property tax

The Dirt on Tennessee's Property Tax: Hot Issues from 2018

Property Tax continues to be the most significant tax that all Tennessee businesses pays annually whether it is on their real property holdings or on personal property that is used as part of the business operations. Considering this, it is always good to stay abreast of some of the hot issues in Tennessee property tax to make sure that businesses are not leaving tax dollars on the table.

Property tax appeals must be filed in early 2019 for the 2019 tax year, so now is a good time to do a review to determine whether you have any opportunity for savings. Common opportunities for savings involve valuation challenges, but there are other issues that can come up as well.

This post looks at some of the more important developments from 2018, which will be helpful in considering what opportunities may exist for appeals in 2019.

Dark Store Valuations

One of the emerging issues across the country and in Tennessee is the dark store assessment theory. The position in these appeals is that sales of vacant stores can be the best comparable for an occupied store. This can be a favorable result over an income approach with the shift in the economy from brick and mortar stores to online retailers and the continued growth of Amazon. These appeals are proceeding in Tennessee, so retailers should be reviewing these opportunities in Tennessee like in many other states.

Procedure, Procedure, Procedure

In a recent Court of Appeals decision, a taxpayer’s appeal was reversed and remanded because the appeal had been filed in the wrong Court. In Tennessee, Chancery Court is the court of jurisdiction for property tax appeals that are not resolved at the administrative level. In 200 Linden Avenue v. Johnson, W2017-02372-COA-R3-CV (September 24, 2018), the Court of Appeals reversed and remanded a case that had been appealed to the Circuit Court instead of the Chancery Court. The Court of Appeals did not even address the substantive property tax issue, instead deciding the case on procedural grounds. A valuable reminder for taxpayers that are unable to resolve cases at the administrative level.

More on Appeal Procedure -Change in Assessment Appeals Commission Authority to Review ALJ Decisions. 

Another important procedural update is that Tennessee has enacted a modification to the appeal process in property tax cases that limits the Assessment Appeals Commission’s (AAC) review authority to accept new evidence on appeal. Based on this change, the AAC’s review of administrative law judge (ALJ) decisions involving property tax will be limited to the proof submitted to the administrative law judge. No additional evidence will be allowed to be presented before the AAC. It will act like an appeals court. Notably, if a case goes to a further appeal to Chancery Court, additional evidence may be presented before the Chancery Court.

Publishing Company Qualifies for Nonstandard Valuation

Memphis Publishing challenged the denial of its nonstandard valuation request for its printing equipment through the administrative appeals process. The Company operated a publishing business and asserted that its equipment should be valued considering functional obsolescence in the printing industry. The ALJ and AAC agreed that a nonstandard valuation was proper but ultimately concluded that the taxpayer had failed to meet its burden of proof of establishing value. On appeal to Chancery Court, Memphis Publishing submitted a new expert appraisal, and the Court determined that the taxpayer could present new evidence on appeal to court. Based on that evidence, the Court awarded Memphis Publishing its nonstandard valuation. Memphis Publishing Co. v. State Board of Equalization, Davidson County Civil No. 15-1073-I (April 25, 2018). While the burden is on the taxpayer, additional proof in the form of a new appraisal may be submitted in a Court challenge. That is what Memphis Publishing did, and they finally were awarded their nonstandard valuation.

Proper Classification of Logging Company

The Taxpayer challenged the taxation of his logging business, arguing that he should be exempt under Tenn. Code Ann. §67-5-216 (farming exemption). In addition to the farming operation, he also transported logs. The State Board of Equalization (SBOE) concluded that because 80% of his revenue was from the sale of logs, he was properly classified under the farming exemption provisions of Tenn. Code Ann. §67-5-216. However, the SBOE noted that his trucking business should be reviewed for future periods by the Office of State Assessed Properties. In re: Revel Logging, LLC, Appeal No. 88076 (July 27, 2018). Farmers should take note of this decision and the future implications for Revel Logging.

