LEGAL GUIDE
Written by attorney Michael W. Eaton | Jun 3, 2010

Affordable Housing Tax Exemptions in Texas- The 50% Exemption

AFFORDABLE HOUSING TAX EXEMPTIONS IN TEXAS THE 50% EXEMPTION OF Sec. 11.1825 It is important to differentiate between the statutory requirements of the full exemption provisions of Tax Code Sec. 11.182, and the 50% exemption requirements of Tax Code Sec. 11.1825. Specifically, the board membership requirements are starkly different between the two statutes. In both cases, the majority of the board is not required to be of any particular income level or to live in any particular area or type of neighborhood, although each statute is often misread or misunderstood to have such a requirement..

In the case of the full exemption statute, Tax Code Sec. 11.182(b) requires only that “An organization is entitled to an exemption from taxation of improved or unimproved real property it owns if the organization: (1) is organized as a community housing development organization". No mention of the board or the board’s income is directly included in the statute. However, Tax Code Sec. 11.182(2) also provides that “‘(c)ommunity housing development organization’ has the meaning assigned by 42 U.S.C. Section 12704". Thus, we must look to the requirements of the only statutory reference to determine what specific income requirements, if any, are imposed upon a community housing organization which otherwise qualifies for the statute.

42 USC 12704 (6) provides as follows:

(6) The term ``community housing development organization'' means a nonprofit organization as defined in paragraph (5), that-- (A) has among its purposes the provision of decent housing that is affordable to low-income and moderate-income persons; (B) maintains, through significant representation on the organization's governing board and otherwise, accountability to low-income community residents and, to the extent practicable, low-income beneficiaries with regard to decisions on the design, siting, development, and management of affordable housing; (C) has a demonstrated capacity for carrying out activities assisted under this Act; and (D) has a history of serving the local community or communities within which housing to be assisted under this Act is to be located. So, to be technically correct, the only requirement of any kind whatever regarding the makeup of the board of the community housing development organization is set forth at 42 USC 12704(6)(B), which provides as follows: maintains,through significant representation on the organization's governing board and otherwise, accountability to low-income community residents and, to the extent practicable, low-income beneficiaries with regard to decisions on the design, siting, development, and management of affordable housing (Emphasis mine). So, the only requirement is that the board have "significant representation", which is an undefined term, and thus subject to interpretation, which is accountable to low-income community residents and beneficiaries of the group's projects. It is completely conceivable that a group and its board could be accountable to low-income community residents and beneficiaries without any particular low-income directors at all, if a sufficient formal policy was in place requiring input from the low income community.

The requirement of one-third of the board being low-income directors is a requirement of 24 CFR Part 92.2, and is used only for certification as a community housing development organization (“CHDO") for HOME Funds purposes, not for State tax exemption purposes. In fact, the only Court of Appeals which has ever addressed the issue has held that if an organization is “organized" as a CHDO, certification as a CHDO is absolutely not required in order to qualify for a Tax Code Sec. 11.182 exemption.See Orange County Appraisal Dist. v. Agape Neighborhood Improvement, Inc., 57 S.W.3d 597, 602 (Tex.App.--Beaumont 2001, pet. denied). In short, there is no legal requirement that any specific number of directors or members of the managing board of AOH be low-income or reside in low-income neighborhoods. Despite that fact, more than one board member does qualify as either a low-income director or a director living in a low-income neighborhood.

When the Legislature created Tax Code Sec. 11.1825 to supersede Tax Code Sec. 11.182, it did create a specific board membership requirement, since the former statute had no such requirement. The intent of the legislature, as expressed during formal hearings regarding the pending legislation, was to make the new law more strict, and to impose requirements which did not previously exist.

Texas Tax Code Sec. 11.1825(b)(3) provides as follows: (3) at least two of the positions on the board of directors of the organization must be reserved for and held by:

(A) an individual of low income as defined by Section 2306.004, Government Code, whose principal place of residence is located in this state; B) an individual whose residence is located in an economically disadvantaged census tract as defined by Section 783.009(b), Government Code, in this state; or (C) a representative appointed by a neighborhood organization in this state that represents low-income households;

Section 2306.004 of the Texas Government Code provides: "Individuals and families of low income" means individuals and families earning not more than 80 percent of the area median income or applicable federal poverty line, as determined under Section 2306.123 or Section 2306.1231.

(In other words, anyone who earns at or below 80% of AMI qualifies as low-income for purposes of the statute).

Section 783.009(b) of the Texas Government Code provides:

(b) In this section, "economically disadvantaged census tract" means a census tract delineated by the U.S. Bureau of the Census in the most recent decennial census in which the median family income is reported by the U.S. Bureau of the Census to be less than 80 percent of the area median family income.

Put simply, if the census tract is at or below 80% of AMI, it qualifies as low-income for purposes of the statute, the same standard as for individuals (which is also the same standard used by virtually every state and federal government entity in defining “low-income"). It absolutely does not require that any board member live in a Qualified Census Tract. Under Section 42(d)(5)(C) of the Internal Revenue Code of 1986, as amended by the Community Renewal Tax Relief Act of 2000,a Qualified Census Tract is any census tract in which at least fifty percent (50%) of the households have an income less than sixty percent (60%) of the Area Median Gross Income (AMGI), or where the poverty rate is at least twenty five percent (25%) and where the census tract is designated as a Qualified Census Tract (“QCT"). The significant difference in the standard is obvious, and attempts to require that anyone, whether a resident or a board member, live in a QCT are not supported by any legitimate legal theory or by the statute itself. No Central Appraisal District is entitled to expand statutory definitions, as that is the sole province of the Legislature.

Additionally, Tax Code Sec. 11.182 provides that one way of qualifying as a director is if the director has his residence “located in an economically disadvantaged census tract". There is no requirement that the director own the property which is his residence, or that the residence be designated as that person’s homestead. In fact, there is no legal requirement at all that any person file for a homestead exemption for his principal place of residence; that is merely an exemption available under state law, and which many people fail to utilize. For purposes of the statute, a simple certification by the director that a particular address is their residence is sufficient, but not legally necessary, as the representation that an address is a director’s residence constitutes a part of the application, which is signed and submitted under penalty of perjury.

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