- A Primer On Real Estate Tax Complaints
- May 1, 2003 | Author: Thomas J. Coyne
- Law Firm: Thompson Hine LLP - Cleveland Office
If you represent owners of real estate in Ohio, take note that real estate tax valuation complaints are due on March 31. Representing a property owner on tax complaints is a tricky business. Below are a few basic points to keep in mind.
The taxation of Ohio real property is governed by Title 57 of the Ohio Revised Code (the "Code"). Chapter 5715 of the Code, entitled "Boards of Revision; Equalization of Assessments," outlines the tax complaint process. Specifically, Section 5715.19, "Practice and Procedure," sets forth the complaint procedure. Also, Chapter 5713, entitled "Assessing Real Estate," describes pertinent valuation provisions. Here are some key provisions of these chapters.
The auditor of each county in Ohio is required to appraise the taxable value of real estate in accordance with prescribed methods of valuation. A reappraisal is required each six years (the "sexennial reappraisal").
Counties also customarily effect an interim adjustment of assessed valuation each third year (the "interim update"). The counties of Ohio are not on a uniform time schedule for making adjustments, so you will need to check the adjustment year for each county separately. The 2000 calendar year is a sexennial reappraisal year for about 19 of Ohio's 88 counties. There will be sexennial reappraisals for the tax year 2001 in about 11 counties.
A complaint may be filed only one time in each interim period (subject to a few exceptions), so it is wise to file the complaint in the first adjustment year.
An additional complaint may be filed on behalf of an owner in the same interim period to reduce the valuation if (a) the property is sold at a lower price in an arm's length transaction, (b) the property loses value by casualty or (c) there has been a substantial economic impact on the property caused by a decline in occupancy of at least 15 percent. The determination for a tax year will generally carry forward until the next adjustment, subject to increases based on new improvements.
A complaint filed by March 31, 2001, will relate to the tax year 2000, and the assessed valuation for the tax year 2000 is determined on the tax lien date of Jan. 1, 2000. Keep in mind that taxes in Ohio are due six months in arrears of the expiration of the taxing period.
If a complaint for a tax year is not determined within the time period prescribed, the complaint shall be continued as a valid complaint for any ensuing year until the original complaint is finally determined.
Property tax rates are applied to the assessed value of real property. Assessed valuation is equal to 35 percent of what the county auditor believes is the true fair market value of the property. The calculation of fair market value can be determined by dividing the assessed valuation by 35 percent.
Valuation methods are determined by the tax commissioner, but the Code expressly provides that if property is sold in an arm's length transaction within a reasonable length of time either before or after the tax lien date, the auditor shall consider the sales price as the true value for tax purposes, subject to changes based on new improvements or casualty. The Code provides that forced sales - such as sales at auction - shall not be taken as a criterion of value.
Preparing The Complaint
Preparing a real estate tax complaint may appear to be a simple task. It is, however, fraught with risk and great care should be taken in its preparation. The slightest jurisdictional error could result in a dismissal of a complaint. Here are a few comments and pitfalls.
Follow Instructions. The reverse side of the DTE Complaint form, which is available at the auditor's office, contains very specific instructions concerning the preparation of the Complaint. Read and follow those instructions and answer all questions on the form, and complete the notary.
Property Owner Identification. The name of the title holder should be properly reflected on the Complaint. The use of a trade name has been held to be defective.
Correct Parcel Identification. Incorrect parcel identification is also a defect. Double check the parcel identification by looking at the tax bill, tax map, deed, title insurance policy or information from a local title examiner.
Multiple Parcels. If you have more than one tax parcel, be careful and review applicable case law and local rules. Make sure the tax parcels are in the same taxing districts. If not, file separate complaints. If the parcels are not contiguous or do not form a single economic unit, file separate complaints. You may seek to consolidate the hearing of multiple complaints, but they will be treated separately and separate decisions will be rendered for each parcel. Also, separate appeals may need to be taken if the decisions are not favorable.
