The Ohio Supreme Court Clarifies the Effect of Low-Income Housing Tax Credit Restrictions on the Tax Value of Real Property
In Woda Ivy Glen Limited Partnership v. Fayette County Board of Revision (2009), 121 Ohio St.3d 175, the Supreme Court of Ohio considered whether restrictions on real property resulting from participation in the federal low-income housing tax credit program should be taken into account when appraising the property for real estate tax purposes. The real property at issue consisted of 60 individual parcels, each of which contained a single-family residence. As required by Section 42 of the Internal Revenue Code, the property was subject to certain rent restrictions designed to make the rental rates affordable for low-income families. These restrictions are binding on successor owners and recorded in the chain of title of the property. Utilizing a cost-based valuation for tax year 2004, the county auditor valued the parcels at an aggregate value of $4,854,970, or approximately $80,000 each.
Ivy Glen filed a complaint against the auditor’s valuation, alleging the true total value to be $2,400,000. Rather than using the cost approach, Ivy Glen’s appraiser deemed the 60 parcels to be one economic unit and based his valuation on a rent-income analysis and comparable sales of rental properties. The Board of Tax Appeals (BTA) rejected that approach and instead adopted the county’s cost-based valuation, reasoning that the properties were only two years old and should be valued as though free of any use restrictions imposed under the federal low-income tax credit program. The BTA, relying on the Ohio Supreme Court’s previous pronouncement in Alliance Towers, Ltd. v. Stark Cty. Bd. of Revision (1988), 37 Ohio St.3d 16, that property should be valued in its “unrestricted form of title,” questioned the validity of Ivy Glen’s appraiser taking into account the use restriction on the property imposed in connection with the low-income tax subsidy and affirmed the county’s cost-based valuation of the property.
On appeal, the Court discussed its holding in Alliance Towers and found that, despite holding that “For real property tax purposes, the fee simple estate is to valued as if it were unencumbered,” the Court’s decisions have “broadly acknowledged that ‘all facts and circumstances which may affect the value of property must be taken into consideration.’” The Court then distinguished between “private” encumbrances and those restrictions that are governmental “police power” limitations on use. Under Appraisal Institute guidelines, the former are to be disregarded, while the latter should be considered. Though the Court acknowledged that the federal government does not have a general “police power,” it nevertheless found that the low-income housing tax credit program were a means for Congress to implement public policy and improve the general welfare, and thus qualified as police power restrictions. Since the BTA failed to consider the effect of the low-income tax credit restrictions in valuing the property, the Court vacated the BTA’s decision and remanded it for further proceedings consistent with Court’s decision.
The Ohio Supreme Court’s decision provides an opportunity for owners of low-income housing tax credit property to review their tax valuation and determine if a complaint against the valuation is appropriate. Although the tax complaint filing period for tax year 2008 has ended, tax payers will be able to contest 2009 taxes beginning in January 2010.