IPTI | Update on U.S. & EU Property Tax Issues: March 2023

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together below a selection of articles from IPTI Xtracts; more articles can be found on its website (www.ipti.org).

United States

North Carolina: Post-COVID, revaluation shows malls are worth less in Mecklenburg

The assessed value of some of Mecklenburg County’s most high-profile shopping centers and malls declined or was mostly flat in the most recent property revaluation, while the value of most homes surged.

SouthPark is Charlotte’s most exclusive shopping mall, with high-end brands like Tiffany and Gucci. But SouthPark saw its assessed value drop from $323 million in 2019 to $274 million. While SouthPark is still considered a strong retail destination, Northlake Mall in north Charlotte has struggled. There have been three shootings there in a little more than three months. The Apple store recently closed abruptly.

Northlake also saw its property value decline, from nearly $150 million to nearly $134 million. Carolina Place – Mecklenburg’s other enclosed mall – also saw its property value decline. The valuations – released by the county on Friday – highlight the impact of online shopping and the pandemic has had on traditional brick-and-mortar retail.

And they show how homeowners will now have to pay for a greater share of the overall tax bill, for things like schools, police, and trash collection. Homes in Charlotte’s so-called “crescent” – an area of historically low-income residents near uptown – saw the largest percentage increases.

Overall property values increased by 51 percent over the last four years. The increase in commercial property – which includes retail and office – was less, at 42 percent. It’s possible that the assessed values of those shopping centers and malls may decline even more if the property owners appeal. After the 2019 assessment, there were numerous appeals, many of them successful. For instance, the county originally assessed Northlake Mall in 2019 at $220 million. The final assessment that year: just under $150 million.

Attorney Larry Shaheen, who handles property valuation appeals, said he expects the owners of retail centers to seek even lower assessments. He said he expects the owner of Northlake – California-based Starwood Capital Group – will appeal, based on the financial distress the mall has seen. Two years ago, Northlake’s owner failed to make debt payments on the mall.

“There’s no way anyone would pay ($134 million) for that mall today,” he said. Other shopping centers, like the Arboretum in south Charlotte, saw small increases. And Charlotte Premium Outlets in southwest Charlotte saw its value rise slightly, from $134 million to $139 million.

Here are the tax assessments of some other prominent Mecklenburg buildings:

• The Bank of America Corporate Center – Charlotte’s tallest and most iconic skyscraper – saw its value increase to $369 million from $353 million.
• The “jukebox” building in uptown – the previous home of Wachovia, and now Wells Fargo – has been assessed at $305 million. That’s up from $263 million in 2019.

Wells Fargo, however, has announced it’s leaving the building at the end of the year.

• Bank of America Stadium is at $270 million up from $215 million in 2019. Four years ago, the Carolina Panthers and the assessor’s office had a lengthy back-and-forth over how much the stadium is worth.

Meanwhile, the value of homes in once low-income neighborhoods near uptown has surged. Washington Heights is off of Beatties Ford Road, just north of the Brookshire Freeway. A look at a dozen homes on Booker Avenue shows their taxable value has increased 136 percent since 2019. If you compare their values to 2011, some homes have increased by 400 percent.

Ohio: Deadline to Take Advantage of New Property Tax Law is Quickly Approaching

Recent changes in Ohio’s real property tax laws enhance the ability for property owners and certain commercial/industrial tenants to challenge the valuation of their property. Real Property Tax Valuation Complaints to reduce 2022 property tax bills are due March 31, 2023.

A taxpayer who believes the county assessment is too high, or that the value of their property declined, may contest the valuation and reduce the taxes owed by establishing a lower valuation is warranted. This often includes retaining an appraiser to provide their opinion of the reduced valuation. However, there are other methods for supporting a lower valuation even without obtaining an appraisal, especially if the property was recently transferred, the property’s vacancy rate has increased, or there is significant personal property included in the valuation.   Each Ohio County reappraises or revalues property values every three years. In Northeast Ohio for 2022, Columbiana and Holmes County properties were reappraised, while Carrol and Medina County values were updated. Property owners in these counties should be especially aware of the increases in their property taxes.

