Update on Property Tax Issues: September 2019

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together a selection of brief reports from articles contained in IPTI Xtracts which can be found on its website (www.ipti.org).

 

USA

Arkansas: Walmart appeals property-tax decision
The property-tax fight between Walmart and Pulaski County is headed to circuit court. The Bentonville-based retailer on Tuesday filed an appeal of its recent loss in county court. Walmart is seeking to cut Pulaski County’s assessed value of 10 properties from $145 million to $74.3 million, a reduction of about 48 percent.

About $900,000 in property tax revenue for school districts and county government is at stake in the Pulaski County case. A document previously distributed by the Pulaski County Assessor’s Office contained a miscalculation and incorrectly indicated that $4.5 million in tax revenue was at stake in the case.

County officials from across the state have closely watched the case, which is seen by county tax assessors as Arkansas’ first serious test of the so-called “dark-store theory” of appraising commercial buildings. That argument, which has found mixed success nationally, holds that big-box retail stores should be valued for taxation purposes as if the properties were closed and vacant.

A final decision in the Pulaski County case would not have an immediate affect outside of the county, but it would give big-box retailers an in-state decision for future local appeals.

Of the top-line worth set by county assessors, 20 percent is considered taxable. The taxing — or millage — rate specific to a given area is applied to that amount to determine what a property owner must pay. County governments, school districts and other taxing entities then divvy up that revenue, with school districts receiving the lion’s share.

Cutting the assessed property value in half of four of Mountain Home’s largest retailers would see a total loss of about $100,000 in tax revenue for Baxter County, Assessor Jayme Nicholson said. The Mountain Home School District, the primary beneficiary of those property taxes, would lose more than $70,000 in tax revenue.

The state Constitution requires that property be assessed according to its market value. An appraisal by the county assessor is not presumed to be correct, and property owners can appeal that assessment to their county board of equalization. The property owner may then appeal to county court, circuit court and ultimately the state Supreme Court should they choose to do so.

Many big-box retailers contend that their properties are so thoroughly specialized to their specific needs that they cannot fetch a price on the open market that equates to their tax assessments. They ask that assessors rely largely on comparable sales of similar stores or properties, even if they are in different states or face different location challenges.

In its circuit court appeal filing Tuesday, the retailing giant argued that Pulaski County’s valuation of the 10 properties — eight Supercenters and two Sam’s Club wholesale stores — “rely upon inaccurate of misapplied data and methodologies.”

“At the county court hearing, Walmart presented comprehensive independent appraisals to support its value position,” the retailer said in its appeal filing. “The assessor presented no documentary evidence whatsoever.”

In last month’s county court decision, County Judge Barry Hyde ruled against Walmart without directly addressing the merits of the dark-store theory.

Hyde is Pulaski County’s chief executive and is not a licensed attorney. In Arkansas county judges serve as jurists in county court when hearing property-tax appeals following a decision by the county’s board of equalization.

The county judge noted that Walmart presented two sets of estimates for its Pulaski County properties, the first in October 2018 and the second in April 2019. The retailer first sought to reduce the total appraised value of the Pulaski County properties to $93.4 million, and later argued the properties should be appraised at a total of $74.3 million.

“Although no proof regarding the values asserted in the initial petitions was presented during the county court hearings, the pleadings incorporating the previously proposed values raised questions as to the amended lower value being true and correct,” Hyde wrote in his decision.

Hyde also found flaws in Walmart’s evidence on the value of comparable properties in setting its store’s market value. Some of the properties cited differed significantly from the Walmart and Sam’s Club stores found in Pulaski County, he wrote.

Attorneys for Pulaski County had also argued that Walmart’s private appraiser failed to thoroughly investigate whether some of the real estate transactions the retailer used for comparison data were between related parties like business partners or family members.

As the plaintiff in the case, the burden of proof was on Walmart to demonstrate “by a preponderance of the evidence” the correct value of the Pulaski County properties, Hyde wrote in his decision. The Bentonville retailer failed to do so, the county judge wrote.

 

Wisconsin: Appellate Court Addresses Impact of Environmental Contamination
A Wisconsin Court of Appeals (“Court”) addressed in an August 27th opinion an issue involving the impact of environmental contamination on the tax valuation of a parcel of real property. See State of Wisconsin ex rel Ronald L. Collison, Appeal No. 2018AP669.

A Milwaukee real property owner argued that the fair market value for tax valuation purposes should be zero because of environmental contamination.

