Can a Texas business claim the disaster property tax exemption for COVID-19 economic losses if its property wasn't physically damaged?

Plain-English summary

When COVID-19 hit in early 2020, the Governor declared a statewide disaster. That raised a property tax question, because the Tax Code has a section, 11.35, that gives a temporary tax exemption for "qualified property" that has been damaged by a disaster the Governor declares. The Chair of the Senate Committee on Property Tax asked the AG whether that exemption could reach property that lost value purely because of the economic effects of the COVID-19 disaster, such as a business whose building was untouched but whose income collapsed, even though the property itself suffered no physical damage.

The AG said no. Section 11.35 only applies once the chief appraiser determines that an item of property is "at least 15 percent damaged by the disaster," and then assigns it one of four damage levels. The AG walked through those four levels and pointed out that each one describes physical harm: minimal damage that still lets the property be used, nonstructural damage to the roof or walls, significant structural damage needing extensive repair, or a total loss where repair is not feasible. A purely economic loss involves no physical damage at all, so it does not fit any of those categories. The AG also noted that for real property the exemption applies only to "improvements" (buildings, structures, fixtures) that were damaged, not to a general drop in the property's market value. Reading the statute as a whole, the AG concluded a court would likely hold the Legislature intended the temporary exemption to cover only property physically harmed by a declared disaster, so COVID-19 economic losses without physical damage were not eligible.

Currency note

This opinion was issued in 2020. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

For Texas property owners and businesses in 2020, the opinion's reading was that the section 11.35 disaster exemption was a physical-damage exemption, not a relief valve for the economic fallout of COVID-19. A business whose building was intact but whose revenue dropped because of shutdowns or lost customers did not have "qualified property" that was at least 15 percent damaged, so it had no path to the exemption under this reading. For chief appraisers and appraisal districts, the opinion supplied a construction they could apply when sorting through disaster-exemption applications: the trigger was physical harm rated under one of the four statutory damage levels, and applications resting on economic loss alone did not meet that standard. The AG framed the bottom line as a prediction about how a court would likely construe the statute, not a final adjudication, and grounded it in the text the Eighty-Sixth Legislature adopted in 2019 in response to Hurricane Harvey's physical damage.

Common questions

Q: Did COVID-19 income losses qualify a Texas property for the disaster tax exemption?
A: No. The AG concluded section 11.35 reached only property physically harmed by a declared disaster, so a purely economic loss with no physical damage did not qualify.

Q: What counts as "damaged by the disaster" under section 11.35?
A: Physical harm. The chief appraiser had to find the property at least 15 percent damaged and assign one of four levels, all of which the AG read as describing physical damage requiring repair, from minimal damage up to a total loss.

Q: Why didn't a drop in market value count?
A: For real property, the exemption applied only to damaged "improvements" like buildings or structures, not to the property's overall value. The AG reasoned that if the Legislature had wanted to cover general value losses, it could have used different language, and it did not.

Q: Who originally asked this question and why?
A: State Senator Paul Bettencourt, as Chair of the Senate Committee on Property Tax, asked it shortly after the Governor's March 13, 2020 COVID-19 disaster proclamation, because section 11.35 says nothing about property that suffers economic loss without physical damage.

Background and statutory framework

The Eighty-Sixth Legislature adopted Tax Code section 11.35 in 2019 (H.B. 492) in response to the physical damage Hurricane Harvey caused in 2017. The section creates a temporary tax exemption for "qualified property," which includes tangible personal property used to produce income, an improvement to real property, and certain manufactured homes. If qualified property is at least 15 percent "damaged by the disaster," the owner is entitled to an exemption from a portion of the appraised value; the chief appraiser, appointed by the appraisal district board under section 6.05(c), determines damage and assigns a Level I through Level IV rating under subsection (g). The AG construed "damaged by the disaster" using the ordinary-meaning approach from Janvey v. Golf Channel, Inc., 487 S.W.3d 560 (Tex. 2016) and Univ. of Tex. at Arlington v. Williams, 459 S.W.3d 48 (Tex. 2015), consulting dictionary definitions as in Epps v. Fowler, 351 S.W.3d 862 (Tex. 2011), and declined to read in coverage for economic loss under the rule against judicially amending a statute stated in Cadena Comercial USA Corp. v. Tex. Alcoholic Beverage Comm'n, 518 S.W.3d 318 (Tex. 2017). The "improvement" definition came from section 1.04(3).

