Personal Property Exemptions and Exclusions

Lee HarrisDeputy Assessor

Orange County Tax Office

Terminology

• Exemptions

• Exclusions

• Special Classes of Property

NC Constitution-ARTICLE V FINANCE

• Sec. 2. State and local taxation.

• (1) Power of taxation. The power of taxation shall be exercised in a just and equitable manner, for public purposes only, and shall never be surrendered, suspended, or contracted away.

NC Constitution-ARTICLE V FINANCE

• Sec. 2. State and local taxation.

• (2) Classification. Only the General Assembly shall have the power to classify property for taxation, which power shall be exercised only on a State-wide basis and shall not be delegated. No class of property shall be taxed except by uniform rule, and every classification shall be made by general law uniformly applicable in every county, city and town, and other unit of local government.

NC Constitution-ARTICLE V FINANCE

• Sec. 2. State and local taxation.

• (3) Exemptions.

Property belonging to the State, counties, and municipal corporations shall be exempt from taxation.

(cont’d)

NC Constitution-ARTICLE V FINANCE• The General Assembly may exempt

• Cemeteries

and property held for:

• Educational, • Scientific, • Literary, • Cultural, • Charitable, or • Religious purposes (cont’d)

NC Constitution-ARTICLE V FINANCE

• Every exemption shall be on a State-wide basis and shall be made by general law uniformly applicable in every county, city and town, and other unit of local government.

• No taxing authority other than the General Assembly may grant exemptions, and the General Assembly shall not delegate the powers accorded to it by this subsection.

Exemption Language

• Exemption language is typically similar to this:

– Buildings, the land they actually occupy, and additional adjacent land reasonably necessary for the convenient use of any such building shall be exempted from taxation if…

Special Classes Language

• Special class language is typically similar to this:

– …designated a special class of property under Section 2(2) of Article V of the North Carolina Constitution and are excluded from taxation to the extent provided in this section.

or– …designated a special class of property under

Section 2(2) of Article V of the North Carolina Constitution and must be appraised, assessed, and taxed in accordance with this section.

Magic Language Required?

• While most of the exemptions and special classes of property have the standard language identifying them as such, not all do.

• Absence of the classification language does not prevent the creation of a special class of property.

Burden of Proof

Every owner of property claiming exemption or exclusion from property taxes under the provisions of this Subchapter has the burden of establishing that the property is entitled to it.

Burden of Proof

An application must contain a complete and accurate statement of the facts that entitle the property to the exemption or exclusion.

Applications—When, How Often?

An owner claiming an exemption or exclusion from property taxes must file an application for the exemption or exclusion annually during the listing period, EXCEPT WHEN:

– No Application is Required

– Single Application is Required

Some Exceptions to Listing Period Filing

• Elderly/Disabled: G.S. 105-277.1(c)• Circuit Breaker: G.S. 105-277.1B(n)• Disabled Veterans: G.S. 105-277.1C(f)• Present-Use Value: G.S. 105-277.4(a)• Wildlife Land: G.S. 105-277.15

Listing Period Extensions• Per G.S. 105-307(a), an extended listing period

also constitutes the listing period. Thus applications may be timely filed during any extended listing period, either general or individual.

• General extensions of the listing period:

– The entire period for listing, including any extension of time granted, is considered the regular listing period for the particular year.

No Application Required-Exempted

• G.S. 105-278.1 Government property• G.S. 105-278.2 Burial property

No Application Required-Excluded

• G.S. 105-275 (15) Standing timber• G.S. 105-275 (16) Non-business property• G.S. 105-275 (26) Held by manuf for shipment• G.S. 105-275 (31) Intangible personal property• G.S. 105-275 (32a) Inventories-contractors• G.S. 105-275 (33) Inventories-manufacturers• G.S. 105-275 (34) Inventories-merchants

No Application Required-Excluded

• G.S. 105-275 (37) Poultry and livestock• G.S. 105-275 (40) Computer software• G.S. 105-275 (42) Short-term vehicle

rentals• G.S. 105-275 (44) Pharmaceutical samples

No Application-Reduced Valuation

• G.S. 105-277 (g) Solar HVAC system• G.S. 105-277.9 Roadway corridors

Single Application Required

Once the application has been approved, the owner does not need to file an application in subsequent years unless new or additional property is acquired or improvements are added or removed, necessitating a change in the valuation of the property, or there is a change in the use of the property or the qualifications or eligibility of the taxpayer necessitating a review of the benefit.

