of comparison
Refining industry
$/EDC
Self adjusting unit of comparison
$/BBL
Requires RCN testing
Petrochemical industry
$/unit capacity
Accurate when comparables are properly selected and adjusted
% RCN
Requires testing of RCN against cost curve
Power Generation industry
$/(KW/MMBTU)
Requires properly selected comps (i.e. same grid)

9. Real Life Example
Alon USA vs. Howard CAD

10. Where are Refineries?
Texas Refinery Map 1981
Texas Refinery Map 2007

11. Alon Refinery Unlike Any Other Property in Howard County
Sid Richardson Carbon Black Plant – Court took judicial notice it was not comparable
Could the law really be that if a particular type of property was the only one of its kind within a particular appraisal district that such a property would forfeit its right to be taxed equally?

12. Out-of-District Claim
Relief was sought under Texas Tax Code § 42.26(a)(3):
“The district court shall grant relief on the ground that a property is appraised unequally if the appraised value of the property exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted.”
Notably absent from (a)(3) is any language requiring that the comparable properties be located within the appraisal district

13. § 42.26(a)(1) & (2)
By contrast, both § 42.26(a)(1) & (2) do contain language that requires properties be located in the appraisal district:
(a)(1): “the appraisal ratio of the property exceeds by at least 10 percent the median level of appraisal of a reasonable and representative sample of other properties in the appraisal district”
(a)(2): “the appraisal ratio of the property exceeds by at least 10 percent the median level of appraisal of a sample of properties in the appraisal district consisting of a reasonable number of other properties similarly situated to, or of the same general kind or character as, the property the subject to the appeal”

14. Equal & Uniform Claim
After examining all refineries in Texas, E & U expert decided on a sample of six refineries, which captured every refinery with a capacity between 60, ,000 bpcd:
Houston: 90,000 bpcd
Pasadena: 117,000 bpcd
Texas City: 72,000 bpcd
Three Rivers: 96,000 bpcd
Tyler: 60,000 bpcd
Western: 117,000 bpcd
(Alon Big Spring capacity: 70,000 bpcd)

15. Equal & Uniform Claim
E & U Expert then took the appraised value of each of the six refineries and adjusted them by:
dividing each refinery’s appraised value by its capacity;
dividing each refinery’s appraised value by its RCN; and
dividing each refinery’s appraised value by its EDC.
Three medians were then determined by arraying the six data points for each of the above three metrics. Each median was then compared to the same three metrics as to the Alon Big Spring Refinery. As to all three metrics, the Big Spring Refinery’s data point was well in excess of the median.

16. Equal & Uniform Claim
Each of the three medians were then multiplied by the corresponding metric for the subject (i.e., capacity, RCN and EDC) to develop three “calculated median appraised values”

17. Equal & Uniform Claim
The three “calculated median appraised values” were then averaged – that average was the Expert’s opinion of the E & U value of the Alon Big Spring Refinery

18. Closing Thoughts
The Court indicated at the pre-trial hearing it would “carry” all evidentiary admissibility questions.
Again, on the first day of trial, the Court indicated it would “carry” all evidentiary admissibility questions.
When the out-of-district equity analysis was offered, the Court entertained lengthy argument from counsel, yet ultimately admitted the evidence and clearly overruled the objection on the record.
In a jury trial, perhaps the Court would have ruled differently.
The Final Judgment made no explicit finding on the E&U claim.