Tax bills in Hamilton County will be mailed on January 7 and are due February 1. Nonetheless, the County Auditor has sent out notices to homeowners in December as to the new valuation of properties that will appear on the January tax bills. Since the January 2021 tax bills represent the start of a new tax triennial, every property owner in Hamilton, Butler and Clermont Counties will get new valuations in those upcoming tax bills. As a result, our phones are starting to ring about help with property tax valuation reductions.

If you are thinking about challenging your property’s tax valuation, below are linked two blog entries with lots of information on the wisdom of taking such a path, and the detailed procedures for doing so. One of them has an instructional video on tax valuation reduction in Ohio.

Ohio and Kentucky property tax valuation challenges vexing in 2021

’tis the season for property tax valuation reduction (with How To video)

Contact Chris Finney (513-.943.6655) or Casey Taylor (513.943.5673) for information on how we can help get your property taxes reduced.

 

 

 

To appeal your taxes or not appeal your real property taxes, that is the question.

For some property investors, 2020 has been a difficult year: Many retail properties, hotels and office buildings have suffered from high vacancies, high rental defaults, and slow-to-no calls from new tenants. For these categories of income-producing properties, the enormous challenges presented by COVID-19 seem to have caused a significant reduction in property values.

Thus, it makes perfect sense to challenge those values in 2021, right?

Well, not so fast. Here are some considerations:

State of Ohio

  • Tax valuation challenges filed in Ohio in 2021 are for tax year 2020, and the “tax lien date,” the target date for valuation decisions is January 1, 2020.
  • That is, of course, months before the deleterious effects of COVID-19 impacted the USA real estate market.
  • Therefore, an Ohio property owner is likely to lose a valuation challenge brought in 2021 based primarily or solely upon a downturn starting in March of April of 2020.
  • Even worse, a property owner is entitled to bring tax valuation challenges only once in a “triennial,” the 3-year cycle which Ohio uses for Board of Revision cases.
  • Hamilton County, Clermont County, Butler County, Franklin County (Columbus) and Montgomery County (Dayton) all start new triennial cycles in tax year 2020. This means that if a property owner brings and loses a tax valuation challenge brought in calendar year 2021 in those counties, the valuation by law must stay in place through tax year 2022 (first challenged again in 2023).
  • On the other hand, if a property owner waits until first quarter of 2022 to file a challenge (for tax year 2021) in those counties, he will have a much stronger basis for valuation reduction (valuation target date is then January 1, 2021).
  • On the other hand, Warren County, Lucas County (Toledo), Stark County (Canton) and Cuyahoga County (Cleveland) (among others) are in their last year of the triennial in 2020, meaning a property owner can bring a complaint in 2021 (win or lose) and then turn around and bring a fresh challenge in 2022.

So, an Ohio property owner should carefully consider whether to bring a 2021 challenge. It could bring great rewards or lock in an articificllay high value for three years, potentially unnecessarily.

State of Kentucky

Kentucky is an entirely different matter. Challenges of value — which are started by PVA meetings the first two weeks of May — in 2021 are for tax year 2021. Thus, the full impact of COVID-19 on property values are at issue in challenges in 2021. It is much more straightforward.

Conclusion

For assistance with an Ohio or Kentucky property tax valuation matter, contact Casey Jones (513.943.5673) or Chris Finney (513.943-6655).

 

 

 

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.