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Property Tax Resources

Dec
20

Tough Burden of Proof in Tarheel State

Owners in North Carolina must satisfy legal tests in arguments for reduced taxable valuations.

   Notice of a commercial property's revaluation to an increased taxable value can deliver a shock to the taxpayer. Although actual tax liability will depend on the completed valuation, new budgets and a tax rate that is still to be set, the taxpayer fears that an inflated value will result in an unfairly high property tax bill.
The typical taxpayer response is to assert the new value is too high, particularly for the larger assessment increases. The assertion alone, however, is not enough to change the valuation. While many jurisdictions have different burden of proof statutes, under North Carolina law, the onus is on taxpayers to prove specific criteria meriting a reduced assessment.
   Unfortunately, the state's valuation practices set the stage for assessor mistakes and inaccurate valuations. Unlike many jurisdictions, North Carolina only requires that real property subject to taxation be revalued every eight years, although recently most counties have opted to revalue every four years. In light of dramatic property value swings over the past decade or two, however, these lengthy gaps between valuations often result in significant increases, with assessments spiking by as much
as 40 percent.
   Undertaking a county-wide real property revaluation is a behemoth project for any taxing authority. Countless hours of factual investigation, analysis, and number crunching go into the process. Those involved are performing a necessary public function and do their best to get it right.
   Given the scope of a revaluation, lawmakers have set limitations to discourage taxpayers that simply disagree with the new assessment from demanding a full appeal and hearing based solely on the merits of the value. Aside from the time deadlines in the appeal process, a significant governor on the appeal process in North Carolina is the burden of proof.

Proof vs. persuasion
    In North Carolina, tax assessments are presumed correct. The State Supreme Court spelled out this premise in a 1975 case involving AMP Inc.'s appeal of the taxable valuation assessed on inventory stored at a Greensboro facility.
    In finding that AMP failed to prove its case, the Court encapsulated the burden of proof when a taxpayer attempts
to rebut the presumed correctness of an assessment. This is a presumption of fact that may be rebutted by producing evidence that tends to show that both an arbitrary or illegal method of valuation was used and that the assessment substantially exceeded the true value of the property.
    A taxpayer appealing an assessment must come forward with evidence tending to show both of these conditions: that the method used to establish the assessed value was wrong, and that the value derived from that method was substantially greater than the true value (the assessed value was unreasonably high).
   The burden is not one of persuasion but one of production. In layman's terms, the burden is not to persuade the decision maker that the taxpayer's opinion of value is correct and the assessor's is wrong. Rather, the taxpayer must show simply that there is evidence both that the assessor used an incorrect method in its appraisal, and that the resulting value is substantially greater than it should be.
   Once the taxpayer has produced evidence to rebut the presumption of correctness, the burden of coming forward with evidence shifts to the county. The assessing entity must establish that its method did, in fact, produce true value; that the assessed value is not substantially higher than called for by the statutory formula; and that it is reasonable. The latter is a burden of persuasion, meaning the assessor must convince the decision maker that it applied a correct method and arrived at true value.
   The terms "arbitrary" and "illegal," which the Court used in AMP in referring to the taxpayer's burden of showing the assessor used an improper method, sound a bit harsher than they need be. The courts simply hold that a property valuation methodology is arbitrary or illegal if it fails to produce "true value" as defined by tax law in General Statute 105, Section 283. That section defines true value as meaning market value. Market value is the price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of all the uses to which the property is adapted and for which it is capable of being used."
    A variety of methods have been found to be illegal or arbitrary, such as failing to consider the effect of obsolescence in the face of testimony of obsolescence and relying only on the cost approach to value income-producing property. A tax professional will be knowledgeable of many other examples.
   Given the burdens inherent in challenging assessments, a taxpayer planning to appeal its assessed value needs to be prepared to assemble and present information supporting its value opinion. In addition, the taxpayer should obtain and understand the taxing authority's method of arriving at the assessed value, in order to challenge that method as may be appropriate.
   At the local level, taxpayers have traditionally focused arguments on value alone, but, as an appeal reaches higher levels, the burden can become a critical evidentiary obstacle to overcome. Failure to get over this initial hurdle can result in dismissal of the appeal without the actual assessed value being considered on its merits.

Gib Laite is a partner in the law firm Williams Mullen, the North Carolina member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys.
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