Ronald L. Collison (“Collison”) filed a pro se appeal of a Circuit Court Order affirming a City of Milwaukee Board of Review (“Board”) decision addressing the tax valuation of his real property for 2016. The Board had valued the property at $31,800.00.

Collison argued that the assessment was improper. This was based on his belief that both the City of Milwaukee Environmental Contamination Standards ECS (“CMECS”) and the Wisconsin Property Assessment Manual conflict with WIS. STATE§ 70.32 (2017-2018).

The Court on appeal addressed the following issues: (1) Whether the Board acted within its jurisdiction; (2) Whether the Board acted according to law; (3) Whether the Board’s actions were arbitrary, oppressive or unreasonable; (4) Whether the evidence was sufficient to allow the Board to reasonably make its decision. Collison argued in favor of a zero valuation stating: . . . no one wants to buy his property due to the fact that it contains environmental pollution, the extent of which is unknown.

The Court cited the Wisconsin Property Assessment Manual requirement that the best information that can be practicably obtained (which can ordinarily be obtained therefore at private sale) should be utilized. The Manual also notes that market value can be derived by using the cost, income or sales comparison approach.

The Assessor utilized the income approach to determine the property’s fair market value. This approach was chosen because of the absence of recent sales of the property or similar properties. Further, income had been generated by the property through its use as a parking lot.

The Assessor agreed that the property may have environmental contamination. However, despite this awareness noted:. . . he had no information about the extent of the problem or the possible clean-up costs, and therefore could not conclude the property was worthless.

Further, the Assessor argued that the property could generate income as a parking lot regardless of whether it was contaminated.

The Court concluded that Collison had not shown why his evaluation was more appropriate or more accurate than the Assessor. It noted that the Assessor’s evaluation is presumed to be correct.

Collison’s argument regarding previous inability to sell the property was also addressed. This was deemed to not establish that it was worthless. A location that is described as “prime downtown Milwaukee area” was projected to potentially increase in value. The Court also cited Collison’s failure to provide evidence about the extent of the contamination or cost to remediate.

The argument that CMECS allowed Milwaukee to ignore a Wisconsin statute was also rejected. The City had taken the position that a real property owner must obtain a phase two environmental assessment to support a reduction in valuation. This argument was dismissed because the Board agreed the property was contaminated even though Collison had not completed a phase two assessment.

The argument that the CMECS conflicts with the relevant Wisconsin statutes because of its allowance for properties being valued using the income approach was rejected. The basis for such conclusion was the fact that the Assessor did consider the possible contamination.

Finally, the Court held it was permissible to use an income approach. Because of the absence of information about the extent of possible environmental contamination or cost remedy or cost to remedy, this approach was suitable.

 

Connecticut: Property taxes a drag on all of CT, not just Hartford
Hartford Business Journal has spent a lot of time, energy and ink this year spotlighting the city of Hartford’s exorbitant and inequitable property tax structure and how to rectify it. But the truth is, property taxes are a state-wide problem, hindering economic growth in many cities and towns.

The Connecticut Conference of Municipalities highlighted that fact in a new research report, which found that the per-capita property tax burden in Connecticut is $2,847, almost twice the national average of $1,518 and third highest in the nation.

CCM also reported that 79 municipalities across the state that didn’t go through a revaluation in fiscal 2019-20 increased their property-tax rate. So, while state government avoided increases to two of its major taxes — income and sales — many cities and towns increased property taxes.

The overall message to businesses and residents is that the cost of operating and living here continues to increase. CCM says the property tax is the highest tax that Connecticut businesses pay, so reforming the way cities and towns fund local government should be a chief concern. In fact, state lawmakers should forget about having a special session on tolls, casinos or sports betting and focus on comprehensive tax reform.

What reforms to implement is a harder question to answer. CCM, unsurprisingly, has a few ideas. Their research, of course, wasn’t purely an academic exercise. CCM is a lobbying organization that represents municipalities.

CCM Executive Director and CEO Joe DeLong said high property taxes is one of two major issues holding Connecticut back. The other is the state’s unfunded pension liabilities. “This is a simple yet complex issue,” DeLong said of property-tax reforms. “I don’t think solutions are all that difficult to come up with. It gets complex because the issue goes across the political spectrum.”

