Attorney John P. Slagter presents the following overview of recent changes to Ohio's property valuation rules:
The Ohio Legislature recently adopted House Bill 487 (?HB 487), which changed the property valuation rules for county auditors.? HB 487 became effective on September 10, 2012.? The new law does two things:?
(1)? clarifies the property interests to be valued, and
(2)? provides flexibility to the county auditor in determining the value of property that is the subject of a recent arm?s length sale to consider factors other than just the sale price.?
??????????? Ohio Revised Code (?R.C.?) ?5713.03 provides that the county auditor is charged with the responsibility of determining the taxable value of each separate tract, lot or parcel of real property, building or structure.? Every three years, each county in the State of Ohio goes through a valuation analysis of property located within the county as required by R.C. ?5713.01.? The valuations are characterized as either a reappraisal year or an update year.? A reappraisal year requires a physical review of all properties within the county.? Those physical reviews occur every six years and are often referred to as a ?sexennial reappraisal?.? In the interim period, between the six year reappraisal, the auditor will conduct an update, which is often referred to as a ?triennial update?.? The update is typically done by reviewing the overall percentage changes in certain areas of the county and making an overall percentage adjustment for such areas as opposed to an individual adjustment for each parcel.?
??????????? The new law gives discretion to the auditor to determine the taxable value of property based on factors other than a recent sale of the property at issue.? This change in discretion occurred by changing the statutory language from ?shall? to ?may?.? Specifically, HB 487 changes R.C. ?5713.03 to read, in pertinent part that,?? ?in determining the true value of any tract, lot or parcel of real estate under this section, if such tract, lot or parcel has been the subject of an arms? length sale between a willing seller and a willing buyer within a reasonable length of time, either before or after the tax lien date, the auditor shall may consider the sale price of such tract, lot or parcel to be the true value for tax purposes.?? This simple one word change in statute will make a considerable change in the discretion of the county auditor.? The impact of this change is tied to an Ohio Supreme Court case known as Berea City School Dist. Ed. of Bdn. v. Cuyahoga Cty. Bd. of Revision (2005) 106 Ohio St. 3d 269.? In the Berea case, the Supreme Court held that, when a property has been the subject to a recent arms? length sale between a willing buyer and seller, the sale price shall be the true value for tax purposes.? The Court responded that, since ?5713.03 contained the word ?shall?, it was mandatory for the County auditor to use the sale price when determining value.? Therefore, the recent change from the word ?shall? to the word ?may?, eliminated this mandatory obligation on county auditors and provided additional flexibility.
What does this mean for you?
??????????? Although R.C. ?5713.03 deals with the county auditor?s authority for setting value, it is likely that the Board of Revision and Ohio Court?s will use a similar methodology when determining value. Previous case law restricted the use of other evidence, including that of appraisers, in determining valuation when there was a recent sale.? The change to R.C. ?5713.03 , allows the Board of Revisions and the Ohio Courts the flexibility to consider factors other than the sales price will be most applicable in the case of unique sale terms, such as a lease sale back.? In a lease sale back transaction, the owner of property transfers property to a new owner and then leases the property back.? Many times this was done for accounting and other business purposes, but oftentimes issues were raised about whether or not such transactions reflected the true value of the property or the fair market value of the property.? It is often claimed that the lease may have inflated or deflated the conveyance value.?
??????????? In Cuyahoga County, Lake County, Lorain County and Stark County, the reappraisal year is 2012, which will be reflected in the tax bill you receive in 2013.? Your rights to challenge such value must then be filed by March 31, 2013. ?Likewise, if your property was recently subject to an arm?s length sale, the auditor is no longer required to solely use the sale price and has discretion to use other information such as appraisal information.? As such, you may need to consider obtaining an appraiser or securing other evidence to justify and support the value of the property beyond what the sale price reflects.?
For more information, contact Attorney Slagter.
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