Additionally, real property values are automatically adjusted in Ohio when property is sold or transferred. However, property values based upon recent transfers are often inflated when significant value for personal or intangible property was transferred as part of the sale.   Thanks to a recent change in Ohio law, certain commercial and industrial tenants that are responsible for real property taxes (for example, tenants under triple-net leases) are now able to contest the valuation of their leased property with the property owner’s authorization.

Commercial tenants, especially those impacted by a casualty or change in occupancy among subtenants, should not miss the opportunity to lower their property taxes and reduce overall operating expenses.   Further, effective July 21, 2022, Ohio House Bill 126 significantly limited local school boards’ ability to file a complaint to increase property values. Under the new law, a school district can now only challenge a property’s valuation if the property was sold in a recent arms-length transaction prior to the applicable tax lien date (i.e. January 1, 2022) and the sale price exceeds the county’s value by 10% and at least $500,000. There are also new administrative and notice procedures that a school district must follow prior to challenging a property’s value. Nonetheless, it is believed that not all school districts are voluntarily complying with these new requirements.

Michigan: Lawmaker wants different property tax assessment on big box stores

Dark store theory, a commonly used but disputed form of property tax valuation for big box retailers, is being taken on again by an Upper Peninsula lawmaker who has been a champion of the issue in the past.

State Sen. Ed McBroom, R-Waucedah Township, recently introduced legislation that would put into use an assessment standard called “highest and best use.”

The state’s current system allows big box stores like those of Walmart, Lowe’s and Meijer to appeal their property tax assessment, and the Michigan Tax Tribunal would then rule that a metric sometimes called “dark store theory” should be used in their case.

Dark store theory is the idea that vacant and dark stores are the yardstick by which an operational big box store should be measured when assessing property taxes, said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy in Washington, D.C.

Gardner said the dark store metric often saves retailers money because it reduces their property taxes, which in turn reduces revenue to the city, township or other local government where a store is located. “It blows a hole in municipal budgets,” Gardner said. “That hole can be filled in one of two ways. “The two possibilities are municipalities can reduce their budgets or they can fill the property tax hole by increasing property taxes on everybody else. The second is far more likely,” he said.

Gardner said local governments cannot lower expenditures easily because the taxes fund services like education and infrastructure in their communities. “They have to find a way to pay to put textbooks in the school, they have to find a way to fill potholes,” Gardner said. “There’s no free lunch here.”

The city of Houghton announced Feb. 23 that it would be taking up an appeal by the city’s Walmart store over its property taxes from 2018. City Manager Eric Waara told TV6 News that if the retail giant successfully appeals the assessment, the city would owe Walmart $1.2 million and lead to a reduction in future property taxes for the store.

Lansing Township also is facing a $1.75 million debt to Walmart and Sam’s Club after a ruling from the Tax Tribunal that told the local government to correct for past taxes. And officials in Big Rapids Township said their community might need to repay about $1 million in an adverse ruling by the Tax Tribunal.

The Michigan Municipal League, which advocates on behalf of cities and villages, describes dark store theory as a tax loophole. “The political appointees on the Tax Tribunal have upheld this ‘dark store theory’ and cut property tax assessments, in some cases by as much as 50%,” the league’s website says. “These rulings have resulted in a loss of millions of dollars in tax revenue for local governments across Michigan.”

The Michigan Townships Association communications director, Jenn Fiedler, said in an email that the property tax assessment process should receive another look in the Legislature.

“The valuation process for big box properties needs to be addressed,” Fiedler said, referring to Senate bills that would create a mechanism to change the process and allow local review. “More details are needed, and we welcome additional discussion on proposed solutions,” she said.

