Tuesday, March 31, 2015 is the deadline to file a Complaint Against the Valuation of Real Property (“Tax Complaint”) with your county auditor for the 2014 tax year. In Ohio, real estate taxes are paid in arrears. Property owners that fail to file a Tax Complaint prior to the deadline lose the ability to challenge the real estate taxes paid for tax year 2014. The current assessed value of your real property is publicly available on the auditor’s website in the county where the real property is located. The property taxes payable each year are based on the auditor’s determination of the fair market value of your property. “Fair market value” in this context means the most probable purchase price an interest in real property is likely to bring in a competitive market. In many instances, the auditor’s periodic estimation of fair market value is higher than the true fair market value of a parcel of real property. This could occur due to a change in circumstances such as a sale, demolition of improvements, or increased vacancies. Filing a Tax Complaint provides property owners a mechanism to challenge the auditor’s estimation of the value of real property, and potentially lower their annual real estate taxes.
For example, if you recently purchased or sold real property, the best indication of the fair market value of the property is the sale price. In many cases, the auditor will accept the purchase price paid as the fair market value and revise the assessed value of your property accordingly. This assumes that the purchase price was based on an “arm’s length transaction” meaning that the sale occurred between disinterested parties of similar bargaining power. If you believe that the value of your property is not accurately reflected with the auditor based on a reason other than a recent sale, then you may need to hire an appraiser to determine the value of your property, especially in the case of a commercial property.
Before attempting to file a Tax Complaint with the county auditor, property owners should be aware of a few common pitfalls. The Tax Complaint form must be filled out properly, if not perfectly. Tax Complaints can be dismissed on the slightest technicality. Forgetting to fill out all information requested or to “check” the correct box on the form can result in dismissal. If your Tax Complaint is dismissed, you lose the opportunity to challenge the real estate taxes for the tax year filed resulting in the taxes remaining unchanged and based upon the current assessed value of the property. Strict evidentiary rules govern who is permitted to testify as to the value of the real property. In the majority of circumstances the only person a Board of Revision will accept as qualified to present an opinion of value for real property is a certified appraiser (absent a recent arm’s length sale). Appraisals must be dated as of January 1st of the tax year in question (the tax lien date) or they will not be considered. In many Ohio counties (including Franklin), if you intend to present a written appraisal in support of an asserted value, the person that prepared the appraisal must be present to testify at the hearing or the appraisal will not be considered.
Property owners should be aware that in many cases the local school board files a Counter-Complaint to contest your revised property valuation. In fact, the law requires the Board of Revision to notify the local school board if the property owner seeks a decrease in value of $50,000 or more. An attorney will represent the school board, and you can be sure that they will be looking to dismiss your Tax Complaint based on the technicalities addressed above.
Here are a few practical points to keep in mind when contesting property taxes:
- In the case of a bulk sale, be sure to allocate the purchase price for each parcel in the purchase contract. If several properties are purchased in a single transaction and the parties have not allocated the purchase price in the sale documents, then there will be no way to tell how the parties valued the separate parcels. Appraiser testimony may be necessary to prove value.
- If significant personal property (e.g. business equipment, trade fixtures, etc.) is being purchased along with real estate, be sure the contract documents allocate the value of each and a Bill of Sale is included to convey the personal property separately. If the allocation is not documented, it will be much more difficult to prove that the entire purchase price was not paid for the real estate.
- If the current auditor value is significantly higher/lower than the proposed sale price, the parties should consider revising standard tax proration language in the purchase contract. If the sale price is significantly lower than the current auditor value, the buyer could obtain a windfall if it receives a tax reduction after the seller has provided a credit toward taxes based upon the higher valuation of the real estate at the time of closing. Conversely, if the sale price is significantly higher than the current auditor value, the buyer runs a risk of being retroactively charged for taxes applicable to the seller’s period of ownership which could occur if the local school board files a Tax Complaint to increase the value of the property to reflect latest sale price.
Given the various pitfalls it is highly advisable that property owners contact an attorney prior to filing a Tax Complaint on their own. If you have any questions, please call our offices at 614-344-4800.