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Property Tax Resources

May
30

Utah Tax Sales Require Due Process

State Supreme Court finds that due process error bars statute of limitaitons on title challenge.

The Utah Supreme Court has affirmed the right of property owners to challenge tax sales conducted without constitutionally adequate notice to the property owner, even when the challenge takes place after the prescribed statutory limitations period has expired.

The court’s Jan. 10, 2017, decision in Jordan vs. Jensen overruled its 1955 decision in Hansen vs. Morris, where it had held that once the limitations period had passed, the purchaser of a tax deed could retain title against a challenge from an earlier deed holder even when the tax sale had violated due process.

The case centered on the question of whether or not a taxing entity’s failure to provide adequate, constitutionally required notice to an interested party of a tax sale prevented the application of a statute of limitations specific to tax title challenges.  Utah law prohibits parties from challenging a tax title holder’s ownership of real property more than four years after the property was conveyed.

In Jordan vs. Jensen, the property at issue was sub-surface mineral rights that had been severed from the surface interests in 1995. The owner of the surface estate failed to pay property taxes between 1995 and 1999, and Uintah County seized the property and sold it in a tax sale in 2000. The purchaser of the tax deed then sold the property to the Jensens.

The Jordans were the owners of the severed mineral interest and neither they nor their predecessors had ever received notice of tax assessments for the mineral estate, nor did they receive notice of the surface owners’ failure to pay taxes or of the tax sale. Although the mineral interest had been severed from the surface interest in 1995, the 2000 tax deed purported to convey the land without reservation or exceptions.

A lessee of the Jordans’ mineral rights secured two title opinions in an effort to ensure that the Jordans actually owned the leased mineral interests. Both attorneys expressed their concerns that the mineral estate might have passed to the Jensens under the tax deed.

When the Jordan's became aware of the title concerns in 2013, they asked the Jensens to sign a mineral rights quitclaim deed to settle the issue. The Jensens responded by claiming ownership of the mineral estate for the first time.

The Jordans filed a complaint to quiet title, alleging that the mineral interest could not have passed as a result of the tax sale because the Jordans never received notice of the sale. The Jensens counter-claimed, seeking title to the mineral interest and alleging that the Jordans’ action was barred under Utah’s judicial code because more than four years had passed since the tax sale.

In the code’s chapter on statutes of limitations, Section 206 prohibits a party from challenging conveyance in a tax sale after the passage of four years, as follows: “An action or defense to recover, take possession of, quiet title to, or determine the ownership of real property may not be commenced against the holder of a tax title after the expiration of four years from the date of the sale, conveyance, or transfer of the tax title to any county, or directly to any other purchaser at any public or private tax sale.”

The Jensens invoked this provision in defense against the Jordans’ action to quiet title, claiming that inasmuch as the tax sale had occurred more than four years prior to the lawsuit, the Jordans could not challenge the validity of the tax sale. The Jensens argued that the tax sale would have been voidable for failure to provide notice within the four-year period, but that the limitations period protected the tax title from legal challenges after that time.

Both parties filed motions for summary judgment. Neither disputed that the county failed to provide constitutionally adequate notice of the sale. Therefore, the only issue was whether that deficiency prevented the application of Section 206.

The district court held that the four-year limitations period did not apply because the county had violated constitutional requirements of due process by not providing notice to the Jordans of the tax sale, and that failure prevented the mineral interest from passing at the tax sale. The Jensens appealed the district court’s decision to the Utah Supreme Court.

On appeal, the Jensens relied on Hansen v. Morris (1955), wherein the court rejected a due-process challenge to the predecessor to Section 206. In that case, the Utah Supreme Court  held that the application of the four-year limitations period was constitutional even when “statutory steps required to perfect a tax title have not been taken, such as failure to give notice of sale, failure of the auditor to execute affidavits, etc.

The Jordan court acknowledged that the Hansen court had rejected a due-process challenge to the application of Section 206, but found that three subsequent United States Supreme Court decisions required reversal of Hansen.

In Mennonite Board of Missions vs. Adams (1983), state law provided a two-year redemption period after a county tax sale. However, the U.S. Supreme Court held that the mortgagee was deprived of due process and the two-year limitations period did not apply because the mortgagee had not received notice of the tax sale.

In Schroeder vs. City of New York (1962), a statute required an aggrieved party to sue for damages within three years after the city diverted water. Schroeder sued more than three years after diversion had occurred, but the court held that the limitations period did not apply because the city had not given Schroeder notice that it had diverted the water.

