Affordable Housing Tax Exemptions in Texas- CHDO Exemptions
TEXASCHDO TAX EXEMPTION SUMMARY
In order to qualify for a so-called “CHDO exemption", an applicant must be a currently existing and properly qualified Community Housing Development Organization, (“CHDO") as that term is defined by 42 U.S.C. 12704, and as that term is used in Texas Tax Code Section 11.182. Interestingly, an LLC can qualify for the exemption either if it is organized as a CHDO, or if it has, as its sole member, a 501(c)(3) organization that is organized as a CHDO.
If a project qualified for the exemption for all or any part of 2003, then under applicable laws of the State of Texas, as well as operating regulations and standards of Texas ad valorem tax appraisal districts, projects will continue be governed by the provisions of Texas Tax Code Section 11.182, et seq.. Conditioned upon timely application to the appropriate central appraisal district, including all requisite backup documentation, a Project will be exempt from ad valorem taxes during the period of ownership by the Borrower if the Borrower is a CHDO and meets other related criteria. For properties which are required to file an additional application, the application, must be filed between January 1 and April 30 of each calendar year.
Once granted, the exemption may not be repealed by subsequent legislative acts in such a manner as to retroactively affect the exempt status of the Project during its period of ownership by Borrower. In support of this construction of the applicable law, Texas Constitution, Article I §16 prohibits retroactive laws. In 1955, the Texas Supreme Court defined the applicable Constitutional prohibition thusly: “A retroactive law is one made to affect acts or transactions occurring before it came into effect, or rights already accrued, and that imparts to them characteristics, or ascribes to them effects, which were not inherent in their nature in the contemplation of the law as it stood at the time of their occurrence. It gives a right where none before existed, or takes away one that before existed." McCain v. Yost, 155 Tex. 174, 284 S.W.2d 898 (Tex. 1955).
As even more clear support for the proposition that the Texas Constitution prohibits legislative acts that could negatively impact an existing exemption obtained in 2003 or prior years, note the following language taken from a more recent holding by the Austin Court of Appeals: “Laws may not operate to deprive or impair existing vested substantive rights acquired under existing law, or create new obligations, impose new duties, or adopt new disabilities in respect to past transactions." See Sanger v. Miller, 664 S.W.2d 819 (Tex. App. – Austin, 1984).
Legislation affecting the ad valorem tax exemption was passed by the Texas Legislature in 2003, and became effective January 1, 2004. After January 1, 2004, the new legislation provides that the maximum exemption any eligible entity could achieve is a fifty percent (50%) ad valorem exemption. Exemptions obtained after January 1, 2004 will be limited to new construction or acquisition where substantial rehabilitation (deemed to be at least $5,000 per unit) is to be performed. However, if ownership of an ownership entity, as opposed to ownership of the asset itself were transferred, and the same ownership entity continued to maintain its qualifications as an eligible CHDO, a transfer of the Project to an otherwise eligible non-profit could occur after January 1, 2004 and the Project could retain a one hundred percent (100%) ad valorem tax exemption.
In the event that an application is initially denied by a central appraisal district, the matter must be appealed by filing a notice of protest with the district. This action confers administrative jurisdiction upon the relevant appraisal review board (“ARB"), and the matter is then scheduled for an administrative hearing before the ARB. The ARB usually assigns a three member panel, but occasionally hears the matter en banc. ARB board size varies, but is usually between 13 and 30 persons.
In the event that the ARB takes action adverse to the interest of the applicant (and here, it is a binary choice, either 100% exemption or no exemption, as there is no ability to partially grant an exemption), then the applicant has sixty (60) days to file a lawsuit which is a trial de novo of all issues in controversy. Almost all of the issues raised in these state tax exemption matters fall within the purview of summary judgment actions, and may be resolved using that procedural vehicle. In Texas, summary judgment may be filed any time after the defendant answers, but at least twenty one (21) days notice of the hearing for such motion must be provided, and responses to the motion are due no less than seven (7) days prior to such hearing.