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HomeMy WebLinkAboutAgenda - 06-04-2013 - 7cORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: June 4, 2013 Action Agenda Item No. 7 -c SUBJECT: Refund Requests for Inaccurate Square Footage Calculation DEPARTMENT: Tax Administration PUBLIC HEARING: (Y /N) No ATTACHMENT(S): Taxpayer Requests for Refunds Bulletin on Refunds and Releases Refund Release Blog 1 INFORMATION CONTACT: Dwane Brinson, Tax Administrator, (919) 245 -2726 John Roberts, County Attorney, (919) 245 -2318 Frank Clifton, County Manager, (919) 245- 2300 PURPOSE: To consider five taxpayers' refund requests for the years 2008 through 2012. BACKGROUND: North Carolina General Statute (NCGS) 105 -381 allows taxpayers to appeal to the governing body for a release or refund of taxes due or already paid. A valid defense is: (a) a tax imposed through clerical error; (b) an illegal tax; (c) a tax levied for an illegal purpose. The statute also recognizes two different situations: one where the taxpayer has already paid the tax under appeal and the other where the taxpayer has yet to pay the tax. Each taxpayer included in this abstract has paid in full the tax under appeal. In addition, the property record card for each of these parcels was corrected from the time the error was discovered moving forward. Paraphrased, 105- 381(a)(3) affords taxpayers who present a successful statement of defense relief for up to five years of taxes paid. Multiple requests herein demand refund for greater than five years, but under no circumstance is such supported by state law. Mr. Chris McLaughlin at the UNC School of Government has opined that requests such as those presented to the Board are not supported by state law. A recent blog and a Property Tax Bulletin from Mr. McLaughlin, both attached, are leaned upon heavily for staff's recommendation to the Board. In summary, it is opined that square footage differences may be assessment errors and, as such, would not qualify as either a clerical error or an illegal tax. Moreover, NC General Statute 105 -322 affords taxpayers an annual opportunity to appeal his or her tax record and assessment. Such annual requests are mutually exclusive, too. The County Attorney notes that, as stated above, North Carolina General Statute 105 -381 provides limited statutory reasons whereby a county governing board may lawfully refund taxes. The statutory reason that comes nearest to these situations is one of "clerical error ". However, the North Carolina Court of Appeals in the 1997 case of Ammons v. Wake County defined clerical error as something readily apparent on the face of the instrument. This is interpreted as being a typographical error or an error of transposition, not an error of judgment, or a lack of documented available information to amend the tax record. 2 Additionally, North Carolina General Statute 105- 380(c) provides in part: (a) The governing body of a taxing unit is prohibited from releasing, refunding, or compromising all or any portion of the taxes levied against any property within its jurisdiction except as expressly provided in this Subchapter. (b) Taxes that have been released, refunded, or compromised in violation of this section shall be deemed to be unpaid and shall be collectible by any means provided by this Subchapter, and the existence and priority of any tax lien on property shall not be affected by the unauthorized release, refund, or compromise of the tax liability. (c) Any tax that has been released, refunded, or compromised in violation of this section may be recovered from any member or members of the governing body who voted for the release, refund, or compromise by civil action instituted by any resident of the taxing unit, and when collected, the recovered tax shall be paid to the treasurer of the taxing unit. The costs of bringing the action, including reasonable attorneys' fees, shall be allowed the plaintiff in the event the tax is recovered. For the reasons stated above, the County Attorney advises the Board of Commissioners that in his opinion issuing the requested refunds is not supported by current North Carolina law and could subject the individual members of the Board of Commissioners to personal liability. FINANCIAL IMPACT: Approval of these refund requests will result in a net reduction of $20,056.54 to the County, municipalities, and special districts. The Tax Assessor recognized that refunds could impact the budget and accounted for these in the annual budget projections. RECOMMENDATION(S): The Manager recommends that the Board consider that County staff, the County Attorney, and the UNC School of Government staff has been unsuccessful in finding a way to approve these refunds that is supported by State law. As the Board has been previously advised, current administration believes that the proposed verification of records for all properties county -wide due to occur before the next revaluation scheduled for 2017 could produce numerous similar situations. Thus actions on these requests could establish the foundation for future claims and ensuing impacts. Approval of the requests could subject the individual members of the Board of Commissioners to personal liability since the requests do not appear to meet criteria set forth in NCGS 105 -381. 