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Jack Woods ASSOCIATE DIRECTORS - I.arry I.uedtke, Valuation Jim Robinson, Education and Standards July 14, 1983' Dear Tax Administrator: 9501 North IH 35 P.O. Box 15900, Austin, Texas 78761 Telephone 512 -837 -8622 or 800- 252 -9121 MEMBERS OF THE BOARD Ben Munson, Chairman William -J. (Bill) Burnette Dr. John E. Codwell, Sr. Marvin L. Jonea• Stephen-T. Jordan Joseph A. VanDeWalle, Sr. On July 5,.1983, the-United States Supreme Court issued a decision in the case of American Bank & Trust Co. v. Dallas County, holding invalid the method commonly used in Texas for valuing shares of stock in a banking corporation for purposes of ad valorem taxation. This opinion reverses the Dallas Court of Civil Appeals, whose opinion had been upheld by the Texas Supreme Court. The Court based its decision on- a 195q amendment to federal law which bars the application of certain taxes on federal obligations or their interest. The decision. specifically held invalid the equity capital or "book° value "' method used in valuing bank shares, since it failed to adjust for direct federal obligations held by the banks. _. In the SPTB General Appraisal Manual, the financial' institutions section discusses 'a. market metnod and "booK value` or equity capital method of val u_i ng bank shares. It was the "book value" method which had been used in Dallas County,. without a deduction for the value of federal obligations. The Supreme Court has added one more step to the "book value" method. That is, once the value of the stock is, determined by this method, the value- of direct federal obligations held by the bank must be deducted. Any value remaining is the intangible value of bank stock for purposes of property..taxation. It is our position that, the federal obligations discussed in the decision are those which impact the; borrowing power of the United States Gov ernment,. such as Treasury Bills. Wen do not believe this includes secured obligations, such as GNMA, FNMA, or FHA guaranteed issues. The-fiscal impact of this decision may be divided into two areas: 1.. Impact_ on taxing units due to potential refund of prior years which have already been collected. 2. Impact on taxing units due to loss of current year and future revenues which would have been levied on bank stock Page 2 We-will briefly discuss each of these concerns. Refund Problems .l The- decision does not specifically address the issue of refunds. Insufficient information exists to accurately estimate the potential refund of prior year taxes. In certain cases, litigation was filed for 1979, 1980, 1981 and 1982 on the valuation of bank stock. In many instances, the banks paid the taxes for the years "under protest." In yet other cases, there was an agreement by the taxing authorities to make some refund depending on the-final appellate court decision. For these various reasons and several others, there is much uncertainty as to how many taxing units will have to refund prior year taxes paid on bank stock. Our advice. to you in this regard is to review your own particular situation with your attorney. It simply is not possible to offer specific statewide advice because of the variety of situations which exist. Current Year Impact The decision does not invalidate the Texas statute that provides for.taxation of stock in a bank.i ng: corporation.. Rather, it only invalidates a. single method of appraising share. value. Accordingly, chief appraisers must continue to follow the statutory requirements to place bank shares on the. 1983 appraisal roll. Should you choose to use another method of stock valuation,. however,. an adjustment for the value of direct federal obligations will be necessary. Because of the uncertainties which currently exist,.. the chief appraiser may want to consider alternatives which would permit work on the- overall appraisal roll to proceed without interruption. Thez following suggestions may be helpful in this regard: A. Apprai sal Records Not Submi tted to ARB. If the chi of apprai ser has not yet submitted the appraisal records to the ARB under Sec 25.22, Property Tax Code, he might. elect to remove the bank stock listing from the records and make a