Reasonable Cause for Late Filed Appeal Exists based on Chronic Mail Delivery Problems

The taxpayer challenged the valuation of the subject property but missed certain appeal deadlines. On appeal, the SBOE found that there was sufficient evidence of chronic mail delivery problems that substantiated the taxpayer’s claim that it did not receive the assessment change notice. Based on this proof, the SBOE determined that it had jurisdiction and granted a revised valuation of the subject property. In re: Air Serv Corp., Appeal No. 45960 (July 27, 2018). There are several cases decided each year on the failure of a taxpayer to timely appeal. There are some cases in which those appeals may still proceed under a reasonable cause exception, and this is one such case.

SBOE Rejects Assessor’s Correction as Unauthorized

The Assessor changed the valuation of the taxpayer’s property after the valuation date relying on Tenn. Code Ann. §67-5-509, which authorizes changes for clerical errors. The SBOE ultimately concluded that the change in this case was not a mere correction of a clerical error but was a change that required the assessor’s judgment and was therefore improperly changed under Tenn. Code Ann. §67-5-509. In re: Godsey Leasing Co., Appeal No. 47010 (April 16, 2018). Be wary of changes that come after the January 1 valuation date as there is limited authority of an assessor to change a valuation after the original assessment.

This is just a sample of some of the property tax issues that were litigated this year. We will try to periodically summarize some of these decisions, so that businesses can have a better perspective on what appeal opportunities and traps may be out there in Tennessee property tax.

Off-Year Property Tax Planning in Tennessee ... Should You Tee-up an Appeal?

On the heels of the Masters, we thought it an appropriate time to look at our own property ... tax matters. While the property we are talking about might not be as pristine as the grounds at Augusta National and Amen corner, it is no less important this time of the year, especially in Tennessee.

Property tax appeals are primarily driven by reassessment years in Tennessee, which places new valuations on property and puts a bulls eye on every taxpayer during the reappraisal cycle. That generally happens in Tennessee every four or five years (sometimes 6). Last year was the reassessment year in Nashville, Tennessee and in many other Tennessee counties, but what about the offseason? What happens then when it is not a reappraisal period? Is there anything that taxpayers need to be thinking about as we approach the annual deadlines to file appeals with local boards of equalization in Tennessee. Well, there are a few things that should still be on the radar of Tennessee property taxpayers when deciding whether to tee-up an appeal...

Personal Property Tax Filings

Business taxpayers that filed personal property tax returns in late February should be watching the mail for change notices. If you took a position on a filing, you should be extra cautious as change notices are what provide notice to taxpayers that that the assessor may have rejected the filing and that an appeal may be necessary. If you get to late May and haven't seen a change notice, a call to the Assessor might be in order just to be safe, and if you do get the change notice that is not what was filed, an appeal to the local board should be sought.

You Missed Last Year's Deadline

Reappraisal years establish the valuation for the year of reappraisal and for the following three years, but if for some reason the deadline was missed in 2017, it doesn't mean that you cannot still appeal the value from 2017 for the 2018 tax year. If that is you, and you didn't get your opportunity to appeal in 2017 (for whatever reason), you can tee up an appeal for 2018 with the local board. To do that, you will need to request a meeting with the local board. The dates on which the local boards meet is much more truncated in the off-years, so taxpayers should be particularly proactive in making sure that they are tracking the deadlines in their county so as not to miss the deadline again...

You Appealed Last Year and Still Don't Have a Hearing for the 2017 Year

This could be an overwhelming majority of appeals that made it to the state board last year. While there is a basis for concluding that the valuation appeal for 2017 should carry over to the subsequent years, it may be worth the effort to make sure that an appeal for the subsequent tax years is filed just as a protective filing. As we have written numerous times, the deadlines in Tennessee are just as onerous as the tax law, likely more onerous, so making sure you avoid procedural foot-faults should be a priority. Filing an appeal for subsequent years is often just a filing out of an abundance of caution, but when the amounts are significant, it may be worth the effort.

The appeal deadlines are set forth in Tenn. Code Ann. 67-5-1401 et.seq. for your casual reading!