Andrea Bitley, the vice president of marketing and communications for the Michigan Retailers Association, said the reason big box retailers use dark store theory when appealing to the Tax Tribunal is because floor plans for a store are often made with the company’s branded layout in mind. “These buildings are designed with a specific retailer in mind,” Bitely said.

If a store closes, sometimes floor plans are easy to modify, but other times, it would be a large investment for another company to come in to change it for their own floor plan.

The proposed metric of highest and best use theory, Bitely said, could potentially advrsely impact some homeowners. “Think of a large farm home or expensive home in metro Detroit,” Bitely said. “Depending on how the property is classified, it could result in an increase in property tax.”

Gardner said he thinks highest and best use theory is a sensible method for assessing property taxes. “It leaves open the possibility that a company like Lowe’s can look at an assessment that was made based on highest and best use and say, ‘Ah, here is why that’s wrong,’ and appeal it,” Gardner said. “It doesn’t rule that out. It just means that up front, the local assessor, when they are assessing a property, needs to look at the highest and best use.”

McBroom’s proposal is pending in the Senate Finance, Insurance and Consumer Protection Committee, which is chaired by Sen. Mary Cavanagh, D-Redford Township.

Iowa: Amazon seeks $600,000 tax cut in Polk County property assessment appeal

Amazon has a $1 million tax bill due to Polk County at the end of March, but the company is fighting for a big reduction. The online shopping giant, which started operating warehouses in the Des Moines market at the end of 2020, has appealed the county assessment of the first and largest one, its Bondurant fulfillment center, at 500 32nd St. S.W. Amazon’s lawyers, who are scheduled to present their case before an appeal board April 17, say the building is worth $70.6 million less than the county’s appraisal.

If successful, Amazon would win the biggest property tax appeal in the county since at least 2008, a Des Moines Register analysis found. The reassessment would drop Amazon’s tax-year 2021 bill to $1.4 million from $2 million, taking money from city, county and school district coffers.

An Amazon spokesperson did not respond to an email seeking comment, and lawyers representing Polk County and Amazon declined to comment on the case.

The biggest successful appeal on record since 2008 involved 1331 Grand Ave. in downtown Des Moines, headquarters of Wellmark Blue Cross Blue Shield. Wellmark and the county settled a court case last October, agreeing to cut the 2021 valuation of its curved, glass-walled office to $99 million from $118.2 million.

The 2021 tax year bill is due in two parts, the first at the end of September 2022, and the second at the end of March 2023. Amazon already paid the first half of the bill ― about $1 million ― last fall. The company, which doesn’t own the warehouse but agreed to pay property taxes as part of its lease, will need to pay the second half of the bill in the coming weeks. But a victory in its appeal could lead to a refund of about $600,000.

Amazon already does not pay taxes on the full assessed value of the property. In November 2019, months before developers broke ground on the warehouse, the Bondurant City Council approved an incentive agreement that gave the company a tax break for six years.

The current tax bill covers the first year of operation, and Amazon’s liability is calculated based on just 20% of the building’s assessed value. Every year after that, the rate will increase by 10 percentage points.

A county assessor valued the total property in 2021 at $218.6 million ― $202.6 million for the building, and $16 million for the land. But because of the development agreement, Amazon pays property taxes as if the land and building were worth a total of about $56.5 million.

In its appeal, the company argues that the total property is worth $148 million ― $137 million for the building and $11 million for the land. Applying the development agreement, Amazon would pay taxes in 2021 as if the property were worth $38.4 million. The difference could cut receipts for local governments by five and six figures. The city of Bondurant would lose about $274,000. The school district would lose about $235,000. Polk County would lose about $83,000.

A cut to Amazon’s property assessment would take money out of Bondurant’s debt services coffers. The city is using that money to pay for the infrastructure it built for Amazon.

As part of its 2019 development agreement, the City Council agreed to fund the widening and extension of roads and the installation of features like stoplights around the warehouse. Bondurant incurred about $8.9 million in debt to cover the projects.

