Hamilton County property owners will get some measure of relief in the form of a 25 day delay for payment of the second half property tax bills.

Property owners who pay taxes as part of their monthly mortgage payment will not notice any difference, but property owners who normally pay their tax bill by June 22, will have until July 17 to make that payment.

As reported by the Cincinnati Enquirer, Hamilton County Treasurer Robert A. Goering noted that the delay is necessary in part due to the fact that taxpayers cannot get into the Treasurer’s office to make a payment:  “We have to balance the needs financially of the county and the needs of the individual taxpayer. And we have to balance that against the reality that, right now with this crisis, you can’t actually get to the treasurer’s office.”

Thus far, we are unaware of any other local counties who have delayed the property tax bills. We will update this post if any other counties join Hamilton County.

Warren County will continue with its normal tax bill due date of July 29.

Clermont County property tax bills are due July 8.

Butler County property taxes are due August 3.

In Kentucky, the deadline to initiate a property valuation appeal has been extended to begin on July 6 and end on July 20.

As part of our property valuation work, we have received calls from property owners in Ohio and Kentucky asking how the affects of COVID-19 will come into play in property valuation challenges brought this year.

Effective (or target) date of valuation challenge

As an initial matter it is important to know the valuation date at issue. In Ohio, the “tax lien date” is always one year in arrears, so a challenge that is brought this year is actually challenging the value of the property as of January 1, 2019. In Kentucky, the tax lien date is current, so a challenge filed this year is challenging the value as of January 1, 2020.

Timing of when to file a valuation challenge

Because the valuation is as a specific point in time, it is important to consider what was affecting value on that specific date. When hiring an appraiser for a BOR (Board of Revision) in Ohio, or PVA (Property Valuation Administrator) in Kentucky, the appraiser gives her opinion of value as of the tax lien date. So, for instance, if the overall market takes a tumble in March, that would typically not affect the value of a property two month’s earlier. But may suggest that the values were already heading downward in January.

Thus, a hotel or restaurant property owner contemplating a challenge in Kentucky based upon the drop in income due to the COVID-19 virus and the stay at home order, is unlikely to see much weight given to the effects of COVID-19. That said, comparable sales in the past few months (which may reflect the effect of COVID-19 on the real estate market may have some evidentiary weight worth presenting to the PVA.

A challenge next year may be more successful than this year in Kentucky.

For Ohio property owners, COVID-19 is less relevant this year. This is because, as discussed above, the relevant tax lien date is January 1, 2019. As with Kentucky challenges, comparable sales in the past few months can be used as evidence of the value as of January 1, 2019, although the BOR will likely give such sales less weight than sales closer to the tax lien date.

In Ohio, only one challenge per three-year cycle

In Ohio the county auditors revalue properties every three years (the “triennial”). For Hamilton and Clermont Counties 2019 is the last year of the triennial. A new triennial will start with the 1/1/2020 value determined later this year by the County Auditors. In Warren County, the last year of the triennial is 2020 – meaning that the Warren County Auditor will determine a new three year value as of 1/1/2021.  As a general rule, property owners may only file one challenge per triennial (R.C. 5715.19(A)(2)). So a cautious approach me be the better approach.

If you’ve already filed a challenge in Ohio, it is worth a shot to raise the issue of COVID-19, but as discussed above, it may fall on deaf ears. For Hamilton County property owners, the best bet may be to wait until 2022 to file for the value as of 1/1/2021. For Warren County property owners, a better approach may be to file next year challenging the value as of 1/1/2020 (this may be a futile effort), but you will be able to refile again in 2022.

Legislative change?

The Ohio legislature is working on multiple bills in rapid succession to stabilize the economy and prevent economic hardship to businesses and property owners.  Perhaps this will be one area where the inequity of January 1 versus April 1, 2020 property values will be addressed.

Thus, in light of the spate of COVID-19 relief acts, it would not be surprising to see the state legislatures act to provide property tax relief with a 4/1/20 or 5/1/20 effective or target date for 2021 valuation challenges.  We will keep an eye on the legislatures in Ohio and Kentucky and update our blog as we learn more.

Conclusion

Ultimately, property owners should temper their expectations that the BOR or PVA will recognize the effects of COVID-19 on property values in this year’s challenges.

Hopefully the financial effects of COVID-19 will not be long-lasting. But if they are, it may be a better basis for a valuation challenge in 2021 or even 2022 (for an effective date after the COVID crisis broke out).

Contact Christopher P. Finney  (513-943-6655) for assistance with your property valuation challenge.

The Treasury Department and Internal Revenue Service announced Friday that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

They also announced that taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.

The IRS announcement is here. These are unquestionably remarkable times.

Who says you can’t teach an old dog new tricks?

In the past year, I got two new bar admissions, the D.C. District and Bankruptcy Court and the United States Tax Court.

