This past weekend I came across two interesting articles: 

Programs across county at risk if GM wins tax appeal focuses on the potential impact of Genesee County municipalities if GM wins it’s tax appeals seeking a cumulative reduction of it’s assessments from $140.5 million to $36.1 million. 

Mercer rocked by tax appeals; corporate giants contest their bills provides opinions on tax appeals by Bristol-Myers, Merrill Lynch, J.C. Penny, Macy’s and other “corporate giants”. 

It’s interesting how two articles that were published a day apart, focusing on different areas of the country with very different tax systems and pertaining to different property types are actually quite similar. 

Call it a glimpse into the current property tax appeal environment.

The Virginia General Assembly has enrolled HB 2084, exempting certified pollution control facilites and equipment from state and local taxation. the act becomes effective after January 1, 2011.

These days Property Taxes are all the rage. With significant declines in property values there is an abundance of reporting on how to reduce property taxes. This has brought with it a lot of incomplete and incorrect information. Today I stumbled upon an article that touched upon what I think is a common misunderstanding of an important aspect of property taxation, the assessment ratio. 

This particular article stated: 

“A property tax assessment is the market value of the property.” 

This is not necessarily true. It is very important to distinguish the difference between market value and assessed value. In fact, in my opinion, it is the first thing that should be done when reviewing the fairness of an assessment. 

An assessment may indicate what the taxing jurisdiction is “valuing” the property at. However, in many instances it does not. 

Enter the assessment ratio. 

An assessment ratio is basically the ratio of assessed value to market value. Many states assess property at 100% of market value. However, there are many other states or jurisdictions that assess property at less than market value. Take GA for example. GA has an assessment ratio of 40%. Therefore, if your assessment is $1,000,000 the county is opining that the market value of the property is $2,500,000. Big difference. 

There are quite a few states that have “statewide” assessment ratios; AZ, CO, NV, OH, KS, MD, CT, just to name a few.  Some states have different ratios depending on the type of property (residential, agricultural, industrial, commercial, etc.). Other states like PA, NY and NJ have ratios that vary by jurisdiction. Therefore, one town may have a drastically different ratio than the next town over. Not to mention, these local ratios typically change annually. 

When we are reviewing property tax assessments we are interested in market value. Therefore, it is critical to know what the assessment ratio is. Otherwise, how can we know what we are reviewing?

According to section 39-10-114(1)(a)(I)(A) of the Colorado Revised Statutes a taxpayer may file for an abatement of all or part of property taxes that have been levied “erroneously or illegally” within two years after January 1 of the year following the year in which the taxes were levied. The abatement provides for a refund of taxes due to “erroneous valuation for assessment”, “irregularity in levying”, “clerical error” or “overvaluation” and is different and separate from the “normal” property tax appeal process. 

In the recent case of HealthSouth Corporation v. Boulder County Board of Commissioners and Colorado State Board of Assessment Appeals, HealthSouth put this abatement provision to the test. 

HealthSouth filed two abatement petitions seeking to reduce the valuation of its personal property assets at two of its Colorado locations for the 2002 tax year. Now for the twist… 

In 2002 HealthSouth was found to be cooking its books and inflating earnings. In order to balance these cooked books HealthSouth created fictitious assets. The case reads: 

“The factual basis for the taxpayer’s abatement and refund claims is that in 2002, as part of a broader fraudulent scheme to increase the company’s stock price, taxpayer included fabricated valuations for fictitious assets in the personal property declaration schedules it filed.” 

So, HealthSouth’s new management filed abatement petitions with the Board of County Commissioners (BOCC) seeking to reduce the personal property taxes it “overpaid” due to the reporting of nonexistent assets. The BOCC denied the petitions. Appeals were then filed to the Board of Assessment Appeals and were dismissed. HealthSouth appealed to the Court of Appeals. In a nutshell, the Court of Appeals determined: 

“Contrary to the BAA’s ruling, we conclude that, under the statutory scheme, taxpayer has the right to proceed with its abatement and refund claims on the ground of overvaluation, notwithstanding the fraudulent overstatement of its assets and valuations in its initial tax filings. Consequently, the BAA erred in dismissing taxpayer’s appeals without affording an evidentiary hearing, and on remand it must consider the merits of the taxpayer’s overvaluation claims concerning its personal property for the 2002 tax year.” 

I am looking forward to seeing how this will ultimately turn out. It will be interesting to see what HealthSouth provides as evidence to prove that the valuation of nonexistent assets was incorrect.

In January the California State Board of Equalization (SBE) issued Letter To Assessors No. 2009/003, indicating a change in policy regarding mandatory audits. In a nutshell the policy change reads: 

“Effective January 1, 2009, county assessors are no longer required to audit all taxpayers with trade fixture and business tangible personal property holdings of $400,000 or more at least once every four years. Instead, the county assessor is required to annually audit a significant number of audits as specified in section 469, subdivision (a)(1)”

The LTA goes on to “indicate” what a “significant number of audits” means by saying: 

“For purposes of this section, “significant number of audits” means at least 75 percent of the fiscal year average of the total number of audits the assessor was required to have conducted during the 2002-03 fiscal year to the 2005-06 fiscal year, inclusive, on those taxpayers in the county that had a full value of four hundred thousand dollars ($400,000) or more of locally assessable trade fixtures and business tangible personal property. ”

Huh? 

When I read it I understood the “no more mandatory audits part”, but I didn’t get the “implementation” part.  I was also pretty sure that even if I was a county auditor in California I wouldn’t have understood it. As it turns out, my assumption had some validity. 

The SBE recently issued LTA No. 2009/13, fielding a few of, what I can only imagine to be, a plethora of questions.

Of the five (really, only five?) questions asked, number four peaked my interest:

 Question: If a mandatory audit scheduled for 2008 (2008-2009 fiscal year) is pending as of January 1, 2009, and it falls below the top 50 percent (not part of the significant number of audits under section 469(b)(1)), must it be completed?

Answer: No. 

So, the question is, do you have pending audits that can be canceled or settled?