later submission.. This would allo* time for a review of bank stock valuation methods, but would require amendment to the Sec. 25.22. affidavit_ found in the code. If this option is taken, it would still be possible to include the value of bank real:property with -other appraisal records submitted to the ARB., B. Appraisal Records Nora Before the ARB. If the district's appraisal records are :currently pending before. the ARB, t e chief appraiser may choose to A file a written motion asking that those portions dealing with the value of bank stock be set for a later hearing or- placed: on the supplemental appraisal records. As in the first situation, this would. allow additional time for consideration of value- Page 3 C. Records Approved and /or Appraisal Rolls Certified to Taxing Units If the ARB >las a rea y approv the district's appraisal records an t e- chief appraiser has certified an appraisal roll and total value to the :taxing units under Seca 26.01, it is our position, because of these unusual circumstances, that it would be possible to recall bank value for the purpose of reconsideration using a procedure similar to that outlined in Sec. 25.25, Property Tax. Code. HB 1446 which is effective January 1, 1984, provides useful administrative guidance for handling the situations noted above.. This_ bill: amends Sec. 25.23(a) to provide that property on which the ARB has not determined a protest at the time of its approval of appraisal records shall be included in the supplemental appraisal records. It also amends. Sec. 26.01 to. provide that when the chief appraiser 'certifies the appraisal roll to a taxing unit, he shall also submit a listing to the unit of properties which are taxable by the unit but not included in the appraisal roll because the ARB has not concluded protests on them. The listing shall include the value determined by the appraisal district and the -value claimed by the protesting property owner. The assessor shall use the. lower value for purposes of the effective tax rate calculation. Even though HB 1446 is not yet in effect, we believe that an appraisal district or taxing unit electing to follow its provisions in conjunction: with the bank stock valuation issue would be adjudged to be in good faith, substantial compliance with the tax laws. Regardless of which alternative the chief appraiser chooses to follow, we recommend that his plans be promptly communicated to each taxingunit. This is particularly true if the taxing units are approaching the truth -in- taxation stage. Concerning the effective tax rate calculation, there are two issues on which our agency has taken a position. 1. Since bank stock remains taxable, we do not believe that the effective tax rate calculation requires a taxing unit to deduct as a new exemption any levy lost due to a reduction in the intangible value of such stock. As you are aware, this reduction is required for properties becoming exempt for the first time, and it serves to reduce a- unit's effective tax rate. 2. SB 1345 which became effective on June 17, 1983, amended Sec. 26.04, Property Tax Code, to permit a taxing unit to make special adjustments in the calculation of the current year's effective tax rate when an error in the appraisal roll in the preceding year caused the loss of a substantial amount of anticipated tax revenue. Specifically, if one or more errors on the appraisal roll for the previous year are discovered after.adoption of the unit's tax rate, and if those errors result in the loss of more than one percent of the total appraised value for the unit in that year, the tax assessor may add to the current year's effective tax rate the amount necessary to adjust for that loss in an attempt to bring the unit to the status it would have been in had the errors not occurred. _J Page 4 We bel i.eve that if at the time of effective tax rate calculation you have made refunds to banks; for 1982 taxes and,, if then lost value represents more- t pan. one percent of your total 1982 values, this adjustment would be available- to you. The provisions of SB 1345 are not applicable to losses from refunds occurring prior to 1982. Full details concerning the mechanics of adjustments under this bill are