January 2011 Newsletter

January 1, 2011 | appeal to tax court, asset management, commercial property tax reduction, commercial property taxes, corporate property tax savings, Cost Containment, cost containment definition, Department of Revenue, forfeit right to appeal, how to apply for property tax reduction, Increase Assets, methods of cost containment, Newsletter, power plant property tax, Property Tax Code, property tax reduction, property tax reduction consultants

Ignorance of filing deadlines is no excuse for late filing: Bella’s Holding, Inc. failed to file a timely personal property tax appeal with the county board of tax appeals for the tax year 2009-2010 for certain of its business assets, and the county assessor moved to dismiss the late appeal. The taxpayer’s representatives admitted that they did not know those assets were taxable, and said they were unaware of the statutory appeal process and timelines. The court held that the taxpayer’s excuse did not constitute “an extraordinary circumstance beyond the control of the taxpayer, or the taxpayer’s representative” under ORS 305.288 (3), and dismissed the appeal. Bella’s Holding, Inc. v. Marion County Assessor, 2010 WL 4860779 (Or. Tax Magistrate Div., 2010) (November 30, 2010).

Car dealer unsuccessful in arguing that real estate assessment incorporated intangible business value: Tourgate Realty, Inc. challenged as excessive the real estate assessment of its property in the town of Columbia. The property is used as the home of a Ford automobile dealership, and Tourgate claimed that the assessment of its real property included the value of the car dealership business as a going concern. The tax court rejected Tourgate’s argument that the town appraiser failed to take into account “the value of intangibles, such as good will, non-compete clauses and other intangibles, known in the automobile industry as ‘Blue Sky,’” in his comparable sales analysis. The court observed that although the town’s appraiser included only properties used for automobile dealerships as comparable sales, the sales prices he reported were based on information contained in the Connecticut conveyance tax returns for the properties, which is a tax payable on real estate only, not on the value of the business located on the property. The reported sale prices were thus a fair indicator of the value of the real property alone. Tourgate Realty, Inc. v. Town of Columbia, 2010 WL 3672231 (Conn.Super. 2010) (August 25, 2010).

Inventory held in Georgia not entitled to “freeport” exemption from property tax: Pace Industries, Inc. operates a manufacturing facility in Arkansas, where it manufactures barbecue grill bodies. Pace ships the bodies to a warehouse it leases in Columbus, Georgia, where they are stored until needed by Char-Broil, a producer and distributor of barbecue grills located in Columbus. When needed, Pace delivers the grill bodies to Char-Broil, which Char-Broil incorporates into finished grills and then ships to its customers, mainly large retail stores outside the state of Georgia. Pace applied for the “freeport” exemption for the 2006 tax year, which exempts from property tax “inventory of finished goods held for shipment outside the state.” OCGA § 48-5-48.2. The County Board of Assessors denied the exemption, and Pace appealed. The trial court agreed with Pace, but the Court of Appeals did not. The grill bodies are not “destined for shipment to a final destination outside this state” because Pace sells the grill bodies to Char-Broil, not to the out-of state retailers. “What becomes inventory in the hands of the purchaser is not relevant to the determination of the availability of the freeport exemption; as far as Pace is concerned, the “final destination” of the grill bodies constituting the inventory here at issue is Char-Broil.” Muscogee County Board of Tax Assessors v. Pace Industries, Inc., ___S.E.2d___, 2011 WL 17511 (Ga. App., 2011) (January 5, 2011).

Site improvements to land already listed on assessment roll cannot not be added later as “omitted property”: In Oregon, once an assessor has valued property and listed it on the assessment roll, he may not “correct” the value merely because he might have arrived at a different opinion of value, but he may add property to the assessment roll that “has from any cause been omitted, in whole or in part.” The Village at Main Street owned two parcels of raw land as of the January 1, 2004 assessment date. Subsequently, it began development of an apartment complex on the parcels, adding roadways, sidewalks, street lights, water and sewer lines, utilities and storm drainage. In 2005 and 2006, after those improvements were made, the assessor physically inspected the property and became aware of the site improvements but assigned no value to them, instead valuing the property by a technique known as “trending” – he took the value assigned to the land for the 2004-2005 tax year, which reflected only the value of the undeveloped land, and adjusted that value to account for the general trend in real estate prices. In 2007, the assessor attempted to add the value of the site improvements to the value of the land as “omitted property,” increasing the assessment by approximately $1,000,000. The taxpayer appealed the increased valuation as unlawful, and the Oregon Supreme Court agreed. The court noted that under the applicable statute (ORS 307.010), the site improvements were an integral part of the land listed on the assessment roll; the assessor was not adding omitted property to the roll, but merely attempting to correct an undervaluation. The tax court granted summary judgment for the taxpayer, and the Supreme Court affirmed. Clackamas County Assessor v. Village at Main Street Phase II, LLC, ___P.3rd___, 2010 WL 4978254 (Or., 2010) (December 9, 2010).

