improving maine’s property tax maine revenue services property tax school august 5, 2015 ©...

Improving Maine’s Property Tax

Maine Revenue Services

Property Tax School

August 5, 2015

© Gaylord A. Wood, Jr. 2015

Chicago Railroad Trestle

Jean-Baptiste Colbert

• King Louis XIV’s Finance Minister• Charged with raising the funds to keep the

Palace at Versailles running• “Taxation is the art of so plucking the

goose as to obtain a maximum amount of feathers with a minimum amount of hissing.”

Gulliver’s Travels, Book III

• Lagado: Taxes were self-declared

• Men were taxed on their follies, vices, wit, valor and prowess but never on honor, justice and wisdom.

• Women were taxed on their beauty but not on good sense.

Suggestion from the Field:

• Each property owner self-assesses his or her property and files a true and perfect list of the same with the Assessor

• That sets the assessment for the year. The municipality would have 6 months to exercise a purchase-and-sale agreement at the owner’s self-declared value then resell at whatever the market would “bare.”

This isn’t as crazy as it seems…

• No one actually “owns” property in the sense that it can’t be taken away from them.

• If you don’t believe this, don’t pay your taxes for a few years. We all rent our properties from the Town.

Good Characteristics

• Consistency

• Certainty of collection

• Transparency

• Ease of administration

• Progressivity

• Everyone pays his or her fair share

Consistency

• “A foolish consistency is the hob-goblin of little minds, adored by little statesmen and philosophers and divines.” – Ralph Waldo Emerson

• Just because the Assessor slavishly follows a particular assessment model without calibrating that model to the market does not result in equitable assessments.

Consistency

• Slavish use of cost approach

• Cost approach is OK if the Assessor quantifies value losses due to obsolescence and increases due to expected entrepreneurial incentive

• Entrepreneurial profit is the difference between hard and soft costs and amount received on sale of the property

Marshall Valuation Service

• Computes the costs to construct buildings, building elements and improvements of various types, first published in 1932.

• MVS does not attempt to quantify external obsolescence and entrepreneurial incentive.

• MVS includes contractor profits only.

• MVS cost approach is incomplete.

Appraisal Journal, Fall 2009

Completed cost approach to value = accounting profit plus entrepreneurial incentive minus external obsolescence

If total is a positive number, project is feasible, if a negative number, it is not feasible.

Real Estate Advertisement

• “Property offered for less than Town Assessment!!!”

• Suggestion is that the buyer is getting a good deal

• Equally susceptible to interpretation that the Town’s assessment is too high.

Certainty of Collection

Keep the City or Town out of the ownership of property business!

Title 36 MRS Article 1

• Puts the taxing authority in the property ownership business.

• Problems with this: 25 Center Street, Bucksport

• Turns out that the driveway is actually on the neighbor’s property

• Property unsalable

Tax Sale Procedures

• In Rem states –

• Taxes due on a certain date (say April 1) with discounts for early payment, 4% November, 3% December, 2% January, 1% February, no discount March.

• If not paid, notice sent; tax certificate auction held beginning May 1.

• Low interest rate bid pays the taxes.

Tax Sale Procedures

• If tax certificates not paid within 2 years, after 3d year, holder of the certificate can request the Tax Collector to conduct an auction.

• Minimum opening bid is the amount of the outstanding certificates

• High bidder gets the property, overage paid to the property owner.

Separate bills?

• An Assessor suggested that the County and Schools be required to send out their own bills.

• In states where there are limitations on property taxes, cities and towns provide for non-ad valorem assessments for fire protection, solid waste disposal, etc. – push to put code liens on tax bills.

Transparency

Consideration on Deeds

• The statutes should require that in addition to the information form filed with Maine Revenue Services, the full consideration for the transfer be shown on the deed, either by requiring the amount or by a nominal documentary stamp tax.

• Many newspapers show transfers of property but information as to the amount of the sale won’t be known until MRS furnishes the transfer information forms to the Assessor.

RETTD form

• Better job of qualifying sales

• Box to check off as to whether the new owner will be residing at the property (where should the tax bills be sent?)

Foreclosures

• When does the financial institution take title?

• To whom should tax notices be sent before the lender’s sale and owner’s equity of redemption is cut off?

What information is public?

• Nobody likes to look stupid.

• I can go on line to any of the 67 Property Appraisers’ offices in Florida and find any property assessed to any person.

• Many Maine towns’ web sites are really opaque and don’t provide meaningful information to taxpayers.

• You have nothing to be ashamed of!

Ann LePage, Volusia County

Stephen King, Sarasota County

Ease of Assessment

• The Assesor’s job is impossible.

• Selectmen do not provide funds or personnel to do the job correctly.

• How does one person with an assistant correctly value 3,500 – 5,000 parcels each year?

