Incorporation of Georgia’s Appraisal Procedures Manual Requires Consideration of Economic Obsolescence and Inutility in Bond-for-Title PILOT Valuations

I. Introduction

Carbo v. Board of Tax Assessors (5th Cir. Mar. 5, 2026) arises from a long-running ad valorem tax and Payments in Lieu of Taxes (“PILOT”) dispute between CARBO Ceramics, Incorporated (“CARBO”) and local taxing authorities in Wilkinson County, Georgia—principally the Wilkinson County Board of Tax Assessors (the “Assessors”) and Wilkinson County (the “County”).

The controversy traces to a Georgia economic-development bond-for-title structure memorialized in a 2008 Memorandum of Understanding (“2008 MOU”) and related lease, under which title to CARBO’s facilities was placed with a development authority (creating a tax-exempt ownership interest) while CARBO’s taxable interest was addressed through contractually defined PILOT payments. After CARBO’s business suffered a major downturn beginning in 2014 (loss of a key customer and broader oil-and-gas market collapse), CARBO contended its machinery and equipment should be appraised with additional depreciation reflecting economic obsolescence and inutility.

The case reached federal court through CARBO’s Chapter 11 filing in the Southern District of Texas. The Assessors filed a proof of claim for unpaid taxes (2018–2020). CARBO countered in an adversary proceeding by objecting to the claim, seeking refunds for alleged overpayments, and raising due-process concerns related to Georgia appeal procedures.

The central legal issue on appeal was narrow: Does the 2008 MOU require the Assessors to consider obsolescence and inutility attributable to CARBO’s economic downturn when calculating value for tax years 2018–2022? The Fifth Circuit answered: Yes.

II. Summary of the Opinion

The Fifth Circuit reversed the bankruptcy court and district court. It held that the 2008 MOU’s valuation language incorporates Georgia Department of Revenue requirements, which include the Appraisal Procedures Manual (“APM”) and its cost approach. Because the APM’s cost approach mandates consideration of “further depreciation” for physical deterioration, functional obsolescence, and economic obsolescence, the Assessors were required to consider CARBO’s evidence of obsolescence and inutility.

The court rejected the bankruptcy court’s interpretation that a clause stating the machinery and equipment “shall be operated on a continuous 24 hour per day basis” acted as a “stipulation” barring obsolescence/inutility adjustments. Interpreting that clause to eliminate APM-required depreciation would amount to a disfavored forfeiture not stated in “clear and unmistakable terms,” and equity could not excuse the Assessors’ performance absent causation under Georgia law.

The judgment was REVERSED and the case REMANDED for proceedings consistent with the opinion—i.e., valuation determinations that consider obsolescence and inutility as required by the incorporated APM.

III. Analysis

A. Precedents Cited

1. Standards of review in bankruptcy appeals

  • In re Mercer, 246 F.3d 391 (5th Cir. 2001) (en banc): The Fifth Circuit reiterated that it applies the same standard of review as the district court—clear error for factual findings and de novo review for legal conclusions and mixed questions. This framing mattered because the pivotal dispute was contract interpretation (a legal question under Georgia law) and thus reviewed de novo.

2. Georgia contract interpretation methodology

  • Overlook Gardens Props., LLC v. Orix, USA, LP, 884 S.E.2d 433 (Ga. Ct. App. 2023) (quoting) Emory Healthcare, Inc. v. van Engelen, 870 S.E.2d 223 (Ga. Ct. App. 2022): These cases supplied the three-step Georgia approach to contract construction: (1) determine ambiguity, (2) apply rules of construction, and (3) if ambiguity remains, resolve intent as a fact question. The Fifth Circuit used this framework to treat the MOU’s valuation clause as enforceable by its plain meaning and to address ambiguity in the “24-hour” clause through anti-forfeiture canons.
  • FDIC v. Firemen's Ins. Co. of Newark, 109 F.3d 1084 (5th Cir. 1997): Cited for the general proposition that federal courts look to state law for contract interpretation rules, supporting the choice of Georgia law given the MOU’s governing-law clause.

