Member News

IPTI News, May 2017: Update on Property Tax Issues in the U.S.

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep members up to date with the latest developments in property taxes both in the USA and Europe.

New York City and State –

POPULAR TAX INCENTIVE RETURNS (BUT PERHAPS IN NAME ONLY):

The 421-a program was established in 1971 as a property tax incentive intended to spur residential development in New York City.  Its proponents viewed it as a means to generate affordable apartments and thereby curb flight to the suburbs.  Over time, its detractors saw it as a boondoggle enabling developers to generate luxury housing and still obtain the tax benefits intending for affordable housing. 

At the end of 2015, the 421-a program expired, and there since has ensued much wrangling among the NY State legislature, the NY State governor, the NY City mayor, real estate industry groups, construction labor unions, and affordable housing advocates, over what a 421-a replacement program should require as to affordability, construction industry wage levels, other requirements of obtaining tax exemption, and what constitutes a realistic incentive to build.

Finally, after over a year of suspense, rumour, public debate, and deadlock, a new program has been enacted, dubbed the “Affordable New York Housing Program”. 

The new program requires, among other things:

Affordability (for all rental projects) for at least 25% of the units (prior program only required 20%)

The affordable units must be created onsite (prior program allowed offsite affordable housing credits to be created and traded in some cases to avoid having to build affordable units within the subject property)

Prevailing wage requirements in most instances

Long-term restrictions (up to 40 years) maintaining affordability of the apartments

TAXATION OF FIBER OPTIC CABLE:

We previously reported on various challengers to the ability of taxing authorities within the State of New York to treat fiber optic cable as taxable real property. 

Another court decision has now been issued from the NYS Appellate Division (the state’s second highest court), out of its 4th Department, which covers the westerly portion of the state. 

In the matter of Level 3 Communications v. Chautauqua County et al, the appellate court agreed with the fiber optic company that its fiber optic cables were not taxable as real property, because they transmit light, rather than distribute it, as is required for taxability under the property tax law. 

The court went on to rule, however, that because the company did not pay its taxes under protest, its applications for tax refunds must be denied. 

The general position of the law in New York State is that taxes must be successfully protested in order for refunds to ensue, and that except for certain error corrections or exemptions forming the basis for obtaining one’s money back (as opposed to a case that results in a judgment or settlement or over-valuation), merely applying for a refund is not sufficient. 

Apparently, the court did not deem the case before it—framed as a request for a judicial declaration that Level 3’s fiber optic was not taxable—to be the equivalent to a protest of those taxes. 

Around the U.S.-

PHILADELPHIA, PENNSYLVANIA:

This major U.S. East Coast City—which translates from Latin to English as “The City of Brotherly Love” —may not seem very loving anymore from the standpoint of commercial property owners.

The City has just completed a re-assessment of its 60,000 commercial

properties, resulting in a 50% assessed value increase, from USD $30.2 billion to $45.3 billion.  City officials appear to be bracing for potential revenue shortfalls stemming from possible Federal funding cuts, although they also reportedly engaged in the re-assessment in order to smooth out inequities among properties and to bring previously under-assessed properties more in line with the market.

It will be interesting to see if the market—meaning the affected commercial properties and their corresponding revenue streams (particularly those of hotels, a major sector of the affected properties)—is indeed capable of supporting these new tax burdens without actually experiencing a decrease in values as a result of those burdens.

WASHINGTON STATE:

Lifting the Lid:  The Washington State House Finance Committee panel recently approved a bill that would enable local governments to raise property taxes in excess of the 1% cap enacted in 2001 without seeking consent from the voters.

The revenue increase permitted under the new bill could now be up to 5%.  Some would argue the 1% allowable increase was quite tight when it was first enacted, others would argue that lifting the original cap breaks faith with the voting and taxpaying public.  To become law, the change must pass both the state’s House of Representatives and the Senate.

ILLINOIS:

Hospital Exemptions:  we have previously written on the challenges to the longstanding exemption from property taxes received by a great number of hospitals around the country. 

Recently, the Illinois State Supreme Court, in the matter of Carle Foundation v. Cunningham Township, hearing an appeal from a lower court decision finding that the state law exempting not-for-profit hospitals from paying property taxes was unconstitutional, sent the case back to the lower court for further proceedings. 

Clearly, neither local governments nor not-for-profit hospitals and similar property owners are going to go down without a fight.  The concept of exemption for not-for-profits in this country is so entrenched and at the same time so politically and socially fraught, that one should expect these disputes and debates to remain part of the tax landscape for quite some time. 

OHIO:

Allegations of Bias in Tax Appeal Testimony:  In the matter of Johnston Coca-Cola Bottling Co., Inc. v. Hamilton County Bd. Of Revision, the Ohio State Supreme Court recently decided that the government’s appraisal of a Coca-Cola plant for property tax purposes in the City of Cincinnati will stand.

The court examined the method of valuation employed by the government appraiser and found it to be credible and persuasive.

Moreover, the court found no evidence to support the claim that the government’s appraiser was biased simply because he was a government employee.  The court ventured that the exact same allegation might be levelled at the property owner’s appraiser, and that without specific evidence showing the government appraiser to be incapable of discharging his professional duties as a third party, the proposition of bias was to be rejected.

 

Compliments of IPTI