Ohio Supreme Court Weighs in on Property Values and Real Estate Taxes

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The Ohio Supreme court has once again weighed in on the process of minimizing your company’s real estate taxes. The Court reemphasized the sales price as the best evidence in valuing commercial property for real estate tax purposes. This comes less than six months after the same Court recognized that the sales price does not conclusively determine property value.

The Ohio Supreme Court decided Huber Heights City Schools Board of Education v. Montgomery County Board of Revision, 2017-Ohio-8819 on December 6, 2017, and upheld the disputed property value base on the prior sales price of the commercial property. The Court’s decision dropped the valuation even below what the parties agreed to for the prior fiscal year, showing that the prior sales price is still the “best evidence” of property value.

The Huber Heights decision tells an interesting story about the process of determining property value for tax purposes. The 11.496 acre commercial retail property was purchased for $550,000 in June 2012. The county auditor originally valued the property at $1,661,130 for the 2012 tax year. The buyer challenged the valuation arguing it should have been valued at the $550,000 sales price. The parties reached an agreement to value the property at $850,000 for 2012. The very next year, however, the county auditor established a new property value of $2,199,700, more than two and a half times the agreed value from the prior year.

This is a good reminder that Ohio Law grants county auditors the power to assess “all the real estate in the auditor’s county for purposes of taxation.” Ohio Revised Code §5713.01. Therefore, even if you initially reach an agreement as to the value for a specific year, the county auditor has the power and authority to increase the assessed value the very next year. Property owners have the ability, however, to file an application for reduction of real property taxes. This is an important tool for reducing these fixed property tax costs.

Trying to avoid this significant increase in the fixed real estate tax costs, the property owner in Huber Heights filed a valuation complaint asking for a reduction to $850,000—the same value attributed to the parcel for tax year 2012. Despite asking for the $850,000 valuation, the property owner submitted the closing statements showing the June 2012 sale price of $550,000. The County Board of Revision, which hears valuation complaints, reduced the parcel’s value to $1,282,740.

On appeal, the Board of Tax Appeals (“BTA”) surprised both sides by reducing the property value to the $550,000 sales price. The Ohio Supreme Court recognized that the BTA has an independent statutory duty to determine the taxable value of a property, regardless of what the parties may agree to. The BTA considered the 2012 sales price as the best evidence for the 2013 tax year, and this was upheld by the Court.

The key terminology when requesting a reduction in property value is “a recent arm’s length sale.” In other words, when did the sale take place and was there any relationship between the parties that would affect the sales price? Another consideration is post-sale expenditures on improvements, which can be used as evidence for a higher valuation. In Huber Heights the property owner expended $200,000 in post-sale improvements. The BTA, however, found no evidence these improvements substantially changed the property, and the 2012 sales price was upheld.

The recent Terraza and Huber Heights decisions emphasize the importance of understanding the process of commercial property valuation by county auditors. Cost savings can often be found hidden in inflated commercial property values. If you recently acquired commercial property, it may be worthwhile to speak with a real estate professional and approach the county auditor regarding the true property value. The short-term costs of appealing the auditor’s property valuation may be significantly outweighed by the property tax savings in the long run.

Barnes & Thornburg LLP is a large, full-service law firm that seeks to take a more entrepreneurial and cost-effective approach both to client service and its own business.

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