3 February 19, 2013 Orange County Tax Administrator Attn: T. Dwane Brinson Gateway Center, 228 S Churton St, 2nd Floor PO Box 8181 Hillsborough, NC 27278 919 - 245 -2725, option 2 Dear Mr. Brinson, I am writing to request reimbursement for prior years overpaid property taxes. We live at 2602 Hooper Ct in Hillsborough and recently had our house appraised. The appraiser told us that the county had our square footage listed at 3416 sf when the appraisal only came up with 2643 sf. At that time I called your office and it was reassessed by Steve Hennsely who came up with 2736 sf, which is a 680 sf difference from the 3416 sf that your team was previously billing us for. For 2012 alone, this represents an estimated $500 in overpaid taxes. We've been in this house since 1998 and would expect to receive reimbursement for each year, going back to 1998, which adds up to a significant overpayment ('"$7,000 based on the 2012 results alone). I looked back at our 2012 tax bill (bill # 0000226016- 2012 - 2012 -0000) and square footage is not indicated on the property tax bills. Your team may want to enhance your bills to include square footage so that a homeowner could catch this type of error going forward. Please advise how long it will take to receive this reimbursement as well as a full accounting of how you derived at the reimbursement amount including all prior year calculations and payments made. Thanks for your assistance with this matter. Sincerely, Frieda Rosemond 0 Allison W. Chambers 9023 Laurel Springs Drive Chapel Hill, NC 27516 April 10, 2013 Mr. Dwane Brinson, Orange County Tax Collector Orange County Tax Administration P.O. Box 8181 Hillsborough, NC 27278 Dear Mr, Brinson, It came to my attention this spring, after reviewing my homeowners insurance with our carrier, that the county has charged my husband and I taxes on a 3700+ square foot home since 2009. Our home is in fact 3054 square feet. I contacted the tax office and discovered that the county was counting our walk -up attic as finished living space, which it is not. We have lived in our home for twenty -four years and no one from the tax office has been inside our home since we finished building it in 1989. That being said, I am unable to understand how, during the last reassessment, the tax office decided we had that additional living space. I understand that North Carolina state law does not support my request for a refund of overpayment of our property tax, but I am compelled, by principle, to do so regardless. Please consider my request going forward. Regards, Allison W. Chambers 5 May 12, 2013 Dwane Brinson, Tax Assessor Orange County Tax Administration P.O. Box 8181 Hillsborough, NC 27278 -8181 Re: Erroneous /Overpayment in property Tax 102 Maywood Way, Chapel Hill, NC 27516 Year: 2004 -2011 Dear Mr. Brinson, We are writing with regards to the property tax on our home: 102 Maywood Way Chapel Hill, NC 27516 #86 PH 1 Larksupr P91 /101 -103 PIN 9870967205. We recently found out that we have been overcharged in our property tax, from the period 2004 -2011. This occurred due to an inadvertent and undetected error in the square- footage of our home. We are writing to ask your help in receiving credit /recovering the extra, erroneous tax, we have paid from the year 2004 -2011. On your record, the footage listed has been: 4,224 sq. ft. (old, incorrect) This has been the case since the house was built (end of 2003). This old and incorrect square- footage was based on a finished attic. HOWEVER, THE ATTIC IS UNFINISHED. On April 5, 2013, Mr. Raymond Jordon from your office was kind enough to stop by our residence (102 Maywood Way, Chapel Hill), to confirm that the attic is unfinished, without any heating, plumbing, drywall, or flooring other than plywood /particle board. Mr. Jordan has since revised the total square footage to: 3,534 sq. ft. (new, correct) . R He informed me and my wife that this correction will be reflected in the 2012 tax bill, which we are paying this calendar year. As a reference for comparison, the house diagonally across the street from ours, approximately 120 ft away, at the address 103 Maywood Way, has a larger square footage, and a lower tax rate. The models of the houses are identical, with a slight enlargement in the living room for 