Real Estate Industry Multistate Tax Update
New Jersey
A New Property Taxpayer Bill of Rights
Through the passage of new legislation effective 07/21/2017, the Director of the Division of Taxation is now required to adopt a “Property Taxpayer Bill of Rights” that sets forth in simple and nontechnical terms the right of every property taxpayer in the state to understand their real property assessment and to appeal an assessment that the taxpayer believes is too high. The Director is required to post the Property Taxpayer Bill of Rights on the Internet website of each county board of taxation and each municipality in New Jersey with an Internet website.
The Property Taxpayer Bill of Rights specifies that a property taxpayer has the following rights under New Jersey law:
- The right to understand the real property assessment process and the requirements of the New Jersey Constitution concerning the assessment of real property;
- The right to understand the calculation of the assessment on their real property;
- The right to detailed information about how to appeal an assessment of real property; and
- The right to view the real property assessment of any other parcel of real property in the municipality in which the taxpayer’s property is located.
Florida
Sales Tax Rate Reductions for Commercial Real Estate Rental and Incentives for Construction
On May 25, 2017, Governor Rick Scott signed legislation that included reductions on the state sales tax rate on rental of commercial real estate from 6% to 5.8%. Effective January 1, 2018, the bill also provides expanded sales tax exemptions for purchases of certain construction materials, equipment and electricity for certain data centers, and purchases of certain building materials, goods and services used for new construction in Rural Areas of Opportunity.
Ohio
Property Managers Are Not Authorized to File Real Property Appeals
The case of Kettering City Schools Bd. of Education v. Montgomery Cty. Bd. of Revision, Ohio BTA, Case No. 2016-2510, 05/01/2017 saw the Ohio Board of Tax Appeals affirm the determination of the tax commissioner dismissing an appeal as the complaint failed to properly invoke the jurisdiction of the board of revision.
A complaint against the valuation of the subject parcel was filed for tax year 2015 and signed by a “Senior Real Estate Manager.” The board of equalization moved to dismiss the complaint for lack of jurisdiction, nothing that it was filed by an individual not authorized to file a complaint.
Under state law, certain individuals, along with the property owner, are entitled to file valuation complaints. The Board of Tax Appeals noted that “property managers” are not on the list of authorized filers, and that the Board of Tax Appeals had previously found that such a relationship does not meet the requirements of the law to vest jurisdiction. While it is true that the involvement of an attorney in filing the complaint itself, when in conjunction with a property manager as agent of the owner, may qualify, there was no attorney involved in the filing of the complaint. The appearance of an attorney at the subsequent hearing, after the deadline for filing complaints passed, did not establish the necessary jurisdiction requisite. The Board of Tax Appeals ultimately remanded the matter with instructions to dismiss the complaint, reinstating the auditor’s initial valuation.
Arkansas
Realty Transfer Tax Exemptions Do Not Apply to Mortgages and Deeds of Trust
Revenue Legal Opinion No. 20170713 (Act 656 of 2017- Real Property Transfer Tax), 07/14/2017 establishes that while mortgages and deeds of trust are not eligible for recent exemptions in Arkansas’s realty transfer tax for certain filings, such instruments are not subject to the tax as they do not constitute transfers of realty.
Language added to Ark. Code Ann. § 26-60-110 by Act 656 of 2017 (L. 2017, H1940) exempts certain documents from realty transfer tax. However, this was determined to not apply to mortgages and deeds of trust submitted for recording.
Mortgages and deeds of trust are not real estate transfer instruments as such documents do not “transfer an interest” in real property, but rather record a security interest in the property. Mortgages and deeds of trusts are also not exempt from the real property transfer tax based on the newly added language because mortgages and deeds of trust are not subject to the realty transfer tax in the first instance, and an exemption should only apply where an instrument would otherwise be subject to tax.
Illinois
State Tax Lien Registry Created
The Illinois Senate and House passed the state’s budget bill, which for real property purposes among others has established a state tax lien registry.
Effective January 1, 2018, the Department of Revenue will establish and maintain a state tax lien registry of all tax liens filed to provide a uniform statewide system for filing notices of tax liens that are in favor of, or enforced by, the Department. The registry is limited to tax liens in real and personal property, both tangible and intangible. The taxpayer is liable for any administrative fee imposed by the Department in connection with the state tax lien registry. The information in the registry will be searchable by name of debtor or by tax lien number, and the Department will not charge for access to information. Liens must now be filed in the state tax lien registry instead of with the recorder or the registrar of titles.
New Hampshire
Merger by Multimember LLC with Identical Owners Subject to Real Estate Transfer Tax
A transfer of real estate in a proposed merger by multimember New Hampshire limited liability companies with a principal business address located in New Hampshire was nevertheless subject to real estate transfer tax. In a recent ruling, the State of New Hampshire addressed a situation where there were only two owner/members of separate companies and each member had a 50% membership interest in each company. Because there is no statutory exemption for the merger of multiple entities with identical ownership, the merger was not exempt from the real estate transfer tax despite the uniform ownership of the entities at issue.
Pennsylvania
Philadelphia Realty Transfer Tax
The Philadelphia Realty Transfer Tax, effective January 1, 2017, increased from 3.0% to 3.1% and applies to the sale or transfer of all real estate located in Philadelphia. This tax is applied in addition to the Pennsylvania state realty transfer tax of 1 percent.
The Philadelphia City Council also made several changes to the Philadelphia Realty Transfer Tax by imposing the tax on the ‘actual consideration paid’ instead of the computed value of the real estate owned by an acquired real estate company, as well as expanding its application on real estate companies to the extent there is a 75 percent or more change in ownership within a six year period (reduced from a 90 percent threshold previously). Such changes are effective July 1, 2017.
2016 Common Level Ratios Released
The State Equalization Board has released the common level ratio real estate valuation factors for 2016. The common level ratio is the ratio of assessed value to market value used to value properties in a particular county for property tax purposes, and is used for purposes of appealing property tax assessments.
The methodology used is to include every valid sale to compute an average mean as a base, define the high and low limits by multiplying and dividing this computed average mean by 4, and establish the extreme upper sales ratio limit is 200%. Using these computed limits, the resulting arithmetic mean ratio is the ratio which the Board is certifying as the common level ratio for each county for 2016.
California
California Legislature Establishes Multijurisdictional Property Tax Assessment Appeals Boards
The California Legislature enacted legislation concerning a multijurisdictional property tax assessment appeals board. The bill establishes a process for two or more county boards of supervisors to create a Board to equalize the valuation of taxable property within each participating county. It requires any created Board to comply with rules and regulations as may be adopted by the participating counties or the State Board of Equalization, and with existing statutory provisions governing equalization proceedings before a Board. The bill also provides for the admission of new participating counties and the withdrawal of existing participating counties. The bill would repeal its provisions on January 1, 2028.
New Mexico
Captive REIT Expenses Must be Added Back
New Mexico Senate Bill 391 (signed Apr. 6, 2017) provided that, effective for tax years beginning on or after January 1, 2017, taxpayers are required to add back the amount of any deduction claimed in computing taxable income for all expenses and costs directly or indirectly paid, accrued or incurred to a captive real estate investment trust.
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Ask Our Experts
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Rebecca Machinga, CPA, CGMA 609-520-1188 [email protected]
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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