• Solution: Like the Regional School Unit, the Regional Assessment Unit

Assessor Qualifications

• From the field: Why should an appointed Assessor necessarily be a resident of Maine while a contract assessor does not?

• See Title 30, Maine Revised Statutes, Section 2526 and Section 2604.

The Maine Constitution

• Two excellent provisions• All real and personal “estate” (property?) to be

assessed according to the “just value” thereof• All taxes to be apportioned and assessed

equally• Just value is legally synonymous with market

value• Equality avoids an Allegheny Pittsburgh Coal v

Webster County WVa. challenge

In Rem vs In Personam

• A property tax should be the obligation of the property, not the owner.

• Maine property taxes are in personam

• A great deal of subjectivity enters the system when it is up to the Town as to when to take title and to subsequently market the property.

Sale of Property

• Difficulty in collecting the full year’s taxes, seller still personally responsible.

• “Shaming” by publication of deadbeat taxpayers in the Town annual report

Town of Bucksport Annual Report

Assessment Appeals

• Board of Assessment Review – makeup and qualifications. Fairness to both parties.

• Should the taxpayer be required to make his or her entire case before the BAR, with the District Court only conducting an appellate review for smaller properties, or should the taxpayer be entitled to a de novo proceeding in Court?

• Use of Special Magistrates to hear cases for the Board of Assessment Review.

Assessment Appeals

• Emphasis at the Board of Assessment Review that the subject property has been tarred with the same brush as other, similar properties – Does that overcome the Assessor’s reliance on the cost approach?

• Should the Assessor be required to support the assessment with comparable sales?

Exemptions

• TIF districts are nothing more than an unconstitutional exemption, despite what the Supreme Judicial Court said in the Delogu case.

• Exemptions should be based on need.

• I own a home, should I have a Homestead Exemption? Only if I can show that I need it.

Property of Institutions

• 36 MRSA 652 is squishy:• “Real estate and personal property owned

and occupied or used soley for their own purposes by benevolent and charitable institutions incorporated by this State.”

• Governor LePage proposed assessing not for profit organizations – makes sense with regard to hospitals, but how about land trusts with no income source?

From the field…

• Suggestion that the charitable institution provide a quid pro quo to the local community.

• Nonprofits should pay taxes unless they can prove that 90% of their resources are given back to the betterment of Maine citizens. Some “nonprofits” do nothing to help others.

From the field …

• Service center communities such as Bangor, Ellsworth, Portland and Belfast should be given credit on their county taxes for services the County receives and the demand it places on municipal resources. Gounty governments are resource funnels that draw other non-taxpaying resource users to the community such as non-profit organizations.

BETE and BETR

• Lincoln Institute of Land Policy studied exemptions of business property and determined that business decisions as to where to locate were not based on property tax incentives but on factors such as quality of life, quality of education, cost of relocating and whatever incentives can be wheedled out of government.

BETE and BETR

• “I think there should be no personal property tax. A restaurant is not a restaurant without its personal property. All BETE and BETR do is create government jobs and waste paper.”

Tax Relief Programs

• Tree growth. Tax relief programs require Towns to lower taxes – some like Tree Growth require State reimbursement; others like Farm and Open Space do not, with the same result.

• Reform of Tree Growth – misuse of program when property owner prohibited from harvesting within shore zone.

How am I doing?

Report Card – Is everyone paying his or her fair share?

Arlo Woolery, CAE

• “Always trust markets and the information they provide. Money is smarter than appraisers!”

• The ratio study is the primary mass appraisal testing procedure.

The Ratio Study

• This term preferred to “assessment ratio study”

• The two aspects of appraisal accuracy are level and uniformity.

• Level refers to the overall ratio of appraised values to market values

• Uniformity refers to the degree properties are appraised at equal percentages of MV

IAAO Standard on Ratio Studies

• Adopted April, 2013

• Ratio studies cannot be used to judge the level of appraisal of an individual parcel.

• A ratio study is a powerful tool to analyze appraisal performance, evaluate CAMA models and suggest strategies for improvement.

• Sales chasing undermines the study.

Maine Sales Qualification

• I guarantee you that if I get to pick the sales, my ratio will come out at 100%!

• Necessity of properly qualifying sales

• Essential in a properly conducted ratio study to avoid the siren song of “this was a family sale” – Almost everyone in Maine is related to everyone else!

Maine Sales Qualification

• Course 3 textbook gives examples of sales not true arms’ length transactions.

• IAAO Standard states that if a larger sample size is needed, sales that were automatically disqualified can be researched to see if they were open market transactions.

• Note that compulsion is the generally disqualifying factor: foreclosures, etc.

• Auctions can be arms’ length transactions! (Well advertised, seller can refuse all bids.)

Maine Ratio Study Terms

• “Assessment Ratio Study or Sales Ratio Study” – term should be “Ratio Study.”

