Legislative Service Commission Clarifies That Sales More Than One Year Before Lien Date Permit School Board Valuation Appeals
On April 21, 2022, Ohio Gov. Mike DeWine signed House Bill 126, which will become effective July 19. This bill will change the role of boards of education in real estate valuation appeals and will also prohibit, as of its effective date, "private payment" agreements entered into after the effective date. Private payment agreements were often used to settle property tax disputes in the past. The Legislative Service Commissioner also clarified that the bill does not limit school boards to valuation challenges based on sales the year before the tax lien date, but rather only requires a sale meaning certain conditions prior to the tax lien date. To understand the effect of the changes made by House Bill 126, it is helpful first to restate the current law.
Property tax valuation complaints under current law
Under current law, property tax valuation complaints are typically controversies between the property owner - who wants a lower value and thus a lower tax bill - and the local board of education - that wants a higher value and thus a higher tax bill. Although theoretically other property owners and other political subdivisions can file valuation complaints also1, school boards are usually the only political subdivision filing complaints or counter-complaints in these cases because most of the tax money at stake is paid to the school district in which the property is located. The county auditor makes an initial determination of taxable value for each parcel in the county, which is reflected on a tax bill that is sent to the owner in late December or January.
Either the property owner or the school board may challenge this value by filing a valuation complaint with the County Board of Revision no later than March 312. If the owner files a complaint to reduce the value, and the change in value sought is at least $17,500, the school board must receive notice of the complaint within 30 days of the deadline for filing valuation complaints3. The school board may file a counter-complaint, seeking either to retain the auditor's value or to establish a higher value, within 30 days of receiving notice of the complaint4. The school board may also file an original complaint by March 31 seeking to increase the value set by the auditor, and the owner may then file a counter-complaint5.
Under current law, the County Board of Revision retains jurisdiction over these complaints and counter-complaints until they are decided6, which often can take a year or more. If either the owner or the school board disagrees with the Board of Revision decision, either of them may appeal that Board's decision to the Ohio Board of Tax Appeals7. The owner also has the right to appeal, instead, to the local Court of Common Pleas, as long as the appeal to the court is filed before the appeal to the Board of Tax Appeals8. Appeals allow the school board to seek additional information about the property that they usually cannot obtain at the Board of Revision level, since the school board may use discovery requests under the civil rules and subpoenas to force the disclosure of sale information, appraisals, property income information, etc. that might help to establish a higher value for the property9.
An Ohio Attorney General's opinion allows school boards and property owners to enter into "private pay" or "direct pay" settlement agreements, under which the property owner makes a payment to the school board only in exchange for the school board either dismissing a complaint, counter-complaint or appeal, or agreeing not to file one10. The result is that the school board receives the benefit of additional revenues from the property, but that other local governments that receive property tax do not receive additional property tax. This is either a break-even or a slight windfall to the school district but a net savings to the property owner compared to having the property value increase as a result of the valuation complaint.
How House Bill 126 would change the appeal process
House Bill 126 will not change the appeal process and rights of the property owner -except with respect to the availability of "private pay" agreements - but will significantly change the rights and process for boards of education in the property tax appeal process. First, a school board could not file an original valuation complaint seeking to increase the property's value unless both of the following occur:
1) The property was sold in an arm's length transaction before the tax lien date for the year for which the complaint was filed, for a sale price that is more than 10% and more than $500,000 (indexed for inflation) above the value set by the County Auditor11, and
2) The school board passes a resolution authorizing the complaint, after giving seven days' notice to the property owner of the meeting at which the resolution will be considered12. The complaint form would have to state that the school board passed the authorizing resolution after the required notice13. School boards would retain the right to file counter-complaints, but only if the original complaint sought a change of at least $17,500 in taxable value14. School boards would no longer receive mandatory notice of original complaints - although many may still obtain such notice via public records requests - and must file counter-complaints within 30 days of the filing of the original complaint15. Note that the changes in filing rights would first take effect with the 2022 tax year for taxes payable in 2023 and complaints filed in 202316.