The way DeLong views it, reducing Connecticut’s reliance on the property tax requires a two-pronged approach — giving cities and towns more options to raise revenues, while also making it easier for them to control or reduce costs. “The whole focus can’t be on the funding side or just providing municipalities more revenue,” he said. “You need as many reforms on the service-delivery and cost-control side.”

DeLong has it exactly right. Any property-tax reforms can’t simply include new revenue options. In my view, major strings would need to be attached. For example, any new local revenues raised by municipalities must go toward lowering mill rates, or paying for current services, not new ones.

The risk that new revenues would simply lead to bigger and more expensive town governments is a real and likely one. (Just look at how the income tax has exploded state government spending.)

DeLong has several new local revenue options in mind, including a local option tax (say a sales tax on meals) as well as non-profit service fees.

Just as important as new revenue options, in my mind, is lowering local spending. One of the third rails is labor and binding arbitration reforms, DeLong said. “It makes people uncomfortable,” he said, particularly in a blue state.

One of the biggest reforms DeLong says is needed is with coalition bargaining. If a town wants to combine services with other municipalities, there are multiple collective-bargaining units involved in the negotiations, which makes it hard to get deals done. The state should require all parties to bargain as a single unit, DeLong says.

The state should also roll back some of its 1,400 unfunded mandates on municipal governments that add costs, including minimum-budget requirements for education funding and the prevailing wage for public construction projects.

DeLong says major property-tax reform isn’t likely in 2020, which will be a short legislative session and national election year, but he does think it will happen one day. I’m less bullish because I’ve not seen, in a very long time, the political will or bipartisanship at the Capitol to take on such a big and thorny issue.

 

Illinois: Very Difficult Job Awaits New Property Tax Task Force
As voters start to consider whether to replace Illinois’ flat income tax with a progressive-rate model, lawmakers are starting their work to overhaul the state’s property tax system too.

The Property Tax Relief Task Force recently begin its work, setting up seven subcommittees that will tackle thorny topics like school and economic disparities, school funding, and tax-increment financing (TIF) districts. State Rep. Dan Brady, R-Bloomington, is one of over 80 task force members.

The task force was created this year after lawmakers agreed to ask voters, in 2020, whether they want to ditch Illinois’ flat income tax and move to a graduated or progressive rate structure. Some see that as an opportunity to reduce the property tax burden facing home and property owners.

Brady said the goal is to find solutions that stabilize, reduce, and simplify property taxes will still providing services. School funding is a key challenge, he said, because districts rely so heavily on property-tax dollars. The owner of an average $162,000 home in Normal pays around $4,300 in property taxes, with 60% going to Unit 5 school district.

“Do we look at something that could be done, shifting more to sales tax? Do we look at some other type of funding of what the General Assembly does within their operating budget? Do we look at some way of what we appropriate for schools for their operational side of things, and doing something

different there?” Brady said on WGLT’s Sound Ideas. “Those are all things we’re going to be dealing with and trying to see, is there a better way to do this?”

Property taxes are not just a big source of revenue for schools. They’re also among the most stable, and less susceptible to, say, a two-year budget stalemate like the one that paralyzed Springfield.

And operational costs continue to rise. Brady pointed to fall 2019 enrollment figures from Unit 5, showing 256 more students than this time last year.

“It’s very difficult. When you have school districts that have growth, on a local level, where are they looking to control their cost? I’m sure they could point to examples. But it takes money to run the schools, and when schools have large growth, you’re gonna have a request for more money,” he said.

The task force must submit a final report to the governor and the General Assembly outlining short- term and long-term administrative, electoral, and legislative changes needed to property tax relief for homeowners by Dec. 31.

 

New York: Real Property Tax Exemption Doesn’t Apply to Telecom Cables
The New York Appellate Division ruled that telecommunication companies’ fiber optic cables do not qualify for a property tax exemption for such property that transmits radio and television signals. (New York Real Property Tax Law, §102(12)(i)(D).)

The New York Court of Appeals had previously ruled in T-Mobile Northeast LLC v. DeBellis (December 13, 2018) that telecommunications installations and fiber optic cables are taxable as real property under New York law but did not address this particular exemption.

Reversing the lower court, the Appellate Division rejected the telecommunications companies’ position that any exempt usage of the property, no matter how slight, would be sufficient to satisfy the exemption.

Any other interpretation, the court stated, would allow all fiber optics cables that allow cell phones to “stream video, television, and other programming,” to be excluded from taxation even if the property is used to a minuscule degree in such manner. “That, however, conflicts with the Court of Appeals’ determination in T-Mobile Northeast, LLC that such property is taxable.”

