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Property Tax Resources

Jan
01

Kentucky Property Tax Updates

UPDATED june 2018

Kentucky Constitutional Exemptions Are Limited to Property Taxes

Kentucky has, in recent years, seen an increasing number of disputes regarding the application of constitutional tax exemptions.   In Commonwealth v. Interstate Gas Supply, 2016-SC-000281-DG, 2018 WL 1419444 (Mar. 22, 2018), the Kentucky Supreme Court clarified that the tax exemption accorded to a “purely public charity” by Section 170 of the Kentucky Constitution is limited to an exemption from property taxes, and not from other kinds of taxes.  In so doing, the Court overruled two prior decisions that had ostensibly extended the Section 170 exemption to non-property taxes.

The tax at issue in the Interstate Gas Supply case was the Kentucky use tax that was imposed on natural gas purchases by a charitable hospital.  The hospital relied on a 1918 decision, Corbin Young Men’s Ass’n v. Commonwealth, 205 S.W. 388, which held that Section 170 exempted “institutions of public charity” from all taxes, not just property taxes.  While several other decisions had questioned the validity of the 1918 ruling, the Court expressly rejected the earlier opinion and found that Section 170’s exemption is limited to property taxes.

The Court also overruled a 1966 case finding that Kentucky’s use tax was more akin to a property tax than to an excise tax.  Thomas v. City of Elizabethtown, 403 S.W.2d 269 (Ky. 1966).  The Interstate Gas Supply court noted that a number of other cases, both in Kentucky and in other jurisdictions, had found that use taxes are properly classified as excise taxes, not property taxes.  Accordingly, the Court found that the natural gas purchases were subject to use tax, and were not exempt under Section 170.

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Morgan and Pottinger
American Property Tax Counsel (APTC)

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Sep
30

How To Discover Whether Your Tax Assessment Is Fair

Many taxpayers pay more than their fair share of property taxes. Yet in a tax arena fraught with nuance, it can be difficult for a taxpayer to recognize an inflated assessment. The key to spotting a bad assessment lies in knowing precisely what the assessor is measuring and the requirements of the state's property tax law.

What, then, is being assessed? The simplistic answer is that real estate is being assessed, but that response doesn't fully address commercial real estate, where values often hinge on contracts, encumbrances and regional legal definitions.

That said, all states attempt to tax at similar levels properties that are similar to one another.

The challenge to meeting that goal is that commercial real estate is subject to a variety of contracts and encumbrances, creating situations where nearly identical properties are taxed at significantly different assessments. Causing more trouble is assessors' tendency to rely on recent sales to determine values, resulting in tremendous differences in assessments among similar properties.

In a Pennsylvania case, an owner filed to reduce his property's taxable value based on a long-term lease in place at below-market rent. The Pennsylvania Supreme Court held that assessors must weigh all the interests associated with a parcel, specifically the impact of leased-fee interests and leasehold interests on value. However, the typical commercial property sale only reflects the leased-fee portion of the sale, because the buyer is essentially buying a rental income stream.

Kentucky has yet to fully address the uniformity problem. The Kentucky constitution states that "all property, not exempted from taxation by this Constitution, shall he assessed for taxation at its fair cash value, estimated at the price it would bring at a fair voluntary sale." As a result, nearly identical buildings could be taxed at significantly different amounts.

Ohio legislators recently passed a statute to achieve uniform taxation. Ohio simply stated that the assessor must assess all real property at the fee-simple value as if it were unencumbered. In this way the state is requiring the assessor to use market terms regardless of above-market or below-market rents in place at the property.

The remedy to unfair taxation based on recent sales is to tax all property using market terms and market rates applied to the conditions specific to the property. Without knowing what the assessor is measuring, however, a taxpayer may consider a sales price to be a fair assessment value. As demonstrated by these examples, understanding how the states assess properties goes a long way to knowing whether a taxpayer is paying a fair share in that particular state.

KJennings90J. Kieran Jennings is a partner in the law firm of Siegel Jennings Co. LPA, the Ohio and Western Pennsylvania member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Jun
06

Actual Expenses Establish Low-Income Housing Value in Dispute

"The actual expenses, coupled with the rent restrictions, would cause a willing buyer to pay less for this type of a housing project as opposed to a market-rate apartment complex. Thus, the taxpayer carried its burden in proving that its property tax assessment was excessive..."