con- tained in our publication Compliance Package /'83 Enclosed with this memorandum is a full copy of the Supreme Court decision. -We recommend that you review its content with and that you be guided by his or her advice in both• the refund issue and question- of valuation for 1983.: Wi h kindest regards, Kennet E. Graeber Executive Director KEG:_JR :kp 7 U� 0 Q n WL- 1983 PRELIMINARY VALUATION SUMMARY $ 28,945 $ 895,808 S - - Deferred Special Use Value Loss Agricultural $ 192,031 - Partial Exemption Value Loss Pursuant to Section 25.20 of the Texas Property Tax Code,­' I am submitting to the Kennedale City a certified estimate of the total appraised value of all taxable property in this district for the 1983 tax year. The appraisal records are to be submitted to the Tarrant Appraisal Review Board for review and determination of protest and are, therefore, subject to change in the appeals process. TOTAL APPRAISED VALUE Veteran Over - 65 Homestead Disability NET TAXABLE VALUE $ 103,199 Date: May 13, 19 $ 52,188,101 $ 50,968,118 7V64 ­ 7 J C_� a_tk Nelson F. Eichman, Chief Appraiser NEW CONSTRUCTION VALUE $1,713,998 - TBS210 V3,0 07- JUL -83 18!39'03 ENTITY' CITY OF KENNEDALE FOR! PERSONAL PROPERTY ONLY DESCRIPTION,,,,,,,,+ VALUE,,,,,,, ., COUNT,+ TAX,,,,,+,,,„ GROSS,VALUE,+, TOTAL APPRAISED VALUE 26857101, 310 26857101, -FULL EXEMPTIONS -TOTAL FULL EXEMPTS 0, 0 0 APP, VAL SUBTOTAL fl 26857101, 310 26857101, - DEFERRED SPECIAL APP -TOTAL DEF SPC APP 0, 0 0 APP, VAL SUBTOTAL 42 26857101, 310 26857101. - PARTIAL EXEMPTIONS OVER 65 31853, 5 33596, DISABILITY 1862, 1 1862, -TOTAL PART EXEMPTS 33715, 6 35458, NET TAXABLE VALUE 26823386, 305 26830886, NEW CONSTRUCTION 0, 0 IMPROVEMENT VALUE LOSS 0, 0 NEW EXEMPTION LOSS *0 -NEW FULL EXEMPTIONS -NEW DEFERRED SPECIAL -NEW PARTIAL EXEMPTIONS OVER 65 31853, 5 DISABILITY 1862, 1 * ** SCHOOL DISTRICTS ONLY * ** NET TAXABLE VALUE 26823386, 305 26830886, FROZEN REMAINDER 0, 0 0,00 NET TAX, SUBTOTAL #1 26823386, 305 26830886. TTB210 'V3.0 25— JUN -83 08221;44 ENTITY* CITY OF KENNEDALE FOR; REAL PROPERTY ONLY DESCRIPTION......... VALUE......... COUNT.. TAX........... GROSS.VALUE... TOTAL APPRAISED VALUE 25549259, 1388 25549259. —FULL EXEMPTIONS —TOTAL FULL EXEMPTS 0. 0 0 • APP, VAL SUBTOTAL #1 25549259. 1326 25549259. — DEFERRED SPECIAL APP AGRICULTURAL EX 184085, 15 245302. —TOTAL BE SPC APP 184085, 15 245302, APP, VAL SUBTOTAL #2 25365174. 1326 25549259. —PARTIAL EXEMPTIONS VETERANS $1500 12000. 8 201685. VETERANS $2000 2000. 1 26392. VETERANS $2500 7500. 3 s 49873. VETERANS $3000 13945. 6 106625. OVER 65 940094. 136 1963964. DISABILITY 101725. 14 230478. — TOTAL PART EXEMPTS 1077264. 161 2453912, NET TAXABLE VALUE 24287910, 1283 25307995, NEW CONSTRUCTION 1706215, 43 IMPROVEMENT VALUE LOSS 17001. 1 tU NEW EXEMPTION LOSS *U —NEW FULL EXEMPTIONS —NEW DEFERRED SPECIAL AGRICULTURAL EX 126034. 7 —NEW PARTIAL EXEMPTIONS VETERANS $3000 9000. 3 OVER 65 97108 14 DISABILITY 13526, 2 U* SCHOOL DISTRICTS ONLY # *# NET TAXABLE VALUE 24287910, 1283 25307995, FROZEN REMAINDER 0. 0 0600 NET TAX. SUBTOTAL #1 24287910. 1283 25307995. STATE OF TEXAS X COUNTY OF TARRANT X PROPERTY TAX CODE, SECTION 26.01 CERTIFICATION OF 1983 APPRAISAL ROLL FOR: CITY OF KENNEDALE I, Nelson F. Eichman, Chief Appraiser for Tarrant County solemnly swear that the attached is that portion of the approved Appraisal Roll of the Tarrant Appraisal District which lists property taxable by the above named entity and constitutes their Appraisal Roll. 1983 APPRAISAL ROLL INFORMATION VALUATION SUMMARY TOTAL APPRAISED VALUE $ 52,559,511 - Deferred Special Use Value Loss Agricultural $ 184,085 - Partial Exemption Value Loss Veteran $ 3 7,945 Over - 65 $ 971,947 Homestead $ Disability $ 103,587 NET TAXABLE VALUE Date: Sept • 13, 1963 RECEIVED BY: $ 51,261,947 r Chief Appr Nelsa F. E:Lchman Notary: DATE: City or Special District: City of Kennedale NOTICE OF CALCULATION OF EFFECTIVE TAX RATE AND PUBLICATION OF ESTIMATED UNENCUMBERED FUND BALANCES I, Melvin _A. Justic Financ Coordinator for City of _Kex- n edal e , in accordance with the provisions of Sec. 26.04, Property Tax Code, have calculated the tax rate which may not be exceeded by more than three percent by the governing body of the Iennedal without holding a public hearing as required by the code. That rate is as follows: $ • 5903 per $100 of value. The estimated unencumbered fund balance for Maintenance & Operation fund: $ 120 438 The estimated unencumbered fund balance for Interest & Sinking fund: $ 137.930 Melvin A._.Ju Finance C oordinator Aug ust 30, 1983 CALCULATIONS USED TO DETERMINE EFFECTIVE TAX RATE I. DATA 1. 