Reeves County Appraisal District and Loving County Appraisal District v. Midcon Compression, L.L.C.

Citation: 563 S.W.3d 210Docket: 15-0969

Court: Texas Supreme Court; November 15, 2018; Texas; State Supreme Court

Original Court Document: View Document

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In the case before the Supreme Court of Texas, MidCon Compression, which owns and leases compressor stations for natural gas, contests tax assessments by Reeves and Loving counties. Following a 2012 amendment to the Tax Code that included leased heavy equipment in the valuation formula, MidCon began paying taxes to Ector and Gray counties, asserting that these counties are where the compressors are leased from. Reeves and Loving counties, however, claimed the compressors are taxable there at full market value due to their physical presence.

The appraisal-review boards sided with the counties, leading MidCon to seek judicial review. In the trial court, the counties challenged the constitutionality of Tax Code sections 23.1241 and 23.1242, arguing these sections fail to reflect market value and that taxes on the compressors should be paid to them, not to Ector and Gray counties. The trial court agreed with the counties on the first two points but sided with MidCon on the classification of compressors as “heavy equipment.” 

Both parties appealed, but the counties dropped their argument regarding the compressors' classification. The court of appeals reversed the trial court's ruling on the constitutionality of the Tax Code sections but upheld the taxable situs of the compressors in Reeves and Loving counties. This case was consolidated with four others for review, and the Supreme Court had previously addressed similar constitutional challenges in EXLP Leasing, LLC v. Galveston Central Appraisal District, where it upheld the constitutionality of the Tax Code sections in question. The court concluded that the legislature has the authority to set tax valuation methods, provided they are not arbitrary, and confirmed that the Tax Code method for leased equipment valuation is reasonable, as it requires tax payment only on inventory actually leased.

The court of appeals evaluated the constitutionality of sections 23.1241 and 23.1242 of the Tax Code, concluding these provisions do not violate the requirement that property be taxed in proportion to its market value, aligning with the prior decision in EXLP Leasing. While affirming the court of appeals’ judgment on these constitutional issues, the court diverged on the taxable situs of compressors owned by MidCon. It determined that the statutory provisions should govern the situs of dealer-held heavy equipment, specifically asserting that the situs is where the dealer maintains its inventory, contrary to the court of appeals’ finding that presumed Reeves and Loving counties as the taxable situses under section 21.02. The court reversed the court of appeals on this issue, ruling that the compressors’ taxable situs is dictated by sections 23.1241 and 23.1242. The court did not address whether taxes were correctly paid for compressors in Ector and Gray counties, as MidCon did not seek a ruling on that issue, focusing solely on the taxation in Reeves and Loving counties. Thus, the court affirmed the court of appeals' judgment in part and reversed it in part, confirming the applicability of sections 23.1241 and 23.1242 for determining the taxable situs of the compressors. The case was not remanded for further determination due to the lack of alternative arguments from Reeves and Loving counties.