The city pays the debt specifically with the property tax revenue generated by the Amazon warehouse. City Administrator Marketa Oliver said Bondurant has paid about $570,000 of that debt so far, and the bond agreement calls for the local government to pay off the debt by 2034.

She added that, even with the development agreement and Amazon’s tax appeal, the local government is seeing a lot more money because of the warehouse. The land where developers built the warehouse generated about $11,400 in annual property tax revenue before construction, she said. “As a result of this project both the City and the School District have been able to drop their tax rates for the entire community,” she wrote in an email.

Bondurant-Farrar Schools Superintendent Rich Powers added that Amazon “pays a pretty dang sizable tax bill.” He said the company agreed to a minimum assessment in 2020 even though the building didn’t open until December of that year, generating about a $1.7 million property tax bill that year.

Still, he said, Amazon winning its appeal would be a blow. “We’re growing at a pretty good clip,” he said of the city. “the pain would be a little less. But when you take out $200,000 for something that happened (in 2021), that’s going to leave a mark.”

Builders finished Amazon’s fulfillment center in 2020. The next year’s tax bill is based on the assessed worth of the property on Jan. 1, 2021. While properties lose value with time, that shouldn’t be a factor in this case, veteran appraisers told the Register.

“It’s not going to depreciate much,” said Greg Stephens, owner of GE Stephens Compliance Consulting and Training in Dallas. “You might get equipment inside that’s getting a lot of usage. That might depreciate. But the building itself, the brick and mortar, it’s not going to depreciate at a very high rate.”

The warehouse’s former owner, Grant Street Project, sold the property to Zero Coupon Fulfillment Center in February 2022 for $326 million. That is more than $100 million above the county’s assessment of the property and about $180 million above Amazon’s proposed assessment.

But Stephens said that doesn’t matter in the appeal, which centers on the property’s value a year before the sale. “It would have to be set aside,” he said. “That’s information that did not exist as of the taxation date.”

Tim Anderson, CEO of the Appraiser’s Advocate in West Palm Beach, Florida, said Amazon will argue that assessors can’t place a dollar amount on the building based on market value ― the amount other warehouse companies have recently sold their buildings for.

Contractors build properties specifically for Amazon. Other companies might not be interested in buying or leasing the buildings because they don’t operate like Amazon does, Anderson said. Amazon can try to argue that the specifications of the building make it worth less.

In Amazon’s appeal, the company’s lawyers wrote that the warehouse’s second, third and fourth floors are worth less than the county assessed because the areas have “substandard” lighting and low ceilings. Marc Wulfraat, founder of supply chain consulting company MWPVL International and a close observer of Amazon, said the company typically relies on robots to pick up packages on those upper floors.

But Anderson said another company might not use robots and wouldn’t be interested in a warehouse with floor designs like Amazon’s. He said most warehouse operators want 18-foot ceilings. According to the Polk County Assessor’s Office, Amazon’s second floor is 13 feet high. Anderson, who consults on cases like this, said appraisers would need to search the country for the rare non-Amazon properties designed the same way.

“I wouldn’t touch that job for less than $150,000,” he said. “I wouldn’t even open up that file.”

Anderson said he doubts a third party will be able to evaluate the complex arguments with confidence. He said neither the county’s nor the company’s arguments are necessarily right or wrong. “What it’s going to come down to,” he said, “is who tells the best story.”

Pennsylvania: Court Rejects Property Tax Exemptions for 4 PA Non-Profit Hospitals

The Pennsylvania Commonwealth Court ruled against the four non-profit hospitals because they could not prove they were operating as purely public charities.

Several non-profit hospitals in Pennsylvania have failed to convince a court that they are purely public charities and, therefore, should qualify for property tax exemptions.

The Pennsylvania Commonwealth Court ruled that the hospitals — Pottstown Hospital, Phoenixville Hospital, Brandywine Hospital, and Jennersville Hospital — were not exempt from local property taxes, per the court cases obtained by RSM.