• “Mean a/k/a Average ratio” – Better called “Arithmetic Mean” – Sum the ratios and divide by the number of ratios.

• “Central Section” – (items in the central 70% of all items in the study.) Term not used by the IAAO.


• “Outliers” – “Items located outside of the central 70% of the items in the study.” IAAO: “Outliers are observations with unusual values, that is, differ markedly from a measure of central tendency.”

• Some occur naturally

• Some occur due to data errors

IAAO Outlier Identification

• Based on the interquartile range (IQR) using order statistics.

• Ratios falling outside 1.5 x IQR = outliers• “Trimming of outliers using arbitrary limits,

for example, eliminating all ratios less than 50% or more than 150%, tends to distort results and should not be employed.”

• For small samples, remove no more than 10% of the ratios.


• “Average Ratio” – “Result of adding the ratios of all items in the central section divided by the number of items.”

• Term not used by IAAO.

• IAAO measures of performance are median ratio, mean ratio and weighted mean ratio.

• Vital to use confidence intervals.


• “Weighted Average Ratio” – “Sum of all the assessed values divided by the sum of the sales prices.”

• IAAO refers to this as the arithmetic mean – a measure of central tendency; add all the values of a variable and dividing by the number of values.


• “Deviation” – “The difference between one value in a set and the mean (average) of the entire set.”

• Term not used by the IAAO.

• Coefficient of Variation (COV) is the measure of the relative dispersion of the sample data about the mean of the data; expressed as a percentage of the mean.


• “Average Deviation” – “Add all the individual deviations in the study and divide by the total number of items in the study.”

• IAAO: “The arithmetic mean of the absolute deviation of a set of numbers from a measure of central tendency such as the median.” Used to compute the Coefficient Of Dispersion (COD).


• “Quality Rating (a/k/a Coefficient of Variation” – “The average deviation as a percentage of the average ratio (mean).”

• (Total of all Deviations / Total # of sample)• ----------------------------------------------------------• (Total of ratios of mid 70% of sample• -----------------------------------------------• Number of sales in mid 70% of sample)• -------------------------------------------------------• Term not used by IAAO.

IAAO Measured Performance

• Weighted Mean Ratio = value-weighted average of the ratios in which the weights are proportional to the sales price. Ratio of average assessed value to the average sales price value. Gives equal weight to each dollar of value in the sample.

• Used to compute the Price Related Differential (PRD), measures uniformity between high and low-value properties.

Everyone paying their fair share?

• Price Related Differential (PRD)

• Divide the mean ratio by the weighted mean ratio

• Statistic should be close to 1.00; above this indicates regressivity, below this suggests progressivity.

• High PRD’s indicate low appraisals of high-priced properties and vice versa.

IAAO Measured Performance

• Coefficient of Dispersion (COD) – The most useful measure of variability or uniformity.

• Subtract the median from each ratio

• Take the absolute value of the differences

• Sum the absolute differences

• Divide by the # of ratios, divide by the median, multiply by 100.

Assessor’s responsibility…

• To honestly use ratio studies to see how he or she is doing.

• Not to torture the data until it tells the Assessor what he or she wants to hear.

• Apply the results of the study to the valuation model to achieve the desired level of assessment.

Protecting the Assessor

• An interesting case from West Virginia, Covey v. Assessor of Ohio County (United States Court of Appeals, Fourth Circuit, January 26, 2015)

• The Coveys live in a home in a rural village surrounded by trees. For good reason, the couple posted “No Trespassing” signs on the driveway.

Protecting the Assessor (Cont’d)

• Roy Crews, field deputy, entered the property to collect data, even though the West Virginia statute provide that a tax data collector is not to enter a property if posted with “no trespassing” signs.

• Mr. Crews found no one home, opened the front door, left a pamphlet inside, searched the curtilage including the walk-out basement patio, found marijuana.


• After leaving the residence, Mr. Crews contacted the sheriff to report his finding.

• Sheriff’s deputies then came to the property, seized Mr. Covey, waited for a search warrant, re-entered the basement.

• Mr. Covey sued under 42 U.S. Code 1983 alleging that Mr. Crews (and the others) violated his 4th Amendment Rights to be free of unreasonable searches.


• Mr. Crews contended that he reasonably intruded on the property to achieve certain governmental interests.

• “As set forth below, neither of these arguments is persuasive.”

• Court agreed Mr. Crews’ violation of the statute did not amount to a violation of the Fourth Amendment.


• “What began as a mere regulatory violation turned into an affront to the Coveys’ constitutional rights when Crews entered the curtilage and the Coveys’ home.”

• Crews arguably exceeded his discretionary authority and should not be entitled to qualified immunity.

• What to do when you find a meth lab?

Questions?

improving maine’s property tax maine revenue services property tax school august 5, 2015 ©...

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