Condominium owner’s uniformity challenge rejected for inadequate sample: The taxpayer’s condominium unit was one of 88 virtually identical units in Midlake Condominium, which, based on the average of the six most recent sales, were properly valued at $249,250. Yet while 48 percent of the units had an assessed value of 50,000, for a ratio of assessed to current market value of approximately 20 percent, the assessed value of the taxpayer’s property was $88,000, representing a ratio of assessed to current market value of 35 percent. When the taxpayer appealed, the court of common pleas concluded that the assessment violated principles of uniformity, and reduced the assessment to $50,000. The appellate court reversed, holding that a taxpayer is entitled only to have his assessment conform with the common level existing in the taxing district, not with a small sample of properties being taxed at a lower than average level. The taxpayer had not produced evidence of the ratio of assessed to market value of other properties in the taxing district outside of his condominium complex. Without this critical information, the court had no basis upon which to determine the issue of uniformity, or to order a decrease in the taxpayer’s assessment. Smith v. Carbon County Board of Assessment Appeals, ___A.3d___, 2010 WL 4942968 (Pa. Cmwlth., 2010) (December 7, 2010).

Contested tax payments should always be made under protest: The Regional Economic Community Action Program, Inc. (RECAP), a charitable organization, brought this action against the city school district seeking reparation of school taxes paid over a three year period. RECAP was declared tax-exempt after paying the taxes, and although it submitted a letter of protest with each tax payment to the district during the relevant period, the letter addressed only city tax payments, not school district tax payments. Despite the letter of protest about the city tax payments, and even though RECAP had instituted an action against the city, which prepared the assessment rolls for both the city and the school district, seeking tax exempt status and a refund of property taxes paid to the city, RECAP was not entitled to a refund of the school district taxes it had previously paid. The court held that these actions were insufficient to put the school district on notice of the involuntary nature of RECAP’s tax payments. Regional Economic Community Action Program, Inc. v. Enlarged City School District of Middletown, ___ N.Y.S.2d ___, 2010 WL 5020093 (N.Y.A.D. 2 Dept., 2010) (December 7, 2010).

Taxpayer’s testimony alone insufficient to establish overvaluation: The taxpayer appealed the assessments of two parcels of undeveloped land, challenging the assessor’s determination of their “real market value.” Rather than offering an appraisal or other written valuation study, the plaintiff taxpayer simply testified as to the number of potential lots each parcel would yield, and the likely costs of site development. Appeal denied. The plaintiff’s testimony, which was unsubstantiated by independent verification, was simply not enough to establish overvaluation. In valuation appeals, the court explained “it is very difficult to prevail without a complete appraisal package. . . . Taxpayers must provide competent evidence of the RMV of their property.” Further, the taxpayer “has the burden of proof and must establish his case by a ‘preponderance’ of the evidence. . . . If the evidence is inconclusive or unpersuasive, the taxpayer will have failed to meet his burden of proof.” Yarborough v. Marion County Assessor, 2010 WL 4925980 (Or. Tax Magistrate Div., 2010) (December 3, 2010).

Failure to cooperate with the assessing authority can result in dismissal of appeal: At the administrative level, tax assessors may require an applicant for a reduction in its real property tax assessment to appear for an examination or to otherwise submit information as to the value of its property, and the applicant’s failure to do may result in dismissal of the proceeding. The failure to cooperate, however, must be willful in order to warrant dismissal. Where a taxpayer provided a significant amount of information as to the condition of its property after suffering from water damage and mold infestation, resulting in a loss in value, as well as a summary of remedial actions taken and initial estimates of damages, its failure to submit additional information due to reasonable concerns over the immanency of other judicial proceedings stemming from the damage did not warrant dismissal. The taxpayer was not seeking “to frustrate the search for an accurate assessment.” Archstone Communities Trust v. Board of Assessors, ___ N.Y.S.2d ___, 2010 WL 4792644 (N.Y. Slip Op. 08726, N.Y.A.D. 2 Dept.) (November 23, 2010).

