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Category Archives: Property Tax Valuation

Ohio Real Estate Law: Deadline to file property valuation appeal is March 31

Author By Christopher P. FinneyPosted on

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.

Ohio Real Estate Law: LLC membership interest transfers take hit at Ohio Supreme Court

Author By Finney Law FirmPosted on

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.

Ohio Tax Law: Ohio legislature taking up LLC transfer tax

Author By Finney Law FirmPosted on

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.

Finney Law Firm and Dusty Rhodes to Present on Property Valuation

Author By Christopher P. FinneyPosted on

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 Sues for Property Tax Revenue Payments

Author By Finney Law FirmPosted on

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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Ohio Property Tax Valuation Reduction – Online auctions of bank owned property

Author By Finney Law FirmPosted on

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.

Another Win for Leased Fee Property Buyers

Author By Finney Law FirmPosted on

The Ohio Supreme Court recently issued decisions in three cases further clarifying the valuation of “leased fee sales” (property that is subject to an existing lease at the time of the sale).

The purchase price of a leased fee interest, particularly when the lease has a many years left, more accurately reflect the value of the cash flow that the lease will generate rather than the value of the underlying real estate. This is why real estate investors had for years sought changes to Ohio’s property valuation law (the legislature  acted in 2013). Since then, the battle has been in the courts to determine how the changes would be implemented.

In recent years, the courts have given life to those changes in decisions ordering the board of tax appeals to disregard the sales in “sale leaseback transactions” and in these most recent cases, in ordering the Board of Tax Appeals to consider appraisal evidence of leased fee sales.

The Court issued decisions on that issue in three cases on May 6, 2019:

Store Master Funding VI, LLC v. Franklin County Board of Revision, 155 Ohio St.3d 253, 2018-Ohio-4301

Spirit Master Funding IX, LLC v. Cuyahoga County Board of Revision, 155 Ohio St.3d 254, 2018-Ohio-4302

Northland-4, LLC v. Franklin County Board of Revision, 155 Ohio St.3d 257, 2018-Ohio-4303

The Court also issued a decision regarding the exclusion of easement rights in determining the value “as if unencumbered.” The Court found that the express language of the statute, ordering that the value of real estate be determined “as if unencumbered” means that the value of an easement benefiting a parcel should be excluded when determining the value of that parcel. Worthington City Schools Bd. of Edn. V. Franklin County Board of Revision, 155 Ohio St.3d 187, 2018-Ohio-2909

The end result for all four of these cases points to a better opportunity for real estate investors to challenge the auditor’s adoption of the recent sale price of properties subject to leases or other encumbrances,

Learn more about Finney Law Firm’s Property Valuation practice here.

Finney Law Firm and Matt Nolan Present: Property Valuation Challenges

Author By Finney Law FirmPosted on

Warren County Auditor Matt Nolan and the Finney Law Firm will give a presentation to the Real Estate Investor’s Association of Greater Cincinnati (REIAGC) covering the property valuation challenge process.

The correct valuation of real property can mean the difference between success and failure for residential and commercial landlords, and their tenants.

On Thursday, March 7, our attorney and Matt Nolan will discuss the procedure for bringing a challenge, issues to consider prior to bringing a challenge, and next steps if the initial challenge is not successful.

Click on this link to the REIAGC’s website for more information or to register to attend. Registration is free for members, $35.00 for non-members.

Learn more about Warren County Auditor Matt Nolan here. Learn more about Finney Law Firm’s Property Valuation practice here.

Ohio Supreme Court Issues Instructive Decision in Property Valuation Case

Author By Finney Law FirmPosted on

In a unanimous per curiam opinion, the Ohio Supreme Court ruled that even when there is a recent arm’s-length sale, appraisal evidence of value should be considered to contradict the sale price.

In Spirit Master Funding IX, L.L.C. v. Cuyahoga Cty. Bd. of Revision, Slip Opinion No. 2018-Ohio-4302, the subject property was sold twice in 2014, one in August for $2,925,880; and again in December for $3,439,0290. The property was not subject to a lease at the time of the first sale, but was subject to a 20 year lease at the time of the second.

The Board of Tax Appeals adopted the August sale price as the true value, disregarding an appraiser’s opinion that the property’s true value as of January 1, 2014 was $1,535,000. The Board of Tax Appeals accepted the school board’s argument that the property owner did not dispute that the August 2014 sale was arm’s length, believing that question to be dispositive.

“The school board’s argument ignores the fact that appraisal evidence can both attack a sale price as evidence of true value and provide affirmative evidence of value in its own right” Spirit Master Funding IX, Slip Opinion No. 2018-Ohio-4302, ¶ 9.

The case has been remanded to the Board of Tax Appeals to give consideration to the testimony and report of the property owner’s appraiser.

This decision continues a trend at the Ohio Supreme Court to give force to the recent changes to Ohio’s property valuation regime.

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PROPERTY TAX VALUATION: Ohio Supreme Court Continues to Enforce Plain Meaning of Recent Amendments

Author By Finney Law FirmPosted on

As has been discussed in numerous posts on our firm’s blog, see here, here, and here, the changes to Ohio’s property valuation law enacted in 2012 are slowly coming into effect as the Ohio Supreme Court has been consistently ruling that the changes made by the legislator mean exactly what they say.

Notably, R.C. 5713.03 was amended specifically to require that real property be valued for taxation purposes, “as if unencumbered.” But auditors and school boards have resisted calls to apply the plain meaning of “as if unencumbered” to include leases, arguing that “as if unencumbered” refers only to liens or easements.

Yesterday (May 22, 2018) the Ohio Supreme Court weighed in again on the question in Lowe’s Home Centers, Inc. et al. v. Washington County Board of Revision, et al., Slip Opinion No. 2018-Ohio-1974, that “it is plain that a lease is an encumbrance and that R.C. 5713.03’s directive to value the realty ‘as if unencumbered’ means to value the realty as if it were free of encumbrances such as leases.” Id. at ¶19.

In Lowe’s, the County’s appraiser compared leased fee properties to the subject property to ascertain the value, and made adjustments to account for the leases. The Board of Tax Appeals adopted the value proposed by the County’s appraiser, but appeared to rely on a case decided prior to the amendments to R.C. 5713.03, thus leaving some question whether the Board of Tax Appeals analyzed the lease adjustments.

Unquestionably, the changes, aimed mostly at commercial property valuation, bring with them new challenges for Ohio’s auditors and school boards (the major recipient of property tax dollars). And there are certain to be calls for new amendments to undo some or all of the recent changes.

The deadline for filing Board of Revision Challenges has passed for this year. To learn about the Board of Revision process in preparation for next year, watch Chris Finney’s presentation here. Contact us here if you have questions about your commercial property valuation.

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