A Taxing Situation

What are the penalties in Harris County's tax collection deal with Heard, Goggan?

Nobody, it's generally agreed, enjoys paying taxes. But what could make the sting of taxation even worse is discovering that you had forked over more than you legally had to -- and that the company that got you to pay the extra was arguing that the windfall should be theirs, not yours, to keep.

That seems to be the situation in Harris County, which last June contracted with the law firm of Heard, Goggan, Blair and Williams to collect overdue taxes. In the six months after that contract was signed, tardy Harris County residents ponied up more than $13 million in delinquent county taxes. They also ponied up in excess of three-quarters of a million dollars in late fees that, according to a recent ruling by state District Court Judge Tony Lindsay, they didn't actually owe. And now lawyers for Heard, Goggan are claiming that regardless of the legality of those fees, the law firm should be allowed to retain the money it collected.

Actually, given the deal between Heard, Goggan and Harris County, the law firm may be correct in asserting that the extra cash is theirs. And the county judge, among others, has weighed in on Heard, Goggan's side.

The genesis of this convoluted situation traces back to last summer, when Commissioners Court approved a contract giving Heard, Goggan the job of collecting delinquent taxes for the county, as well as for the other 35 political entities that use County Tax Assessor-Collector Carl Smith's office to collect their taxes. That contract was not a favorite of County Attorney Mike Driscoll, who, even before it was signed, filed a lawsuit claiming that he and Smith should retain all tax collection duties.

A state district judge ruled against Driscoll, but last August, Smith followed up with another suit to challenge the 15 percent fee the contract allowed Heard, Goggan to tack onto overdue taxes. Pending the resolution of Smith's lawsuit, $1.1 million in disputed fees was put into an escrow account administered by Lindsay's court.

More than $800,000 of that escrow comes from penalties applied by Heard, Goggan to collected taxes that may be as much as 20 years delinquent. Smith argued that those penalties -- known as 33.07 fees, after the applicable statute of the Tax Code -- were illegal. He was right: in February, Lindsay ruled that Heard, Goggan had no legal authority to tack a 33.07 fee onto taxes that were delinquent prior to 1994. However, Lindsay added that even though taxpayers didn't know the legality of their penalties was in dispute, they had paid their bills willingly. As a result, they weren't entitled to a refund.

That left open who should get the $800,000 of improperly collected penalties. Heard, Goggan quickly suggested that it should get the money, even though it hadn't bothered to tell delinquent taxpayers that the late fees might not hold up in court, and so given them a chance to pay under protest. "The clear and unambiguous terms of the contract," wrote Bill King, the Kemah attorney representing Heard, Goggan, "provide that any [statute] 33.07 penalty collected by any of the entities that are a party to that contract immediately 'become the property of HGBW' upon payment to the Tax Assessor-Collector."

Assistant county attorneys representing Smith's office don't see it that way. They're arguing that because Lindsay has ruled that the fees collected weren't legal, they aren't, in fact, 33.07 penalties, and so Heard, Goggan has no right to them. Not that the attorneys for Smith's office are suggesting the money go back to the taxpayers who mistakenly paid it. Instead, they're suggesting the bonus go into the county's general coffers.

A hearing to determine who, other than the taxpayers, should get the escrow money is expected soon. But the legal issues being raised by both sides in this dispute are only half the story. The real question may be something simpler: just how did Commissioners Court let Heard, Goggan walk out of a June 27, 1995 meeting with a deal so sweet that, though a judge ruled that the law firm basically picked the pockets of Harris County taxpayers, it could very well end up with the spoils?

The county attorney's office says the county's contract is so favorable to Heard, Goggan that it even allows the law firm to calculate its own monthly fees. Worse, it doesn't even limit Heard, Goggan's compensation to fees allowed under the state tax code.

Under the code, outside law firms contracted to collect back taxes can receive two forms of compensation, the 33.07 fees -- 15 percent of the tax collected -- and attorneys' fees on certain cases that go to litigation. But Harris County's contract with Heard, Goggan isn't quite so restrictive, according to first assistant county attorney Marsha Floyd. "Their contract with the county doesn't talk in terms of any of those statutes," she says. "It says, 'We're entitled to 15 percent of everything paid to Carl Smith.' "

In other words, Heard, Goggan can take 15 percent of overdue taxes that it had nothing to do with collecting. Such a generous arrangement isn't exactly standard. For example, Heard, Goggan's collection contract with the Houston Independent School District is considerably more restrictive. Like the county's, the school district's contract covers one year of collections. But the HISD contract also limits Heard, Goggan to "the amount of monies actually and finally collected as attorneys' fees or as Section 33.07 penalties and designated by HISD as fees ...."

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