A “tax ferret contract” is an agreement to locate property that has been under appraised or omitted from the tax rolls altogether. Tax ferrets are by no means Good Samaritans seeking to safeguard the tax base. On the contrary, they are private profiteers seeking to line their own pockets at the expense of the property owners they target. Largely a footnote in history since the implementation of the Texas Property Tax Code, tax ferrets operate on a contingent fee, based on the amount of taxable value their efforts add to the tax roll. Thus, tax ferrets are incentivized to circumvent the property tax system and the prescribed rights of taxpayers and taxing units alike.
Over the last 80 years, even during the era preceding appraisal districts, Texas has recognized the public policy concerns associated with these contracts and passed laws to outlaw contingent-fee contracts between taxing units and tax ferrets. Currently, all political subdivisions (including appraisal districts) must obtain the Attorney General’s approval before a contingent-fee contract for legal services is effective. Moreover, appraisal districts are explicitly prohibited by law from compensating a private appraisal firm on a contingent fee based on the amount of value the firm appraises. Nor can taxing units challenge the value of an individual property or even a category of properties. So a tax ferret contract aims to accomplish indirectly what neither an appraisal district nor a taxing unit may do directly.
Background. In Kinder Morgan SACROC, LP. v. Scurry County, the taxing units sought to appeal a board order declining to reappraise the value of mineral-interest property the taxing units alleged was omitted from the tax rolls for the previous five years. The taxpayer moved to dismiss the tax appeal under the Texas Citizens Participation Act (TCPA), but the lower courts declined to grant the taxpayer’s dismissal. Later, the taxpayer also raised a jurisdictional challenge, arguing the trial court lacked jurisdiction over the tax appeal because the taxing units’ petition for judicial review was void, since the taxing units had hired legal counsel as a tax ferret under an unauthorized contingent fee contract. The taxpayer asserted all actions taken on behalf of the taxing units under the tax ferret contract were void, including filing the petition for judicial review. In essence, the taxpayer argued that there should be no lawsuit because the taxing units’ claim was filed illegally pursuant to a tax ferret contract.
Issue. On appeal, the Supreme Court decided two issues: (1) a jurisdiction challenge based on the alleged invalidity of legal services due to the tax ferret contract; and (2) the timeliness of the taxpayer’s TCPA claim. For purposes of the tax ferret issue, we analyze the jurisdiction issue.
Ruling. The Court ultimately held the trial court has jurisdiction to hear the lawsuit, and the taxing units’ case was not void even if the contract between the taxing units and their legal counsel was illegal. The Court ruled that any potential issues associated with the invalidity of the tax ferret contract rendered the lawsuit “defective,” entitling the taxing units an opportunity to fix the defect before the suit was dismissed. In other words, the Court refused to dismiss the taxing units’ case even if the lawsuit was filed in connection with an illegal tax ferret contract.
Conclusion. The Texas Supreme Court and Legislature have recognized the public policy concerns with tax ferret contracts. Despite this recognition and the tax code provisions outlawing these types of contracts, the Supreme Court concluded that a lawsuit may survive a motion to dismiss even if the lawsuit is born due to the efforts of an illegal tax ferret.
1 Section 6.30 of the Texas Tax Code permits a taxing unit to enter into a contract with an attorney for purposes of delinquent tax collection, provided the attorney’s compensation does not exceed 20 percent of the delinquent tax, penalty, and interest collected.
2 Tex. Tax Code Ann. Section 25.01(b)
3 Tex. Tax Code Ann. Section 41.03(a)
4Kinder Morgan SACROC, LP v. Scurry County, 19-1122, 2021 WL 1705212 (Tex. Apr. 30, 2021)