Menu

Property Tax Resources

Dec
29

Great Big Box Win

In The Court Of Appeals Of The State Of Kansas In The Matter Of The Equalization Appeal Of Target Corporation, For The Year 2015 In Sedgwick County, Kansas.

Syllabus By The Court

Continue reading
Apr
30

FIGHTING BACK - Big-Box Owners Contest User-Based Tax Assessments

The big-box concept changed the face of retail in the 1960s. It also skewed the way that assessors value retail property for tax purposes. To this day, taxpayers across the United States have been fighting back—and in Wisconsin, Kansas and Michigan, they are winning.

The problems arose out of financing arrangements such as prearranged sale-leasebacks or build-to-suit transactions to construct or develop a big box. Companies used these methods to keep cash available for core business purposes, and repaid the sale proceeds as rent.

These arrangements created financing rents that assessors mistakenly adopted as market rents. Further, once the above-market lease was in place, owners typically sold the lease and property to an investor at a sales price reflecting the value of the longterm, above-market lease in place to a high-credit tenant. The sales never reflected the fair market value of bricks and sticks alone, because the transaction transferred more than real estate.

Assessors then relied upon these sales without adjustment to calculate fee-simple value. Finally, assessors used the above-market rents and leased-fee sales to value owner-occupied retail stores, spreading the problem to all retail.

Guiding Principles

The concept of valuing property at its fair market value of the fee simple vanished in many locations as governmental assessors adopted this leased-fee concept, occasioning substantial valuation increases for property tax purposes. The user of the property and their contract rent trumped longstanding appraisal concepts of use and market rent. The trend eroded the requirement for a uniform and equal rate of assessment and taxation at fair market value. The same land and building could now have vastly different real property values, depending on the tenant.

For instance, a building leased to Walmart would have a higher value than if the same were leased to a local department store. How was it possible that the value of a building depended on the name of the tenant? Assessors could not distinguish between sales of properties with an income stream related to the property and sales of properties with an income stream related to the business value of the tenant.

Taxpayers successfully fought back in Wisconsin, Kansas and Michigan.

In 2008, the Wisconsin Supreme Court agreed with Walgreens that the assessor had not valued its properties in fee simple. The court focused on the issue of an above-market lease and the impact on valuation, and concluded that a “lease never increases the market value of the real property rights to the fee simple estate.”

The ruling directed assessors to use market rents, not the contract or financing rents. The court was not persuaded to move away from fee-simple valuation to a business valuation, as argued by the assessor. The assessor’s methodology could cause “extreme disparities and variations in assessments,” something the court was not willing to tolerate.

The Kansas Court of Appeals case followed in 2012, prosecuted by Best Buy, the single tenant in the building. The decision made three things clear for commercial property owners. First, Kansas is a fee-simple state. The court rejected the county appraiser’s argument for a leased-fee value. Second, build-to-suit rates are not market rents and cannot be used unless after review of the lease it can be adjusted to market rental information. Finally, market rents are those rents that a property could expect to pay in an open and competitive market. Market rent is not whatever financing arrangements a tenant can procure based on their costs and credit ratings.

Most recently, the Michigan Supreme Court addressed how these financing arrangements are impacting valuations of owner-occupied big-box retail. In 2014, the court ruled on cases brought by Lowe’s Home Improvement and Home Depot, both owner-occupants.

The court dismissed the township’s argument to consider the user of the property, rather than the use of the property. The county method would mistakenly arrive at a value in use, rather than a market value, the court found.

The court concurred with the taxpayers that the sales comparison approach to value was the most appropriate method to value owner-occupied properties, noting the approach must be developed using market sales of fee-simple interests. Leased fee sales may only be used if adjusted to reflect fee simple. The court was unimpressed by the township appraiser’s conclusion that no adjustments were necessary, with the court finding his report to be shockingly deceptive on this point.

Whether it was failing to understand basic appraisal theory or the desire to inflate values, assessors plugged bad information into market-based valuation models, and it has taken years to begin unwinding the damage and restoring basic appraisal concepts of fee simple, uniformity and equality. Taxpayers are taking the lead from Wisconsin, Kansas and Michigan, and have cases pending in many, if not all, jurisdictions.

TerrillPhoto90Linda Terrill is a partner in the Leawood, Kansas. law firm Neill, Terrill & Embree, the Kansas and Nebraska member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Jan
01

Kansas Property Tax Updates

Updated June 2014

New Changes To Kansas Property Tax Appeal Procedures

Commercial taxpayers alarmed by recent Kansas Court of Tax Appeals ("COTA") decisions initiated a call for reform of the system. The initial group of taxpayers contacted legislators directly. Soon they were joined by many groups including the Kansas State Chamber of Commerce and the Kansas Association of Realtors. The recommendations received wide-spread support and House Substitute for Senate Bill 231 was signed by Governor Brownback.

Some provisions in the new law include:

  • Changes the name of the state agency from the Court of Tax Appeals back to the Board of Tax Appeals ("BOTA") to eliminate any confusion that COTA is a real court instead of a state agency.
  • Provides for optional de novo review. This change would ensure a taxpayer could have court of competent jurisdiction hear the taxpayer's evidenc e and decide the case. A party could also appeal directly to the Court of Appeals on the record if they choose.
  • Requires one member of BOTA to be a licensed general real property appraiser. That person will join the other two positions be filled with an attorney and a CPA. This change will occur upon the next vacancy.Directs BOTA to issue a Summary Order within 14 days of the hearing. If either party wants to appeal they have 14 days to request BOTA prepare a Final Order. BOTA will have 90 days to prepare that Order. If neither party wants to appeal, the matter will be over without BOTA issuing a Final Order. If the Order is not done within the 90 day time period, BOTA must refund to the taxpayer any filing fees paid.
  • If a case is not decided in the year it was filed and a protective appeal must be filed for a subsequent year(s), the taxpayer will not be charged a filing fee.
  • Open up the Small Claims Division to more appeals by raising the valuation ceiling from $2 million to $3 million.
  • And required BOTA to change their policy and now require a simultaneous exchange of evidence in cases.

