The April 30 deadline for filing a property tax appeal will soon be upon us, which makes this the perfect time to consider whether your property is fairly or properly assessed by the local taxing authority. Owners of “income-producing property” (property that produces revenue through rents) who are considering filing a tax petition should be mindful of special considerations—and associated pitfalls—that apply to such properties. These considerations include: (1) a statutory requirement to produce certain financial information to the taxing authority by August 1 and the consequences that may occur for failure to produce such information within the required time period and (2) whether production of the required financial information is helpful or harmful to the goal of obtaining a reduction in the property’s assessed value.
The financial disclosure requirement states that when a property owner contests the “valuation of income-producing property,” six items of information must be provided to the county assessor. Minn. Stat. § 278.05, subd. 6. These items are: (1) a year-end financial statement for the year before the assessment date; (2) a year-end financial statement for the year of the assessment date; (3) a rent roll on or near the assessment date listing tenant names, lease start and end dates, base rent, square footage leased and vacant space; (4) identification of all lease agreements not disclosed on the rent roll, with the tenant name, lease start and end dates, base rent and square footage leased; (5) net rentable square footage of the building(s); and (6) anticipated income and expenses in the form of a proposed budget for the year in which the taxes are payable. Conspicuously absent from these disclosure requirements are the leases themselves; the statute expressly states that, “the information required to be provided to the county assessor . . . does not include leases.”
The “assessment date” referred to above means the date on which the assessor values the property for taxes purposes, which is always January 2 of the year before the taxes are paid. For example, if a property owner appealed the assessed value of the property for the taxes payable this year—in 2013—the assessment date would be January 2, 2012. Accordingly, along with rent roll and square footage information, the property owner would be required to produce 2011 and 2012 financial statements, and a 2013 income and expense budget.
The financial disclosure statute mandates that the deadline for providing this information is “August 1 of the taxes payable year . . . .” Failure to meet this deadline results in “dismissal of the petition.” There are two statutory excuses for missing the deadline and avoiding dismissal of the tax petition: (a) unavailability of the information at the time that it was due, or (b) the petitioner’s lack of awareness of the requirement to provide the financial information. (Because you’ve read this article, you are now unable to invoke this second excuse—nor can an attorney for the property owner plead ignorance of this requirement.)
The Minnesota Supreme Court provided a recent reminder that the financial information disclosure requirements will be strictly enforced—upon pain of dismissal of the tax petition for noncompliance. In a case decided in May 2012, the Court upheld the Tax Court’s dismissal of two-year’s worth of property tax petitions filed by an owner who failed to produce percentage rent information, even though the owner produced information on the total rent paid, and further failed to produce a rent roll, even though the owner did not have or keep a rent roll. 78th Street OwnerCo, LLC v. County of Hennepin, 813 N.W.2d 409 (Minn. 2012). The owner’s attorney argued that because the owner had produced information on the total rent paid, the percentage rent information was not relevant to determining the value of the property. The Court rejected this argument, saying that, “To allow 78th Street to decline to provide this information because it believes the information is irrelevant would impermissibly shift the burden of proof in 78th Street’s tax appeal to the County.” As to the owner’s failure to produce the rent roll, the Court said that even though the owner did not have or keep a rent roll, the owner did have in its possession (but failed to produce) the information specified by the statute that typically appears on a rent roll. For these reasons, the harsh penalty of dismissal of the tax petitions was upheld.
It will not be lost on any owner of an income-producing property that the financial information required to be produced enables the assessor to determine the property’s value under the income-capitalization approach to value. This is why it is important to think carefully about filing a tax petition if you have income-producing property, because it may result in putting information into the assessor’s hands that could not only justify the current assessed value, but also justify increasing the assessed value—which the law states is a possible outcome any time a tax petition is filed.
That said, the disclosure requirement should not be seen as a deterrent to a property owner filing an otherwise viable tax petition. It is one of a number of considerations that must be taken into account in deciding whether to file such a petition. The potential exposure does point up the wisdom of seeking professional advice and consultation before you file.