Taxpayer must provide evidence of cleanup costs in order to justify a reduction in the assessment of contaminated property: Tiger Oil Corporation owns four convenience stores and gasoline stations in Yakima County, Washington, all of which are environmentally contaminated and subject to cleanup. All four facilities are closed, they have not generated any income since 2001, and Tiger claimed that due to the petroleum contamination and cost of complying with environmental laws, they are worthless. Tiger sought a reduction in the assessment of the four facilities for costs of cleanup and market resistance factors. The trial court dismissed Tiger’s petition because Tiger offered no information on the extent of the contamination and no proposed method or timeline for the cleanup, and therefore the court had no reasonable basis for determining an appropriate reduction in value. The Court of Appeals agreed, holding that before a taxpayer may claim that environmental cleanup costs reduce value, it must show not only the existence of contamination but also provide a reasonably certain estimate of the costs of the cleanup, including a formal plan and timetable. The court explained, “[i]f a taxpayer is unable to demonstrate a genuine issue of material fact as to the correctness of the assessor’s value – even if by only a preponderance of the evidence – then we need not reach whether the methodology was flawed; summary judgment may rest on the presumed correctness of the assessor’s value in the absence of prima facie evidence to overcome it.” Tiger Oil Corporation. v. Yakima County, 242 P.3d 936, (Wash App. Div. 3, 2010) (November 16, 2010).

Franchise tax does not become a property tax simply because it is measured by the value of a company’s real property: Tennessee imposes a franchise tax at the rate of 25 cents per 100 dollars on the greater of the taxpayer’s net worth or the value of the property it owns or uses in Tennessee. Valenti Mid-South Management, LLC is a Florida limited liability company which operates 46 Wendy’s fast food restaurants in the State of Tennessee. The restaurants that Valenti Management operates are owned by Valenti Mid-South Realty, LLC and leased to Valenti Management. After auditing Valenti Management’s 2003-2005 franchise tax returns, the Tennessee Department of Revenue levied an assessment of $197,615 in back taxes and $71,478 in interest. During the period from 2003-2005, Valenti Management’s net worth was negative, so the State used the value of the 46 Wendy’s restaurants to calculate its franchise tax liability. Valenti Management appealed, claiming that the franchise tax was actually a property tax, and that same property was being taxed twice. Valenti Realty had already paid a franchise tax based on the value of the restaurants during that same period. On appeal, the Tennessee Court of Appeals held that the trial court correctly rejected Valenti Management’s argument. The two companies were not part of an “affiliated group” because they are separate legal entities. And there is no “double taxation,” which is constitutionally impermissible in the case of the property tax, simply because the privilege tax is measured by the value of the taxpayer’s property. The Tennessee franchise tax is paid “for the privilege of doing business in Tennessee” and “serves as a recompense for the protection of [the taxpayer’s] local activities and as compensation for the benefits [the taxpayer] receives from doing business in Tennessee.” Tenn. Code Ann. § 67-4-2105 (b). The franchise tax is not a property tax, so the prohibition against double taxation does not apply. Valenti Mid-South Management, LLC v. Farr, Slip Copy, 2010 WL 4629596 (Tenn Ct. App, 2010) (November 15, 2010).

Taxpayer prevailing in assessment appeal is not automatically entitled to costs, despite plain language of statute: The Colorado Supreme Court has decided that upon sustaining a taxpayer’s appeal of a county property tax valuation, the state’s Board of Assessment Appeals is not required to award the taxpayer his or her costs in bringing the appeal, despite the plain language of the statute, which provides in relevant part, that the successful appellant shall receive “a refund of costs in said court or board of assessment appeals . . . including the fees of the appellant’s witnesses, in such amount as may be fixed by the court or board of assessment appeals, as the case may be.” § 39-8-109 (1) C.R.S. The Supreme Court explained that the statute is “not a model of clarity,” had been amended many times, and that the “generally contradictory terms ‘shall’ and ‘may’ both appear in the sentence,” and relied on the history of the statute’s enactment in holding that an award of costs is discretionary, not mandatory. A dissenting justice wryly observed that, according to the majority, “’Yes, you may recover your costs,’ actually means ‘No, you may not.’” Jefferson County Board of Equalization v. Gerganoff, 241 P.3d 932 (Colo. 2010) (November 8, 2010).

Only the property owner has standing to challenge the assessment: Wilfred J. Megin, who owned property in New Milford, Connecticut as “Wilfred J. Megin, Trustee” brought an assessment appeal to Superior Court in his individual capacity, and the appeal was dismissed for lack of subject matter jurisdiction. The Connecticut Appellate Court affirmed the trial court’s holding that the appeal “was brought by someone who does not own the property.” Only the record owner of the property has the necessary standing to challenge its assessment in a municipal tax appeal. Megin v. Town of New Milford, 125 Conn. App. 35, 6 A.3d 1176 (Conn. App., 2010) (November 9, 2010).