01.24.2011 New VA Law May Help Level the Field on Real Property Tax Appeals
BY: EDWARD J. DILLON
Owners of real property in Virginia should take advantage of a recent change in the law when they receive their 2011 real property tax assessments. Localities now are required to allow property owners to review the methodology employed and the information considered in determining a property’s assessed value.
The General Assembly revised Virginia Code Section § 58.1-3331 last year to include the following provision:
Upon request of any taxpayer or his duly authorized representative, the assessing officer of the governing body shall make available information regarding the methodology employed in the calculation of a property’s assessed value to include the capitalization rate used to determine the property’s value, a list of comparable properties or sales figures considered in valuation, and any other market surveys, formulas, matrices, or other factors considered in determining the value of the property. . . .
See Va. Code § 58.1-3331(C)(emphasis added).
The new law may help level the playing field on real property tax appeals, where the assessment is deemed presumptively correct and the property owner bears the burden of proving the assessment erroneous. That burden is all the more onerous given that localities often allow property owners only a few short weeks or months to file an appeal with the assessor or a board of equalization challenging the assessment.1 Historically, lacking a clear right to review the locality’s methodology and with the clock ticking on their appeal rights, property owners could be hard-pressed to understand how the locality arrived at its assessment, let alone articulate a basis for appeal.
Expanding the Property Owner’s Rights
Property owners have long had the right to examine the property appraisal cards and “working papers” related to assessments. See Va. Code § 58.1-3331(B). Moreover, property appraisal cards are required to contain the “calculations and methodology used in determining the assessed value.” See Va. Code § 58.1-3332. Those statutory provisions, however, left unclear what, if any, information beyond the actual calculation had to be maintained and made available to property owners for review.
The revised statute goes much further. The locality must disclose all “factors considered in determining the value of the property.” See Va. Code § 58.1-3331(C). The upshot is that a locality must disclose more than just the calculation or methodology. In fact, providing the information “used” in determining the assessed value is insufficient. The locality must share all of the data and information that it “considered.”
That distinction between the information “used” and the information “considered” is subtle, but important. The Supreme Court of Virginia has stated:
In determining the fair market value of real estate, taxing authorities commonly use one or more of three valuation approaches: the cost approach, income approach, and sales approach. . . . Ideally, an appraisal should, if possible, derive its final determination of a property’s value using all three approaches in order to maximize the likelihood that the valuation accurately reflects the property’s fair market value.
See Keswick Club, LP v. County of Albemarle, 273 Va. 128, 137-141 (2007). That precedent, when read in conjunction with the requirement that localities disclose the “factors considered in determining the value of the property,” means that localities should provide property owners with all information considered in regard to each of the three methodologies, even if the assessor did not ultimately “use” a particular methodology in arriving at its opinion of fair market value.
The failure to provide information relating to a particular methodology could be telling. If a locality uses only one of the three appraisal methodologies to determine fair market value, the resulting assessment is not necessarily entitled to a presumption of correctness. Keswick Club, LP, 273 Va. 128 at 137-141.2 As a result, the taxpayer’s burden of proof could be eased in any resulting litigation.
Implications of the Revised Statute
The new law should have a sunshine effect on real property tax assessments. Property owners now a have statutory right to review all of the information considered in determining fair market value. Moreover, lest there be any confusion, the revised statute put some meat on the bones with respect to the specific types of information that must be disclosed, mentioning cap rates, lists of comparable properties, and sales figures.
Property owners, particularly those holding commercial or industrial real estate, should consider reviewing the methodology in the wake of each assessment. Such routine reviews will help property owners understand the assessment and allow them to identify any deviations in the methodology employed by the locality from year-to-year. Such deviations may be justified. They also may prove to be fertile ground for appeal if the assessment is excessive.
1The property owner always has a right to file a lawsuit in circuit court challenging the assessment under Virginia Code § 58.1-3984, but such lawsuits often simply are not cost-effective for the property owner.
2The presumption of correctness would only be applied if the locality can demonstrate that it considered and properly rejected the other two methodologies. Keswick Club, LP, 273 Va. 128 at 137-141.
For more information about this topic, please contact the author or any member of the Williams Mullen State & Local Tax Team.