The hospitals were owned by Tower Health, LLC, which purchased the facilities to be run as non-profit hospitals in northeastern Pennsylvania. RSM reports that the hospitals were operated as limited liability companies, with Tower Health as the sole shareholder of each.

However, in the last year, Brandywine Hospital closed and Tower Health sold Jennersville Hospital to ChristianaCare. The hospitals paid “exorbitant” fees to Tower Health, ranging from $1 million to over $21 million, according to the court cases, including an appeal to a trial court. The funds covered management fees, central business office fees, and bond issue interest payment obligations.

However, the trial court found the fees went to purposes other than hospital support. Additionally, executives at Tower Health received bonuses based on the company’s financial performance, with at least 40 percent of executive bonuses being based on financial versus clinical or patient satisfaction metrics. The percentage was substantial enough to support the argument that the incentive structure drove profit-seeking behavior.

Finally, the trial court also ruled that interest payments on bonds for the purchase of other properties were improper and “[n]ot one penny from the bonds were [sic] applied to support and to increase the efficiency of and facilities of each hospital.”

Entities, including hospitals, must show that they operate as “purely public charity” institutions to qualify for an exemption. By law, that means the entity advances a charitable purpose, donates or provides gratuitously a substantial portion of its services, benefits a substantial and indefinite class of persons who are legitimate subjects of charity, relieves the government of some of its burden, and operates entirely free from private profit motive.

The court said the hospitals could not satisfy the latter criterion of a purely public charity institution—operating entirely free from private profit motive. Tower Health can appeal the decision. Leaders at RSM said that the cases in Pennsylvania “illustrate some of the challenges of obtaining and retaining state and local tax exemptions” and highlight steps [non-profits] can take to ensure they continue to qualify for those exemptions.”

Nearly all states have similar rules for tax exemptions for non-profit companies, although RSM leaders noted that Pennsylvania has “an incredibly complex and nuanced local real property tax regime, as well as public charity exemptions granted in the state constitution and limited by case law.”

Regardless, hospital leaders need to understand the scope of state laws dictating tax exemptions for non-profit entities, especially since they can vary from federal exempt organization provisions.

RSM leaders advised companies to assess their bonus structures, particularly if bonuses are tied to financial metrics, since that may raise questions about a company’s profit motives. Additionally, companies should have comprehensive record-keeping and auditing in place to mitigate threats to their organization’s exempt status.

Non-profit hospitals have been under the spotlight lately. Some experts have questioned whether community investments and charity care from non-profit health systems justify tax exemptions.  An 2021 report from the Lown Institute Hospitals Index also revealed that nearly three-quarters of private non-profit hospitals spent less on community health investments than they received in tax breaks in 2018.

However, the American Hospital Association maintains community benefits from non-profit hospitals exceed the federal revenue foregone due to tax exemption.

EUROPE

Czech Republic: Property Tax May Double, Says Finance Minister

Property taxes in the Czech Republic may rise by up to 100%, bringing extra revenue to the state budget of between CZK 6 to 8 billion, Finance Minister Zbynek Stanjura (ODS) told Czech daily Hospodarske noviny.

The property tax in the Czech Republic is one of the lowest in Europe, and currently goes to municipalities, but the state covers the administration costs of this tax of about CZK 1.2 billion a year. In 2022, the tax raised CZK 12.42 billion in total.

Stanjura said this was one of the measures proposed to improve the state budget. He said around 65 such measures have been proposed, but he does not expect all of them to be approved.

The government wants to lower the structural deficit of the state budget by at least 1% of GDP, or by about CZK 70 billion, in its consolidation package next year, said Stanjura.

He said changes to value added tax and the excise tax have been discussed, and agreement has been more or less reached on lowering or cancelling state support for home-building savings.

Last year, the Czech state budget had a deficit of CZK 360.4 billion, the highest ever except for 2021 and 2020. This year, the deficit is projected to be CZK 295 billion.