By Gregory F. Servodidio, Elliott B. Pollack as published by Affordable Housing Finance Online, June 2013

Property owners and assessment authorities continue to clash over the proper valuation for property tax purposes of rent-restricted, low-income housing. One of the most recent disagreements flared up in the small town of Beattyville, the county seat of Lee County in east central Kentucky.

A developer had converted a former Beattyville school into 18 units of low-income housing apartments. In connection with that conversion, authorities placed a restrictive covenant on the land use, to remain in place for 30 years. Under the restrictions, the Beattyville School Apartments could only take in tenants with incomes equal to or less than 50 percent of the local median income.

The Lee County property valuation administrator valued the property for tax purposes at $662,700, or about $37,000 per unit, in 2011. This value appropriately excluded any value attributable to the issued tax credits. Nevertheless, it was still well above the value of $130,000, or about $7,200 per unit, that the taxpayer presented on appeal. What created such a dramatic gap between those opinions?

The Kentucky Constitution mandates that assessors must value all property for tax purposes at fair cash value, meaning the price that the property is likely to bring at a fair voluntary sale. In arriving at fair cash value, the assessor is not obligated to consider every characteristic of a particular property, but the law requires her to consider those factors that most impact the property's value. In the case of rent-restricted, low-income housing, this requires considering those property characteristics that differentiate the asset from market-rate housing.

Interestingly enough, Lee County's assessor and the taxpayer agreed on just about all of the steps in estimating the property's fair cash value. Specifically, they agreed that the income approach to value was the most appropriate valuation methodology for this property type. They further agreed that the property's actual restricted rents should be used in the development of the income approach. They even agreed that the income approach should use a 10 percent capitalization rate, which is surprising, considering that capitalization rate selection is often a subjective determination and a point of contention between opposing valuation professionals.

The consensus broke down on the issue of expenses. The county's assessor had obtained the property's actual audited expenses as reviewed and approved by both the Department of Housing and Urban Development and the Kentucky Housing Corp. The assessor deemed those expenses to be excessive and decided to cap the expenses used in her valuation model at 35 percent of income. The assessor used the same expense ratio to value other businesses in Lee County. Using lower, capped expenses as opposed to actual expenses produced a value that was five times higher than the taxpayer thought it should be.

On appeal, the hearing officer for the Kentucky Board of Tax Appeals sided with the property owner on the expense issue. He concluded that it was inappropriate to cap the expenses used in the income approach since these expenses are to a certain extent a function of applicable state and federal law, which pushes them higher than those at market-rate apartments. To ignore the actual expenses is to overlook an important characteristic of the property that has a significant impact on its value.
If the assessor felt that the actual expenses were excessive for specific reasons, she could have provided evidence to that effect at the appeal hearing. Simply arguing that they were too high, however, was insufficient to convince the hearing officer to reject the use of audited and approved expenses.

The actual expenses, coupled with the rent restrictions, would cause a willing buyer to pay less for this type of a housing project as opposed to a market-rate apartment complex. Thus, the taxpayer carried its burden in proving that its property tax assessment was excessive.

In concluding that the complex should be valued at $150,000, the hearing officer and in turn the Board of Tax Appeals were mildly critical of the taxpayer's valuation presentation. The hearing officer noted that the taxpayer's appeal petition valued the property between $110,000 and $150,000. During the hearing, the taxpayer refined its value position to $130,000, but in a way that was not entirely clear from the record.

Citing an earlier Kentucky court ruling, the Board of Tax Appeals refused to put the taxpayer in a more advantageous position on appeal than the position it had staked out in its filing. This serves as yet another confirmation that a taxpayer should place the lowest supportable value on its appeal form, so as not to place a floor on its value position during the appeal process.

 

GServodidio pollack

Gregory F. Servodidio, CRE, and Elliott B. Pollack represent clients in property tax appeals and eminent domain matters at the Connecticut law firm of Pullman & Comley, LLC, the Connecticut member of the American Property Tax Counsel, the national affiliation of property tax attorneys. Servodidio can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and Pollack at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Nov
11

Cha-Ching

"The Kentucky General Assembly authorized cities and urban county governments to establish programs that grant property tax moratoriums for existing residential or commercial properties "for the purpose of encouraging the repair, rehab, restoration or stabilization of existing improvements."

