When a Texas court orders a property tax refund, does the taxing unit have to pay interest, and how is that interest calculated for multi-year cases?

Texas AG Opinion JM-1205: Must a Taxing Unit Pay Interest on a Property Tax Refund, and How Is It Calculated?

Plain-English summary

The chairman of the Texas House Committee on County Affairs asked about a 1989 amendment to section 42.43 of the Tax Code, which requires a taxing unit to include interest when it refunds property taxes after a court reduces the taxable value of a property. Local taxing units were questioning whether they owed interest on refunds stemming from lawsuits that had already been pending when the amendment took effect, and how to calculate interest when a single lawsuit covered more than one tax year.

The Attorney General concluded the 1989 amendment applies to every refund paid on or after its effective date of June 15, 1989, no matter when the underlying lawsuit was filed, because the enacting bill's own effective-date language tied the interest requirement to the date of the refund, not the date of the lawsuit. On the second question, the opinion concluded interest must be calculated separately for each tax year involved in a multi-year case, since the statute measures interest from "the delinquency date for the taxes" for that particular year, and different tax years have different delinquency dates.

Currency note

This opinion was issued in 1990. 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.

Who this opinion affected (as of 1990)

Local taxing units: The opinion concluded taxing units owed interest on any property tax refund paid on or after June 15, 1989, even if the taxpayer's lawsuit had been filed before that date, and had to compute that interest separately for each tax year covered by a refund rather than as a single lump calculation.

Taxpayers who successfully challenged their property valuations: The opinion meant a taxpayer whose refund was paid on or after June 15, 1989, was entitled to statutory interest on the refunded amount regardless of when they had originally filed suit, calculated year-by-year from each year's delinquency date.

Common questions

If a property tax lawsuit was already pending before June 15, 1989, does the taxing unit still owe interest on the eventual refund?
Yes, according to the opinion. The Attorney General found the 1989 amendment's effective-date language tied the interest requirement to when the refund was paid, not when the lawsuit was filed, so a refund paid on or after June 15, 1989, carries interest regardless of the lawsuit's filing date.

If a lawsuit covers two different tax years, is the interest calculated as one lump sum?
No. The opinion concluded interest must be calculated separately for each tax year, because the statutory formula runs from the delinquency date for that specific year's taxes, and different years have different delinquency dates and different periods of accrued interest.

What interest rate applies to these refunds?
The opinion quoted the statute's two rates: 10 percent annually for refunds tied to religious-organization exemptions denied under section 11.20 of the Tax Code, and 8 percent annually for refunds in other cases, both calculated from the applicable date until the refund is made.

Background and statutory framework

Chapter 42 of the Tax Code gives taxpayers the right to judicial review of certain appraisal review board or State Property Tax Board orders, and subchapter C sets out the post-appeal procedures taxing units must follow once a court orders a change in a taxpayer's property valuation. When the Tax Code was first enacted in 1979, section 42.43 required a refund of the overpaid taxes but said nothing about interest. The 70th Legislature added an interest requirement in 1987, but only for refunds tied to religious-organization exemptions wrongly denied under section 11.20. The 71st Legislature then broadened the interest requirement in 1989 to cover all other refunds under the section, at an 8 percent annual rate calculated from the delinquency date for the relevant tax year.

The opinion worked through a numeric example: a taxpayer who successfully challenged the appraised value of property for both the 1986 and 1987 tax years, resulting in a court-ordered refund of $100 for 1986 and $200 for 1987, paid on August 1, 1989. Because the 1986 delinquency date was 3.5 years earlier and the 1987 delinquency date was 2.5 years earlier, the interest calculations differed for each year ($28 for 1986, $68 for 1987), demonstrating why the statute's per-year, per-delinquency-date formula cannot be applied as a single blended calculation across multiple tax years.

Citations

Statutes:

• Tex. Tax Code § 42.43 (interest on property tax refunds after a court-ordered valuation reduction)
• Tex. Tax Code § 11.20 (religious organization property tax exemption)
• Acts 1989, 71st Leg., ch. 796, § 46, at 3605-6 (1989 amendment extending interest requirement to all section 42.43 refunds)
• Acts 1987, 70th Leg., ch. 640, § 4, at 2438 (1987 amendment adding interest for section 11.20 exemption refunds)
• Acts 1979, 66th Leg., ch. 841, § 1, at 2313 (original enactment of section 42.43, no interest provision)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1205
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1205.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

THE ATTORNEY GENERAL OF TEXAS

August 9, 1990

Honorable Mark W. Stiles
Chairman
Committee on County Affairs
Texas House of Representatives
P. O. Box 2910
Austin, Texas 78768-2910

Opinion No. JM-1205

Re: Whether a taxing unit is required to pay interest on refunds made on or after June 15, 1989 (RQ-1894)

Dear Representative Stiles:

Chapter 42 of the Tax Code grants aggrieved taxpayers a right of judicial review by a district court of certain orders issued by either appraisal review boards or the State Property Tax Board. Subchapter C of chapter 42 sets forth post-appeal administrative procedures to be taken by taxing units in instances in which a court orders a change in the taxable value of a taxpayer's property. Section 42.43 of the Tax Code governs the granting of refunds to a taxpayer in instances in which a court has ordered a reduction in the taxable value of that taxpayer's property.