103 Maywood Way compared to our property (102 Maywood Way). For a direct comparison, the property taxes for the years 2009 -2011 are listed below: Our property: 102 Maywood Way Incorrect 4,224 sq. ft. (corrected 3,534 sq. ft.) Year built: Dec. 2003 2011 Tax: $10,398 2010 Tax: $10,393 2009 Tax: $10,226 Reference for comparison: 103 Maywood Way 3,662 sq. ft. Year build: Nov. 2003 2011 Tax: $9,572 2010 Tax: $9,567 2009 Tax: $9,400. Other homes in our neighborhood have similar tax structure as this reference at 103 Maywood Way. We are seeking your expertise and assistance in addressing the extra tax we have paid to Orange County, based on the erroneous information on the square footage. One avenue we are pursuing is to have the extra tax paid in the years 2004 -2011 be applied to the 2012 tax bill. We look forward to hearing from you in the near future, regarding how to proceed to recover the erroneous extra tax we have paid. Thank you in advance for your attention to this matter. Sincerely yours, Albert M. Chang Ying Hsu 102 Maywood Way Chapel Hill, NC 27516 (919) 969 -2549 . inngshegphy.duke,edu yiniz59gyahoo.com M rr� Chapel Hill, 12 March 2012 Dear Mr. Crayton, F Steve Hinsley, tax assessor for Orange County NC, has established that our house has been overassessed for a considerable amount due to errors in the calculation of its square footage by the tax authorities. On 6 March 2012 Mr. Hinsley assessed the tax value of the property to be $472.100 (instead of the former $507.401) based on a square footage of 2273 sq foot (instead of the former 2649 sq ft.). No alterations have been made to the structure of the house between our date of purchase and today. Therefore, I hereby ask you to please return to us the excess in paid taxes starting from 14 November 2006, the date of the purchase of the property and the starting date for the liability of property tax over it. Thank you very much for your consideration. Sincerely, Y V Myra Bom Myra Bom and Carl Trowell 306 Glade Street Chapel Hill, NC 27516 Parcel# 9777 -88 -6138 Tract# 763441 Account # 295436 0 Penny Rich 109 Oldham Place Chapel Hill, NC 27516 pennyrich.ch @gmail.com 919- 428 -5952 Mr. Dwane Brinson, Director Orange County Tax Office PO Box 8181 Hillsborough, NC 27278 -8181 March 17, 2013 Mr. Brinson, I am submitting this letter as a follow up to our conversation on March 13, 2013. While viewing my property on the new App. Aries, I noticed that my house was list as 3880 square feet. I knew this was incorrect and requested a new measurement be taken for the house. The measurement revealed that indeed the house is only 2888 square feet. I am afraid that the records have been incorrect since we have owned the house dating back to 2002. Therefore, I believe the value of the house was inflated resulting in an overpayment of property taxes for the past 10 years. I am requesting a review of this case and a refund for overpayment. I understand the refund policy of 5 years. Parcel ID # 9779813668 Thank you for your prompt attention. PROPERTY TAX BULLETIN NO. 153 1 APRIL 2010 Refunds and Releases Christopher B. McLaughlin Few issues carry a greater potential for conflict between taxpayers and tax offices than do requests for refunds or waivers of property taxes. This is true in large part because the Machin- ery Act allows refunds and waivers only under two very limited circumstances. Unless the disputed tax is imposed due to clerical error or is illegal, the Machinery Act prohibits the refund of a tax payment or the waiver — called a "release" in the Machinery Act —of an unpaid tax obligation. Contrary to what many taxpayers believe, the refund and release process is not the venue for a re- examination of a property's value or taxable status. Although some governing boards desire to be more forgiving on these issues, they do so at their peril: board members who approve refunds or releases that violate the Machinery Act can be held personally responsible for the lost taxes.' 1. Who may approve refunds and releases? The governing board, always. The local government's manager, attorney, or finance officer, some- times. But the tax collector, never. G.S. Section 105- 381(b) of the North Carolina General Statutes (hereinafter G.S.) gives the governing board primary responsibility for approving refund and release requests. For refunds and releases of less than $100, the board may delegate this responsibility to the manager, attor- ney, or finance officer, who must then report monthly to the board on the actions taken. Con- spicuously absent from this list is the tax collector. In practice some tax collectors grant small refunds or releases and then seek approval from the board, but this is a risky approach. Once a refund or release is approved by the board or its delegate, the tax collector should be credited with that amount in the next annual settlement .2 Christopher B. McLaughlin is a School of Government faculty member who specializes in local taxation. 