I obtained the Tax Court admission to help a client avoid a small tax penalty due to his securities dealer mishandling his IRA account and reporting the monies in it as having been distributed, when no such thing happened.

We won without even having a hearing, so my record is 100% before the Federal Tax Court. If I never file anything there again, I might keep that perfect record!

In any event, I have another certificate for my wall. Thanks to Diane Finney for keeping me looking sharp!

If you are considering a challenge to your Ohio real estate this year, please be aware that the deadline to file in March 31. This is a hard and fast deadline.

For the great majority of Ohio property owners, the rising real estate market means that the Auditor’s value may be on target, or even a little low. So before filing your complaint, make sure you are on strong footing for a reduction. Because, once a complaint is filed, the Board of Revision has three paths it can go down: reduction, retain the current value; or INCREASE. We do not want to see that third option.

The layups

If you purchased your property in the last two years for less than the current Auditor’s value, your case should be an easy layup to get a reduction to the purchase price. Assuming this was an arm’s length transaction (unrelated parties, market exposure, etc.), the Board of Revision should, under most circumstances, simply adopt that sale price – and perhaps without even having a hearing.

Even a small reduction can lead to a nice return to you. For instance, we were recently contacted by a homeowner who had purchased her home for ~$15,000 less than the Auditor’s value. That would result in approximately $250.00 of annual tax savings to the client. Not a lot of money, and not enough to justify paying an attorney to handle. But, the Board of Revision process is accessible to individuals without an attorney – particularly where the case involves a recent sale. For ten minutes time on the internet and the cost of stamp and envelope, this homeowner will save $250 per year over the next few years. $750-$1,000 over the next 3-4 years.

Some cases — Don’t try this at home!

Conversely, if you have recently purchased the property for more than the Auditor’s value, the Board of Revision will likely adopt that sale price and increase your value. DO NOT DO THIS TO YOURSELF.

The closer calls

  • If you have owned your property for a long time, the Auditor’s value may not accurately reflect the true value. In that instance, you would want to look to an appraiser to determine the value, or look to recent sales of comparable homes in your neighborhood. If the neighbor’s house just sold for $50,000 less than your home (and is generally comparable in age, condition, square footage, bedrooms), that may indicate that your value should be reduced to at or near that sale price. Ideally you will find multiple sales in your area to compare. Remember, school district is a major driver of value, so if the house across the street is in a different school district, that may not be a “comparable sale.”
  • The same is true of commercial properties. Age and changes in tenant occupancy can greatly affect value. It is a good business practice to regularly evaluate your real estate portfolio to make sure the Auditor’s value is accurate. For some businesses, correcting the value of the real estate portfolio can be the difference between profit and loss for the year.
  • If your property suffered a casualty loss, that may overcome the presumption that the sale price is the true value.

There are myriad scenarios, these are just a few.

Conclusion

Click here to learn more about our property valuation services and watch a presentation by Chris Finney.

Click here to fill out our property tax valuation form to have us contact you regarding your property valuation.

Contact Christopher P. Finney (513.943.6655) for more information.

As we have written about previously, real estate transfers involving the sale of a limited liability company or other entity that owns the underlying real estate are under increasing scrutiny by Ohio’s county auditors and school boards. Now, Ohio’s Supreme Court has declared that these sales are “a contrivance for accomplishing the sale of commercial real estate.”

In a decision that will have broad implications on Ohio’s property tax law,  Columbus City Schools Board of Education v. Franklin County Board of Revision, Slip Opinion 2020-Ohio-353, an LLC that owned a 264-unit apartment building was sold but the contract documents indicated that the transaction was actually the sale of real estate, distinguishing this case from prior cases in which the Court had affirmed the Board of Tax Appeals’ treatment of such sales as the sale of a business rather than the sale of real estate. In those prior cases, the transfer of title to real estate did not appear to be the primary factor in the transaction.

“In stark contrast, the BTA in this case confronted a document labeled by the parties as “Sale of Palmer House on the Boulevard 4121 Palmer Park Circle East New Albany, Ohio” and “Purchase and Sale Agreement.”  That is, the contract identifies itself as a purchase agreement for the real estate at issue.  Beyond its cover page, the contract takes the classic form of a purchase agreement for commercial real estate by identifying as the subject matter of the transaction the specific real property along with categories of personal property appurtenant to the commercial operation of the real estate.  Finally, this particular contract includes an explicit provision setting forth an optional method for consummating the deal as a transfer of corporate ownership rather than a conveyance of real estate from the seller to the buyer.

We conclude that the documentation in this case made it reasonable for the BTA to find that this sale, unlike those in the earlier cases, reflected the parties’ intent to sell and purchase income-producing real estate and supported the BTA’s finding that the parties’ transfer of corporate ownership constituted a contrivance for accomplishing the sale of commercial real estate.”
Decision, at ¶¶ 38-39.

