Court Rules Sale Closest to Tax Lien Date Determines Property’s Value for Tax Purposes

When Property Sold Twice Within Reasonable Time Before/After Lien Date

HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, Slip Opinion No. 2010-Ohio-687.
Board of Tax Appeals, No. 2006-A-712. Decision affirmed.
Moyer, C.J., and Pfeifer, O'Connor, O'Donnell, Lanzinger, and Cupp, JJ., concur.
Lundberg Stratton, J., concurs separately.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2010/2010-Ohio-687.pdf

(March 4, 2010) In a decision announced today, the Supreme Court of Ohio ruled that when a property has been the subject of two arm’s length sales between a willing buyer and seller within a reasonable length of time before or after the tax-lien date, the sale occurring closer in time to the tax lien date establishes the true value of the property for taxation purposes.

In a 7-0 ruling authored by Justice Terrence O’Donnell, the Court also held that, only for purposes of establishing the taxable value of property under R.C. 5713.03, the date a real property conveyance fee statement is filed with the county auditor should be considered the “sale date” of the property.

The case involved a dispute over the tax valuation for calendar year 2004 of a 34-acre parcel of land and an office building on that land, which is located in the Cuyahoga County community of Bedford and the Bedford School District. In December 2003, the land and building were purchased from a previous owner by JBK Properties for $4.9 million. JBK subsequently executed a 15-year lease agreement with U.S. Bank for full occupancy of the office building. In April 2004, JBK sold the property, including its ownership interest in the lease agreement, to another company, HIN, for $7.4 million.

In assessing the property for the 2004 tax year, the Cuyahoga County Auditor estimated its taxable market value at $7,848,400 based on the April 2004 sale price. HIN appealed that valuation to the Cuyahoga County Board of Tax Revision, seeking a reduction of the auditor’s valuation to $5 million based on the December 2003 sale price. The Bedford School District filed a counter-complaint urging affirmance of the auditor’s valuation. The board of revision upheld the auditor’s valuation of the property. HIN then exercised its right to appeal the board of revision’s ruling to the Ohio Board of Tax Appeals (BTA). The BTA reversed the board of revision, and ruled that the true value of the property on Jan. 1, 2004 was the December 2003 sale price of $4.9 million.

The school district exercised its right to appeal the BTA’s ruling to the Supreme Court.

In today’s decision upholding the BTA’s valuation, Justice O’Donnell wrote: “R.C. 5713.03 sets forth how real estate is to be valued for tax purposes: ‘In determining the true value of any tract, lot, or parcel of real estate under this section, if such tract, lot, or parcel has been the subject of an arm’s length sale between a willing seller and a willing buyer within a reasonable length of time, either before or after the tax lien date, the auditor shall consider the sale price of such tract, lot, or parcel to be the true value for taxation purposes.’ (Emphasis added.) ... In this case, January 1, 2004, is the relevant valuation date, and the parties do not differ on this point.”

“However, this case involves two sales, one occurring prior to the tax-lien date and one occurring subsequent to the tax-lien date, and we are called upon to determine which sale should be used as evidence of the true value. When a property has been the subject of two arm’s-length sales between a willing seller and a willing buyer within a reasonable length of time either before or after the tax-lien date, the sale occurring closer in time to the tax-lien date establishes the true value of the property for taxation purposes. This principle emanates from R.C. 5713.03, which presupposes that an arm’s-length sale close in time to the tax-lien date accurately indicates the value of property as of that date. It follows that when a property has been the subject of two arm’s-length sales between willing sellers and willing buyers, the sale occurring closer in time to the tax-lien date provides a more accurate indication of the true value of the property as of the tax-lien date than does a sale occurring more remotely in time from that date.”

Justice O’Donnell rejected arguments by the school district that the date on which the parties agreed on a sale price or the date on which the buyer and seller entered into a contract to purchase the property should be considered the “sale date” for tax valuation purposes.

He wrote: “Legal title to real property transfers from the seller to the buyer with the delivery and acceptance of an executed deed. ... R.C. 317.22 provides that ‘[n]o deed of absolute conveyance of land ... shall be recorded by the county recorder until ... [t]he conveyance presented to the recorder bears the stamp of the county auditor ... [and s]uch conveyance has been presented to the county auditor, and by the county auditor indorsed “transferred” or “transfer not necessary.” ’ Before the deed may be endorsed by the auditor, however, R.C. 319.202 requires the new owner to submit a real property conveyance fee statement to the auditor declaring the value of the real property, and pursuant to R.C. 319.20, the auditor must transfer the parcel into the new owner’s name on the tax list. The purpose of this statutory scheme is to provide the auditor the necessary information to determine the true value of property based on a property sale in accordance with R.C. 5713.03. For this reason, in determining the date a sale of property occurs, only for purposes of establishing the true value of property pursuant to R.C. 5713.03, the auditor should use the date that the real property conveyance fee statement is filed in the auditor’s office as the sale date of the property.”

“Here, the filing of the real property conveyance fee statement for the December 2003 sale on December 30, 2003, occurred in closer proximity to the tax-lien date than the filing of the real property conveyance fee statement for the April 2004 sale on April 30, 2004. Therefore, for purposes of establishing the true value of the property in accordance with R.C. 5713.03, the auditor should use the December 2003 sale price as the true value of the property for tax year 2004.”

Justice O’Donnell’s opinion was joined by Chief Justice Thomas J. Moyer and Justices Paul E. Pfeifer, Maureen O’Connor, Judith Ann Lanzinger and Robert R. Cupp.

Justice Evelyn Lundberg Stratton entered a separate concurring opinion, joined by Justice Cupp, in which she expressed concern that the majority opinion implies that only the conveyance fee date establishes the date of sale for purposes of property valuations by county auditors. She wrote: “I believe that using the date the conveyance fee statement is filed to establish the date of sale is a useful point in assisting the auditor in determining value. However, such a rule should be a rebuttable presumption and an evidentiary tool only. Language fixing the date of the sale does not appear in the statute. The General Assembly did not establish the date of the conveyance fee as the date of sale, and this court should not add such language to the statute. The parties should be allowed to present evidence at hearings before a board of revision and the Board of Tax Appeals to establish that the true date of sale is a different point from the date of the filing of the conveyance fee.”

Contacts
Thomas A. Kondzer, 440.835.1200, for the Bedford School District Board of Education.

Timothy J. Kollin, 216.566.8500, for Cuyahoga County Auditor and Board of Revision.

Jay Siegel, 216.763.1004, for HIN, LLC.

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