Citations and references

Statutory provisions:

• Tex. Tax Code § 11.35; § 1.04; § 6.05
• 16 Tex. Admin. Code § 94.100(4)

Cases:

• Janvey v. Golf Channel, Inc., 487 S.W.3d 560 (Tex. 2016)
• Univ. of Tex. at Arlington v. Williams, 459 S.W.3d 48 (Tex. 2015)
• Epps v. Fowler, 351 S.W.3d 862 (Tex. 2011)
• Cadena Comercial USA Corp. v. Tex. Alcoholic Beverage Comm'n, 518 S.W.3d 318 (Tex. 2017)

Legislation referenced: Tex. H.B. 492, 86th Leg., R.S. (2019).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0299
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2020/kp-0299_0.pdf

Original opinion text

April 13, 2020

The Honorable Paul Bettencourt
Chair, Senate Committee on Property Tax
Texas State Senate
Post Office Box 12068
Austin, Texas 78711-2068

Opinion No. KP-0299

Re: Application of the temporary tax exemption for qualified property damaged by a disaster, as set forth in section 11.35(g) of the Tax Code (RQ-0345-KP)

Dear Senator Bettencourt:

You ask whether the temporary tax exemption in section 11.35 of the Tax Code applies to property that has suffered an economic loss, but no physical damage, as a result of the COVID-19 disaster declared by the Governor's March 13, 2020 proclamation.[1]

The Eighty-Sixth Legislature adopted section 11.35 of the Tax Code in response to the physical damage Hurricane Harvey caused to property in the coastal region in 2017.[2] Section 11.35 creates a temporary tax exemption for qualified property damaged by a disaster, as declared by the Governor. See TEX. TAX CODE § 11.35. "Qualified property" includes "tangible personal property used for the production of income," "an improvement to real property," and manufactured homes meeting certain requirements. Id. § 11.35(a)(1). If qualified property has been "at least 15 percent damaged by the disaster," section 11.35 entitles a person "to an exemption from taxation by a taxing unit of a portion of the appraised value" of that property. Id. § 11.35(a), (b).[3]

Upon receipt of an application for an exemption under section 11.35, the chief appraiser must determine whether any item of qualified property "is at least 15 percent damaged by the disaster." Id. § 11.35(f).[4] If such a determination is made, the chief appraiser must then "assign to each such item of qualified property a damage assessment rating of Level I, Level II, Level III, or Level IV, as appropriate." Id. Those levels correspond to increasing amounts of property damage in the following amounts:

(1) a Level I damage assessment rating if the property is at least 15 percent, but less than 30 percent, damaged, meaning that the property suffered minimal damage and may continue to be used as intended;

(2) a Level II damage assessment rating if the property is at least 30 percent, but less than 60 percent, damaged, which, for qualified property described by Subsection (a)(1)(B) or (C), means that the property has suffered only nonstructural damage, including nonstructural damage to the roof, walls, foundation, or mechanical components, and the waterline, if any, is less than 18 inches above the floor;

(3) a Level III damage assessment rating if the property is at least 60 percent damaged but is not a total loss, which, for qualified property described by Subsection (a)(1)(B) or (C), means that the property has suffered significant structural damage requiring extensive repair due to the failure or partial failure of structural elements, wall elements, or the foundation, or the waterline is at least 18 inches above the floor; or

(4) a Level IV damage assessment rating if the property is a total loss, meaning that repair of the property is not feasible.

Id. § 11.35(g). Noting that section 11.35 makes no reference to property that has suffered an economic loss not associated with physical damage caused by the disaster, you question whether the temporary tax exemption could apply to such property. Request Letter at 2.

Answering your question requires a construction of the phrase "damaged by the disaster" as used in section 11.35, as only those qualified properties with at least fifteen percent damage may receive the exemption. TEX. TAX CODE § 11.35(f). "Our primary objective in construing a statute is to ascertain and effectuate the Legislature's intent." Janvey v. Golf Channel, Inc., 487 S.W.3d 560, 572 (Tex. 2016). "We derive intent from the plain meaning of the text construed in light of the statute as a whole." Id. When statutes do not define key terms, we apply their common, ordinary meaning unless a contrary meaning is apparent from the statute's language. Univ. of Tex. at Arlington v. Williams, 459 S.W.3d 48, 52 (Tex. 2015). To determine a statutory term's common, ordinary meaning, we typically look first to their dictionary definitions. See Epps v. Fowler, 351 S.W.3d 862, 866 (Tex. 2011) ("[W]e consult dictionaries to discern the natural meaning of a common-usage term not defined by contract, statute, or regulation.").