1982 Total tax levy from the 1982 tax roll ....................................... 2. 1982 Tax rate ($ • 51 M &O and $ • 10 I &S) ... ............................... 3. 1982 Debt service (I &S) levy .................................................. 4. 1982 Maintenance and operation (M &O) levy .... ............................... 5. 1982 M &O taxes on property in territory that has ceased to be a part of the unit in 1983 6. 1982 M &O taxes on property becoming exempt in 1983 ......................... 7. 1982 M &O taxes on taxable value lost because property is appraised at less than market valuein 1983 ..................... .............................., ........... 8. 1983 Total taxable value of all property ..... ............................... 9. 1983 Taxable value of new improvements added since Jan. 1, 1982 .............. 10. 1983 Taxable value of property annexed since Jan. 1, 1982 ...................... 11. 1983 Tax levy needed to satisfy debt service (I &S) .............................. *12. Rate to raise 1982 tax levy due to appraisal roll errors (rate that should have been less rate that was levied) ($ /$100-$ /$100) ... *13. Rate to recoup taxes lost in 1982 due to appraisal roll errors (lost dollars divided by 1983 taxable values) ($ : $ ) ............................ * Steps necessary for appraisal roll errors (if more than 19 of total appraisal roll), effective for taxing units on June 17, 1983. 1 n $ 297488 $ 61 /$loo $ 47,598. $ 249,890 $ -0- $ — L.2- - 13 $ -0- $ 51,111,296_ $ 1,706,215_ $ -0- $ 44,455 $ -0- /$100 $ -0- /$100 COMPLIANCE /'83 M 'jI II. CALCULATION MAINTENANCE AND OPERATION (M &O) TAX RATE 1. (A) 1982 Total tax levy (Data 1) ................... ............................... $ 297,488 47,598 (B) Subtract 1982 Debt service levy (Data 3) ....... ............................... — $ (C) Subtract 1982 Taxes on property no longer in unit (Data 5) — $ -0- (D) Subtract 1982 Taxes for exemptions (Data 6) ... ............................... — $ 1, 213 (E) Subtract 1982 Taxes for productivity valuation (Data 7) ......................... -- $ -0 (F) Adjusted 1982 M &O levy ..................... ........... ..................... $ 248,677 2. (A) 1983 Total taxable value of all property (Data 8) ............................... $ 51,111, 296 (B) Subtract 1983 Value of new improvements (Data 9) ........................... . — $ 1 706 , 215 (C) Subtract 1983 Value of annexed property (Data 10) ............................ — $ -0- (D) Adjusted 1983 Taxable value for M &O ......... ............................... $ 49,405,081 3. (A) Divide the adjusted 1982 M &O levy (1 -F above) by the adjusted 1983 taxable 248,672 081 $ value for M &O (2 -D above) ($ _ $ --49,405 ) .005033 (B) Multiply by $100 valuation .................... ............................... x $ 100 (C) Calculated maintenance and operation (M &O) rate for 1983 .................... $ .5033/$100 INTEREST AND SINKING (I &S) TAX RATE 4. (A) 1983 I &S levy needed to satisfy debt (Data 11) .. ............................... $ 44,455 (B) 1983 Total taxable value of all property. (Data 8) ............................... $ 51,111 , 296 (C) Divide the 1983 I &S levy (4 -A above) by the 1983 total taxable value 44,455 51 J11, 296 $ .000870 (4 -B above) ($ - $ ) .............. J (D) Multiply by $100 valuation .................... ............................... x $ 100 (E) Calculated interest and sinking rate (I &S) for 1983 ............................. $ .0870 / 100 APPRAISAL ROLL ERROR RATE 5. (A) Rate to raise 1982 levy due to appraisal errors (Data 12) $ -0- /$100 (B) Add rate to recoup taxes lost due to errors (Data 13) ........................... + $ -0- /$100 (C) Total rate to adjust for appraisal roll errors ..... ............................... $ -0- /$100 TOTAL EFFECTIVE TAX RATE FOR 1983 6. (A) Calculated maintenance and operation (M &0) rate (3 -C above) ................. $ . 