Stanjura told Hospodarske noviny that the Finance Ministry had developed the measures based on proposals from the government’s National Economic Council (NERV) and other ministries. “We will be negotiating in a smaller group now, and at the end of March it will get to the leaderships of political parties,” he said.

Stanjura said last month that two-thirds of the budget savings of CZK 70 billion would come from expenditures and one-third would concern incomes.

Stanjura rejected the idea of introducing tax progression to the property tax, which would mean that the owners would pay lower tax for their first property and more for other properties they own. He said this would make the tax system too complicated.

As for the value-added tax, which is currently paid at a standard level of 21% with two reduced levels of 10 and 15%, Stanjura said he would prefer to have two levels instead of three, in order to simplify the tax system.

Stanjura also said the government was considering whether the minimum social insurance for the self-employed should be higher.

France: Why French mairies are turning to private firms to recoup property tax

More mairies are hiring private firms to help identify properties where tax declarations have not been submitted correctly. Even small towns can in some cases recoup up to €800,000 extra per year, allowing them to fund new facilities.

Issues relate to changes to properties that can affect the theoretical rental value (valeur locative cadastrale) that tax offices use to work out local property tax bills, especially taxe d’habitation on second homes or taxe foncière the property owners’ tax.

Another issue can be second homes wrongly declared as ‘vacant’, where correct taxation of the two can differ. For example, in some areas there is no taxe d’habitation on vacant properties and in some there is a right to levy a taxe d’habitation surcharge on second homes.

Examples of problems include where a swimming pool that has not been declared to the tax office has added value to a property which will then not be properly reflected in local tax bills.

Other examples could include undeclared extensions or major renovations that would put the home into a more luxurious category, or even installation of basic utilities such as water and heating into rural homes that did not have them originally.

Main home, second home or vacant

Such works, or the use of a home as main home, second home or vacant (unfurnished and unused) should be notified to the tax office so this can be taken into account.

The biens immobiliers declaration now required of all homeowners should partly help, but will not pick up on everything.

In theory tax officials already try to check for fraud and omissions in this area, including, recently, a partnership with Google to analyse data such as swimming pools from aerial images.

However, faced with loss of income from taxe d’habitation on main homes, hundreds of mairies are now paying consultants to search for anomalies.

The Connexion contacted two councils reported to be among those using the services – Santa-Maria-di-Lota in Haute-Corse and Longuyon in Meurthe-et-Moselle – but no one was available to talk to us.

A fiscal expert from the Association des maires du Tarn said: “It is difficult for councillors to discuss because it is not very politically popular, especially in rural communes where everyone knows each other.

“But it helps to update files that are badly filled in and with incorrect identifications.

It is work the tax authorities should in theory be doing but mairies are taking advantage of the chance to use private firms to identify anomalies and incorrect declarations.”

It is rare that it would lead to fines or extra payment for past years, she added.

It is usually just a chance to make sure records are up to date and the correct tax is being paid. The difference in local tax to be paid is rarely enormous, she said.

The situation may be different, however, if major works have not been declared at all, rather than being incorrectly declared.

Some firms ask for a percentage of the extra tax money that is recovered in the first year, but Finindev, one firm that has worked for around 300 communes, charges a flat fee of around €10-20,000 for providing software and undertaking an investigation lasting several weeks or more, depending on the time they will have to spend on the job.

This is usually one-off but can be renewed if councils request this. Finindev commercial engineer Jérémy Carré said their software can cross-check data relating to different taxes, as well as data from the cadastre land records used for tax purposes. In other cases issues are spotted by their investigators.

Maps and aerial photos are among the tools used. “For some communes, if they have not done this before, it can be very financially beneficial for them, especially in these times when their tax incomes are relatively limited,” he said.

“Some will gain a lot, others less so. We’ve had communes of 40,000 inhabitants that were able to recover €500-800,000 a year.”

Whether anything is recovered or not depends on whether the tax office makes use of the data, he added.