Rather, the court concluded that the only reasonable construction of the statute would be that fiber- optic installations are exempt only when primarily or exclusively used for an exempt purpose.
1) Level 3 Communications LLC v. Erie County, Case No. 18-01598.
2) Level 3 Communications LLC v. Chautauqua County, Case No. 18-01575.

 

EUROPE

 

France: What exactly is the French property tax and do I have to pay it?
If you own a property in France you will have either just received or be about to receive a fairly hefty tax bill, but what exactly is the taxe foncière, how is it calculated, and who gets all the takings?

The taxe foncière is a tax paid by all property owners in France. It is separate to the taxe d’habitation, which is paid by whoever occupies the property (whether they are an owner or a tenant) and applies to anyone who owns a building or land.

The taxe d’habitation is slowly being phased out (except for second homes) but the taxe foncière is here to stay, and in fact in many areas is increasing quite steeply.

We hope you’re good at maths, because the formula used to calculate this is pretty complicated.

First you take the rentable value of your property – how much you could expect to get if you rented it out. You don’t get to calculate this, it’s calculated for you by your local authority, under the auspices of a formula set by the French finance ministry. Many areas have been using a formula that was years old (in some cases dating back to the 1970s) to calculate rentable value, but over the past three years many local authorities have requested a reevaluation from the finance ministry, with the result that in some areas tax bills have jumped sharply this year.

Once you have the rentable value you then divide it by two, then multiply it by the tax level set by your local authority.

The local authority’s tax rate varies hugely from place to place, which is why two people with similar sized homes in different areas can end up with wildly different bills.

In fact to make it more complicated it’s actually three local authorities – the commune, the département and the région – which all set their own tax rates then divide up your tax to pay for local services.

The good news is that you don’t need to do all this maths yourself, your local authorities will calculate it all then present you with a single bill, known as the avis d’impôt.

What happens then?

Well if you agree with it you pay it, the deadline for payments this year is October 15th.

If you don’t agree you can challenge it. You can’t argue with your local authority’s tax rate, but if you feel that the rentable value that they have given you is wildly unrealistic then you can challenge that.

The rentable value (valeur locative) is printed on your bill so you can see how they have calculated it. As mentioned many people will see a big increase this year, but that’s more likely to be because they were previously under paying due to an out-of-date formula than because the new calculation is not right.

However if you feel that the rentable value they have given you is simply unrealistic then you can challenge it, although any challenge must be received by your local authority within two months of getting the bill otherwise it will not be considered.

If you’ve added any major features such as a conservatory, garage or swimming pool this must be declared and is likely to increase the rentable value of your house.

Does everyone have to pay it?

The tax is for everyone who owns a building, regardless of whether they live in it full time or not. It’s also payable on land, although at a much lower rate, so if you’ve bought a plot but haven’t yet started building your dream home you will still be paying tax.

It’s billed from January 1st, so if you’ve bought a place in the last nine months, you won’t have to pay until next year. Likewise, if you have recently sold a building or plot of land you will still be liable for the tax.

Vacant properties are still liable for tax, even if you’re doing renovation work and it’s currently uninhabitable.

However, there are some exemptions and certain groups are eligible for a discount.

New buildings – if you have built a brand spanking new home you don’t have to pay taxe foncière for the first two years, provided you have registered your new-build with the tax authority within 90 days of completion. There are also discounts available if you have done works on the energy efficiency of your home.

Discounts – there are discounted rates available if you are over 75, have a registered disability or are in receipt of certain types of benefits.

Landlords – if you are renting out your property and you are unable to find a tenant, or are carrying out major works that means the property is uninhabitable, you may be eligible for a discount. The property must have been vacant for at least three months and if you are doing building works you will need to provide proof.

Is that the end of the tax demands?

No, you may also be paying the taxe d’habitation. As mentioned above, this is in the process of being phased out, but certain areas will still be billed for it this year. And if your property is a second home you will continue paying the tax indefinitely. Bills for this generally arrive in the autumn.

And in some areas your taxe foncière bill will also include a waste collection charge or taxe d’enlèvement des ordures ménagères (TEOM) set by your commune. The exemptions mentioned above do not usually apply to this charge.

