The Mississippi Supreme Court denied rehearing late last week on a 2013 decision in which the court had sustained a recently enacted state law requiring that the value of rent-restricted housing constructed under Section 42 of the Internal Revenue Code and other affordable rental housing be based on the property’s actual net operating income and excluded consideration of the value of federal tax credits when assessors determine ad valorem tax liability of such housing.
Humphreys County, the principal defendant in the first case to reach the Mississippi Supreme Court, was ordered to refund all taxes collected on excessive assessments. Cases are pending in at least fourteen other Mississippi counties that refused to follow the proper assessment method mandated by legislative statute. These counties are now subject to refund millions of dollars paid by owners of affordable rental housing since 2006.
The case stems from state legislation passed in 2005 (Mississippi Code Section 27-35-50(4)(d)), which restricted assessments on Section 42 housing to the capitalized value of the property’s actual net operating income, not the construction cost of the developments. States across the country, including New York and California, have enacted similar legislation.
In 2006, a Section 42 housing owner, Willow Bend Estates LLC, filed suit against Humphreys County, contending that the county had over-assessed its tax liability. The trial court granted Humphreys County’s motion for declaratory judgment, finding that the law did not prevent the county from including tax credits in its tax valuation.
However, in appellate proceedings in 2013, the Mississippi Supreme Court ruled unanimously that the 2005 statute was within the Legislature’s constitutional authority to set the procedures for assessment of taxable property and that the mode of assessment for affordable rental housing based on its actual net operating income did not violate the uniformity and equality clauses in the state constitution. Thus Humphreys County had illegally collected taxes from the Section 42 housing developers and was ordered to refund taxes collected on excessive assessments to Willow Bend. On August 7, 2014, the Court denied Humphreys County’s motion for rehearing.
Fred Banks, Jr., Jerome C. Hafter, Elizabeth Jane Hicks and Gregg Mayer of Phelps Dunbar LLP represented the Mississippi Association of Affordable Housing Providers. The matter is Willow Bend, et al v. Humphreys County Board of Supervisors, et al; In the Supreme Court of Mississippi; Case No. 2012-IA-00575-SCT.