Texas Register Preamble

The Comptroller of Public Accounts proposes new §§9.4251 - 9.4266, concerning arbitration of appraisal review board determinations. These new rules replace §9.804, which is being repealed in a separate filing. These new rules will comprise new Subchapter K, titled Arbitration of Appraisal Review Board Determinations. This replacement of §9.804 with new Subchapter K serves three purposes. First, in organizing the rule sections relating to arbitration into 16 separate rules, it is expected that the administrative provisions governing binding arbitration will be more easily readable and understood by the public. Second, many previous requirements regarding arbitration procedures are clarified and several others modified to strengthen and streamline the administration of the binding arbitration process. Third, this proposal also implements legislative changes to Tax Code, Chapter 41A (Appeal through Binding Arbitration), which the 85th Legislature, 2017, enacted through passage of Senate Bill (SB) 731 and SB 1286, §§2 through 4 and 7.

This preamble provides an overview of the new subchapter, addressing the major changes to existing procedures relating to arbitration and the required changes to implement recent legislation.

The legislatively-driven changes as well as the most significant changes to the existing binding arbitration administrative provisions are addressed, section by section, beginning with new §9.4251, Definitions. In addition to revising and putting in alphabetical order the seven definitions in existing §9.804, four more definitions are added to new §9.4251: "Appraisal Review Board (ARB)" and "Individual" as well as "Order," the determination the ARB issues which is the subject of the arbitration, and "Person".

New §9.4252, Request for Arbitration, sets out in one section all of the substantive and procedural requirements to properly initiate an appeal of an ARB order through binding arbitration. New subsection (f), in particular, is a critical provision as it succinctly identifies each of the seven (or eight if an agent is involved) jurisdictional requirements that each request for binding arbitration must meet. New subsection (h) provides a ready reference to the types of properties that qualify for binding arbitration along with the corresponding deposit amounts required. Subsections (f)(1) and (h)(6) reflect SB 731's legislative increase from $3 million to $5 million as the jurisdictional property value limit and corresponding deposit amount of $1,550.

New subsection (g) specifies when two or more tracts of land qualify as contiguous for purposes of submitting only one deposit to arbitrate such property. Tracts are contiguous if: 1) each tract of land physically touches another tract of land being appealed; 2) no intervening area, whether natural or manmade, that is owned by another person, entity, or governmental unit, separates the tracts; 3) the property type of each tract being appealed is identified on the request for binding arbitration as "Land" or "Agricultural" or any other category of real property that is not an improvement; and 4) all of the tracts of land being appealed are of the same property type.

New §9.4253, Agent Representation in Arbitration, puts in one place all of the requirements for an arbitration agent and clarifies the manner in which agents may be properly appointed. This section also makes clear the necessity of providing the agent authorization form, signed by the owner, with each request for arbitration in which an agent expects to act on behalf of an owner.

New §9.4254, Appraisal District Responsibility for Request, specifies each of the procedures appraisal districts are to perform within ten calendar days to process requests for binding arbitration. New subsection (b) grants appraisal districts that process 500 or more requests for arbitration during the previous year to perform these tasks within ten business days (rather than calendar days). The new rule makes clear that all requests are to be forwarded to the comptroller's office except those which the appraisal district is to reject for failure to provide the correct deposit.

New §9.4255, Comptroller Processing of Request, specifies the grounds under which the comptroller is required to deny a request for binding arbitration and does so by simply referencing §9.4252(f), the provision which identifies the jurisdictional requirements for a valid request for arbitration. Subsections (c) and (d) identify the limited circumstances under which failure to perform a technical requirement, such as signing the request for arbitration form, may be cured within ten days of notice.

New §9.4256, Comptroller Appointment of Arbitrators, not only implements a part of SB 1286, the new legislative method by which the comptroller is to appoint arbitrators, but also sets out all of the requirements that govern the appointment of arbitrators generally. Under the current rule, owners or agents and appraisal districts are to attempt to agree on an arbitrator. SB 1286 requires the comptroller to select the arbitrator. New subsection (b) provides that the comptroller will use a computerized system to distribute appointments as evenly as possible among arbitrators. In each case, the comptroller shall select first for appointment from among only those arbitrators on the registry who principally reside in the county in Texas where the property that is the subject of the arbitration is located as required under SB 1286. Upon the refusal of all of these arbitrators to accept the appointment to a particular matter, the comptroller may appoint an otherwise eligible arbitrator on the registry residing in another county in Texas. New §9.4256 also makes explicit the circumstances under which an arbitrator may not accept and may not continue with an appointment, such as becoming unqualified or ineligible.

New §9.4257, Application for Inclusion in Comptroller's Registry of Arbitrators, sets out the requirements regarding the application process for inclusion in the arbitrator registry. It also provides that in signing and submitting the application, the applicant attests not only that he or she meets all the qualification requirements, but also principally resides in the state of Texas in the county identified, the new residency requirement of SB 1286.

New §9.4258, Qualifications for Inclusion in the Comptroller's Registry of Arbitrators, sets forth in one section all the qualifications required, including the professional ones, and the particular circumstances which render one not qualified to serve; it also implements the new Texas residency requirement of SB 1286. New subsection (b) requires a person to principally reside in Texas to qualify as an arbitrator and provides that this standard is met if he or she lives in a residential property in Texas more than 50% of his or her time. This residency requirement also is addressed by reference to residence homestead exemptions the individual may hold. New subsection (d) requires that an arbitrator applying for renewal of inclusion in the registry have no history of failure to comply with new Subchapter K, in addition to the previous requirements.