French vocab:

Taxe foncière – property tax

Taxe d’habitation – household tax Avis d’imposition – tax demand Valeur locative – rentable value Logements neufs – new-build homes Base d’imposition – tax rate

Propriété bâtie – land occupied with a home or business building

Propriété non-bâtie – land with no building on it. This includes an empty plot of land, mines or marshes

Taxe d’enlèvement des ordures ménagères – waste collection charge

 

United Kingdom: Government must consider alternative to “risky” business rates retention
The system of business rates retention cannot survive in the long-term without significant reform and the consideration of alternatives due to changes in the economy, according to a report by MPs.

The Housing, Communities and Local Government Select Committee this week included the call in a wide-ranging review of local government finance.

It said that it welcomed policies allowing local government more control of the revenue it raises, but said the current business rate retention system is too complex and lacks transparency.

The report said: “The system attempts to create incentives for growth whilst also redistributing revenues according to need.

“The tax is already coming under pressure from changes in the economy and the Treasury Committee is currently conducting an inquiry on the tax and its impact on business.”

Evidence to the committee from Leeds City Council said “rates receipts are sensitive to a number of factors that we would argue are entirely out of the control of local authorities”.

North East Lincolnshire added that “multiple appeals has seen a financial impact measured in millions of pounds of reduced business rates that could not have been foreseen or influenced but has affected the funding available to the council at a local level with no central adjustment or relief for us”.

It also highlighted the “increased risk” from its reliance on relatively few big payers of business rates.

In other evidence, Jonathan Carr-West, chief executive of the Local Government Information Unit, questioned whether business rates retention even meets its own aim of encouraging growth.

He said: “I do not think it necessarily does what it is meant to do.

“It creates perverse incentives, in that it encourages you to encourage certain types of business, which might not be the ones you wanted if you were taking a more rounded place shaping view. There is no causal link between business rates income and need… “It does not capture a lot of modern business activity.”

The committee said that the Ministry of Housing, Communities and Local Government needs to reform the retention system.

“The government should consider making the system simpler by bringing back the Revenue Support Grant to redistribute to councils in need rather than trying to do this through an increasingly complex business rates retention system. “The government also needs to start considering alternatives to business rates as a revenue stream for local government, given the risks to this tax over the long-term.”

The report also called for reform of councils’ other main form of tax revenue – council tax – saying that the government should consider the case for new bands at the top and bottom of the scale.

It said: “Council tax is a regressive tax which has become disconnected from property values. “All houses built over the last 25 years still have to be valued by the assessor as to what the value of the property would have been in 1991. “This cannot continue.”

Responding to the committee’s report, Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, said: “The committee is absolutely right in its conclusion that local government simply cannot achieve financial sustainability without reform to existing revenue streams and devolution of stronger revenue raising powers.”

Ian Fletcher, director of real estate policy at the British Property Federation, said that fundamental reform of business rates was critical, as well as an urgent review of the company voluntary arrangement (CVA) process.

He said: “CVAs are increasingly compromising business rates, and the crippling impact rates are having on businesses means this is not a sustainable source of funding for local authorities.”

Paul Dossett, head of local government at audit firm Grant Thornton, said: “If not made a priority, we run the risk of many councils being unable to provide vital services people rely on every day – from social care to pothole filling.

“Councils need to be provided with a genuine long-term funding solution to provide some level of certainty so that their long-term planning can be meaningful.”

 

United Kingdom: Northern Ireland launches public consultation on business rates
Northern Ireland’s Department of Finance has launched a public consultation in an attempt to make the country’s business rates system “effective and fair”.

The 2019 Review of Business Rates is due to last eight weeks, with the report set to be published in spring 2020. Business rates contribute over £655m to the overall rates income in Northern Ireland.

Permanent secretary Sue Gray said: “My department has been working with a wide range of stakeholders including experts in urban regeneration, taxation and the high street to help inform the scope of this review and the consultation document which we are launching today.

“This review is about looking at the current position and making recommendations to ensure that our business rates system is effective and fair while raising the funds needed to support Northern Ireland’s key services.

“The business rates system, together with its suite of support measures, needs to be positioned to respond to changing marketplaces and local economic conditions. What we need now is for business ratepayers, business and trade organisations, local government and all interested parties to engage with us and put forward their perspectives, ideas and opinions.”

The Business Rates Review team will be attending a series of events organised by councils, chambers of commerce and other organisations across the region as part of the public consultation process which ends on 11 November.

Compliments of International Property Tax Institute (IPTI), a member of the EACCNY