By Michele M. Whittington, Esq., Bruce F. Clark, Esq., as published in Midwest Real Estate News, November, 2007

The Louisville-Jefferson County Metro Government offers a property tax incentive designed to encourage redevelopment of economically-blighted properties. While not a widely advertised offer, property owners and developers should be aware of this opportunity to reduce their property taxes.

The Kentucky General Assembly authorized cities and urban county governments to establish programs that grant property tax moratoriums for existing residential or commercial properties "for the purpose of encouraging the repair, rehab, restoration or stabilization of existing improvements." This program was established as the result of an amendment to the Kentucky Constitution passed in 1982 by Kentucky voters.

In 1983, Jefferson County was one of the very few local governments to implement the newly passed legislation, and in 2003, the then-merged Louisville-Jefferson County government continued the program. In essence, it encourages redevelopment of existing properties by "freezing" for five years a property's tax assessment at pre-rehab levels. Unfortunately, the moratorium applies only to the "county" portion of the tax assessment, which currently amounts to $0.125 per $100 of assessed value. Efforts to extend the moratorium to other portions of the total property tax assessment have thus far been unsuccessful. Nevertheless, the moratorium presents an additional incentive for a property owner to rehabilitate an eligible property.

The moratorium program is jointly administered by the Jefferson County Property Valuation Administrator ("PVA") and the Louisville-Jefferson County Metro Government's Inspections and Licensing Department ("IPL"). The eligibility requirements for the moratorium are relatively straightforward. First, the existing residential or commercial structure(s) must be at least twenty-five years old. Second, either (a) the cost of the repair or rehab must be at least twenty-five percent of the pre-rehab value (as determined by the PVA's assessment); or (b) the property must be located within a "target area," an economically-depressed area based on residents' income. In the latter case, the cost of the repair or rehab must be at least ten percent of the pre-rehab value.

A property owner wishing to apply for the moratorium needs to submit an application to the IPL. In addition to other requirements, the application must include proof of the building's age, a description of the proposed use of the property, a general description of the work that will be performed to repair or rehabilitate the property and a schedule for completion of the proposed work. The owner should also obtain the necessary building permits and submit them to IPL. Once the application has been submitted, the owner has two years to complete the project. Upon completion of the project, the owner notifies the IPL, which inspects the property for compliance with the rehab plan set out in the application. If the project has been successfully completed, the IPL notifies the PVA, and they issue a moratorium certificate.

The moratorium's benefits can be calculated by determining the difference between the property's pre-rehab and post-rehab value. The PVA certifies the pre-rehab assessment of the property as part of the application process. Once the project is completed, the PVA reassesses the property at the higher post-rehab value; however, with the moratorium in place, the assessment for the county portion of the taxes will be "frozen" at the pre-rehab value. For example, assume that a developer purchases a qualifying property for $1,000,000. After rehab, the PVA reassesses the property for $10 million. With the moratorium in place, the assessment remains at $1,000,000 for purposes of the county portion of the tax, while the assessment for all other property taxes (state, school and others) increases to $10 million. The resulting tax savings for the property add up to approximately $11,250 per year for five years, or a total tax savings of over $55,000.

Property owners considering rehab of an eligible property should pay particular attention to the pre-rehab assessment. If the owner believes the property may be over-assessed, she should meet with the PVA and present evidence of the true value of the property prior to applying for the moratorium. Given the fact that the moratorium freezes the assessment at the pre-rehab value, a decrease in the assessment results in a corresponding increase in the tax savings, once the moratorium certificate is issued.

Conversely, a developer planning to purchase a property for redevelopment should be aware that the PVA's pre-rehab assessment will most likely be governed by the price the developer pays for the property, rather than by the pre-purchase assessment. Using the previous example, assume that a developer purchases a property for $2 million. Prior to the purchase, the PVA had the property assessed at $1 million. The PVA will inevitably pick up the purchase price from the deed and will reassess the property at $2 million, thus decreasing the tax benefit gained from the moratorium.

In any case, owners and developers should be aware of the moratorium process in order to take advantage of the potential tax savings on eligible properties.

MWhittington

Michele M. Whittington is Counsel in the Frankfort office of Stites & Harbison, PLLC, the Kentucky member of American Property Tax Counsel, the national affiliation of property tax attorneys. Michele Whittington can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

ClarkBruce F. Clark is a Member in the Frankfort office of Stites & Harbison, PLLC, the Kentucky member of American Property Tax Counsel, the national affiliation of property tax attorneys.He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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