The prior cases involved an existing shareholder buying out other shareholders – indicating that such a sale was not “arm’s length” and that it was truly the business that was being purchased rather than simply the underlying real estate; and sales where the conveyances did not indicate that the real estate was truly the asset being acquired, rather than an actual going concern.

As a result finding that the transfer was a sale of real estate, the Board of Tax Appeals then treated the sale price as the “best evidence of value” of the real estate, thereby shifting the burden to the property owner to defeat the sale price value. Ultimately resulting in an increase of value from $16 million to over $34 million.

As school districts and county auditors become more aggressive in identifying membership interest transfers, and treating them as real estate sales, investors would be wise to review their contract documents with an appreciation for the fact that they may end up as evidence in a valuation dispute.

As reported by Eye on Ohio,  State Representatives Doug Green (R. 66th House District), and Mike Skindell (D. 13th House District), have put forth Ohio House Bill 449 in late December, seeking to capture conveyance taxes when entities owning real estate, are sold. Read the bill and follow its status here.

What is a “Drop and swap?

Called a “membership interest transfer” or “drop and swap,” conveying the entity that owns real property rather than simply selling the real property directly, allows buyers to avoid reporting the transfer as a sale of real property, and the value placed on the property as part of the transaction. County auditors and school boards in particular have complained that these conveyances cost public entities tax revenues that would have been generated had the parties engaged in typical real estate transactions.

New legislation to capture drop and swap sales

The current proposal would require that whenever more than 50%  of the ownership interest of an entity owning real property (either directly or indirectly) is conveyed, that the conveyance be reported to the county auditor and the value of the real estate be determined and taxed as part of the sale.

Membership interest transfers have come under increasing scrutiny as property owners perceive that these transfers distort the tax rolls and shift tax burden onto less sophisticated owners. Many property tax levies are for a fixed dollar amount (e.g. a levy to raise $10 Million). So that, as the value of one property increases, other owners pay a slightly smaller amount toward that fixed dollar tax, while the higher value property owner pays a slightly higher amount toward that fixed dollar tax. When one property is kept at a lower value via a membership interest transfer, those other owners continue to pay a higher amount toward that fixed dollar tax.

As news outlets such as Eye on Ohio report on this issue, public opinion is swaying in favor of taxing  these transfers.

As always, would be property investors should consider not only the current tax bill, but the likely tax bill after purchasing a property, and factor that into their purchase price.

Status of legislation

H.B 449 has been referred to the House Ways and Means Committee, on which sponsor Doug Green sits. At this time no hearings have been scheduled on the bill.

As we predicted nearly two years ago to the day, whether this particular bill goes into law or not, the effort to identify, value, and tax these conveyances will continue.

Upcoming tax presentation to REIA

This bill, and membership interest transfers generally, will be a part of our presentation with Hamilton County Dusty Rhodes to the Greater Cincinnati Real Estate Investors on February 6. Learn more about that event and how to sign up for a free ticket here.

Conclusion

The attorneys of Finney Law Firm have achieved literally hundreds of millions of dollars in property tax valuation reductions over the past 15 years.  Let us help you with your tax valuation challenge.  For more information on our property tax valuation practice contact Christopher P. Finney at 513.943-6656.

Hamilton County Auditor Dusty Rhodes and Finney Law Firm attorneys Chris Finney will present on Property Tax Reduction at the Greater Cincinnati Real Estate Investors Association (REIA) meeting on February 6, 2020, at the Holiday Inn North, 5800 Mulhauser Road, West Chester, Ohio 45069. Directions here.

The meeting begins with dinner at 5:30. Our presentation begins at 6 PM.

The meeting is open for free to all REIA members. First-time attendees can obtain a free guess past here.

Learn more about REIA here.

Auditor Rhodes has presented on this topic with Finney Law Firm numerous times to great appreciation from home owners and investors alike. We appreciate the opportunity to “pull back the curtain” and help property owners understand the process involved in bringing a successful challenge to your property’s valuation.

Remember if you plan on filing a challenge to the value of your property in Ohio, the deadline is March 31.

St. Clair Township in Butler County, Ohio has filed suit against the City of Hamilton, the Butler County Commissioners, Butler County Treasurer, and Butler County Auditor to recover lost tax revenue owed to it for properties that were annexed and excluded from the Township into the City of Hamilton.

Ohio Revised Code Section 709.19 provides that when property is annexed and excluded from a township, that township is entitled to be made whole via payments of a portion of the property taxes it would have collected over the next twelve years.

In 2016, the City of Hamilton and County Commissioners acted to exclude from St. Clair Township thousands of parcels that had previously been annexed from the township. This action triggered the obligation to make St. Clair Township whole. The City of Hamilton has thus far refused to comply with its obligations under Ohio law.