In Tulsa Professional Collection Services Inc. vs. Pope (1988), the court held that non-claim statutes requiring creditors to submit claims to the executrix within two months were limitations periods that required actual notice before they could bar a creditor’s claim.

According to the Utah Supreme Court, these U.S. Supreme Court. cases established that “a statute providing a limitations period will not apply when it is triggered by constitutionally defective state action.” There was no dispute that the Jordans had not received constitutionally sufficient notice of the tax sale, or that the tax sale constituted state action. Thus, the court held that the Jordans had the right to challenge the Jensens’ claim to title in the mineral interest and that “the county’s failure to provide notice prevented the Jordans’ mineral interest from passing at the tax sale.”

Stephen Young Sept 2014Hunsaker Pamela

Steven P. Young, Partner and Pamela B. Hunsaker, Of Counsel, serve the Salt Lake City law office of Holland & Hart which is a Montana, New Mexico, Utah and Wyoming member of American Property Tax Counsel, the national affiliation of property tax attorneys. 

Nov
09

Why Timeshares Shouldn't Be Taxed Like Condominiums

The perceived similarity between condominiums and timeshare projects often leads tax assessors to treat those properties as identical.  “If it looks like a duck, quacks like a duck and walks like a duck, then it probably is a duck,” right?

But when it comes to property assessments for taxation, looks can be deceiving.  Fundamental differences between timeshares and condominiums can lead to significantly divergent value calculations.  All too often, it falls to the taxpayer to see that the assessor acknowledges and accounts for those factors in order to accurately assess timeshare properties.

In 2015, an assessor increased the assessment for a timeshare project at a Utah ski resort by 10 percent from the previous year.  The property owner appealed the assessment and provided evidence of the project’s fair market value.  The assessor challenged that evidence, however, based in part on an increase in sale prices for condominiums during previous years.

Under Utah law, the value of a wholly-owned condominium does not provide a meaningful comparison to the value of a timeshare project for several reasons.  First, such a comparison assumes that units within a timeshare project could be resold as wholly-owned condominiums.  This is impossible, given the legal structure of timeshare properties.  Once a timeshare project is put into place, it cannot be altered.  Unlike condominiums, individual units can never be sold.

Although the Utah assessor identified a 30 percent increase in per-unit condominium sale prices near the project, there was not a similar 30 percent increase in timeshare sales.  The only consistent figure shared by timeshares and condominiums each year is the number of units subject to foreclosure.

Second, treating timeshares like condominiums fails to take into account the costs associated with operating a timeshare project.  Utah law recognizes that timeshares are significantly different from condominiums and requires assessors to exclude costs that are unique to timeshare properties.

Specifically, those factors include any intangible property and rights associated with the acquisition, operation, ownership and use of the timeshare interest or timeshare estate.  The assessor must also exclude fees and costs associated with the sale of timeshare interests and timeshare estates that exceed those fees and costs normally incurred in the sale of other similar properties.  Other excluded costs include the operation, ownership and use of timeshare interests and timeshare estates, vacation exchange rights, vacation conveniences and services, club memberships and any other intangible rights and benefits available to a timeshare unit owner.

Sales commissions for timeshares are typically about 18 percent, whereas sales commissions for condominiums are closer to 6 percent.  Because the law requires an adjustment for costs and fees which “exceed those fees and costs normally incurred in the sale of other similar properties,” the property owner is entitled to remove the excess 12 percent portion of commissions.

There are other fees and costs for operating a timeshare that, by law, may be deducted from the value.  Those fees and costs may be difficult to identify or to allocate to individual units, but would include fees and costs for customer service, management costs necessitated by the existence of numerous owners, accounting and similar expenses.

A third distinction is that the assessor may need to make a personal property adjustment for timeshare property.  In Utah, the personal property of timeshares is separately assessed and, to avoid double taxation, must be excluded from the real property assessment.  In the pending Utah appeal, the assessing county challenged the property owner’s proposed personal property adjustment because it exceeded the reported value for the project’s personal property tax assessment.

In Utah, personal property assessments reflect depreciation schedules, which are rough estimates of the depreciated value of certain classes of personal property.  When those schedule-based values diverge from fair market value, an adjustment removing the fair market value of that property (for purposes of the real property assessment) will not perfectly correspond to the personal property tax assessment.  Nevertheless, a fair market value assessment of the timeshare property should include an appropriate adjustment for personal property which is otherwise taxable.

