Cherry Picking: Actions by Taxing Authorities to Increase Assessments on Unsuspecting Taxpayers Bruce J. Stavitsky Attorney Stavitsky & Associates, LLC Fairfield, NJ bruce@proptaxappeal.net Mark T. Kenney MAI, SRPA, MRICS, MBA, President American Valuation Group, Inc. Lansdale, PA mkenney@ameri-val.com Gregg Manzione MAI, Director of Real Property Appraisal Nationwide Consulting Co. Glen Rock, NJ gm@nccpes.com 2016 IPT Annual Conference
Reverse Appeal Defenses Sale Leaseback Section 1031 Exchange Bulk Sale Portfolio Sale Leased Fee vs. Fee Simple Non-Arm s Length Bundled business value Included FF&E, M&E Base Year Value Uniformity vs. Rough Uniformity Discrimination Equal Protection Rational Basis Standing Spot Assessment Going Concern value 2016 IPT Annual Conference 2
Reverse Appeal Pleadings (PA) 2016 IPT Annual Conference 3
Standing to Reverse Appeal (PA) 53 PA CSA Section 8855 A taxing district shall have the right to appeal any assessment within its jurisdiction in the same manner, subject to the same procedure and with like effect as if the appeal were taken by a taxable person with respect to the assessment, and, in addition may take an appeal from any decision of the board or court of common pleas as though it had been a party to the proceedings before the board or court even though it was not a party in fact. A taxing district may intervene in any appeal by a taxable person... as a matter of right. 2016 IPT Annual Conference 4
Reverse Appeal Pleadings (NJ) 2016 IPT Annual Conference 5
Standing to Reverse Appeal (NJ) NJSA 54:3-21a. (1)... A taxing district which may feel discriminated against by the assessed valuation of property in the taxing district may appeal 2016 IPT Annual Conference 6
Weissenberger v. Chester County Board of Assessment (PA) School District targeted under-assessed apartment complex Court agreed there was a rational basis for the appeal although this was the only apartment complex targeted because it was not marginally under-assessed The Court said Judicious use of resources to legally increase revenue is a legitimate governmental purpose. 2016 IPT Annual Conference 7
Weissenberger (continued) Taxpayer s equal protection and discrimination argument failed Unable to prove any other property in the jurisdiction was under-assessed Taxpayer didn t dispute that its own property was underassessed Taxpayer didn t challenge value assigned to it by school district appraiser 2016 IPT Annual Conference 8
Reverse Appeal Rationale All district citizens benefit when property owners pay their fair share Tax rate increases softened Many years between reassessments and revaluations Large commercial taxpayers have legal and financial resources to successfully reduce tax assessments 2016 IPT Annual Conference 9
Rationale (continued) With less money coming in, need to be aggressive Third party consultants cost school districts no money (Keystone Realty Advisors) A way to level the playing field Balance short term financial benefits to School District vs. long term negative consequences putting businesses in a non-competitive position 2016 IPT Annual Conference 10
Rationale (continued) Protect, preserve and grow school budgets School Districts have the highest millage rates and most financial incentive Case Example: Mohegan Sun Casino paid Wilkes- Barre School District a $21 million settlement Counties may not spot assess. Permissible for School Districts and Municipalities to challenge assessed values 2016 IPT Annual Conference 11
In re Springfield School District (PA 2014) Car dealership assessed for $5 million full value Acquired for $11 million in 2011 County s base year value date was January 1, 1998 Taxpayer s argument value using base year market values, not current year market values. A real retrospective appraisal, a 13 year look back 2016 IPT Annual Conference 12
Post & Coach v. Freehold (NJ Tax 2003) Municipal Tax Appeal filed seeking tax assessed value increases on property that sold Continual history of tax appeals made this property a de facto annual subject of evaluation by the jurisdiction Ratio of assessed value to sale price vs. average ratio in jurisdiction; conclusion was underassessment 2016 IPT Annual Conference 13
Post & Coach (continued) Decision to appeal based in part on sale of property. Was this a spot assessment? Is selection of property for appeal the equivalent of assessment and taxation? 2016 IPT Annual Conference 14
Fields v. Princeton University (NJ Tax 2015) Residents challenged University s property tax exemption on 21 tax parcels Who has burden of proof? Taxpayers who challenged or the University and the Town which claim the exemption? Does presumption of validity of a tax assessment extend to exemptions? 2016 IPT Annual Conference 15
Taxpayer Like a good journalist news story, we re going to discuss the Cherry picking tax appeals Who is doing it What is being done Where is it being done How is it being done Why is it being done And finally. The Whine of the entire process 2016 IPT Annual Conference 16
Taxpayer The Whine of the entire process 2016 IPT Annual Conference 17
Taxpayer The Whine of the entire process 2016 IPT Annual Conference 18
Case 1 Taxpayer Old Value $3,500,000 New Value City did not provide My appraised value $3,500,000 Who Outside Attorney- working for City What 2015 County Board Appeal Where Elizabeth How?? Why Sold in 2008 $4,725,000 2016 IPT Annual Conference 19
Taxpayer Taxpayer action--- Had to hired a attorney Had to hired an appraiser me 2016 IPT Annual Conference 20
