National Church Residences of Alief, Tx v. Harris County Appraisal District

Citation: Not availableDocket: 01-15-00900-CV

Court: Court of Appeals of Texas; August 9, 2016; Texas; State Appellate Court

Original Court Document: View Document

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On August 9, 2016, the Court of Appeals for the First District of Texas issued an opinion in the case National Church Residences of Alief, TX v. Harris County Appraisal District, concerning an appeal from the 269th District Court of Harris County, Texas. National Church Residences (NCR), an Ohio nonprofit organization providing federally-subsidized housing for low-income senior citizens, sought an exemption from ad valorem taxes for the tax years 2012 and 2013 under Texas Tax Code Section 11.18(d). NCR argued that it qualified for the exemption because it offered permanent housing and support services without regard to residents’ ability to pay.

The Harris County Appraisal District (HCAD) denied the exemption, contending that NCR did not provide housing or services regardless of residents' financial capacity. NCR subsequently filed a lawsuit for judicial review, and after both parties submitted cross-motions for summary judgment, the trial court ruled in favor of HCAD and denied NCR's motion. On appeal, NCR claimed that the trial court erred in its decision regarding the summary judgment motions, insisting it was entitled to the tax exemption.

The court noted that NCR has operated the Evening Star Villa, a 62-unit apartment complex in Houston, since 1995, financed by the Department of Housing and Urban Development (HUD). Under a Project Rental Assistance Contract with HUD, NCR was obligated to provide housing for low-income elderly individuals and received subsidies to cover the rent discrepancies based on tenant income. The eligibility for tenancy included age restrictions, income limits, and the requirement for tenants to pay security deposits from their own or other resources. The appellate court ultimately reversed the trial court's decision and remanded the case for further proceedings.

NCR's eviction policy stipulates that tenants who fail to pay their non-subsidized rent by the third of the month receive a 10-day notice; if payment remains unpaid after the thirteenth, a three-day notice to vacate is issued. Residents have access to various services, some funded federally, and since 1997, NCR has been exempt from ad valorem taxes on its property. On October 29, 2012, HCAD requested NCR to reapply for this tax exemption, which NCR did, claiming to provide housing and related services for low-income elderly without regard to their ability to pay. HCAD denied the request for tax years 2012 and 2013, arguing that NCR did not meet the requirement of providing services without regard to payment ability, referencing NCR’s Tenant Selection Plan and eviction policy as evidence. NCR subsequently filed a lawsuit for judicial review, asserting entitlement to the exemption under Texas Tax Code Section 11.18(d). HCAD moved for summary judgment, citing NCR's requirement for security deposits and rent agreements as evidence that it does not provide housing without regard to payment ability. NCR countered with a cross-motion for summary judgment, arguing its charitable status and that HUD regulations govern its tenancy processes, maintaining that compliance with these regulations does not equate to a consideration of tenants' ability to pay. NCR provided affidavits and documentation to support its claims.

NCR maintains a policy of equal treatment for all rental applicants, independent of their financial status. Evidence indicates that, despite a market rate of $389 for apartments, residents pay lower amounts determined by a HUD formula based on their income. This formula stipulates that rent is calculated as the highest of either 30% of adjusted monthly income, 10% of monthly income, or a specific portion of welfare payments for housing. 

NCR receives federal subsidies to cover the difference between the market rent and what tenants pay, with most residents contributing between $100 and $200 monthly, while a few pay as little as $13. NCR has a policy to retain senior citizens who are unable to pay, provided an investigation confirms their financial hardship. The organization offers assistance for residents facing payment difficulties, including support from a federally funded service coordinator and the formulation of payment plans if necessary. 

NCR does not charge late fees or evict residents for non-payment of rent in 2012 or 2013. Additionally, NCR provides a variety of no-cost services to residents, including a service coordination program, library, laundry facilities, an emergency call system, and health-related services such as hearing tests and transportation. These services are available to all residents irrespective of their payment status. Furthermore, NCR offers an allowance to assist with electric utility costs, sometimes resulting in residents receiving payments when their allowances exceed their rent and utility charges, effectively allowing some residents to benefit from living in air-conditioned units while utilizing free services.

The trial court granted HCAD’s motion for summary judgment while denying NCR's motion, leading to NCR’s appeal claiming entitlement to a property-tax exemption under Tax Code Sections 11.18(d)(3) and (13). NCR challenges the summary judgment in favor of HCAD. The standard of review for summary judgments requires the moving party to prove no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. When a plaintiff seeks summary judgment, it must conclusively establish all elements of its claim. Conversely, a defendant can secure summary judgment by disproving at least one element of the plaintiff's claim. If the movant meets their burden, the nonmovant must then demonstrate a genuine issue of material fact. Evidence is reviewed favorably to the nonmovant, and when both parties seek summary judgment, the court evaluates evidence from both sides to determine the appropriate judgment. The key legal question involves whether NCR qualifies for the property-tax exemption under the specified Tax Code section, with statutory construction issues reviewed de novo, focusing on the legislative intent expressed in the statute's language.

In Galbraith Eng’g Consultants, Inc. v. Pochucha, the Texas Supreme Court established that words not explicitly defined in statutes are interpreted according to their ordinary meanings, unless the context suggests otherwise or such meanings lead to absurd outcomes. Courts typically avoid isolating provisions from the broader statute. Taxing statutes are interpreted strictly against the taxing authority and favorably for taxpayers, while tax exemptions are interpreted strictly against the claimant, who must clearly demonstrate eligibility for the exemption.