Timeshare units are simply incomparable to wholly-owned condominiums.  Under Utah law, the most appropriate way to value timeshare units is to look at sales of similar timeshare units, making adjustments consistent with the tax code.  Laws in other states may require similar adjustments.

When reviewing local assessments of timeshare properties for comparison, be aware of the distinctions between condominiums and timeshares, and ensure that proper adjustments were made in each.  If those timeshare assessments are comparable to assessed values of condominiums, then the assessor likely neglected to account for the unique characteristics and expenses associated with timeshares.

Pamela B. Hunsaker serves as counsel in the Salt Lake City office of law firm Holland & Hart and is a Montana, New Mexico, Utah and Wyoming 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..

 

Hunsaker Pamela

Pamela B. Hunsaker serves as counsel in the Salt Lake City law office of Holland & Hart and is a Montana, New Mexico, Utah and Wyoming member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reched at This email address is being protected from spambots. You need JavaScript enabled to view it..

Jul
23

Commercial Use Can Trigger Tax on Tax-Exempt Property

Utah property owners should be aware of tax laws that may even apply to tax-exempt properties.

When a business owner leases property that is exempt from property tax and then uses that property in connection with a for profit business, local taxing entities may have authority to tax the property's user. Whether and to what extent that tax applies will vary by state, but in some states, including Utah, the property user's tax burden can be significant.

Under Utah law, the assessing authority may impose a privilege tax in "the same amount that the ad valorem property tax would be if the possessor or user were the owner of the property," according to the state's tax code. But because Utah's privilege tax is an all-or-nothing tax, local authorities cannot impose the tax unless the user has exclusive possession of the exempt property.

In 2012, the Utah Supreme Court had its first opportunity to determine what constitutes exclusive possession. In Alliant Techsystems Inc. vs. Salt Lake County Board of Equalization, the court identified a three-part test for determining exclusive possession and then remanded the case back to the district court to apply the test.

In April of this year, the Utah Court of Appeals upheld the district court's decision that the user of the exempt property did not have exclusive possession and could not be assessed a privilege tax for its for-profit use of that property. Details of the case, then, may provide important insight for companies in similar circumstances.

Control Issues

Alliant Techsystems Inc., the taxpayer in these appeals, is a for-profit aerospace and defense products corporation that operates on its own property, as well as on the Naval Industrial Reserve Ordnance Plant, a property owned by the U.S. Navy. Alliant and the Navy entered into a facilities-use agreement that governs the company's use of the ordnance plant. In 2000 and for all subsequent years, Salt Lake County imposed a privilege tax on Alliant for its use of the ordnance plant. The county based the amount of the tax on the full value of the exempt property.

Alliant challenged the county's assessment of the privilege tax on the basis that it did not have exclusive possession of the property due to the control retained by the Navy. The Salt Lake County Board of Equalization, the Utah State Tax Commission and then the district court concluded that Alliant had exclusive possession of the ordnance plant because no other party had an agreement with the Navy to use the property. ·

Alliant appealed to the Utah Supreme Court, which interpreted exclusive possession to mean exclusive as against all parties, including the property owner.

Utah's Test

The Utah Supreme Court's three-part test for exclusive possession requires that the user or possessor have (1) the general power to admit or exclude others, including the property owner, from any present occupation of the property; (2) the authority to make broad use of the property, with only narrow exceptions; and (3) possession and control of a definite space for a definite time.

Alliant relied on several points to demonstrate that it lacked exclusive possession of the Navy's ordnance plant, due to the control retained by the Navy:  For one, the Navy had erected a fence surrounding the property, and posted signs stating that the property belonged to the United States government. Additionally, the parties' operating agreement stated that unauthorized use of the property could result in fines, imprisonment or both.

Alliant also pointed out that the facilities-use agreement permitted the Navy to terminate Alliant's right to use the property at any time and for any reason, and at any time to change or terminate the list of facilities that the company may use. The Navy maintained onsite representatives to manage some of the ordnance plant's operations.

Finally, Alliant lacked authority to exclude the Navy or anyone authorized by the Navy from the property; neither could the company use the property for non-Navy purposes without permission from the Navy.

The county didn't dispute these points, and the district court held that Alliant lacked exclusive possession of the ordnance plant property and was exempt from the privilege tax. The county appealed the decision and the Utah Court of Appeals upheld the district court's decision.

