X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Constitutional Law No. 02-0427, 5/29/2003. Click here for the full text of this decision FACTS: The maintenance and operation of Texas public schools are funded mostly by ad valorem taxes levied by local school districts under comprehensive state regulation that, among other things, caps the rates at which districts can tax and redistributes local revenue among districts. In 1995, this court held that the state’s control of this school funding system had not made local property taxes an unconstitutional state tax because school districts retained meaningful discretion in generating revenue, but the court foresaw a day when increasing costs of education and evolving circumstances might force local taxation at maximum rates. Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717 (Tex. 1995) [ Edgewood IV]. At that point, the court said, the conclusion that a state property tax had been levied would be “unavoidable”. In this case, four plaintiff school districts allege that that day has come. Specifically, they contend that they and other districts have been forced to tax at maximum rates set by statute to educate their students. These taxes, they say, have become indistinguishable from a state ad valorem tax prohibited by Texas Constitution article VIII �1-e. The district court dismissed the case on the pleadings, holding that a constitutional violation could not be alleged because far fewer than half of Texas’ 1,035 school districts were taxing at the maximum rates allowed. The court of appeals affirmed, focusing not on how many districts were taxing at maximum rates but on whether any of them were forced to do so just to provide an accredited education as defined by statute. HOLDING: Reversed and remanded to the trial court. The court adheres to the rule stated in Edgewood III( Carrollton-Farmers Branch Independent School District v. Edgewood Independent School District,826 S.W.2d 489 (Tex. 1992)) that “[a]n ad valorem tax is a state tax when it is imposed directly by the State or when the State so completely controls the levy, assessment and disbursement of revenue, either directly or indirectly, that the authority employed is without meaningful discretion.” The determining factor is the extent of the state’s control over the taxation process. The state argues that local school district property taxes cannot be a state tax unless every district is forced to tax at a specific rate, here, the maximum $1.50 rate for maintenance and operation (subject to adjustments). The trial court rejected this argument but held that there can be no state tax unless mostdistricts are forced to tax at maximum rates. Both positions presuppose that the issue is the extent of the tax and that the determination must be made from the perspective of the system as a whole rather than with respect to each district. This premise has no support in the constitutional text or the rule this court stated for applying it. The constitution prohibits “State ad valorem taxes . . . upon any property within this state” and is not limited to statewide ad valorem taxes. The provision expressly contemplates that a state ad valorem tax could be levied on only some property. The prohibition does not permit the state to set rates for hospital districts, or junior college districts, or mosquito control districts, or fire prevention districts, or noxious weed control districts — to name but a few of the many taxing authorities — just because such districts are confined to a few areas of the state, nor does the constitution permit the state to control the tax rate for even one such district. Thus, a single district states a claim under article VIII �1-e if it alleges that it is constrained by the state to tax at a particular rate. The state argues that for four reasons the plaintiffs cannot allege that they are forced to tax at maximum rates. To sustain the dismissal of the plaintiffs’ case on the pleadings, however, the state must establish the plaintiffs’ inability to plead a constitutional violation as a matter of law. The state asserts that it exerts no control over taxation by local school districts and that the districts are free to tax at any levels they choose up to the maximum. The state’s argument runs as follows. The duty to provide an adequate public education belongs to the Legislature, not local school districts. School districts are “forced” to do nothing; they chooseto tax and educate at desired levels. While the state may encourage certain choices, it does not compel them. This argument, in essence, is that nothing short of virtually absolute state control of ad valorem taxation violates article VIII �1-e. The court plainly rejected the argument in Edgewood III. School districts can be forced by the current system to tax at maximum rates. An allegation that this has occurred states a claim under article VIII �1-e. Alternatively, the state argues that its only requirement of school districts is that they provide an accredited education as defined by the Legislature, and that the plaintiffs cannot allege in good faith that any district is forced to tax at the maximum rate just to meet this requirement. to obtain dismissal of the plaintiffs’ claims on the merits based solely on the pleadings, the state must establish as a matter of law that the plaintiff school districts are not forced to tax at maximum rates either to meet accreditation standards or to provide a general diffusion of knowledge. The state has done neither. The Legislature has granted a partial homestead exemption from school district taxation, which a district may increase up to a certain amount at its option, as many districts do. The state argues that no school district that has opted for an increased homestead exemption can allege that it is forced to tax at maximum rates because it has meaningful discretion to deny the increased exemption and tax at a lower rate. The trial court agreed with this argument, and the court of appeals did not address it. The court reiterates that to obtain dismissal of the plaintiffs’ action based solely on the pleadings, the state must establish that the mere existence of local-option exemptions precludes as a matter of law the allegation that school districts are forced to tax at maximum rates. The state has not met this burden. Finally, the state argues that the plaintiffs cannot allege a violation of article VIII, �1-e unless they tax at the applicable absolute maximum rate, not merely near that rate, as apparently only two of the four plaintiffs do. This is simply not the case. The constitutional issue remains the extent of the state’s control. It may be that a school district taxing at $1.47 instead of $1.50 has exercised meaningful discretion, but that is not necessarily the case. A district taxing a few cents below the maximum rate that can no longer provide an accredited education or a general diffusion of knowledge even by raising the rate to the maximum need not do so just to prove the point. The plaintiffs repeatedly stated that they were pleading that the situation this court foresaw in Edgewood IVwould violate article VIII �1-e had in fact occurred. No reasonable argument can be made that the plaintiffs’ pleadings did not put the state on notice of their claims. OPINION: Hecht, J.; Phillips, C.J., Owen, O’Neill, Jefferson, Schneider and Wainwright, JJ., join. CONCURRENCE: Enoch, J. “On the narrow question before us, I agree with the Court that the school districts should be afforded the opportunity to plead that they must tax at the tax rate set by the State to provide an accredited education. But I do not agree that the school districts can assert the need to provide for a general diffusion of knowledge and implicate an impermissible state ad valorem property tax.” DISSENT: Smith, J. “The real parties in interest in this litigation are the taxpayers of the plaintiff school districts. The school districts have no constitutional right under article VIII, section 1-e to ‘meaningful discretion.’ Cf. Robbins v. Limestone County, 268 S.W. 915, 917 (Tex. 1925) (holding that county has standing to file suit to protect its constitutionally recognized property interests); Milam County v. Bateman, 54 Tex. 153, 165-66 (1880) (same). Therefore, they have not ‘suffered some actual or threatened injury as a result of the putatively illegal conduct’ of the state. Thus, the plaintiffs have no standing to seek a declaration that the ‘statutory cap on M&O tax rates constitutes an unconstitutional statewide ad valorem tax.’ . . .”

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.