1. N.C. GEN. STnT. (hereinafter G.S.) § 105- 380(c). 2. G.S. 105- 381(b). © 2010 School of Government. The University of North Carolina at Chapel Hill Property Tax Bulletin 11 2. When are refunds and releases authorized? Technically, refunds and releases are authorized in three situations: when a tax is (1) imposed through clerical error, (2) illegal, or (3) levied for an illegal purpose.' However, because reasons 2 and 3 overlap substantially, if not entirely, in practice there are only two situations that justify a refund: when a tax is imposed due to clerical error or is illegal. Clerical Error The General Assembly has not defined the term "clerical error," but state courts have. In 1997, the North Carolina Court of Appeals tackled this issue in Ammons v Wake County.' In this case, the taxpayer asked the assessor if his forest land qualified for present -use value (PUV) tax deferrals for the 1993 tax year. The assessor answered no and the taxpayer did not apply for the PUV program. One year later, the taxpayer ignored the assessor's opinion and applied for a PUV deferral. The assessor denied the application, but the taxpayer won his appeal to the board of equalization and review and was granted PUV status for the 1994 tax year. The taxpayer then requested a refund for the 1993 taxes he would have been able to defer had the assessor provided accurate advice about the property's eligibility for the PUV program. After the board of county commissioners denied the refund request, the taxpayer turned to the courts. The superior court ruled that the assessor's incorrect advice did not constitute a clerical error under G.S. 105 -381 and dismissed the taxpayer's claim. The court of appeals affirmed this decision, which became final when the North Carolina Supreme Court declined to hear the taxpayer's appeal. According to the court of appeals, to qualify as a clerical error under G.S. 105 -381 the tax office's error "must ordinarily be apparent on the face of the instrument," "must be capable of being corrected by reference to the record only," and must produce an unintended result. Prime examples are transcription errors, such as when an additional zero is added to tax valuation or when two numbers are transposed on a tax bill. The definition of clerical error adopted in Ammons excludes a factual or judgment error by an appraiser, which must be addressed during the assessment appeal period and not in a refund and release request. For example, assume that in 2007 an appraiser values a lakefront lot with the understanding that it is buildable. Three years later, the taxpayer applies for a building permit and is denied based on the size and slope of the lot. The taxpayer immediately asks the tax office for a retroactive decrease in the tax value of the lot and a tax refund, based on the fact that the lot was never buildable. Applying the Ammons test, this error does not justify a refund under G.S. 105 -381 because it is a judgment error and not a clerical error. First, the error is apparent and correctable only through an examination of the property and a decision by the county inspections department, not by reference to the appraisal documents. Second, the error has not caused an unintended result. In 2007, the appraiser intended to value the house as a buildable lot, and it was so valued. The judgment error by the appraiser can be corrected under G.S. 105 - 287(a)(2) for current and future tax years, but it does not justify a retroactive change to the tax value or a refund for past years under G.S. 105 -381. For a terrific analysis of the Ammons case and its definition of clerical error, please see William A. Campbell's Property Tax Bulletin No. 11V 3. G.S. 105- 381(a)(1). 4.490 S.E. 2d 569, 127 N.C. App. 426 (1997), cert. denied, 500 S.E.2d 84, 347 N.C. 670 (1998). 5. William A. Campbell, `Ammons a Wake County: Some Light on Clerical Errors," Property Tax Bulletin No. 111 (October 1997), available online at www.sog.unc.edu /pubs /electronicversions /pdfs/ ptbl ll.pdf. © 2010 School of Government. The University of North Carolina at Chapel Hill Refunds and Releases 12 Can a clerical error by the taxpayer ever justify a refund or a release? No. Based on the lan- guage in G.S. 105 -381, a refund or release is justified only if the tax is "imposed through clerical error" and only the government can impose a tax. Consider the situation in which Tina Taxpayer forgets that her mortgage company is escrow- ing her property tax payments and makes a payment to the tax office. Can Tina's payment be refunded based on the fact that her mortgage company will