Whether a state can tax the business use of exempt property by a lessor will depend on how each state's tax laws are written. If the tax is based on the full value of the property, and the lessor can demonstrate that the property owner maintains control of the property, the user may challenge the tax as violating the Supremacy Clause of the U.S. Constitution, which establishes the supremacy of federal law (and federally established tax exemptions) over state and local laws. Alliant raised that challenge in its appeals, put the court declined to address the constitutional challenge because its interpretation of the statute fully resolved the matter.

Stephen Young Sept 2014Stephen P. Young is a partner in the law firm of Holland & Hart, the Montana, New Mexico, Utah and Wyoming 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..

Jan
01

Utah Property Tax Updates

Updated June 2018

Tax Commission Holds that Debt Rate Must Match Capital Structure

The concluding step in deriving a weighted average cost of capital cost is to determine the proper capital structure.  In Appeal No. 15-958 (May 2018), the Tax Commission stated that the capital structure is related to a company’s credit rating and held that “[c]ombining a debt rate from “A” rated companies with a capital structure from mostly “B” rated guidelines companies . . . [was] a mismatch.”  The Commission corrected this error by utilizing an “A” credit rating and a capital structure of “A” rated debt.  Thus, it is important to understand the relationship between a company’s debt rating and its capital structure when determining a weighted average cost of capital.


David J. Crapo, John T. Deeds
Crapo Deeds PLLC
American Property Tax Counsel (APTC)

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Mar
10

Utah Assessors Argue Against Fair Market Value

Utah taxpayers could soon be required to conduct an item-by-item appraisal of personal property in order to contest its taxable value if Utah assessors have their way. Utah imposes property tax on a business' tangible personal property based upon the personal property's fair market value. Fair market value means the value a knowledgeable, willing buyer would pay a knowledgeable, willing seller for the property operating at its highest and best use.

The taxable value of a business' personal property is self-reported and self-assessed using state guidelines. Every year, a business must submit a signed personal property statement to each county in which it owns property. These statements must include the year of acquisition and purchase price for each item of personal property. The taxpayer then multiplies the prices by a provided percent-good factor to determine its estimated fair market value.

Unfortunately, simply applying the percent-good factor does not always equal the property's fair market value. For example, there may be additional functional or economic obsolescence for which the percent-good factors do not account. Consequently, a taxpayer is allowed to dispute the resulting value.

Some taxing jurisdictions, however, have recently argued that taxpayers may only dispute the resulting value if they prepare an item-by-item appraisal, rather than valuing all the personal property subject to tax as a group or operating unit.

Utah State Tax Commission to Decide
In a case pending before the Utah State Tax Commission, the taxpayer disputed the assessed value of its personal property, arguing that such property suffered from functional and economic obsolescence above that accounted for in the percent-good factors. Consequently, the taxpayer argued that its property was valued above fair market value.

In challenging the value, the tax-payer had an appraisal performed. The appraiser determined that the personal property would most likely be sold as a group of assets operating together, and thus valued the personal property as an operating unit. While the appraisal looked at every piece of personal property, the valuation reflected its aggregate value rather than values placed on each specific piece of personal property. Likewise, in applying obsolescence adjustments, the appraiser applied them to the whole, rather than to specific items of personal property.

The county which imposed the tax argued that such an appraisal was improper and deficient because it failed to appoint a value to each item of personal property separately, and as a result, the taxpayer did not meet its burden of proving that the personal property was over-assessed.

The county's argument appears to lack any precedent. The Utah Constitution and the Utah Code only require that property be valued at its fair market value operating at its highest and best use. The highest and best use value for the separate items of tangible personal property in this case was achieved when the properties were viewed as operating together as a unit. Furthermore, the Utah Constitution and Utah Code do not mandate itemized valuations.

In a 2011 case (T-Mobile USA Inc. vs. Utah State Tax Commission), the Utah Supreme Court stated that "the code simply provides that property shall be assessed by the Commission at 100 percent of fair market value. Requiring the Tax Court to use a specific valuation method ignores the reality that certain methodologies are not always accurate in every circumstance."

In the case pending before the Commission today, a ruling in favor of the taxing entity would drastically change the manner in which a taxpayer is to dispute the value of its personal property. Whereas now, there is no specific method that must be followed in order to determine the fair market value. If the Commission rules in favor of the taxing entity, taxpayers would be required to separately value each item of personal property listed on its personal property signed statement. Then tax-payers would have to add those values together to derive the value estimate for all of the personal property regardless of whether that summation is the fair market value at which the personal property would likely sell.

