SUPREME COURT RECOGNIZES EQUITABLE OWNERSHIP AS SUFFICIENT FOR CHDO PROPERTY TAX EXEMPTION

The Texas Supreme Court, in the case of AHF Arbors at Huntsville I, LLC v. Walker County Appraisal District, has concluded that a community housing development organization (CHDO) with no legal ownership of an apartment complex can still receive a property tax exemption under Texas Tax Code Section 11.182 if the CHDO is the sole member of a limited liability company (LLC) that owns the apartment complex. 

Texas Tax Code Section 11.182(b) provides that an organization is entitled to a property tax exemption for real property that it owns if the organization: (1) is considered to be a CHDO pursuant to the definition in federal law; (2) meets the state law requirements of a charitable organization; and (3) owns the property for the purpose of building or repairing housing on the property to sell or rent without profit to a low-income or moderate-income individual or family satisfying the organization’s eligibility requirements. 

In 2003, Arbors (an LLC) applied to the Walker County Appraisal District for a tax exemption under Tax Code Section 11.182 for the apartment complex it owned.  The sole member of the Arbors LLC was Atlantic Housing Foundation, a non-profit corporation that was certified as a CHDO by the Texas Department of Housing and Community Affairs.  The appraisal district denied Arbors’ application because it was not a CHDO and because it did not file an audit with either TDHCA or the appraisal district as required by Tax Code Section 11.182(g).  Arbors sued the appraisal district, and the district court found for the appraisal district.  The court of appeals affirmed the district court’s determination based upon the failure of Arbors to submit an audit to the appraisal district, and Arbors appealed to the Supreme Court of Texas.

After determining that the appraisal district should not have denied Arbors’ exemption application due to the failure of Arbors to file an audit, the Court turned to the question of whether Atlantic Housing Foundation’s ownership of the Arbors qualifies the Arbors’ property for a tax exemption (even though the issue was not addressed by the court of appeals).   The Court held that the Atlantic Housing Foundation had equitable title to the apartment complex because it maintained complete control over Arbors and the power to compel transfer of legal title to all of Arbors’ property.  As a result, the property tax exemption was imputed to Arbors pursuant to Tax Code Section 11.182(b) in spite of the fact that the CHDO, Atlantic Housing Foundation, did not legally own the apartment complex at issue.

Since 2009, the League has taken no position on legislation that would expand or contract eligibility for the CHDO property tax exemption, except for legislation that would allow for city approval of CHDO exemptions.  The primary reason for the League’s neutrality is that cities have different opinions on the CHDO property tax exemption.  Some cities make the development of low-income housing a priority and thus are supportive of some expansions in eligibility for the exemption, while other cities oppose expansion on the grounds that it would erode the tax base while granting tax exemptions to property owners who aren’t primarily engaged in the provision of low-income housing.

The full opinion in AHF Arbors at Huntsville I, LLC v. Walker County Appraisal District is available at http://www.supreme.courts.state.tx.us/historical/2012/jun/100683.pdf.


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