In the recent case of Level 3 Communications, LLC v. Arizona Department of Revenue, the Arizona Court of Appeals affirmed the Arizona Tax Court’s decision rejecting the taxpayer’s claims of obsolescence regarding the valuation of personal property. 

The taxpayer’s contention was that the utility and salability of its property were impaired as a result of  overbuilding its network of fiber and conduit. 

The Court of Appeals agreed with the Tax Court’s opinion that obsolescence cannot be established by factors within the taxpayer’s control. In its decision the Tax Court states: 

“Taxpayer’s evidence did not satisfy its requirements because ‘the loss in value of the property was not caused by obsolescence.’ Rather, ‘Level 3 simply underestimated the future supply of fiber-optic capacity. Mere erroneous business judgment does not create obsolescence.’” 

The Tax Court relied heavily upon the Eurofresh case in arriving at its decision.

In the recent post A Good Big Box Property Tax Appeal Case I discussed a decision by the Supreme Court of Ohio that I thought was a taxpayer friendly opinion that accurately reflected the realities of the big box retail market. Well, it appears as though the Supreme Court has said, “not so fast” with the decision of Meijer Stores Ltd. V. Franklin Cty. Bd. of Revision, in which an almost complete reversal of position was taken regarding obsolescence and the market for big box retail stores. 

It is interesting to note that the BTA decided both the Target case and the Meijer case on the same day. The major difference being that in the Target case the school board did not appear and the county did not present any evidence to counter the appraisal and testimony of the taxpayer’s expert. 

So, I guess what the BTA and Supreme Court are saying is that if you want to make this argument you better hope that no one shows up to rebut the evidence.

Two fairly recent actions taken by state legislatures have “addressed” (I use the term very loosely) the effects of foreclosures on property tax assessments. 

Tennessee recently enacted H.B. 2175, which states: 

“In a year of reappraisal, if the number of foreclosures is of a significant number in any area or neighborhood, the assessor of property may recognize the effects of such foreclosures on the values of other properties located within the affected area or neighborhood.” 

Texas passed H.B.1038 stating: 

“Notwithstanding Section 1.04(7)(C), in determining the market value of a residence homestead, the chief appraiser may not exclude from consideration the value of other residential property that is in the same neighborhood as the residence homestead being appraised and would otherwise be considered in appraising the residence homestead because the other residential property: (1) was sold at a foreclosure sale conducted in any of the three years preceding the tax year in which the residence homestead is being appraised and was comparable at the time of sale based on relevant characteristics with other residence homesteads in the same neighborhood; or (2) has a market value that has declined because of a declining economy.” 

I bring these up because, although I think they are fairly weak statements when it comes to addressing the current economy’s effects on assessments and property taxes, I think that they are examples of tools to keep in our pockets when it comes to protesting excessive tax assessments. 

The way I see it is that, even though both of these bills specifically address foreclosures and the TX bill specifically addresses resident homesteads, taxpayers should apply these bills to virtually any property type. It’s not as though the residential sector is the only sector of real estate that is in turmoil. If foreclosures are going to be addressed, then it is only reasonable to address distressed assets, bankruptcies, etc. Just about every type of real estate is feeling pain these days and tax assessments should be addressed accordingly.

These days I find myself having a plethora of conversations with clients regarding the status of property tax appeals. Everyone wants reductions and refunds NOW! Although I can understand the urgency, it is also important to realize that pursuing property tax reductions can take time. 

There are many things to consider when estimating the timeframe of a property tax appeal. Can appeals be resolved informally? Does the local/administrative board typically grant reasonable reductions? How big is the reduction being sought? What is the appeal volume/backlog in jurisdiction? Is it likely that the case will go to court? Is there no chance of the case going to court? These are just a few of the myriad factors that are important to consider regarding the timeframe of an appeal. 

I understand that, in the current economy, companies are attempting to achieve savings as fast as possible. However, speed should not be such a driving force that it negatively impacts the result of the appeal.