3. Incorporation by reference (and treating incorporated materials as part of the contract)

  • Barsamian v. Glynn Cnty. Bd. of Tax Assessors, 897 S.E.2d 893 (Ga. Ct. App. 2024): Used to confirm the APM’s role: it compiles Department of Revenue regulations “to assist county tax officials” in appraisals, reinforcing that “Department of Revenue rules and regulations” naturally encompass the APM.
  • Bowman v. Walnut Mountain Prop. Owners Ass'n, Inc., 553 S.E.2d 389 (Ga. Ct. App. 2001) (quoting) Goldman v. Vinson, 535 S.E.2d 305 (Ga. Ct. App. 2000): These decisions provided the controlling doctrine: incorporation by reference is effective when the referenced provisions have a “reasonably clear and ascertainable meaning,” and incorporated documents are treated as part of the contract. The Fifth Circuit relied on this to hold that the MOU’s reference to Department of Revenue requirements brings the APM into the MOU itself.

4. Authorized appraisal approaches and fair market value in bond-for-title contexts

  • Sherman v. Fulton Cnty. Bd. of Assessors, 701 S.E.2d 472 (Ga. 2010): The Supreme Court of Georgia signaled that valuation methods are suspect when they do not follow an “authorized appraisal approach,” even in bond-for-title arrangements, and emphasized the fair-market-value objective. The Fifth Circuit invoked Sherman to support the seriousness of adhering to APM-authorized methodologies rather than ad hoc assumptions.
  • DeKalb Cnty. Bd. of Tax Assessors v. W.C. Harris & Co., 282 S.E.2d 880 (Ga. 1981): Cited for the proposition that bond-for-title valuation methods are invalid if “arbitrary or unreasonable.” This reinforced the Fifth Circuit’s skepticism toward interpreting the MOU to disable a core component of the cost approach (obsolescence adjustments), which would distort fair market value.

5. Anti-forfeiture principles and conditions vs. covenants

  • A.L. Williams & Assocs. v. Faircloth, 386 S.E.2d 151 (Ga. 1989): Provided the canon that forfeitures are disfavored and ambiguities should be resolved against forfeiture.
  • Rodriguez v. Miranda, 507 S.E.2d 789 (Ga. Ct. App. 1998) (citing) King Indus. Realty, Inc. v. Rich, 481 S.E.2d 861 (Ga. Ct. App. 1997): Reinforced that forfeitures cannot be implied.
  • Russell v. KDA, Inc., 425 S.E.2d 406 (Ga. Ct. App. 1992) (quoting) Equitable Loan, etc., Co. v. Waring, 44 S.E. 320 (Ga. 1903): Anchored the requirement that forfeiture must be stated in “clear and unmistakable terms,” and ambiguities are resolved against forfeiture.
  • Fulton County v. Collum Props., Inc., 388 S.E.2d 916 (Ga. Ct. App. 1989) (quoting) Gordon v. Whittle, 57 S.E.2d 169 (Ga. 1950): Supplied a key doctrinal lever: where there are “no express words of defeasance, forfeiture, or reversion,” language is construed as a covenant rather than a condition. The remedy for breach is damages, not forfeiture. This directly undercut the bankruptcy court’s move to treat the “24-hour” clause as a valuation “stipulation” stripping CARBO of APM depreciation rights.
  • Bailey v. Martin, 112 S.E.2d 807 (Ga. Ct. App. 1960) (discussing) McDaniel v. Mallary Bros. Mach. Co., 66 S.E. 146 (Ga. Ct. App. 1909): Cited to show that labeling a provision as a “stipulation” does not immunize it from being an impermissible forfeiture in substance.

