The Georgia General Assembly has taken action in an effort to soften the blow of the current economic crisis for Georgia taxpayers. With the passage of HB 233, the General Assembly has established a moratorium on all property tax assessment increases for the 2009 & 2010 tax years. The bill reads:

In recognition of the emergency situation and fiscal conditions set forth in subsection (a) of this Code section and pursuant to the authority specified in subsection (a) of this Code section, for taxable years beginning on or after January 1, 2009, and continuing only until the Sunday immediately preceding the second Monday in January, 2011, a moratorium is declared on all increases in the assessed value of all classes of all subjects of property which are subject to ad valorem taxation property except as specifically permitted under this Code section.

The Governor signed the bill into law yesterday.

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?

Don’t be surprised if the assessor’s office doesn’t welcome you with open arms when you file an appeal this year. Times are tough all around and taxing jurisdictions are no exception. Sales and income tax revenues are down and everyone knows that property taxes are in for a beating. When exactly the beating will take place seems to be a point of contention. If the volume of appeals being filed is any indication, taxpayers are claiming that the decline in values should be recognized now. Whereas, it appears as though assessor’s offices are claiming that value declines have not yet been reflected in the market. In other words, they seem to be taking the position that taxpayers will need to prove a decline in value. I discussed this issue in my earlier post Quantification Is King. 

So, what can we expect for 2009 appeals? 

• Due to assessor’s offices throughout the country receiving appeals near or at record numbers, large backlogs will be the norm. 
• Taxing jurisdictions may be reluctant or unwilling to settle cases due to budgetary concerns or time constraints.
• Assessor’s offices will, most likely, rely on the fact that a taxpayer carries the burden of proof in an appeal and proving values may be difficult due to the lack of recent transactions. 

For these and other reasons diligence and creativity will, no doubt, prove to play a very important role in 2009 property tax appeals.

Why we need to be diligent in conducting property tax assessment reviews. 

There are situations where, because of the ridiculous run up on property values over the past few years, a property’s assessment may have lagged behind the market and may have been under assessed. Even with the recent dramatic declines in property values the property may still be equitably or under assessed. 

Let’s say that you receive your 2009 assessment notice indicating the assessment of a property to be $1,000,000. The property was assessed at $1,000,000 for the 2008 tax year as well. Some might immediately say that there is no way the property is worth the same amount in 2009 as it was in 2008 and an appeal needs to be filed. However, let’s say that in 2008 the actual market value of the property was closer to $1,500,000, not the $1,000,000 that it was assessed at. If the value of the property has decreased by 30% between 2008 and now, the property might still be fairly assessed at $1,000,000. 

Without a proper review of the current and past market values of the property you might find yourself trapped into an unwarranted appeal. At best, money and resources are dedicated to an appeal with no savings potential and, at worst, you could find yourself fighting an increase. 

There are many savings opportunities out there and, of course, we need to be aggressive in discovering and pursuing them. However, we also must maintain a rational and diligent approach.

This is the first of a few posts I will make over the next few days to share my thoughts on a few issues that I think are worth consideration as we work our way through the 2009 appeal season. 

The 2009 property tax appeal frenzy is well underway. It’s sure to be one of busiest years in recent memory. There’s also no reason why it shouldn’t prove to be one of the most productive years in a long time. However, I think that there may be some misconceptions about what to expect and, perhaps as important, what not to expect.

 I think we all agree that values have declined. It’s close to impossible to argue otherwise. That said, we are not going to find ourselves ”shooting fish in a barrel”. 

There’s more to it than simply raising our arms and saying, “we all read the papers, we all watch the news…” Of course values have declined in virtually every sector. Companies and entire industries are facing double-digit loses. Closures and layoffs are rampant. Need I go on? 

So, why isn’t it as simple as filing an appeal and waiting for a refund check?

Quantification is king! 

Probably the most important issue that must be taken into consideration for tax appeals in 2009 can be summed up in one word: 

PROOF

Taxpayers carry the burden of proof in a tax appeal. They must prove that the assessment is excessive and in order to do that they must present evidence. However, thanks to the chaos in the capital markets and the resulting credit freeze, transactions are scarce, to say the least. An excerpt from a recent CoStar article reads:

“with the capital markets in disarray and few comparable transactions upon which to build a foundation, buyers and sellers can’t agree on pricing. 

In fact, one widely watched transaction-based index published at the MIT Center for Real Estate couldn’t even produce a retail index for the fourth quarter due to the dearth of transactions. The overall sample size for various other property markets was “scarily low,” acknowledged David Geltner, director of research at the MIT Center for Real Estate. ”

So, although we may all agree that values have declined, proving values for the 2009 tax year becomes more challenging due to the lack of reliable market information. 

2009 presents a great opportunity for companies to significantly reduce their property tax liabilities. However, It is not realistic to think that appeals will be a walk in the park simply because of the current economic conditions. If anything, 2009 tax appeals will require more work, diligence and creativity than in the past. The good news is that it will be worth it. 

Marion County has announced that the mailing of final 2007 tax bills will not occur until sometime this summer. These bills will serve as the final 2007 (pay 2008) bills and will reconcile the difference between the estimated first half bills and the bills reflecting the new 2007 values. These bills will be based on a valuation date of January 1, 2006, meaning the value will be based on market activity for 2004 & 2005. This is going to be a tough sell to taxpayers in the midst of the current economy.

Normally, 2007 taxes would have been paid in May and November of 2008. However, due to the state ordering the county to conduct a reasssessment for 2006 and a computer system snafu, everything has been pushed back. Right now, Marion County is indicating that the 2007 bills will be mailed in June or July and will be due within 30 days. The hope is to have 2008 bills sent a few months later and 2009 (pay 2010) bills to resume a normal schedule of being due in May and November of 2010. It sure will be interesting to see how taxpayers react to being required to pay 2 1/2 years worth of tax bills within such a short time frame.