Mr Carré said tax offices are often using tools that are “archaic” and so are not able to spot issues as effectively, and they may lack sufficient staff for this work.

Their initiative to work with Google to use aerial images was good, he said, but was something Finindev has already been doing for 10 years, and this (tax office) system “only works with swimming pools”.

He added: “I don’t think the councils have much choice but to use such services because their tax incomes are being cut or lowered.

“Now, with inflation and energy prices exploding, they are going to have to find more sources of income to fund their budgets.

That either means raising taxes generally or doing these checks.

Ireland: New state agency for Property and Land

A new state agency – Tailte Éireann – has been officially launched as a result of the merger of the Property Registration Authority, the Valuation Office, and Ordnance Survey Ireland.

Functions currently carried out by the Property Registration Authority, the Commissioner of Valuation, the Boundary Surveyor, and Ordnance Survey Ireland, will now be performed by Tailte Éireann.

A statement reads: “Tailte Éireann will provide a comprehensive and secure property title registration system, a professional State valuation service and an authoritative national mapping and surveying infrastructure. As an integrated land and property service, Tailte Eireann will help to support the planning process and professionals; one central body for information and data to assist planning and land information.

“Tailte Éireann is headed by a Chief Executive and has a statutory board appointed by the Minister for Housing, Local Government and Heritage.

A key objective of Tailte Éireann is to maximise the benefits of integrated land and property services in Ireland and to facilitate access to and use of location and property information by citizens, businesses and policy makers, including title information, valuation data, maps and aerial imagery.

“The new organisation is staffed by civil servants, and employs approximately 900 full-time equivalents, comprising professional, technical and administrative staff members.”

Speaking at the launch event, the Minister of State with responsibility for Local Government and Planning, Kieran O’Donnell said: “The new agency is the primary national source of property information and geospatial data and will be a leader in developing and delivering land information services. These functions are essential for underpinning the state’s economy in many areas, including property, planning, agriculture, local government, the environment, and construction.”

Liz Pope, Interim Chief Executive of Tailte Éireann, said: “We look forward to working collaboratively with all our stakeholders in developing integrated land and property services in Ireland.”

Italy: EU orders Italy to recover unpaid property taxes by the Catholic Church

The European Commission has ordered the Italian government to recover from the Catholic Church tax arrears on its vast property portfolio, in a move potentially worth hundreds of millions of euros.

The request, which results from a longstanding controversy between Brussels and Rome, could trigger friction between the Vatican and Italy’s new rightist government.

The church properties, which include private clinics, hotels, bed and breakfast accommodation and guest houses, for many years enjoyed tax-exempt status as long as part of it was occupied by priests or nuns or had a chapel or prayer room – creating an easy tax loophole.

A Treasury document dating from 2011 had estimated a loss of revenue from that arrangement worth around 100 million euros ($106 million) per year.

After a European Commission probe, Italy in 2012 limited the tax exemption to “exclusively non-commercial” structures owned by the Church and other non-profit institutions.

That same year, Brussels ruled that Italy’s tax exemptions for non-commercial entities engaged in social activities between 2006 and 2011 were in breach of EU State aid rules.

Italy would have normally been asked to recover the illegal aid, but the Commission accepted Rome’s argument that its outdated land registry record made it practically impossible.

The EU Court of Justice partly annulled that decision in 2018, forcing the EU executive to issue Friday’s order to go after the money.

The Commission said Italy could do it using data from current real estate tax returns, and complement it with other instruments, including self-declarations.

“The recovery is not required when aid is granted for non-economic activities” or when it constitutes a small aid, the EU executive said in a statement.

Prime Minister Giorgia Meloni, who had a “cordial” meeting with Pope Francis in January, is a staunch conservative and defender of Christian values.

Authors:

• Paul Sanderson, President | psanderson[at]ipti.org
• Jerry Grad, Chief Executive Officer | jgrad[at]ipti.org

Compliments of the International Property Tax Institute (IPTI) – a member of the EACCNY.