28th Annual Tuesday & Wednesday, January 2930, 2019 Hya Regency - PDF document

28th Annual Tuesday & Wednesday, January 29‐30, 2019 Hya� Regency Columbus, Columbus, Ohio Ohio Tax & Jobs 2019... Significant Developments in Real Property Appraisals, Valuation & Classification David D. Ebersole Attorney McDonald Hopkins LLC Columbus Tuesday, January 29, 2019 10:00 a.m. to 12:15 p.m.

Biographical Information David D. Ebersole, Attorney McDonald Hopkins, LLC 250 West St., Suite 550, Columbus, OH 43215 (614) 484-0716 debersole@mcdonaldhopkins.com Dave is an attorney in McDonald Hopkins’ Tax and Benefits Group who advises business clients on a multitude of tax issues, particularly state and local taxes. As a former Assistant Attorney General for the Ohio Attorney General, Dave has defended the Ohio Tax Commissioner in tax litigation before the Ohio Board of Tax Appeals and Ohio courts of appeal, including several cases argued before the Ohio Supreme Court. He has extensive experience with all types of state and local taxes. These taxes include the income tax, sales and use tax, excise tax, personal and real property tax, and Ohio’s gross receipts tax, the CAT. Dave is also the author of the 2018 Edition of Baldwin’s Ohio Tax Law and Rules . Dave also represents and advises clients with respect to federal tax matters, including federal tax controversies, federal tax structuring and analysis for business transactions, executive compensation matters, and estate planning. Dave attended The Ohio State University Max M. Fisher College of Business, where he earned his B.S. with honors in Accounting and Finance. He also attended The Ohio State University Moritz College of Law on a full ride merit scholarship and graduated with honors. {7802390: }

Significant Developments in Ohio Real Property Taxation 28 th Annual Ohio Tax Conference David D. Ebersole McDonald Hopkins LLC 614.484.0716 debersole@mcdonaldhopkins.com 6392676

Overview  Tax Appeal Rights  Best Evidence of True Value  Leased Fee/Fee Simple – Terraza 8  Appraisals and Burden of Proof  Jurisdictional Issues  Government Subsidized Housing  Bulk Sales and Purchase Price Allocations  Exemption 2

Tax Appeal Rights  BTA decisions on real property tax valuation cases may now be appealed only to county courts of appeals. See, R.C. 5717.04. – House Bill 49 (2017); House Bill 292 (2018)  Tax Commissioner and municipal income tax cases still have direct right of appeal from BTA to Supreme Court  No procedure to petition the Supreme Court for direct appeal from the BTA in real property tax valuation cases  Court of appeals decisions may be appealed to the Supreme Court subject to discretionary review 3

Recent, Arm’s Length Sale • Rebuttable Presumption: Best Evidence of True Value is a Recent, Arm’s Length Sale – See, R.C. 5713.03; Terraza 8 LLC , 2017‐Ohio‐4418 • Presumption of Recency – < 2 years before tax lien date. See, Akron City Schls. , 2014‐ Ohio‐1588 – But, > 2 years after tax lien date may be recent. See, Lone Star Steakhouse & Saloon , 2018‐Ohio‐1612 • Sale Occurs When Conveyance Fee Statement Filed – Lone Star Steakhouse ; HIN, LLC , 2010‐Ohio‐687 4

Arm’s Length Nature of Sale • Best Evidence Rule: Appraiser’s testimony alone may not establish related party transaction – Obtain party testimony; documentary evidence – See, Hilliard City Schls. , 2018‐Ohio‐2046 • Forced/Auction Sale Presumptively Not True Value – See, North Canton City Schls., 2018‐Ohio‐1; Harrah’s Ohio Acquisition Co. , 2018‐Ohio‐4370 • Collateral Estoppel – May apply to findings on arm’s length nature of sale – See, Julia Realty , 2018‐Ohio‐2415 5

Leased Fee/Fee Simple • Common Fact Pattern – Large commercial structure constructed to user’s specifications • Owner‐occupied or leased (including sale‐leasebacks) – Either: • First generation user contests valuation • Initial occupant vacates structure; sits empty or repurposed – Market includes first generation users, second generation users, and vacant properties; tenants with various levels of credit • Issue – Is an adjustment to true value needed, or is a recent arm’s length sale conclusive evidence of true value in these situations? 6

Leased Fee/Fee Simple • Terraza 8 LLC , 2017‐Ohio‐4415 – Recent arm’s length sale is NOT conclusive evidence of true value under R.C. 5713.03, effective for the 2013 tax year – Presumptions apply; burden on opponent of sale price • BTA must consider appraisal evidence; no threshold showing required to rebut evidence of sale price – Westerville City Schs. Bd. of Ed. , 2018‐Ohio‐3855; GC Net Lease @ (3) (Westerville) Investors, LLC , 2018‐Ohio‐3856 • BTA must make findings with respect to appraisals adjusting comparable sale properties – Lowe’s Home Ctrs, Inc. , 2018‐Ohio‐1974 7