Few expect BOTA to embrace the change as they have already issued Directives and Memoranda with new procedures that appear to be the first salvos to circumvent the law. Watch here for updates!

For a full copy of the bill go to www.kslegislature.org.

Property Tax Law Group, LLC
Linda Terrill, Attorney
American Property Tax Counsel (APTC)

Continue reading
Mar
11

Kansas Legislature To Reform Property Tax Appeals Process?

In the nearly 200 years since the U.S. Supreme Court's ruling in McCulloch v. Maryland, pundits, attorneys, courts and others have deliberated Chief Justice John Marshall's assertion that "the power to tax is the power to destroy."

Today the issue is front and center in Kansas, where the state Legislature seems poised to enact sweeping reform legislation governing tax appeals. The contemplated measures would provide substantive due process in an attempt to level the playing field for taxpayers that seek to challenge state and local property, excise and income taxes.

The current tax appeal system in Kansas combines informal hearing processes at the county level in property tax issues and at the state level on appeals involving excise and/or income taxes. These are followed by an appeal to the Kansas Court of Tax Appeals (COTA), an administrative agency in the executive branch of state government. If a party is displeased with a COTA decision, the prescribed recourse is a direct appeal to the state Court of Appeals.

Mounting Concerns Over COTA
Tax consultants and commercial taxpayers alarmed by recent COTA decisions originated the call for reform. The grassroots effort spotlighted COTA's efforts to deny taxpayers the right to contract with tax consultants that use fee-based contracts.

COTA had ruled that the contracts violated public policy, and voided them. It then refused to hear pending cases where a tax consultant was involved. COTA also sought to deny taxpayers the ability to retain attorneys that took referrals from tax consultants.

Next, COTA dismissed appeals where the tax consultant had signed the appeal form, refusing to recognize the state-issued power of attorney forms the consultants had taxpayers execute.

Taxpayer grievances also extend to the time taken to resolve property tax appeals. A law requires COTA to issue a decision no later than 120 days after a tax hearing, but the law fails to penalize the agency in the event that it exceeds the deadline. Consequently, many cases linger beyond the 120-day mark.

Taxpayer Relief May Be Imminent
House Bill 2614 was introduced to address these issues. As currently written, the bill will make the following changes:

  • Provide for a de novo appeal to the District Court. This change will ensure that a court of competent jurisdiction hears the taxpayer's evidence and makes findings and conclusions, rather than non-lawyer employees appointed by the governor deciding the case.
  • Require a presumption of correctness for any appraisal submitted by a state-licensed appraiser.
  • Permit taxpayers to employ the tax professional of their choosing without interference from COTA.
  • Require tax appeal decisions to be issued within 120 days and, if not, all filing fees paid by the taxpayer will be refunded.
  • Waive the filing fee in the event that a protective appeal for the following year must be filed because the prior year's appeal is still pending.
  • Require COTA to provide for a simultaneous exchange of evidence. This would replace the current method, which requires the taxpayer to provide evidence months before the hearing while protecting the county from disclosure until 20 days prior to the hearing.
  • Change the agency name from the Court of Tax Appeals back to the Board of Tax Appeals, to avoid the suggestion that COTA is a court within the judicial branch. This point also includes a staff salary reduction.
  • Provide a method whereby a party could file to have a board member removed for cause, defined to be failing to issue orders timely or failing to maintain continuing educational requirements.
  • Make cases valued at $3 million or less eligible for filing with the small claims division. This would be an increase from the current cutoff of $2 million.
  • Require the agency to promptly approve stipulations between the taxpayers and the taxing body.

The initial group of taxpayers, tax consultants and attorneys contacted Kansas legislators directly and urged their support for tax appeal system reform. The Kansas Chamber of Commerce later picked up the grassroots effort.

In its "Legislative Agenda 2014 For A Healthy Economy," the chamber endorsed COTA reform to "provide an affordable, accessible and impartial system that can resolve state and local tax disputes expeditiously and efficiently."

Other groups including the lobby for the Kansas Association of Realtors joined the call for reform. Now the legislation has widespread support throughout the business and real estate communities.

TerrillPhoto90Linda Terrill is a partner in the Leawood, Kansas. law firm Neill, Terrill & Embree, the Kansas and Nebraska member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

American Property Tax Counsel

Recent Published Property Tax Articles

The Silver Tsunami Portends Excessive Tax Assessments

​What You Need to Know to Successfully Appeal Your Inordinate Property Taxes

By Stewart Mandell, Esq.

For some time, owners and operators of seniors housing properties have been aware of the staggering demographic statistics, such as the Census Bureau's projection that the baby boomer population will exceed 61 million when the youngest...

Read more

How Property Valuation Differs for Corporate Headquarters

Lack of data makes for more important conversations between advisors and property owners.

By Margaret A. Ford, Esq.

Corporate headquarters present unique challenges and opportunities in property valuation discussions with tax assessors. Managing taxes on any real estate property requires an understanding of all three traditional approaches to value, but headquarters...

Read more

How to Avoid Excessive Property Taxes

Knowing what to look for in monitoring your assessments can help avoid over taxation.  

By Gilbert D. Davila

As robust occupancies and escalating investor demand in many markets drive up property tax bills for multifamily housing, apartment owners must continue to monitor their assessments to avoid overtaxation. Knowing what to...

Read more

Member Spotlight

Members

Forgot your password? / Forgot your username?