Short-Paying Property Taxes During Tax Valuation Suits: Risks and Options

You’ve sued an Appraisal District after an unfavorable decision from an Appraisal Review Board, or ARB.  The tax payment deadline (often but not always January 31) is coming up.  Your tax bills are based on the ARB Order and you know that you must generally pay the full tax bill on time to maintain your suit.  But you heard that a recent Texas law may let you pay less than the full bill if you pay all tax entities on time AND pay any increment immediately when the suit ends. Is “short-paying” a good idea?  What can go wrong? How can risks be minimized?

Many things can go wrong, sometimes badly. So most tax professionals recommend against short-paying. Deadlines are serious and even minor errors can lead to large penalties, interest, collection fees, and may even cause your suit to be dismissed. Thus, most taxpayers choose to pay their full tax bills and to get refunds of any overpaid taxes when suit is over.

If you cannot pay billed taxes in full, you may have no choice but to short-pay. If so, YOU must be cautious and proactive at every step. Do NOT wait for your lawyer or tax consultant to tell you what to do or when.  Not every problem can be anticipated, but short-payment pitfalls include:

  • Make sure that your suit includes the precise tax account number(s) for which you plan to short-pay. If an account is not in suit for the operative tax year then there is no right to short-pay. For example, you may own an office building and adjacent undeveloped land. If the office building’s value is in litigation but the land value is not, you have no right to short-pay on the land account.
  • Document and keep complete copies of everything related to your short-payment(s). Never assume that you will be able to obtain needed copies,  itemizations or anything else from any taxing entity.
  • If short-paying on more than one tax account, be clear on what amount you are paying on each. Set this out precisely in a cover letter to the tax entities and pay by separate check for each tax account.
  • Pay every pertinent taxing entity before the delinquency date.
  • While you have the right to pay based on what you hope the lawsuit’s outcome will be, it is usually a bad idea to assume that your best-case scenario will happen—it’s very unusual for any suit of any kind to end with one side getting everything that they want. Do not “fall in love” with your expert witnesses’ or tax agent’s value.
  • It’s OK to pay on a higher value than that ultimately reached in the suit. If that happens you’ll be refunded after the suit ends.
  • If you believe that you may not have the funds to pay any increment immediately when the suit ends, you should create a reserve in advance based on the worst-case scenario.
  • Immediately when the suit settles or ends in a judgment, carefully calculate and pay the remaining amount due to each taxing entity. Do not wait to receive an additional tax bill, or for your lawyer or tax consultant to remind you to pay. This is an area of great risk for taxpayers who short-pay—a mistaken belief that someone is going to tell them when to pay the increment and what amount to pay. Instead, once you know that a suit is settling, you must calculate the tax difference due and pay it right away. Again, make sure that you pay each taxing entity on every tax account, and carefully document all payments.

This general information is not specific to any particular facts, does not constitute legal advice and does not create an attorney-client relationship. If you decide to short-pay, you should consult your own legal counsel. There are substantial risks to short-payment, and any Texas taxpayer who short-pays assumes all related risks.