One common usage of the term "damage" is "physical harm caused to something in such a way as to impair its value." WEBSTER'S THIRD NEW INT'L DICTIONARY 436 (2002). Consistent with this definition and the context of section 11.35, the damage assessment categories the Legislature established in subsection (g) describe various levels of physical damage requiring repairs to return the property to its pre-disaster status. TEX. TAX CODE § 11.35(g). Level I involves "minimal damage" such that the property can continue to be used as intended. Id. § 11.35(g)(1). Level II involves "nonstructural damage to the roof, walls, foundation, or mechanical components . . . ." Id. § 11.35(g)(2). Level III involves "significant structural damage requiring extensive repair . . . ." Id. § 11.35(g)(3). And Level IV involves damage rendering repair of the property not feasible. Id. § 11.35(g)(4). In contrast to these descriptions, a purely economic loss involves no physical damage to the property. Nothing in the language of section 11.35 evidences an intent on the part of the Legislature to address non-physical damage to property by allowing an exemption in such circumstances.

Furthermore, with regard to qualified real property, the temporary exemption applies not to the value of real property as a whole, but instead only to "improvements" that suffered damage due to the disaster. Id. § 11.35(a)(1)(B). The Tax Code generally defines an "improvement" as "a building, structure, fixture, or fence erected on or affixed to land" or "a transportable structure that is designed to be occupied for residential or business purposes . . . ." Id. § 1.04(3). Had the Legislature intended to address economic losses or a general decrease in property value due to factors beyond the physical condition of the property, it could have used different language that encompassed those losses. See Cadena Comercial USA Corp. v. Tex. Alcoholic Beverage Comm'n, 518 S.W.3d 318, 337 (Tex. 2017) (observing that courts will not judicially amend a statute by adding words that are not contained in the language of the statute). Instead, the Legislature limited the real property exemption to improvements damaged by a disaster. Construing section 11.35 as a whole, a court would likely conclude that the Legislature intended to limit the temporary tax exemption in section 11.35 to apply only to property physically harmed as a result of a declared disaster.

S U M M A R Y

Section 11.35 of the Tax Code creates a temporary tax exemption for qualified property damaged by a disaster, as declared by the Governor. A court would likely conclude that the Legislature intended to limit the temporary tax exemption to apply to property physically harmed as a result of a declared disaster. Thus, purely economic, non-physical damage to property caused by the COVID-19 disaster is not eligible for the temporary tax exemption provided by section 11.35 of the Tax Code.

Very truly yours,

KEN PAXTON
Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

RYAN L. BANGERT
Deputy First Assistant Attorney General

RYAN M. VASSAR
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

[1] See Letter from Honorable Paul Bettencourt, Chair, Senate Comm. on Prop. Tax, to Honorable Ken Paxton, Tex. Att'y Gen. at 1-2 (Apr. 9, 2020), https://www2.texasattorneygeneral.gov/opinions/opinions/51paxton/rq/2020/pdf/RQ0345KP.pdf ("Request Letter").

[2] See Senate Research Ctr., Bill Analysis, Tex. H.B. 492, 86th Leg., R.S. (2019), https://capitol.texas.gov/tlodocs/86R/analysis/pdf/HB00492S.pdf#navpanes=0.

[3] If a disaster is declared on or after the date that a taxing unit adopts the tax rates for the tax year in which the disaster occurs, a person is not automatically entitled to the exemption created by section 11.35 unless the governing body of the taxing unit lawfully adopts the exemption. See TEX. TAX CODE § 11.35(c)-(e).

[4] The appraisal district board of directors appoints a chief appraiser, who serves as chief administrator of the appraisal office. Id. § 6.05(c). Pursuant to rules of the Texas Commission of Licensing and Regulation, appraisers may not "engage in an official act that is . . . in violation of law." 16 TEX. ADMIN. CODE § 94.100(4) (Tex. Dep't of Licensing & Regulation, Code of Ethics).