A ruling in favor of the taxpayer, however, maintains the status quo and further emphasizes that the standard for valuation in Utah is fair market value. So long as that is achieved, it does not matter which valuation method is used.

A decision from the Utah State Tax Commission is expected later this year.

dcrapo David J. Crapo is the managing partner at Crapo Smith PLLC, Utah Member of American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Jun
17

Three Questions Buyers Should Ask, About Utah Property Taxes

In Utah, only real and personal tangible properties are subject to property tax. Intangible property is exempt from Utah property tax. This includes such things as licenses, contracts, trade names custom software, trained workforce, copyrights and goodwill. If a property owner acquired any of these intangible properties along with the real estate, then there is an opportunity to reduce the property tax obligation for the real estate and other personal property. The key is to identify and separate the portion of the total purchase price that is associated with the intangible properties.

What is the standard of value for property tax?

Utah is a fair market value standard state. In simple terms, fair market value is the price a typical, willing buyer would pay a typical, willing seller for a property, with both parties being knowledgeable of all relevant facts. Accordingly, investment value or the price a specific buyer paid to acquire a property for a particular use may not indicate the fair market value. The price may need to be adjusted if the owner is trying to use it as evidence of the taxable property value.

What are the reporting requirements?

Generally, property owners will not have a reporting requirement for locally assessed land and buildings. Utah is a non-disclosure state, which means a buyer isn't required to disclose to the county assessor the price paid for real estate.
However, a buyer will likely receive a questionnaire from the assessor requesting voluntary disclosure of the purchase price, as well as access to the property to conduct an appraisal.

After reviewing the real estate, the assessor will issue an assessment that estimates what the property's fair market value was on Jan. 1. The county assessor is required to send notices indicating the property's fair market value and the associated tax by July 22. Appeals are due by Sept. 15, and taxes are due by Nov.

30. Utah does require reporting' of any business personal property. Each year, owners must submit a self-assessment of personal property tax liability, identifying 'the personal property, its cost and date of acquisition. Then the owner must apply a percent good factor to the property based upon the age and type of property in order to estimate the fair market value for the property. The tax commission is required to update and publish the percent good factors each year.

Apply the tax rate to the estimated fair market value to determine the amount of personal property tax due. Generally, signed personal property statements will be due to the county assessor by May 15. Appeals on personal property taxes are also due by May 15, or within 60 days after the mailing of a tax notice. While this brief discussion is certainly not a thorough review of Utah property taxes, it does cover the three basic things an investor should know when making a decision to acquire property in Utah.

dcrapo David J. Crapo is the managing partner at Crapo Smith PLLC, Utah Member of American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Nov
18

Are You Being Taxed for your Reputation?

"The taxing jurisdictions argued that "accounting goodwill is not intangible property but rather taxable tangible property..."

David J. Crapo Esq., as published by Commercial Property Executive Blog, November 2012

A recent Utah Supreme Court decision may influence taxes throughout the country by clarifying whether goodwill is a component of taxable real estate value. Most states exclude intangible property from taxation, so identifying intangible components of a business can significantly reduce property tax liability.

In T-Mobile vs.Utah State Tax Commission, the Court declared that accounting goodwill is intangible property and not subject to property tax. The Court defined goodwill as "a business' reputation, patronage, and other intangible assets that are considered when appraising the business."

The taxing jurisdictions argued that "accounting goodwill is not intangible property but rather taxable tangible property." They relied on a 2000 Utah Supreme Court decision in Beaver County vs. WilTel to argue that the synergistic value of a company's intangible property, working together with the tangible property, constituted enhanced value and was taxable because the enhancement value was directly attributable to tangible property.
As the taxing jurisdictions saw it, goodwill was enhancement value, and therefore taxable.

The Court disagreed with the counties and held that goodwill constitutes intangible property and is therefore not subject to taxation. The Court stated that goodwill includes such items as "customer base, customer service capabilities, presence in geographic markets or locations, nonunion status, strong labor relations, ongoing training programs, and ongoing recruitment programs." The Court then stated that these items "are associated with the business being conducted on the property; they are not directly attributable to tangible property."

By clarifying the accounting of goodwill, the Utah case provides a reference point and reminder for taxpayers nationwide. To ensure that property is not over-assessed and thus overtaxed, it is important to make sure the taxing jurisdictions have made all the proper adjustments to remove intangible property. And that entails the exclusion of business value attributable to goodwill.

dcrapo David J. Crapo is a partner in the Bountiful, Utah law firm of Crapo Smith, the Utah 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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