In October 2005 (approx. 10 months after the tax lien date) FirstCal purchased 72 warehouse buildings in Ohio. Five of the properties were located in Franklin County. FirstCal filed a conveyance-fee statement reporting a bulk sale price of approx. 34.3 million for the five Franklin County properties. This, of course, represented an allocation of the total price paid for the entire 72 property portfolio. There was no allocation per property on the conveyance-fee statement or in the purchase contract.

The School Boards in the districts where the properties were located appealed the auditor’s value and sought increases. In their complaints the School Boards arrived at new values by:

(1) determining each parcel’s percentage of the aggregate value assessed as to all parcels by the auditor and then (2) applying that percentage to the $34,336,121 sale price.

The BOR, BTA and the Supreme Court all agreed that this was an appropriate way to arrive at the value of the properties for tax purposes.

Really? No appraisals, no allocation on either the buyer or seller’s part, and applying an allocation of an allocation  according to a flawed formula is an appropriate way to arrive at the fair market value of a property?

If, after reading The Supreme Court’s decision, you find yourself wanting to read the BTA decision as well, you can find it here

Affordable Housing:

the duly authorized real estate assessor shall consider:

1. The contract rent and the impact of applicable rent restrictions;

2. The actual operating expenses and expenditures and the impact of any such additional expenses or expenditures; and

3. Restrictions on the transfer of title or other restraints on alienation of the real property.

Assessment Information:

Upon request of any taxpayer or his duly authorized representative, the assessing officer of the governing body shall make available information regarding the methodology employed in the calculation of a property’s assessed value to include the capitalization rate used to determine the property’s value, a list of comparable properties or sales figures considered in the valuation, and any other market surveys, formulas, matrices, or other factors considered in determining the value of the property.

Appeal Board Qualifications:

On any board or panel thereof considering appeals of commercial or multi-family residential property in a locality with a population exceeding 100,000, 30 percent of the members of such board or panel shall be commercial or multi-family residential real estate appraisers who are licensed and certified by the Virginia Real Estate Appraiser Board

Assessment Increases:

In any case before the board concerning a taxpayer’s complaint in which the commissioner of the revenue or other local assessing officer requests the board to increase the assessment after the taxpayer files an appeal to the board on a commercial, multifamily residential, or industrial property, the commissioner or other officer shall provide the taxpayer notice of the request not less than 14 days prior to the hearing of the board. Except as provided herein, if the taxpayer contests the requested increase, the assessor shall either withdraw the request or shall provide the board an appraisal performed by an independent contractor who is licensed and certified by the Virginia Real Estate Appraiser Board

Head on over via the link above, print the bill or save the PDF and place it in your VA file. It’s bound to come in handy at some point.

LSA Document #09-576(F) calls for changes to personal property reporting and valuation, obsolescence, township and county assessor duties and more.

Trimas initially challenged the 2002 assessment of their manufacturing facility. The PTABOA reduced the original assessment of $7,762,600 to $7,212,300. Trimas appealed the decision to the Indiana Board. 

Before the Indiana Board Trimas offered an appraisal estimating the value at $2,960,000. The assessor, on the other hand, offered an appraisal estimating the value at $8,000,000.  The large discrepancy in values resulted from, you guessed it, obsolescence. 

The Indiana Board found in favor of Trimas and reduced the assessment to $2,960,000. The assessor appealed to the Tax Court. 

At the heart of the case was the selection of the comparable sales used to value the subject property. Trimas’s expert relied on sales of vacant manufacturing properties, whereas the assessor relied on sales of occupied, owner/user manufacturing facilities. Then came the testimony. Trimas’s expert testified that: 

Trimas’s property suffered from external obsolescence because a loss of manufacturing jobs and companies within Indiana during the relevant time period saturated the market with manufacturing facilities for sale; that market, however, lacked buyers. (See Cert. Admin. R. at 273-74, 305, 827-28.) As a result, the sales prices for these facilities were low, particularly when compared to their respective replacement costs (i.e., the amount it would cost to construct facilities with similar utility). That market trend, noted Mitchell, affected what Trimas’s property would itself garner on the market: “[w]hen there’s an oversupply and a lack of demand, to remain competitive, if your neighbor drops their price, you have to drop your price.” (Cert. Admin. R. at 828.) 

