Property Owner Protection from Tax Valuation ChallengesClient Alert
New legislation provides significant new protections for commercial property owners against challenges to valuation primarily by local school boards and prohibiting side agreements to avoid tax valuation changes. The Ohio Legislature has approved House Bill 126 which will go into effect July 2022 but will effectively apply to the 2023 tax valuation year.
Prior to the legislation, a property owner or another party, normally the local school board, could file a complaint contesting a valuation for properties for the coming tax year. The usual situation would be where a property has sold, the price exceeds the prior year’s tax valuation, and the school board seeks to have the real estate tax values be increased to the sale price. The appeals are frequently filed seeking to increase the tax value on a retroactive basis. For example, a property sold in mid-year at an increased price could be faced with a request to increase the rate of tax back to the first of the year. Real Estate taxes in Ohio are assessed and paid in arrears such that taxes for year 2022 are paid in 2023.
While valuation complaints are filed on behalf of the school board, in many counties, decisions whether or not to file tax appeals are handled administratively either by members of the board of education staff or in some cases by outside parties such as engaged consultants to review records and file complaints whenever a sale with an increase in price occurs. In many circumstances, the elected representatives or members of the school board have no prior knowledge that a complaint was going to be filed or the impact that it may have on the property owner or businesses in their community. In these instances, decisions regarding the dispute are in practice property owner versus staff as opposed to the elected representatives. Further, the appeals are filed without prior notice to the property owner. The owner in many jurisdictions in Ohio is not even provided with a copy of the complaint filed by the school board, but simply receives a notice that a hearing is going to be held on a contested valuation on short notice, leaving it up to the property owner to go exploring to obtain a copy of the complaint and prepare to defend their valuation.
In some parts of Ohio, these processes became abusive, or were perceived as either abusive or lacked due process to the property owners and did not adequately balance the rights of property owners to contest taxation or provide for school boards to seek increased tax payments for the benefit of the school board in a fair and open manner.
House Bill 126 significantly changes the procedural process for these types of complaints on valuation. The new statute requires that decisions to challenge valuation by a “legislative authority”, which includes county commissioners, township trustees, boards of education, mayors, or legislative authority of a city, are first required to actually give notice to a property owner that the legislative authority will consider at a public meeting a potential complaint regarding property valuation and the reason for that consideration. The notice must be sent by certified mail to the tax mailing address of the record owner of the property. There are some limited alternate address options, but the tax mailing address will generally be the place where notices are sent.
Further, the legislative authority by resolution in public session are required to make a formal decision to file a complaint. This means that the elected officials must be making decisions in public whether to file, not staff members or potential outside consultants engaged to do so.
There are also new limitations placed on the values of properties against which complaints can be filed. Currently, the legislative authority (primarily boards of education) can file on any increase in valuation however large or small it may be. The statute expressly provides that the board cannot file a complaint unless the board claims that the property value has increased by at least 10% over the prior year’s tax value and the value of the property involved must be greater than $500,000. The statute also provides that the $500,000 is to be adjusted annually and requires the Ohio Tax Commissioner to adjust that threshold based upon changes in certain indexes of the United States Department of Commerce for the prior year. If the change in value is smaller than 10%, or the property value is less than $500,000, then there is prohibition against filing an original complaint to contest value.
The rules are different however if a property owner initiates a valuation complaint. If the property owner or their agent initiates a complaint seeking to reduce the value, the board of education may file a counterclaim, either in support of the change or requesting a different number, but even in those settings may do so if the amount in controversy exceeds $17,500 in taxable value.
The statute also includes some provisions streamlining the obligation of time periods in which decisions must be made by the county board of revision or its equivalent and any failure to get complaints resolved within a year requires a business of the complaint.
The statute addresses and now prohibits “private payment agreements”. In some jurisdictions, representatives of school boards would approach property owners indicating they will file a complaint seeking to challenge valuation on property, or would actually file a complaint, but then would agree either to not file or withdraw the complaint if the property owner made a private payment to the school board. In these settings, the argument is that the school board says it will contest the value which might result in $30,000 of additional taxes, but if you pay the school board $20,000, they will not contest the difference. In essence, the school board would get more money directly because the real estate taxes are not shared with other government agencies in the county.
We certainly expect there will be litigation concerning the implementation of the statutory revisions, but at least this is a good step to provide those decisions on valuation complaints have to be made by elected officials, that complaints are to be limited to properties with larger values, and that increases have to be material in order to file a complaint. This new legislation does not impact the triannual valuation process of the County Auditor.
Please call should you have any questions or would like a copy of the statute. If we could be of any assistance if you have tax valuation issues, please contact Scott Sandrock at 330-253-4367, firstname.lastname@example.org.