Single Application Required-Exempted

• G.S. 105-278.3 Religious• G.S. 105-278.4 Educational• G.S. 105-278.5 Religious & educational assembly

• G.S. 105-278.6 Charitable purposes• G.S. 105-278.7 Educational, scientific, literary,

charitable, cultural

• G.S. 105-278.8 Hospitals

Single Application Required-Excluded• G.S. 105-275 (3) Water/sewer associations• G.S. 105-275 (7) Public parks and drives• G.S. 105-275 (8) Recycling, air cleaning, etc• G.S. 105-275 (12) Conservation • G.S. 105-275 (17) Veteran’s organizations• G.S. 105-275 (18) Masonic orders• G.S. 105-275 (19) Fraternal and civic orgs• G.S. 105-275 (20) Goodwill Industries• G.S. 105-275 (21) Repealed

Single Application Required-Excluded• G.S. 105-275 (31e) LHI for gov’t afford. housing• G.S. 105-275 (35) Severed development rights• G.S. 105-275 (36) Repealed• G.S. 105-275 (38) Repealed• G.S. 105-275 (39) Project financing• G.S. 105-275 (41) Art held by State Art Society• G.S. 105-275 (45) Solar energy electric system• G.S. 131A-21 Medical Care Comm bonds

Single Application-Reduced Valuation• G.S. 105-277 (h) Private water companies• G.S. 105-277.1 Homestead exclusion• G.S. 105-277.4 Present-use value• G.S. 105-277.1C Disabled veteran• G.S. 105-277.10 Precious metals• G.S. 105-277.13 Brownfields• G.S. 105-277.14 Working waterfront• G.S. 105-277.15 Wildlife conservation land• G.S. 105-277.17 Community land trust• G.S. 105-278 Historic properties

Single Application Required-Misc

• G.S. 105-277.8 Homeowners’ association

What Is a Proper Application Form?

• AV-10 Property Tax Exemption or Exclusion

• AV-10V Motor Vehicle Exemption• AV-9 Homestead, Disabled Veteran, and

Circuit Breaker• TC-WQ Water Quality• TC-AQ Air Quality• TC-WM Waste Management

Any Other Forms Acceptable?

• Yes, anything written that shows intent to apply and contains the appropriate information is acceptable.

“The County was clearly aware of the taxpayer’s intent and received all of the relevant information it needed.”

• In re Valley Proteins, Inc., 128 N.C. App. 151, 494 S.E. 2d 111 (1997).

Statute Cite Required?

A taxpayer does not have to cite or make reference to the applicable statute in order to claim the applicable exemption allowed by the section if the application shows facts which entitle the applicant to the exemption.

• In re R.J. Reynolds Tobacco Co., 74 N.C. App 140, 327 S.E. 2d 607 (1985).

Late Application-Current Year

• An untimely application for exemption or exclusion applies only to property taxes levied by the county or municipality in the calendar year in which the untimely application is filed.

• What? Translation:

– An untimely application must be received by December 31 of the year for which relief is requested.

Late Application-Current Year

• Upon a showing of good cause by the applicant for failure to make a timely application, an application for exemption or exclusion filed after the close of the listing period may be approved by the board of equalization and review, or if that board is not in session, by the board of county commissioners.

Late Application-Prior Years• Late application for prior years can be considered only

when:

When an owner of property that may be eligible for exemption or exclusion neither lists the property nor files an application for exemption or exclusion, the assessor or the Department of Revenue, as appropriate, shall proceed to discover the property.

If, upon appeal, the owner demonstrates that the property meets the conditions for exemption or exclusion, the body hearing the appeal may approve the exemption or exclusion.

Review the Application

• Check the application for timeliness, completeness and sufficient content.

• If the application is timely but lacks sufficient information, it is reasonable to request additional information that must be returned within a specified time period, typically 30 days.

Review the Application

• Review the requirements of the appropriate statute.

• Does the application indicate that the property meet the statutory requirements (if any) for:– Ownership – Non-profit status– Type of property– Use of the property

Standard of Review

While the courts have consistently held that tax exemption statutes must be strictly construed against exemption, they have also held that such statutes should not be given a narrow or stingy construction.

• In re Wake Forest Univ., 51 N.C. App 516, 277 S.E. 2d 91 (1981).

Use of the Property

The use of the property, not the use to which the income of the property is put, determines exempt status.

• Rockingham County v. Board of Trustees of Elon College 219 N.C. 342, 13 S.E. 2d 270 (1941).

Search the Internet!

• Useful information can often be found through internet searches:

– Corporate websites– Newspaper articles– Presentations to governments, other

organizations– Legal actions

NC Secretary of State Corporation Search

• Until July 1, 2015:

http://www.secretary.state.nc.us/corporations/csearch.aspx

• Starting October 1, 2014:

http://www.secretary.state.nc.us/search/index/corp

501(c)(3) Tidbits

• Not all special classes of property require that the owner be a non-profit.

• 501(c)(3) status is not a guarantee of exemption or exclusion. All requirements must be met.

• All 501(c)(3) organizations are non-profit but not all non-profits are 501(c)(3) organizations.

Misc Issues

• Recycling application requirements

• Solar exclusion requests

• Software exclusion changes