The Economic Development Toolbox: “The General Manager” – Property Tax Value Management

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Managing costs is of key importance for any successful business.  Property tax is a necessary cost of doing business, and it can be significant.  The good news is that Ohio and other states provide options for challenging assessed values and property taxes that can allow businesses to manage those significant costs.

How Can Values Be Challenged?

In Ohio, formal valuation appeals may be initiated by the filing of an appeal form promulgated by the Ohio Department of Taxation.  This form requires basic information about the property (e.g., owner’s name, parcel number, address), as well as a proposed value for the property as compared to the value determined by the county auditor for that particular tax year.  The form is due no later than March 31st of the calendar year following the tax year at issue.  For example, a formal complaint for the current tax year 2015 would be due no later than March 31, 2016.  There are no exceptions – failing to file the form by March 31st completely precludes the filing of a complaint for that tax year. 

Once a complaint is filed, the affected local school district typically receives a copy, and a hearing is set before the county’s board of revision, a statutory board generally consisting of the county auditor (or a designee), the county treasurer (or a designee) and a representative of the board of county commissioners.  The board of revision may hear testimony, accept evidence and engage in a quasi-judicial hearing to determine the value of the property at issue.  The board then issues a formal decision, which is appealable to the Ohio Board of Tax Appeals or the appropriate court of common pleas. 

In addition to the formal complaints, many counties offer opportunities to meet informally to discuss property value in connection with a sexennial reappraisal or triennial update.  Those informal meetings typically occur in the fall of the tax year at issue, and typically would not involve school districts or other interested parties.  Not all counties perform informal hearings, and the ones who do may not advertise the availability of informal hearings.

When Can Values Be Challenged?

In general, only one valuation complaint may be filed for each triennial period in the county.  There are exceptions to this general rule – when the property is sold in an arm’s length transaction, when the property experiences a casualty loss, when a substantial improvement is added to the property or when a change in occupancy of at least 15% has a substantial economic impact on the property.  In each of these circumstances, a complaint may be filed for the property even if another complaint had already been filed during the same triennial period.

There are times when it is obvious for property owners to consider filing an appeal, such as after new values are released every three years or after an arm’s length sale has occurred.  But property owners are not limited to those times.  Complaints may be filed during interim years if an appraisal or other information indicates that the property is overvalued.  Even if property is subject to a tax abatement, it may be advisable to seek a reduction in value when that abatement is scheduled to expire in the near term. 

Who May File Valuation Challenges?

The Ohio Revised Code allows the fee owner of the property to file a formal valuation complaint.  In addition, local school districts may file complaints with respect to property located within their boundaries.  In most cases, a formal complaint will either be filed by the property owner or a school district, but the Revised Code also provides a laundry list of other people who may file complaints (e.g., owners of taxable property within the same county; a board of county commissioners; a board of township trustees; the mayor of a municipality).

How Is Value Determined?

The complainant has the burden to prove that the value determined by the county auditor is not the proper market value of the property.  This may be done in several different ways.  First, a property owner may hire an appraiser to perform an appraisal of the property demonstrating that the value is lower than the value determined by the county auditor.  Second, the Ohio Revised Code specifies that a recent arm’s length sale of the property between a willing seller and a willing buyer may be considered by the county auditor to be the true value of the property for property tax purposes.  Thus, a property owner may present evidence that such an arm’s length sale occurred (e.g., deed; conveyance fee statement; purchase and sale agreement).  Finally, a property owner may form an opinion as to the value of the property using comparable sales, income and expense data for the property and/or other information related to the property.  In most cases, this last method is the most difficult to prove because of the fact that a typical property owner is not an appraiser, and is not an expert in determining the value of real property for tax purposes.  That being said, an owner can prevail using an owner’s opinion of value if that opinion is developed and presented carefully. 

What Common Mistakes Are Made?

It is very easy for property owners to make mistakes in challenging the value of real property that can lead to an appeal being dismissed.  For example, although the formal complaint form appears to be fairly simple on its face, a mistake in naming the owner of fee title to the property or in identifying the property could lead to a complaint being dismissed by the board of revision.  In addition, while the Ohio Revised Code specifies that a recent arm’s length sale may constitute the market value of the property for real property tax purposes, there are a number of facts that may call into question the arm’s length nature of the sale (e.g., auction or foreclosure sales; long periods of time between the sale date and the tax lien date; relationships between the buyer and seller).  There are countless cases and administrative decisions in this area that could affect an appeal that involves a particular fact pattern.  For that reason, property owners should always proceed carefully in seeking property tax appeals.

Conclusion

Property tax value management is an important tool in the economic development toolbox, and one that can be used by itself, or in connection with other incentives that are secured for a particular property.  In order to effectively appeal property values, however, property owners need to use caution to avoid making mistakes that could get an appeal dismissed. 

*  This summary focuses on Ohio, but other states provide similar methods for challenging property values.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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