Taxpayer 10/1/2014 INCOME Based on rent roll- in line with market rents $485,092 Vacant Space-10,350 sf @$20/SF $207,000 Potential Gross Income $692,092 Vacancy & Collection -20% $138,418 Effective Gross Income $553,674 Total Operating Expenses $167,208 NET OPERATING INCOME $386,466 Cap Rate-base rate plus eff. Tax rate 11.06% FINAL VALUE (ROUNDED) $3,495,000 Results--- sale was not arms length, market rents- 2016 IPT Annual Conference 21
Case 2 Old Value New Value My appraised value Taxpayer $20 million $28 million Not Needed Who What Where Why County-School District 2012 Assessment Period Ohio- greater Cincinnati area Sold for $28 million 2016 IPT Annual Conference 22
Taxpayer 500,000 SF distribution warehouse Leased And sold But.not an arms length sale Settled at $20 million Next assessment period- reduced to $15 million That one wasn t between a rock and a hard place 2016 IPT Annual Conference 23
Case 3 Where Why Taxpayer Lehigh Valley, PA Believed to be under assessed Who Issues 1. 50,000 SF warehouse who else same as the others 2. County increased value- went to county board 3. County did not do an appraisal survey of comps 4. Board denied increase 5. Appeal to Court 6. Between a rock and hard place issues Client would be happy with an increase now 2016 IPT Annual Conference 24
Case 4 Where Why New Jersey Taxpayer Annual re-assessment Who Issues Assessor 1. Tax Year 2010 and 2011. Assessment-$6 million then $13 million 2. Appeal to Court- both sides 3. Issues are vague Cost Approach only method 4. Cost New, Depreciation-- ROW- main issue 2016 IPT Annual Conference 25
Case 4 Conclusion settled TY 2010 TY 2011 Taxpayer $7 million $10 million 2016 IPT Annual Conference 26
Reasons for Reverse Appeals In some states (like PA), infrequent revals Property sales at prices above county values Mortgages recorded or publicly reported Consulting firms marketing to tax authorities Inequitable assessments Apartments and retail have been targets 2016 IPT Annual Conference 27
Impact of Reverse Appeals Evidence for use in appeals Additional support for appraisals If successful, additional tax revenue More equitable assessments Constitutional or Spot Assessing? Solution More frequent revals or countywide review by property classes 2016 IPT Annual Conference 28
Appraiser s Role Before appeal Review evidence & consulting Sale or mortgage of the subject reflect MV After appeal Assessment analysis to settle Appraisal for litigation based on flat fee Settlement negotiations with appraisals Testimony deposition, board hearing, court 2016 IPT Annual Conference 29
Major Court Cases Eden Prairie Center MN Tax Court & Sup. Ct. The Maine Mall ME Board of Prop Tax Review Bonstores Realty WI Court of Appeals (2013) Target Corp. v. City of Racine WI (2015) Hy-Vee, Inc. v. Dallas County IA Court of Appeals (2014) Three more Hy-Vees going to trial this year 2016 IPT Annual Conference 30
Appraiser Testimony Starts with documented & supported appraisal Know your report Answer professionally Teach the court (no Tax Court in PA) Include the State s tax statutes & case law Understand applicable assessing concepts 2016 IPT Annual Conference 31
Taxpayer Appraisals Cost Approach excluded (then no land value) Not including actual costs for new building Income Approach excluded None or wrong equity dividend rate support No income consistent with dark store theory In Sales Approach, no quantitative adjustments 2016 IPT Annual Conference 32
Cherry Picking Source: Philadelphia Business Journal 2016 IPT Annual Conference 33
Two Sides to Every Story Source: Philadelphia Business Journal 2016 IPT Annual Conference 34
Recent News Headlines Source: delcotimes.com Source: Lehigh valleylive.com 2016 IPT Annual Conference 35
King of Prussia Mall in PA 2016 IPT Annual Conference 36
King of Prussia Mall 2016 IPT Annual Conference 37
King of Prussia Expansion 2016 IPT Annual Conference 38
King of Prussia Construction 2016 IPT Annual Conference 39
King of Prussia Tax Map 2016 IPT Annual Conference 40
Subject Property Sale Source: CoStar Group 2016 IPT Annual Conference 41
King of Prussia Mall County Implied MV - $500 Million Sale publicly announced at $1.25 Bil. in 2011 School District Reverse Appeal in 2013 In discovery process; no appraisals yet Leased Fee state, except for ground leases (must add rent for building Tech One case) 2016 IPT Annual Conference 42
The Marketplace at H.V. 2016 IPT Annual Conference 43
The Marketplace Site Plan 2016 IPT Annual Conference 44
The Marketplace 2016 IPT Annual Conference 45
The Marketplace Appeal County Implied MV - $35.5 Million @ 56% Mortgage recorded of $40 Mil. in 2013 Bank appraisal at $51 Mil. in 2013 School District Reverse Appeal in 2015 In discovery process; no appraisals yet 2016 IPT Annual Conference 46
Southmont S.C. 2016 IPT Annual Conference 47
Southmont Aerial 2016 IPT Annual Conference 48
Southmont Tax Map 2016 IPT Annual Conference 49
Southmont S.C. Appeal 14 Condo tax parcels (dark store theory apply?) County Implied MV - $22.5 Million @ 37.5% Sale recorded of $47 Mil. in 2004 School District Reverse Appeal in 2013 Some discovery received; no appraisals yet 2016 IPT Annual Conference 50
Subject Sale in 2015 Source: www.mcall.com 2016 IPT Annual Conference 51
Speaking of Big Boxes Steak n Shake, Inc. v. Warren County Board of Revision, et al, Supreme Court of Ohio, 2015- Ohio-4836, 11-25-2015 (not special purpose, so 2 nd gen comps apply) Rite Aid of Ohio, Inc. v. Washington County Bd., Supreme Court, 2016-Ohio-371, 2-4-2016 (not special purpose, so 2 nd gen comps apply) Lowe s Home Centers, Inc. v. Washington Cty Bd., Supreme Court, 2016-Ohio-372, 2-4-2016 (first gen comps accepted, but remanded to determine if special-purpose status applies) 2016 IPT Annual Conference 52
Cherry Picking Thank you for your attention Thank you to IPT 2016 IPT Annual Conference 53