Leased Fee/Fee Simple • Supreme Court remands several cases under Terraza 8 for BTA to consider appraisal evidence – See, Bronx Park South III Lancaster, LLC , 2018‐Ohio‐1589; Spirit Master Funding IX, LLC , 2018‐Ohio‐4302 – Several cases listed in materials • Sale‐leaseback – Columbus City Sch. Bd. of Ed ., 2017‐Ohio‐7578 (“State Farm” case); compare, Rite Aid of Ohio , 2016‐Ohio‐371; Lowe’s Home Centers , 2016‐Ohio‐372 – Cases addressing former R.C. 5713.03 8

Burden of Proof & Expert Appraisals • Burden of Proof – Taxpayer carries burden to prove claimed value reduction. See, Moskowitz v. Cuy. Cty. Bd. of Rev. , 2017‐Ohio‐4002 – Party challenging BOR valuation carries burden of proof at BTA. See, Shutz v. Cuy. Cty. Bd. of Rev. , 2018‐Ohio‐1588 • Competing Appraisals – Abuse of discretion standard for the Ohio Supreme Court reviewing weight the BTA afforded competing appraisals – See, Hilliard City Schls. Bd. of Ed. , 2018‐Ohio‐4282; Worthington City Schls. Bd. of Ed. , 2018‐Ohio‐2909 (Kroger) 9

Competing Appraisals & Evidence • But, BTA must consider and weigh conflicting evidence when it adopts an appraiser’s opinion of value – See, Harrah’s Ohio Acquisition Company, LLC v. Cuyahoga Cty. Bd. of Rev. , 2018‐Ohio‐4370, ¶ 28 • And, BTA Duty to Independently Value – Groveport Madison Local Schs. Bd. of Ed. , 2018‐Ohio‐4286 • Complex, fact‐specific appraisal methods for valuing business as a going concern separate from realty – HCP EMOH, LLC v. Wash. Cty. Bd. of Rev. , 2018‐Ohio‐4750 (assisted living facility); Harrah’s (Thistleown Racino) 10

Reliance on Auditor Valuation • “Bedford Rule” – In general, BOE may not invoke the auditor’s valuation if BOR reduction “minimally plausible” and based upon competent evidence. See, Dublin City Sch. Bd. of Ed. , 2016‐Ohio‐3025, ¶¶ 9‐ 11 (specifying four criteria for Bedford Rule). – Appraisal review testimony may not carry BOE burden. See, Huber Heights Cty. Schls. Bd. of Ed. , 2018‐Ohio‐4284 • BTA Reliance on Auditor Valuation – BTA should rely on auditor valuation where BOR does not rely upon competent and probative evidence. See, South‐Western City Schs. Bd. of Ed. , 2018‐Ohio‐918; 2018‐Ohio‐919 11

Unauthorized Practice of Law • Classes of Persons Authorized to File Complaint – See, R.C. 5715.19(A) for authorized persons list • Non‐Attorney Property Managers May Not File Complaint – Board of Revision lacks jurisdiction over complaint – See, Greenway Ohio, Inc. , 2018‐Ohio‐4244 • Non‐Attorneys Presenting Legal Arguments & Questioning Witnesses May Not Divest Jurisdiction – County must timely object and exclude evidence – See, Pavilonis , 2018‐Ohio‐1480 12

Jurisdictional Issues • Continuing Complaint Jurisdiction – Complaint continues for ensuing years if board of revision does not resolve within 90‐day period. See, R.C. 5715.19(D) – No deadline to invoke continuing complaint jurisdiction. See, MDM Holdings, Inc. , 2018‐Ohio‐541; LifePath Partners, Ltd. , 2018‐Ohio‐230; Molly Company, Ltd. , 2018‐Ohio‐4070 • One Complaint Per Triennium; R.C. 5715.19(A) – Casualty Loss Exception. See, Glyptis , 2018‐Ohio‐1437 • Reduced Value Carries To End of Triennium – See, State ex rel. Mars Urban Solutions, LLC , 2018‐Ohio‐4668 13

Gov’t Subsidized Housing • Col. City Sch. Bd. of Ed. v. Franklin Cty. Bd. of Rev. , 2017‐Ohio‐2734 (“ Network Restorations I ”) – Facts: Low‐income residential parcels, benefitting from low income housing tax credit (LIHTC) and housing‐assistance payments (HAP) through Section 8 of the Housing Act of 1937 – Held: • Under income approach, use market (not actual) rents to value government subsidized housing • Under income approach, government subsidies should not taken into account so as to increase value • Cost approach should not be used to value government subsidized housing 14

Gov’t Subsidized Housing • Col. City Sch. Bd. of Ed. v. Franklin Cty. Bd. of Rev. , 2018‐Ohio‐3254 (“ Network Restorations II ”) – Similar facts to Network Restorations I – LIHTC Program and HAP Program • Outstanding Issue: What are “Market Rents”? – Network Restorations II clarifies that market rents are the market rents for other LIHTC properties • Remanded to BTA to make findings on competing appraisals and the appropriate market rent 15