pay the tax bill later in the year with the escrowed funds? No. Even though Tina's error may be a clerical one, it does not sat- isfy G.S. 105 -381 because the tax on her home was not imposed due to her error. Tina's refund request should be directed to her mortgage company, not to the tax office. Similarly, a refund is not justified if a taxpayer mistakenly pays the taxes on property that he or she sold to another taxpayer at some point after the listing period. The taxpayer may have made a clerical error when he or she wrote the wrong parcel number on the payment check, but that does not mean the taxes on that parcel were imposed due to clerical error. The taxpayer's remedy, if any, would be from the new owner of the property, not the tax office. Illegal Taxes Taxes that are either illegal or levied for an illegal purpose may be released or refunded under G.S. 105 -181. Situations in which refunds may occur include: 1. Double taxation, when the same property is taxed more than once; 2. Situs mistakes, when a taxing unit taxes property that has no situs in the unit's jurisdiction; 3. Procedural defects, when a taxing unit levies a tax without a required ordinance or referendum; 4. Excess taxation, when a taxing unit levies a tax in excess of the applicable cap on that tax;' and 5. Improper purposes, when a taxing unit levies a tax for a purpose not permitted by the General Assembly.' This author believes some local governments inappropriately shoehorn valuation errors and/ or judgment errors into the illegal tax category and authorize refunds for matters that should be resolved during the valuation appeal process. For example, consider the situation in which the assessor's office incorrectly assumes during a reappraisal that Tom Taxpayer's house has a finished third floor. Two years later, Tom dem- onstrates to the assessor that his house has never had a finished third floor. Tom asks that his assessment be reduced retroactively and that his excess tax payment for the past two years be 6. For example, county and municipal property taxes must be included in the government's annual budget ordinance. G.S. 159 -13. Rural fire district taxes require a petition signed by 35 percent of the affected landowners and voter referendum in the proposed district. G.S. 69 -25.1. 7. For example, with some exceptions general county and municipal property tax rates are capped at $1.50. G.S. 153A -149; G.S. 160A -209. Rural fire district tax rates are capped at either 10 cents or 15 cents, depending on the language of the authorizing referendum. G.S. 69 -25.4. 8. G.S. 153A -149 and G.S. 160A -209 list the approved purposes for general county and municipal prop- erty taxes. Special service district taxes may be used only for the provision of additional services in those districts such as beach erosion control, sewer systems, fire protection (counties only), and downtown revitalization projects (municipalities only). G.S. 153A -301; G.S. 160A -536. Rural fire district taxes may be used only for the provision of fire protection services in these districts. G.S. 69 -25.4. © 2010 School of Government. The University of North Carolina at Chapel Hill 4 Property Tax Bulletin 13 refunded. The error at issue clearly is not a clerical error under the Ammons test. Nevertheless, is a refund justified because the resulting tax is illegal, in that the county taxed Tom for prop- erty (a finished third floor) that Tom has never owned? Many counties would answer yes, but this author disagrees. If valuation errors such as the one involving Tom's third floor are refundable under the illegal tax category, then the deadline for valuation appeals becomes irrelevant. Local governments would lose all certainty about the value of their tax bases and find it impossible to budget accurately. For this reason, the best interpretation of the illegal tax category is one that excludes valuation judgment errors. If a taxpayer wishes to contest the valuation of his or her property, he or she must do so through the board of equalization and review appeal process, not through the refund and release process .9 Listing errors must also be resolved during the initial appeal period to the board of equaliza- tion and review rather than through the refund and release process. For example, assume that Tom Taxpayer has listed a boat in Carolina County for several years. In November 2009 he sells the boat to his neighbor, Tina Taxpayer. In January 2010 Carolina County sends Tom a listing form that includes the boat. Tom signs and returns the form without carefully reading it. The county subsequently assesses the boat for taxation under Tom's name. When Tom receives the tax bill for the boat -, he promptly pays it. Six months later he realizes he has paid taxes on a boat he no longer