NCR claims exemption from ad valorem taxes for 2012 and 2013 under Texas Constitution Article 8, Section 2(a) and specific subsections of the Tax Code, which require that charitable organizations provide certain services without regard to beneficiaries' ability to pay. The central issue on appeal is whether NCR provided housing and related services without considering residents' financial capacity. HCAD contends that NCR's requirement for a security deposit negates this ability-to-pay criterion, citing NCR’s Tenant Selection Policy, which states that applicants must pay a security deposit to qualify for housing.

NCR argues that the collection of a security deposit does not automatically disqualify it from the exemption. The discussion includes guidelines from the HUD Policy Handbook, which governs NCR’s operations regarding security deposits. The court agrees with NCR’s position that requiring a security deposit does not, in and of itself, disprove its compliance with the exemption requirements.

The handbook specifies that tenants must pay the security deposit using their own resources or other sources, and it is refundable, kept in separate interest-bearing accounts until returned. The HUD Policy Handbook indicates that security deposits protect landlords financially when tenants do not fulfill lease obligations. The requirement for a security deposit does not reflect whether NCR fails to provide housing services based on residents’ payment abilities; instead, it serves as a one-time administrative charge. The HUD rules suggest that the deposit amount correlates with residents' income, ensuring low-income tenants can afford it. Although the Tenant Selection Plan states that a tenant may be rejected for not being able to pay the security deposit, there is no evidence that NCR has actually rejected any prospective tenants on this basis. The low income of current residents, some paying as little as $13 in rent, further supports this claim. Additionally, referencing a Texas case, the court ruled that a facility could still be considered a purely public charity despite having admission requirements, as long as it did not create an obstacle for charity patients. Consequently, HCAD did not demonstrate that the security deposit requirement conclusively indicates NCR does not provide housing without regard to residents' payment abilities. HCAD also argued that the Tenant Selection Plan shows NCR's failure to provide housing without considering payment ability, but NCR countered that courts affirm charitable organizations can receive property-tax exemptions even when they charge for services, as long as no one is denied admission due to inability to pay.

NHH-Canal St. Apts. Inc. was granted a property-tax exemption under Section 11.18(d)(2) despite charging rent and requiring tenants to have incomes exceeding 1.5 times the rental amount. Citing precedent, the court affirmed that tax exemptions should not be denied based on the ability of residents to pay. Harris County Appraisal District (HCAD) argued against the exemption by highlighting NCR's eviction policy, which they claimed indicated consideration of tenants' financial capabilities. NCR countered that while it had an eviction policy, it was not enforced and referenced a 1996 corporate resolution allowing residents unable to pay to remain, subject to financial investigation by the board. NCR provided evidence that staff would assist residents in securing financial aid and had not evicted anyone for non-payment in 2012 or 2013. The court concluded that HCAD failed to prove NCR's housing services were contingent upon residents' ability to pay. Ultimately, the court ruled that HCAD's motion for summary judgment was improperly granted, asserting NCR had met its burden for tax exemption by demonstrating it provided services without discrimination based on financial capability, as supported by Texas Supreme Court precedent.

The City of McAllen court highlighted that the Society had a policy ensuring no one would be denied treatment based on financial status. However, the court emphasized that a mere declaration of this policy does not qualify an organization as a public charity unless it is actively practiced. Evidence presented demonstrated that while all patients contributed towards their care, approximately 10% received services without any payment, indicating the Society enacted its policy effectively. The court found uncontradicted evidence that no patient was denied admission or discharged due to inability to pay.

In contrast, NCR's claims for a similar tax exemption were found lacking. Unlike the Society, NCR did not provide evidence that any resident failed to pay rent and was still allowed to stay. While Van Camp testified that no resident was evicted for nonpayment, this was irrelevant without proof of actual nonpayment. Additionally, NCR's argument regarding its overall operations did not meet the standards set by the City of McAllen, which focused on whether beneficiaries were required to pay the full cost of services. Ultimately, the court ruled that NCR failed to demonstrate that it provided housing without regard to residents' ability to pay, as required for tax exemption.

NCR contends that its operations demonstrate it serves residents without considering their ability to pay, as residents do not cover the full cost of housing or supportive services. All residents pay below market rent, with payments based on a HUD formula that sets market rent at $389. Tenants paid between $13 and $200 monthly, while HUD subsidized the difference, ensuring NCR received the full market rent unless a tenant defaulted. NCR failed to provide evidence for tax years 2012 and 2013 showing that residents did not pay their required portion. The evidence presented indicated NCR consistently received the market rent of $389 for its apartments. 

In contrast, NHH-Canal Street Apartments relied on 65-75% of its funding from its parent company and charitable contributions, unlike NCR, which did not use charitable funds to cover service costs. Although NCR submitted financial records for its operations, these were unclear, and no clarification was provided. NCR also mentioned providing utility allowances and free services to residents but did not prove these costs were incurred in the relevant tax years. Many of the services appeared to be federally funded. Ultimately, NCR's evidence did not sufficiently demonstrate that it provided housing or services without regard to residents' ability to pay, leading to the conclusion that NCR did not meet the criteria for a property tax exemption under Tax Code section 11.18(d). The trial court's denial of NCR's summary judgment motion was upheld, while NCR's challenge to HCAD’s motion for summary judgment was partially sustained. The judgment was reversed, and the case was remanded for further proceedings.