The assessor claimed that vacant properties are not comparable to occupied properties and that the claim of external obsolescence was “absurd” because the comps relied upon were vacant and the Trimas property was occupied.  

In it’s decision the Tax Court stated: 

the Assessor misunderstands the concept of market value-in-use on its most basic level. Generally speaking, market value-in-use, as determined by objectively verifiable market data, is the value of a property for its use, not the value of its use. 

And there you have it. The taxpayer’s team was able to convince the deciding bodies that obsolescence existed. The assessor’s arguments, obviously, didn’t go over so well.

“A BILL to be entitled an Act to amend Title 48 of the Official Code of Georgia Annotated, relating to revenue and taxation, so as to revise comprehensively provisions regarding ad valorem taxes; to change certain provisions regarding ad valorem tax returns of taxpayers; to require annual notice regardless of changes; to provide for uniform notice forms and uniform appeal forms; to provide for powers, duties, and responsibilities of the state revenue commissioner; to provide for powers, duties, and responsibilities of the Department of Revenue regarding training of certain local tax officials and staff;to provide for an effective date; to repeal conflicting laws; and for other purposes.”

Most of the news points to the portions of the bill that call for extending the deadline to file an appeal to 45 days, instead of the current 30 days and the requirement for counties to issue annual valuation notices. Maybe it’s just me, but I do not find either of these changes to be extraordinary or innovative. I certainly wouldn’t consider them comprehensive reform.

The two portions of the bill that I do find interesting are the sections dealing with changes to appeal arbitration and what information the assessor’s must consider when arriving at their valuations.

Binding Arbitration:

Georgia previously allowed for a taxpayer to elect arbitration, but this bill significantly changes the mechanics of arbitration. The most notable changes are that the arbitration is now binding, the taxpayer is now required to submit an appraisal within 45 days of the assessor’s response to the appeal, and there will now be a single arbitrator, either agreed upon by the taxpayer and county or appointed by a judge.

Distressed Sales:

The bill introduces new language regarding the information the assessor’s must consider when arriving at their valuation. The new language states:

“(.1) ‘Arm’s length, bona fide sale’ means a transaction carried out by unrelated or unaffiliated parties, as by a willing buyer and a willing seller, each acting in his or her own self-interest, including a bona fide distress sale or sale at public auction.”

“(2.1) ‘Distress sale’ means a transaction which has occurred in good faith without fraud or deceit and includes, but is not limited to, a foreclosure, short sale, or bank sale.”

If the bill passes the House it will be interesting to see how this will work in reality.

Overall, in my opinion, this bill constitutes tweaks far more than reform.

Commercial/Industrial Machinery and Equipment Exemption:

Any qualified purchase or lease of machinery and equipment made after June 30, 2006 is exempt from property taxation in Kansas. Of course, there are a few clarifications to keep in mind. The term “Acquired” does not include stock purchases, mergers, reorganizations or other internal transfers. However, it does include transfers of property into Kansas after June 30^th for the purposes of expansion, replacement or creation of a new business. 

Qualified Purchase is defined as: 

a purchase of commercial and industrial machinery and equipment for fair and valuable consideration where such machinery and equipment is physically transferred to the purchaser to be used in the purchaser’s business or trade.

Qualified Lease is defined as: 

a lease of commercial and industrial machinery and equipment for not less than 30 days for fair and valuable consideration where such machinery and equipment is physically transferred to the lessee to be used in the lessee’s business or trade.