B. Legal Reasoning

1. The 2008 MOU incorporates the APM—and specifically the cost approach

The court’s reasoning begins with the text of the valuation language: the machinery and equipment “falls in Economic Life Group III (as defined in the applicable Department of Revenue rules and regulations)” and “shall be valued for ad valorem tax purposes at cost less depreciation,” with depreciation “calculated based on Department of Revenue requirements.” Georgia statutes require the Department of Revenue to maintain a procedural manual for county appraisal staff and require its use; the APM is that manual. From this statutory and regulatory backdrop, the court concluded the MOU’s reference to Department rules and requirements necessarily incorporates the APM by reference.

The Fifth Circuit also found that the MOU incorporated the APM’s cost approach in particular, because the MOU’s reference to “Economic Life Group III” is a cost-approach concept and because depreciation methodology is central to the cost approach.

The court further noted the Assessors’ own litigation conduct: stipulations and filings acknowledging that appraisal staff “shall” follow the APM, and statements that the parties “agreed, in effect, to be bound by the Basic Cost Approach.” These admissions did not create the legal rule, but they made the Assessors’ contrary appellate position less credible and supported the court’s reading of the contract’s plain meaning.

2. Once the APM cost approach is incorporated, “further depreciation” for obsolescence is mandatory

The decisive move in the opinion is treating obsolescence not as an optional discretionary adjustment but as part of what “depreciation” means under the incorporated Department requirements. The APM’s cost approach contains a section on “Further depreciation to basic cost approach value” directing appraisers to consider evidence of physical deterioration, functional obsolescence, and economic obsolescence.

The opinion tied this to the APM’s definitional framework: “depreciation” is “loss of value due to any cause” and is divided into those three categories, with economic and functional obsolescence expressly defined as “form[s] of depreciation.” Accordingly, a contractual directive to calculate depreciation under Department requirements necessarily entails consideration of those categories when supported by evidence.

3. The “24-hour-per-day” operations clause cannot be used to negate APM-required obsolescence/inutility

The bankruptcy court viewed the “shall be operated on a continuous 24 hour per day basis” clause as a valuation stipulation that barred CARBO from seeking economic obsolescence or inutility (essentially treating downtime or reduced use as contractually irrelevant). The Fifth Circuit rejected this for three interlocking reasons:

  • No textual link to valuation consequences: The clause does not say how it affects value, nor does it explicitly prohibit obsolescence or inutility adjustments.
  • Anti-forfeiture doctrine: The bankruptcy court’s approach would strip CARBO of a “significant feature” of the APM cost approach, functioning as a forfeiture of contractual benefits. Under Georgia law, forfeitures are disfavored, cannot be implied, and must be written in “clear and unmistakable terms.” The court emphasized that the bankruptcy court itself found the clause ambiguous—an ambiguity that Georgia law resolves against forfeiture.
  • Equity and “breach” do not excuse performance absent causation: The bankruptcy court suggested CARBO should not benefit from its own breach (non-continuous operation). The Fifth Circuit held this was legal error because Ga. Code Ann. § 13-4-23 excuses the other party’s performance only when nonperformance is “caused by” the opposite party’s conduct. Even if CARBO failed to operate continuously, that does not, without causation, excuse the Assessors’ contractual duty to consider obsolescence and inutility in appraisal.

4. Scope of the holding

The court framed its conclusion as a matter of contract interpretation: “the 2008 MOU by its terms requires the Assessors to consider obsolescence and inutility when appraising CARBO's property for the challenged tax years.” It reversed and remanded for proceedings consistent with that construction. The opinion did not itself set the amount of obsolescence or inutility; it mandated the correct legal framework for determining those amounts on remand.

C. Impact

1. Bond-for-title and PILOT drafting and administration in Georgia

Although designated “not for publication” (and therefore limited in precedential weight under Fifth Circuit practice), the opinion articulates a clear, practical rule for any agreement that pegs valuation to “Department of Revenue requirements” or references “Economic Life Group” classifications: such language is likely to incorporate the APM cost approach and its mandatory consideration of obsolescence categories. Parties who intend to deviate from the APM’s depreciation structure must do so explicitly and in a way that does not create an ambiguous forfeiture.