Section 42.43 of the code was amended by the 70th and 71st Legislatures to require that interest at a specified rate be included in addition to the refunded taxes. You ask about the latter amendment. Section 42.43 of the Tax Code provides the following:

(a) If the final determination of an appeal that decreases a property owner's tax liability occurs after the property owner has paid his taxes, the taxing unit shall refund to the property owner the difference between the amount of taxes paid and amount of taxes for which the property owner is liable.

(b) For a refund made under this section because an exemption under Section 11.20 that was denied by the chief appraiser or appraisal review board is granted, the taxing unit shall include with the refund interest on the amount refunded calculated at an annual rate of 10 percent from the date the amount refunded was paid by the property owner until the date the refund is made.¹ For the taxing unit shall include with the refund interest on the amount refunded at an annual rate of eight percent, calculated from the delinquency date for the taxes until the date the refund is made.² (Emphasis and footnotes added.)

Acts 1989, 71st Leg., ch. 496, § 46, at 3605-6 (hereinafter House Bill 432).

You inform us of the following:

It has come to my attention that some local taxing units are questioning their duty to pay interest on refunds that result from taxpayer lawsuits that were pending on the amendment's effective date. Also, issues are being raised as to interest calculations when a taxpayer lawsuit involves more than a single tax year.

Accordingly, you ask two questions about the proper construction of the 1989 amendments.

Your first question is:

Does Section 42.43(b), as amended above, require taxing units to pay interest on refunds that are paid on or after June 15, 1989, regardless of whether the lawsuit giving rise to the refund was filed before, on, or after that date?

The answer to your first question is set forth in the bill enacting the amendment. Section 49 of House Bill 432 provides:

(a) This Act takes effect September 1, 1989, except that:

. . . .

(2) this section, Sections 3, 17, 30, 31, 32, 33, 42, 43, 44, 45, and 46 of this Act, take effect immediately.

. . . .

(l) The change in law made by Sections 30 and 46 of this Act applies only to a refund paid on or after the effective date of this Act. (Emphasis added.)

By the very terms of the above underscored language, it is clear that the legislature intended that the 1989 amendment to section 42.43 reach all refunds paid after the effective date of the act, without regard to the date on which any lawsuit was filed. Nothing in either the text of the amendment, the bill containing the amendment, or the legislative history of the bill supports the proposition that the date on which a lawsuit is filed triggers the application of the bill.

Your second question is:

For lawsuits that involve more than one tax year, does Section 42.43(b), as amended above, require interest to be calculated separately for each tax year involved in the litigation?

In order to clarify the nature of your second question, we set forth an example of the proper application of the section. Assume that a taxpayer has challenged the appraised value of his residential property for the tax years 1986 and 1987. Assume further that on July 14, 1989, a court orders a reduction in the appraised value of the taxpayer's property that results in a refund of taxes of $100 for the 1986 tax year and $200 for the 1987 tax year. Assume further that the defendant taxing unit refunds the taxes on August 1, 1989. The formula for calculating the interest for the 1986 refund is: $100 X .08 (interest rate) X 3.5 (years since delinquency date)³ = $28.00. The formula for calculating the interest for the 1987 refund is: $200 X .08 X 2.5 = $68.00. The total amount of interest due is $96.00.

It should be clear from the example above that the interest for each tax year must be calculated separately. Because the amount of the interest is the product of the tax refunded multiplied by a specified percentage, calculated "from the delinquency date for the taxes until the refund is made," the interest for each tax year must be calculated separately. Tax Code § 42.43(b) (emphasis added). Therefore, we answer your second question in the affirmative.

SUMMARY

Section 42.43 of the Tax Code requires a taxing unit to pay interest on refunds of taxes that are paid on or after June 15, 1989, regardless of whether the lawsuit giving rise to the refund was filed before, on, or after that date. Because the formula for calculating the interest requires the amount of the tax refund to be multiplied by a specified percentage calculated from the delinquency date for that tax until the date the refund is made, the interest must be calculated for each tax year separately.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Jim Moellinger
Assistant Attorney General