Signing of Complaint. With very limited exceptions, a valuation complaint should be prepared and signed by a licensed Ohio attorney on behalf of a property owner. One clear exception is that an individual (non-entity) who holds fee simple title in his or her own name may file and sign the complaint in his or her individual name. There are numerous cases in Ohio that have been dismissed or challenged based on improper filings by persons who are not licensed Ohio lawyers (including appraisers, representatives, agents and tenants), and this issue is currently under judicial and legislative scrutiny. If you represent a tenant, make sure the complaint is filed on behalf of the owner of the property and signed by a licensed Ohio attorney, even if the tenant is responsible for payment of all real estate taxes relating to the property. (Note: If you represent a tenant in lease negotiations and the tenant is required to pay all taxes on the property, you should insist that the lease obligates the landlord to prosecute tax appeals at the direction of the tenant.)
Filing. The complaint must be filed by March 31 for the prior tax year. Late filings will be dismissed. A complaint is filed with the Board of Revision ("BOR") of the County in which the property is located. Following the filing of the complaint, the BOR will schedule a hearing. The hearing date is usually several months following the filing date.
Here are a few tips in preparation for the hearing.
Procedure. The three-member BOR panel consists of a representative of each of the county auditor, the county treasurer and the county commissioners. The complainant goes first at the hearing, and the counter complainant goes next. Prior to the hearing, you should obtain a copy of any rules of procedure published by the local BOR. Note especially the requirements concerning the timing of submission of evidence. If you would like to present supplementary evidence following the hearing to address unanswered questions that arise at the hearing, you may ask the BOR for leave to file such information after the hearing. The BOR is usually amenable to permit such additional evidence. Keep in mind that the hearing is often taped and a transcript is later available for appeal purposes.
Auditor's Property File. Prior to the hearing, it may be useful to check the property information on file at the auditor's office. This is public information. If the file contains errors as to the description or features of the property, such errors should be pointed out to the BOR.
Expert Testimony. Ultimately, the success of your case will depend on the strength of the testimony and evidence that you present. Absent a recent arm's length sale, it is advisable to present qualified appraisal testimony at the hearing. An appraisal can be very expensive, but you need to balance this against the savings that can be achieved for your client and the likelihood of success.
Appraiser's will consider the three primary valuation methods in determining the value of commercial property (i.e., income approach, market approach and cost approach).
On commercial properties, the cost approach, which considers the cost of land and improvements, is generally not determinative, and is often ignored.
Appraisers are usually most interested in what a purchaser would pay for the property in a market transaction, and that is most accurately determined by the income generated from the property (the income approach) or by evaluating sales of comparable properties (the market approach).
Before the hearing, you should prepare with the appraiser and make sure you understand the terminology of appraisers. Most important, with respect to income generating property, you should understand NOI and cap rates, and the different ways to calculate value based on the income approach.
NOI, or net operating income, is the income generated by the property net of expenses, without regard to debt service, depreciation or taxes, and may or may not take into account reserves for repairs and replacements.
The cap rate, or capitalization rate, represents the return that would be required by an investor to purchase the property. As a rule of thumb, the NOI is divided by the cap rate to arrive at fair market value under a direct capitalization approach. For example, if NOI is $100,000, and the cap rate is 10 percent, then the fair market value of the property would be $1,000,000 ($100,000 divided by 10 percent). If the cap rate were increased to 11 percent (i.e., if the investor for this property requires an 11 percent return), then the fair market value would be reduced to $909,090. Thus, the higher the cap rate, the lower the value of the property.
If real estate taxes are not included in calculating NOI, then the appraiser will increase the cap rate by the tax additur, which represents the real estate taxes on the property. Appraisers may determine cap rates by looking at sales of comparable properties, and then calculating the rates of return from those properties, based on the purchase price paid.
Appeals And Settlements
An appeal of a determination by the BOR may be taken to the Board of Tax Appeals (BTA) or to the Common Pleas Court in the county in which the property is located. An appeal must be filed within 30 days after notice of decision is mailed by the BOR.
In cases where the local board of education has filed a complaint or counter complaint, you may enter into a stipulated settlement with the board of education. This may be done at any time following the filing of an appeal. Also, it may be done during the BOR proceedings.
In rare cases, you may be able to reach a settlement with the board of education even prior to filing the complaint. This could be effected by entering into a settlement agreement, which provides, among other things, that each party would file a complaint with the stipulated valuation. Such a stipulation would not necessarily be binding on the BOR, but could be fulfilled by later stipulation on appeal, subject to BTA or court approval. Appeals of BOR decisions are governed by Chapter 5717, which is the subject for another day.