2. Constraints on using operational covenants to manipulate taxable value

The decision limits a common litigation move: recharacterizing operational expectations (e.g., “continuous operation”) as a valuation “stipulation” that blocks depreciation evidence. The court’s anti-forfeiture analysis suggests that unless a contract clearly states that failure to operate continuously changes the valuation methodology or waives certain depreciation adjustments, courts should be reluctant to read such a waiver into the contract—particularly where the underlying valuation system (the APM) defines depreciation as loss of value “due to any cause.”

3. Bankruptcy claim litigation involving state and local tax claims

The posture—an adversary proceeding objecting to a proof of claim—underscores that bankruptcy courts frequently must decide state-law valuation and contract issues that drive tax claims. This opinion reinforces that bankruptcy courts may not “short-circuit” incorporated valuation regimes through equitable intuitions; they must apply the governing state-law contract and anti-forfeiture principles.

4. Administrative appeal and due-process issues left in the background

CARBO also asserted that the Assessors denied due process by refusing to forward appeals to the Board of Equalization. The Fifth Circuit’s opinion, however, resolved the case on contract interpretation and did not meaningfully develop a separate due-process holding. On remand, the valuation framework may reduce the need to reach those issues, but the procedural history signals continuing friction in Georgia property-tax appeal pathways when PILOT contracts and ordinary ad valorem systems intersect.

IV. Complex Concepts Simplified

  • Bond-for-title arrangement: A financing/ownership structure used in Georgia economic development where a public authority holds legal title (often tax-exempt), while the private company effectively uses the property through a lease or similar interest and pays contract-based amounts (PILOTs) instead of ordinary property taxes.
  • PILOT (Payments in Lieu of Taxes): Contractual payments designed to approximate or replace property taxes—often lower than ordinary taxes—used to incentivize businesses to locate or expand in a jurisdiction.
  • Cost approach (APM): A valuation method that starts with original cost new and applies depreciation factors (conversion factors) based on asset age and “economic life group,” then considers “further depreciation.”
  • Depreciation vs. obsolescence: Under the APM, “depreciation” is broad—loss of value “due to any cause.” Obsolescence is one type of depreciation:
    • Physical deterioration: wear and tear.
    • Functional obsolescence: design or utility problems internal to the asset (e.g., inefficient layout).
    • Economic obsolescence: external market forces reducing value (e.g., collapse in demand).
  • Inutility: A reduction in value reflecting that equipment is underused or not useful at prior capacity; in appraisal practice it can be treated as part of obsolescence-related loss in value depending on the governing manual and evidence.
  • Incorporation by reference: A contract can “pull in” external documents (like manuals or regulations) by referencing them clearly enough. Once incorporated, those documents are treated as part of the contract.
  • Forfeiture (contract law): A harsh result where a party loses contractual rights/benefits due to a breach or condition. Georgia law disfavors forfeiture and requires it to be stated clearly; ambiguity is resolved against it.
  • Covenant vs. condition: A covenant is a promise; breach typically leads to damages. A condition is a trigger that can defeat rights or cause reversion/termination. Georgia courts tend to interpret ambiguous language as a covenant rather than a condition to avoid forfeiture.

V. Conclusion

Carbo v. Board of Tax Assessors establishes (as a matter of Georgia-law contract interpretation applied in a federal bankruptcy-tax dispute) that when a bond-for-title PILOT agreement ties valuation and depreciation to Georgia Department of Revenue requirements and “Economic Life Group” classifications, it incorporates the APM cost approach and therefore requires consideration of “further depreciation” evidence—including economic and functional obsolescence and inutility.

The Fifth Circuit’s rejection of the “24-hour-per-day” clause as an implied waiver is equally significant: absent clear, unmistakable language, operational expectations cannot be repurposed to impose a forfeiture of APM-based valuation rights. The remand directs the lower courts to redo the valuation dispute under the correct framework, with obsolescence and inutility considered as the incorporated appraisal rules require.