$1,500 Exemption for Commercial Equipment:

Commercial/Industrial equipment “items” with a “retail cost when new” (RCWN) of $1,500 or less are exempt from property taxation. Again, there are two things to pay close attention to when determining whether or not the equipment is eligible for the exemption:

Retail cost when new:

Retail cost when new (RCWN): The Kansas Constitution requires the valuation process for machinery and equipment in the “Commercial” subclass begin with the “retail cost when new”. For purposes of personal property taxation, RCWN is the total amount a consumer would pay to acquire new property in order to use it to produce income over a period of years in a commercial or industrial setting. Retail cost when new is not the used sale price, and it is not the wholesale or manufacturer’s cost. It is the dollar amount an item would cost a consumer when the item is purchased new at the retail level of trade. For purposes of personal property taxation, the term “retail cost when new” does not include sales tax or freight and installation charges that are separate and readily discernible from the set retail price.

 What is considered an “Item”:

For purposes of the $1500 exemption an “item” is generally going to be a single line item as it is reported on a rendition. Exceptions to this general rule are: 

1. If the line item represents a group of like goods that can be used independently and they have the same or similar cost, the line item is actually several “items”. The RCWN of each “item” may qualify for the exemption. 

2. In that an “item” is the smallest quantity that may be used independently, one pen, one sheet of paper or one rubber band represents a material and supply “item”. The RCWN of each “item” that can be independently used may qualify for the exemption. Materials and supplies are classified under the “Other” subclass of personal property. Personal property in the “Other” subclass is listed on schedule 6 of the rendition. See the “Other Personal Property Not Elsewhere Classified” section in this guide for information on valuing materials and supplies.

More information on these exemptions can be found in the 2010 Personal Property Valuation Guide,  K.S.A. 201 and K.S.A. 79-223.

“Pursuant to USPAP Standard Rule 1-4(e) (2001), an appraiser must analyze the effect on value, if any, of the assemblage of the various estates or component parts of a property and refrain from valuing the whole solely by adding together the individual values of the various estates or component parts. Although the value of the whole may be equal to the sum of the separate estates or parts, it also may be greater or less than the sum of such estates or parts. Therefore, the value of the whole must be tested by reference to appropriate data and supported by an appropriate analysis of such data.”

The Court goes on to state:

“There is no question that Kubert violated USPAP Rule 1-4(e). In executing each of his approaches to value, Kubert segmented the property, valued each segment individually, and then added the values to get his final valuation.”

The case can be found here.

We are starting to see a trickle of transactions (both sales and leases) after the severe drought we have been experiencing. However, many property owners are being creative (or desperate) in order to sell or lease their properties. This is where the necessity of proper research comes into play. Knowing as much about a transaction as possible will paint a more accurate picture of the market and ultimately valuations.

When researching sales it is important to keep in mind that many property owners have found themselves in a bind, to say the least. Almost $165 billion in commercial loans are coming due this year as landlords struggle with rental rate and occupancy declines and higher cap rates. This is creating problems with refinancing and/or keeping current on loans. Defaults, foreclosures and bankruptcies are plentiful right now and in the opinion of many industry professionals this trend will continue into 2010. So, when researching sales it is very important to know the conditions of the sale and the motivations of the participants.

When it comes to leases, landlords are getting creative in order to maintain occupancies or fill vacancies. Free rent periods, reduced rent and significant tenant improvement allowances are just a few of the many concessions being offered to tenants. These concessions are important because they affect effective rent.

The point being that what appears to be the deal on the surface may be something quite different underneath.

“Upon a majority vote of its governing body, any taxing district  may, after the determination of the assessed valuation of its property, order the county clerk to abate any portion of its taxes on any property if (i) a new business first occupies a facility located on the property during the taxable year, and (ii) the facility was vacant for a period of at least 24 continuous months prior to being occupied by the business. The abatement shall not exceed a period of 2 years and the aggregate amount of abated taxes for all taxing districts combined shall not exceed $4,000,000.”

Given the amount of vacant property on the market, this should prove to be an effective tax savings tool for Illinois businesses.