New §9.4259, Arbitrator Eligibility for A Particular Appointment, sets out in one section all of the eligibility requirements for appointment to a particular matter, including the two new eligibility requirements of SB 1286. First, under SB 1286, only arbitrators who principally reside in the county where the property at issue is located are eligible for appointment to each arbitration. An arbitrator who lives outside the county may be appointed, however, if there are no available arbitrators who live in the county where the property is located. County of residence is defined under new subsection (c) in a manner similar to the standard set for Texas residency. Second, also as required under SB 1286, a person is ineligible for appointment in the same county appraisal district where, during the previous five years, the person represented any entity for compensation in any proceeding under the Property Tax Code, or served as an officer or employee of the appraisal district, or as a member of that county's ARB. Representation in any proceeding, as described under new subsection (e), begins with the filing of a notice of protest and includes communications with appraisal district employees regarding a matter under protest; protest settlement negotiations; any appearance at an ARB hearing; any involvement in a binding arbitration under Tax Code, Chapter 41A; and any involvement at either the district court or appellate court level in an appeal pursued under Tax Code, Chapter 42. Likewise, any person who has served as an officer or employee of any firm, company, or other legal entity that represented any person or entity for compensation in any proceeding under the Property Tax Code during the previous five years regarding property in the same appraisal district as the property at issue is ineligible for appointment.

New §9.4260, Arbitrator Duties, makes clear that a person who accepts an arbitration appointment is required to conduct each arbitration pursuant to the terms of Tax Code, Chapter 41A, as well as Subchapter K, and for the fee amount permitted under subsection (d). The arbitrator fee schedule is set out in subsection (d) and includes the new arbitrator fee of $1,500 for property valued at more than $3 million but not more than $5 million, as permitted under SB 731. Arbitrators are required under subsection (b) to notify the comptroller's office within ten days of any material changes in their information on file- including a change in county of residence- and failure to do so may result in removal from the registry and denial of future applications for inclusion in the registry.

New §9.4261, Provision of Arbitration Services, sets forth the procedural requirements under which an arbitrator is to conduct an arbitration proceeding unless the parties agree otherwise. Significant changes are proposed in this area, particularly as they relate to the following matters: in-person hearings at the request of the owner or agent; party input in selection of the hearing date; the detail required for the written hearing notice; arbitrator conduct standards; and those circumstances which require the dismissal of an arbitration proceeding.

New §9.4262, Removal of Arbitrator from the Registry of Arbitrators, sets out clearly and concisely the terms under which an arbitrator will be removed from the registry. This section as well as proposed §9.4256(f) regarding appointment of arbitrators, both implement another portion of SB 1286. This new law mandates that the comptroller not appoint and shall remove a person listed as an arbitrator for good cause, including a finding that the person has engaged in repeated bias or misconduct while acting as an arbitrator. In either instance, new §9.4262 sets out the procedures and standards that govern the refusal to appoint or the removal of an individual from the arbitrator registry for good cause.

The last four provisions of Subchapter K address: new §9.4263, Arbitration Determination and Award; new §9.4264, Payment of Arbitrator Fee, Refund of Property Owner Deposit, and Correction of Appraisal Roll; new §9.4265, Prohibited Communications regarding Pending Arbitrations; and new §9.4266, Forms. These four rules are largely unchanged from current provisions on these same topics, with a couple of exceptions. It is proposed the arbitrator be permitted to transmit the arbitration determination and award to the parties electronically as well as by fax or mail. One provision, new §9.4264(h), addresses the manner in which the withdrawal of a request for arbitration and the payment of the arbitration deposit or fee is to be handled. That is, the 14-day deadline for withdrawal before the hearing is measured from the date the comptroller receives written notice; and the hearing date is the one set in the written notice under §9.4261(d), either by agreement of the parties or 30 days from the date the arbitrator mailed the notice.

Changes are proposed to two forms- the Request for Binding Arbitration form (Form AP-219) and the Arbitration Determination and Award form (Form 50-704)- which are adopted by reference under new §9.4266. Changes to both forms are primarily to reflect the increase to $5 million or less in the jurisdictional value of property subject to arbitration under SB 731. A change to the award and determination form is to clarify when dismissal for delinquent taxes is required. Dismissal of an arbitration is required not only if taxes are delinquent but also if the taxes were not timely paid, that is, before the applicable statutory delinquency date set by the Tax Code. Dismissal is required in the later instance even if the taxes were paid by the time of the arbitration hearing.

Tom Currah, Chief Revenue Estimator, has determined that for the first five-year period the new rules will be in effect, there will be no significant revenue impact on the state or units of local government.

Mr. Currah also has determined that for each year of the first five years the new rules are in effect, the public benefit anticipated as a result of enforcing the rules will be by improving the administration of local property valuation and taxation. The proposed new rules would have no fiscal impact on small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the new rules. The new rules would have no significant fiscal impact on small businesses or rural communities.

Comments on the proposed rules may be submitted to Mike Esparza, Director, Property Tax Assistance Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments may be submitted by email sent to: ptad.arb@cpa.texas.gov and must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

These new sections are proposed under Tax Code, §41A.13 (Rules), which authorizes the comptroller to adopt rules necessary to implement and administer Tax Code, Chapter 41A governing the appeal of appraisal review board orders through binding arbitration.

These new sections implement Tax Code, §§41A.01(2), 41A.03(a)(2)(F), 41A.06(b)(2)(F), 41A.061(c)(2), 41A.07(a)(1) and (2), and 41A.07(e), (f), and (g), and 41A.13.

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