Evans Petree Shareholder Caren Nichol featured in article titled “Proposed property tax rule-change could be boon for some Tennessee businesses.”
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Proposed property tax rule-change could be boon for some Tennessee businesses
Mike Reicher, Nashville Tennessean
Some proposed changes to arcane state property tax rules could cost local governments millions and shift the payment for public services away from big businesses onto smaller companies and homeowners.
Advocates and local officials said this week they were worried the changes would encourage more companies to appeal their valuations, and increase their chances of winning.
County and city governments rely on property taxes to fund schools, sewers, roads, parks and other core services. If savvy companies with lawyers could win larger reductions on their property tax bills, then local officials may have to cut services or raise revenue. Homeowners and mom-and-pop businesses who don’t appeal could be stuck paying more.
On Tuesday the State Board of Equalization heard arguments from local assessors on one side, and a law firm that represents appealing property owners on the other.
“These changes will have an unintended consequence of transferring the burden to taxpayers that don’t appeal,” Will Denami, executive director of the Tennessee Association of Assessing Officers, told the board. “This has a wide-ranging effect on counties across the state.”T
Advocates for the rule changes say state law already requires counties to follow an appeals procedure meant to treat all properties equally, but not all counties do so.
“It’s really trying to get the law, as it stands, applied to all taxpayers,” said Caren Nichol, an attorney for Evans Petree, a Memphis law firm that files more appeals than any other in the state. “There are some counties doing it properly, others do not.”
The most contentious change would require county assessors to apply what’s called an “appraisal ratio” to all properties that appeal, as long as the owner can prove the current value. The state Division of Property Assessments calculates the ratio for each county by comparing the most recent reappraisal values to current sales prices.
It’s meant to “equalize” property values in a rising real estate market. Take Davidson County, for instance, where values have been climbing in a booming economy. The 2019 appraisal ratio is 0.85. That means property values, countywide, have risen on average 15% since 2017, the last reappraisal year.
Here’s how the rule change could play out. Let’s say a company’s office building was valued at $1 million in 2017, during the most recent mass reappraisal. Two years later, the company hires a private appraiser, who values it at $1.1 million. If the owner appeals and can prove the new 2019 value is accurate, the county board of equalization would have to automatically apply the ratio. That would leave the property at $935,000, indicating it was over-valued in 2017.
Theoretically, the adjustment brings the building in line with other properties. Practically, the result is a lower property tax bill.
Today, Davidson County only applies the ratio if an appellant requests it, said Vivian Wilhoite, the Metro assessor. Some county boards of equalization apply the ratio automatically at appeals, while some don’t apply it at all.
There are two other contentious rule changes — one concerning the rules of discovery, and the other dealing with providing property owners advance notice of changing valuations.
The Tennessee Association of Assessing Officials estimates that local governments in a sample of nine counties — not including Davidson or Shelby — could lose a total of $55.5 million in county and city tax revenue, as a result of the changes.
“You have some big, big properties with a lot of money attached to them,” said Brad Coleman, the association president and Williamson County property assessor. “The tax dollars lost in one of those appeals would be spread out to everyone else.”
The conflicts leading to the proposed rules appear to have started in June, when the Evans Pettree law firm requested the ratio be applied to all 1,600 properties it was appealing in Shelby County. The county refused, according to Jay Bailey, the chief administrative officer for the Shelby County Assessor of Property.
Also, the assessors office took a more aggressive approach to discovery this year, Bailey said, by demanding companies submit internal financial information and taking depositions of company officials.
That’s when the State Board of Equalization stepped in. Betsy Knotts, the board’s executive secretary, said she proposed the rule changes after learning that not all counties applied the ratio consistently.
“We’re not the state board of selective equalization,” she said after Tuesday’s meeting.
The state board is made up of the governor, his appointed representative, the state treasurer, the secretary of state, commissioner of revenue, the comptroller and two local government representatives appointed by the governor.
Some members of the board appeared skeptical of the local assessors’ arguments.
“Does this go to the fairness of the valuation, or to how much money you’re raising?” Comptroller Justin Wilson asked.
Lang Wiseman, the governor’s chief council and board representative, said “If it’s existing law and we’re aware that people aren’t applying it in the right way, don’t we have some duty to be sure people are applying it in the right way?”
But board member Betty Burchett, former assessor for Montgomery County, said she was concerned about the workload this would place on assessors, who would have to gather evidence to defend each appeal.
“It’s going to cause an increase in staff,” she said. “It’s just a lot of work, and a lot of boots on the ground.”
Burchett and the assessors association want the board to contact local officials to determine the potential fiscal impacts of these changes.
The board voted to postpone a final decision until its January 6 meeting.