A second change is that, when a school board files an original complaint, the Board of Revision must decide on the complaint within one year or it loses jurisdiction over the complaint17. This change would also first take effect for complaints filed for the 2022 tax year18.
Two other changes would take effect on HB 126's effective date of July 19, 202219. First, while the owner retains the right to appeal decisions by the Board of Revision, school boards would no longer have the right to appeal a Board of Revision decision unless it is with respect to the property they own20. They may retain their right under Board of Tax Appeals rules and the civil rules to appear in opposition to an appeal by the owner; House Bill 126 does not address this. This will affect many tax year 2021 complaints since few of them will be decided by the local Board of Revision within 90 days of the bill's effective date. The prohibition against "private pay" agreements also will become effective for agreements entered into on or after the bill's July 19 effective date21. Thus, property owners who still wish to enter into such agreements for pending appeals should negotiate and enter into them quickly.
With the exception of the prohibition of "private pay" agreements, the bill will on balance benefit property owners. Owners will retain their existing rights to seek reductions in property tax values, but school boards will have more limited rights to seek higher values. School boards will only be able to file complaints when they can prove an arm's length sale prior to the tax lien date for the tax year from information that they can obtain without subpoenas or civil discovery. The School board would have to "win" at the Board of Revision or not at all, while the owner could still appeal an adverse decision. Before appealing, however, the owner should consider that the school board might retain the right to appear at the Board of Tax Appeals or in Common Pleas Court to contest an appeal by the owner, and that they would have discovery and subpoena rights if they are a party before the Board of Tax Appeals.
1 O.R.C 5715.19(A)(1) (prior to changes made by 2022 H.B. 126).
3 O.R.C. 5715.18(B) (prior to changes made by 2022 H.B. 126)
5 O.R.C 5715.19(A)(1) & (B) (prior to changes made by 2022 H.B. 126).
6 O.R.C. 5715.19(D).
7 O.R.C. 5717.01 (prior to changes made by 2022 H.B. 126).
8 O.R.C. 5717.05.
9 O.A.C. 5717-1-02(B), 5717-1-04(B), 5717-1-12, 5717-1-14.
10 Op. Att'y Gen. 2018-011.
11 In an earlier bulletin regarding House Bill 126, we stated, based on Legislative Service Commission pronouncements, that a sale that permits a school board valuation complaint had to be made in the year before the tax lien date for the tax year that is the basis for the appeal. See Ohio Legislative Service Commission, Final Fiscal Note and Local Impact Statement (April 12, 2022), p.1; Ohio Legislative Service Commission, Fiscal Note and Local Impact Statement, As Recommended by Conference Committee (April 6, 2022), p.1; Ohio Legislative Service Commission, Amendment No. AM_134_3041 (adopted by H.B. 126 Conference Committee April 6, 2022) Synopsis, p. 12, lines 295 - 96. In a telephone conversation on April 21 with this author, the writer of the foregoing Fiscal Notes confirmed that the actual text of the adopted statute requires only that the sale be prior to the tax lien date, not in the year prior. We expect future Legislative Service Commission analyses to reflect this.
12 O.R.C. 5715.19(A)(6) (as amended by 2022 H.B. 126).
13 O.R.C. 5715.19(A)(8) (as amended by 2022 H.B. 126).
14 O.R.C. 5715.19(B) (as amended by 2022 H.B. 126).
16 2022 H.B. 126, Section 3. (A).
17 O.R.C. 5715.19(C) (as amended by 2022 H.B. 126).
18 2022 H.B. 126, Section 3. (A).
19 2022 H.B. 126, Section 3. (B).
20 O.R.C. 5717.01 (as amended by 2022 H.B. 126).
21 2022 H.B. 126, Section 3. (B).
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