5033 /$100 B Add calculated interest and sinking I &S) rate (4-E above + $ . 0870 /$100 (C) Add rate to adjust for appraisal roll errors (5 -C above) ......................... + $ -0---/$100 (D) Calculated 1983 Effective Tax Rate ........... ............................... $ . 5903 /$100 1983 Effective Tax Rate is the tax rate published as required by Sec. 26.04, Property Tax Code. rnMPLIANCE /'83 13 o aQ 0 Q� a QQ Q r July 20, 1983 Dear Administrator: Pursuant to the provisions of Section 26.01 of the State Property Tax Code, we hereby transmit your 1983 certified value roll. We request that you examine the roll carefully. Any changes permitted by sections 25.25 and 26.15 of the property tax code will be included in the supplemental roll which we plan to furnish you on or about September 15, 1983. Please inform us of any changes or corrections that you may desire to make. Of special interest to you as a taxing unit, is the decision by the United States Supreme Court in the case of the American Bank and Trust Company vs. Dallas County This decision specifically holds invalid the "equity capital formula" used for valuing bank shares, since it failed to adjust for Federal obligations held by the banks. The State Property Tax Board's interpretation is that Federal obligations discussed in the decision are those which adversely affect the borrowing power of the United States Government. It has been determined that this does not include secured obligations such as GNMA, FNMA, or FHA guaranteed issues. It further directs that until final resolution, the Appraisal Districts should remove the bank stock listings from the records and make a later submission. Since this court ruling was not made until July 5, 1983, personal property of banks was already included in the original hard copy and /or magnetic tape version which you will receive. However, we have provided a list of the banks in your jurisdiction and the value of their personal property. To assist you, this figure is also recorded on the "198 Valuation Summary ". I have enclosed all the information we have received from the State Property Tax Board. If additional information is needed or I can assist you in any way in this matter, please contact me. Yours truly, ?V6 � &G ,L 4&V% Nelson F. Eichman Chief Appraiser cmp 1701 River Run • Suite 200 • Fort Worth, Texas 76107.332 -3151 • (Metro) 429 -2947 k STATE OF TEXAS X COUNTY OF TARRANT X PROPERTY TAX CODE, SECTION 26.01 CERTIFICATION OF 1983 APPRAISAL ROLL FOR: City of Kennedale I, Nelson F. Eichman, Chief Appraiser for Tarrant County solemnly swear that the attached is that portion of the approved Appraisal Roll of the Tarrant Appraisal District which lists property taxable by the above named entity and constitutes their Appraisal Roll. 1983 APPRAISAL ROLL INFORMATION VALUATION SUMMARY TOTAL APPRAISED VALUE - Deferred Special Use Value Loss Agricultural $ 184,085 - Partial Exemption Value Loss Veteran $ 35,445 Over - 65 $ 971,947 Homestead $ - 0 - Disability $ 103,587 NET TAXABLE VALUE Less Bank Personal Property Ref: Supreme Court Opinion ADJUSTED NET TAXABLE VALUE Date: July 21,.1983 $ 52,406,360 $ 51,111,296 - $ N/A Chief Appraiser Nelson F. Eichman RECEIVED BY: DATE: Publishing, Inc. P.O. Box 40230 811 West Enon Everman, TX 76140 Phone 293 -1240 Publisbeis ()I: E:YE:ILAIA\ TlAlr:.S KENNEIDAIE' NEWS Tt)WN & COUNTRY NEAVS SOUTH ('OUN' Y ADVERTISER STATE OF TEXAS: COUNTY OF TARRANT: City of Kennedale AFFIDAVIT OF PUBLICATION BEFORE ME, the undersigned authority, on this day personally appeared Carl Hoover , who having been duly sworn, says upon his oath: That he is the editor of the Kennedale News , which is a weekly newspaper published in Tarrant County, Texas, with general circulation in the city of Kennedale , Texas; and that a copy of Notice of Calculations of Effe ctive Tax Rate and Publication of Estimated Unencumbered Funds Balance 0 which is attached to this affidavit, was published in said newspaper on the following dates, to wit: September 8th, 1983 EXECUTED THIS 9th day of September 1983 . 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