PA 09-196—sHB 6041
Planning and Development Committee
AN ACT CONCERNING MUNICIPAL ASSESSMENTS AND ASSESSMENT APPEALS
SUMMARY: This act changes several laws governing the way towns assess property taxes and hear assessment appeals. It makes it easier for tax assessors to appraise large, income-producing property based on comparable sales and allows them to request net income and expense data annually, not just after a property is built or improved or during a townwide revaluation.
The act raises the ceiling above which boards of assessment appeals may refuse to hear appeals regarding specific types of property. It also allows property owners denied a hearing to appeal directly to the Superior Court.
In deciding any appeal, the board may increase or decrease a property's assessment. The act freezes the board's changes until the town's next scheduled revaluation, unless the assessor must change the assessment for specified reasons. If an assessor changes the assessment for other reasons, he or she must state the reasons in writing to the board and attach them to the property's card record.
The act similarly requires the assessor to record the reasons for changing a valuation that was initially made by an appraisal company hired to conduct a townwide revaluation. The assessor must record the reasons in the property's record card.
The act changes the effective date of PA 09-60, which allows municipalities to delay their next revaluation or the next step in the phase-in of an existing revaluation. That act took effect July 1, 2009 and applied to assessment years beginning October 1, 2008. This act makes the effective date upon passage and applies its changes to assessment years beginning on or after October 1, 2008.
Lastly, the act eliminates the 13-member working group established in 2006 to recommend improvements to the revaluation process.
EFFECTIVE DATE: Upon passage, except that the changes concerning assessment appeals and the valuation of income-producing property take effect October 1, 2009, the latter applying to assessment years beginning on or after it.
VALUING INCOME PRODUCING PROPERTIES
§ 2 — Valuation Method
Assessors generally determine the fair market value of large apartments (i. e. , seven or more units), leased facilities, and other income-producing property based on recent sales of comparable property in the town. But this may not be possible if there are few or no comparable properties in the town or few or no comparable sales. In these cases, assessors must determine value based on a property's capacity to generate rental income. Prior law required them to do so based on as many of the following methods as were applicable:
1. replacement cost less depreciation, plus the market value of the land;
2. gross income multiplier method used for similar property; and
3. capitalization of income based on market rent for similar property.
The act changes the mix of methods assessors must use to determine the value of income producing property. It requires them to use the comparable sales method in all cases without prohibiting them from using recent sales data for comparable property in other towns.
The act also eliminates the gross income multiplier method as a valuation option, but it is already part of the capitalization of income method (see BACKGROUND). It requires assessors to use comparable sales and the other two methods any time they revalue property, not just during a townwide revaluation.
§ 3 — Disclosing Rental Income and Expense Data
The act changes the rules for providing annual net income and operating expense data. By law, assessors may require a property owner to submit this data when determining the value of his or her property, which assessors usually do after a property is built or improved or during a periodic townwide revaluation. In such cases, the property owner must submit the income and expense data by June 1 annually on a form the assessors must provide. Assessors record the value they derive from the data on the municipality's grand list for the subsequent October 1.
The act explicitly allows assessors to request the income and expense data annually, not just after a property is built or improved or during a townwide revaluation. But it also requires them to provide the data forms no later than 45 days before the June 1 submission deadline. The act allows assessors to extend that deadline for up to 30 days for good cause, but only if the property owner requests an extension by May 1. It requires assessors or their designees to audit the data the property owner submits.
The law imposes a penalty on the owner for failing to submit income and operating expense data or submitting incomplete or false data with the intent to defraud. The penalty is a 10% increase in the property's assessment for that assessment year. The act allows assessors to waive this penalty if the taxpayer who was required to submit the data no longer owns the property on the subsequent October 1. Assessors or appeals boards may do this if the municipality adopted an implementing ordinance.
RECORDING THE REASONS FOR CHANGING A VALUATION
§ 4 — After a Revaluation
By law, assessors are responsible for determining property values even when they hire an appraisal company to do so on their behalf. In these cases, they may change the company's valuation. If an assessor does so, the act requires him or her to document the reasons for changing the valuation and append them to the property's card (i. e. , the document on which the assessor records the property's address, physical characteristics, value, and other relevant data). The record also includes the criteria, guidelines, and similar material used to determine value and a list of property sales by neighborhood.
By law, the record, including the assessors' reasons for changing a valuation, must be available for public inspection no later than the date the assessors mailed the notices informing owners about the new valuations. The comparable sales data used to determine those valuations must remain available for public inspection for at least 12 months after the revaluation's effective date.
§ 1 — On Appeal
The law allows boards of assessment appeals to change the assessor's valuation of a property, but only if the owner appeals the property's gross assessment (i. e, 70% of the property's fair market value without reductions for tax exemptions). If two or more people own the property, each person may appeal his or her portion of the assessment.
If the board increases or decreases the property's gross assessment, the act freezes that new value until the next time the municipality revalues property. (Municipalities revalue at least once every five. )
The act allows the assessor to change the board's assessment to comply with a court order, correct an error, or reflect a change in the property's physical characteristics (e. g. , addition of a new room, demolition of an existing room, or damage caused by a storm). The assessor may change the assessment for other reasons before the next revaluation, but the act requires him or her to explain to the board in writing the reasons for doing so and append them to the property's record card.
§ 1 — ASSESSMENT APPEALS
The act raises the ceiling above which the board of assessment appeals may refuse to hear appeals regarding specific types of property. Under prior law, the board could do so for commercial, industrial, utility, or apartment property assessed at over $500,000. The act raises the ceiling to $1 million. By law, all property owners may appeal their annual October 1 assessment. Those that wish to do so must file their appeals in February, and the board must hold hearings in March.
If the board refuses to hear a property owner's appeal, the act allows the owner to appeal directly to the Superior Court.
Methods for Assessing Income-Producing Property
Gross Income Multiplier Method. This method determines value based on the subject property's monthly rental income and the sale price of a comparable property. It requires an assessor to divide the sale price of a comparable property by its monthly net income. He or she must then determine the value of the subject property by multiplying the result by its monthly income.
For example, assume the subject property generates $2,500 per month in net income. An assessor can determine its value based on the sale price and monthly net income of a comparable property. Assume that the comparable property sold for $200,000 and generated $2,000 in monthly net income. The assessor divides the sales price by the monthly income to calculate the gross income multiplier (i. e. , $200,000/$2,000=100. ) He or she then determines the subject property's value by multiplying the gross income multiplier (100) by the subject property's monthly income ($2,500) to determine the property's value (i. e. , $100 x $2,500=$250,000).
Income Capitalization Method. The income capitalization method looks at similar factors to determine value. It focuses on the ratio between the net income a property expects to produce and its original sale price or current market value. Using the above example, the assessor would calculate the value of the subject property by determining the capitalization rate of the comparable property (i. e. , $2,000/$200,000=. 01). The assessor then determines the subject property's value by dividing the comparable property's capitalization rate by its monthly net income (i. e. , $2,500/. 01= $250,000).
Revaluation Working Group
This 13-member group consisted of assessors, business representatives, and public officials responsible for recommending improvements to the revaluation process. It had to submit its findings and recommendations to the Finance, Revenue and Bonding Committee by January 1, 2007, and by law, terminated on that date or the date it submitted the report. The group submitted that report in January 2009.
OLR Tracking: JR: SP: SS: DF