The complaint details the missteps along the way in excluding the property as well as the failure to make St. Clair Township whole.

The case has been assigned to Judge Craig Stephens of the Butler County Court of Common Pleas.

St. Clair Township is represented by Chris Finney of Finney Law Firm and Curt Hartman of the Law Firm of Curt C. Hartman. Mr. Hartman is lead counsel in the case.

The Journal News has coverage of the lawsuit here.

Read the complaint below or here.

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We’ve heard it said a million times (and said it ourselves a million more), “the recent sale price of a piece of real estate is the best evidence of its value.” And the concept of sales price as value is so ingrained in our minds that we sometimes forget that this is just shorthand, that the actual language of the statute is what matters; and, ultimately, what must be proven before the board of revision or the board of tax appeals.

“In determining the true value of any tract, lot, or parcel of real estate under this section, if such tract, lot, or parcel has been the subject of an arm’s length sale between a willing seller and a willing buyer within a reasonable length of time, either before or after the tax lien date, the auditor may consider the sale price of such tract, lot, or parcel to be the true value for taxation purposes.” R.C. 5713.03

 

What is “Arm’s-Length”

What the actual language of the statute means is that the sale has to be arm’s-length: “A transaction between unrelated parties under no duress.” (Appraisal Institute). Boards of Revision and the Board of Tax Appeals look for the following factors when determining whether a sale price should be adopted as the true value:

  1. Buyer and Seller are typically motivated.
  2. Both parties are well informed or well advised and each is acting in his/her own best interest.
  3. A reasonable time is allowed for exposure in the open market.
  4. Payment is made in terms of case in U.S. dollars or financial arrangements comparable thereto and
  5. The price represents normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
The Board of Revision

Recently Ohio’s Ninth District Court of Appeals upheld a decision by the Board of Tax Appeals to reverse the decision of the Summit County Board of Revision to adopt the online auction price as the true value.

In Green Local Schools Board of Education v. Manolakis, et al. 2019-Ohio-4250, the property owners initially filed a complaint with the Summit County Board of Revision seeking to lower the value of their home from $1,498,350.00 to $836,300 – the owners’ purchase price in an online auction. Before the Board of Revision, the owners explained that the property had been subject of a sheriff’s sale and that the foreclosing bank had purchased the property at that sale. A few months later, the bank placed the property for sale via an online auction site, hubzu. The owner’s put in a bid and won.

The Board of Revision accepted the owner’s testimony and adopted the sale price. However, the school board appealed to the Board of Tax Appeals and pointed to a lack of evidence supporting a finding that the auction was “arm’s-length.”

The Board of Tax Appeals

After the property owners prevailed at the Board of Revision, the local school board (which typically receive 60-70% of the property tax collections) filed an appeal arguing that the owners did not meet their burden to show that the sale was “arm’s-length.”

The owners testified at the Board of Revision that they had no relationship with the seller but were unable to provide any information about the bank’s motivation in selling. Notably, the owners were unable to show that the property had been marketed for sale other than via a sign in the yard of the property one week before the auction, or whether there was a minimum bid for the auction, or any other bidders.

Another problem for the owners is that they agreed to let the Board of Tax Appeals decide the case without putting on any additional evidence. So the owners forfeited the right to supplement the evidence to bolster their claim that the sale was arm’s-length.

The Board of Tax Appeals, looking only at what was before the Board of Revision found that there was not enough evidence in the record to show that the sale was arm’s-length. And, once the sale price was disregarded, the only evidence of value was the auditor’s original value. So the Board of Tax Appeals reinstated the auditor’s value $1,498,350.00.

The Court of Appeals affirmed the decision of the Board of Tax Appeals, finding that “we cannot say that the BTA was unreasonable in concluding that the evidence of value presented by Mr. and Mrs. Manolakis to the BOR was not sufficient.”

The Lesson

Don’t take the Board of Revision process lightly. This is a serious endeavor – particularly when you are seeking a substantial  reduction in value. Remember, when you bring a challenge to the Board of Revision it is your burden to prove that your proposed value is right and that the auditor’s value is wrong. Bring everything you can think of to prove your case. And if there is an appeal, take the opportunity to bring in additional evidence to bolster your case.

Your Case

Finney Law Firm has represented commercial and residential property owners (and one school board) before the Boards of Revision throughout Ohio and before the Ohio Board of Tax Appeals in property tax valuation challenges.

Every case should be evaluated based on its own unique set of circumstances. The time to file a challenge begins January 1 of each year and ends March 31. If you have questions about the value of your property, or if you recently purchased property at a price less than the auditor’s value, we can help. More information about the property tax valuation process is available here.

Contact Christopher P. Finney at 513-943-6655 or contact us here.

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