owns and demands a refund from Carolina County. Tom is not entitled to a refund under G.S. 105 -381 because the tax on the boat is not illegal: Carolina County is authorized to tax the boat because it still has situs in Carolina County on January 1, 2010. Nor is Tom enti- tled to a refund under the clerical error category because the listing error does not satisfy the Ammons test. Tom's opportunity to contest the listing of the boat in his name ended when the valuation appeal period ended thirty days after he received notice of the boat's tax valuation.lo That said, refunds and releases are justified under GS 105 -381's illegal tax category for taxes levied on property that does not exist or does not have situs in the taxing unit as of the listing date. Consider the example above, but assume instead that in mid -2009 Tom sold the boat to a resident of another county who promptly removed it from Carolina County. If Tom mistak- enly listed his boat for taxation in Carolina County for 2010, he would be entitled to a refund or a release of those taxes after providing evidence that the boat did not have situs in Carolina County on January 1, 2010. The same would be true if Tom's boat was destroyed by hurricane in mid -2009 and he mistakenly listed it for taxation for 2010. Tom would be entitled to a refund or release of the taxes on the boat if he could provide evidence that the boat no longer existed as of January 1, 2010." 9. The same is true of taxability errors. As the Ammons case demonstrates, incorrect decisions by the assessor regarding applications for exemptions or exclusions do not justify refunds or releases. If a tax- payer believes that he or she is entitled to an exemption or exclusion, the taxpayer must take advantage of the application and appeal process in G.S. 105 - 282.1. The taxpayer cannot retroactively raise these issues using the refund and release process under G.S. 105 -381. 10. G.S. 105- 317.1(c). Under G.S. 105 -306, the county is permitted to correct the listing error and pro- ceed as if it had been listed in Tina's name all along. This means that if Tom had never paid the taxes, he would no longer be considered the responsible taxpayer and could not be subject to enforced collection remedies. The same conclusions would be reached under G.S. 105 -302 if the listing error concerned real property. 11. In contrast, this author believes that a refund or release is not justified under G.S. 105 -381 when a business taxpayer lists a certain cost of personal property for taxation and then later seeks a refund or release of the related taxes on the grounds that the taxpayer included in that cost amount some personal © 2010 School of Government. The University of North Carolina at Chapel Hill Refunds and Releases 14 3. Which taxes must be released or refunded under G.S. 105 -381? The Machinery Act defines the term "tax" as "the principal amount of any tax, cost, penal- ties and interest imposed upon property tax or dog license tax. "" This definition means that G.S. 105 -381 controls the refund or release of all property taxes, including special service district taxes and rural fire district taxes. G.S. 105 -381 does not control the refund or release of other local taxes, such as privilege license taxes and occupancy taxes, nor does it control the refund or release of costs and fees, such as special assessments and nuisance abatement costs, that by statute are collectible as property taxes. See Question 7 for details on the refund and release of other taxes and fees. 4. Does G.S. 105 -381 govern the refund or release of interest? Yes. Because the term "taxes" as used in GS 105 -381 includes interest, any refund or release of interest must conform to the restrictions in that statute. Only when interest is levied illegally or added due to a clerical error can it be released or refunded. For example, if the tax office miscal- culates the interest owed by a taxpayer, that interest charge could be refunded or released under G.S. 105 -381. What if the taxpayer claims that he or she was charged interest only because the tax office failed to send a tax bill in a timely fashion or sent an inaccurate tax bill? The North Carolina Supreme Court answered this question in the negative when it decided In re Morgan two years ago." In this case, the taxpayer listed her house with the Henderson County assessor but the house was never assessed or taxed due to tax office error. Eight years later the tax office learned of its mistake and sent retroactive tax bills, plus interest, for each year the house had escaped taxation. The taxpayer contested both the principal taxes and the interest. The Supreme Court ruled in favor of the county, approving not only the principal taxes but also the addition of inter- est to the tardy tax bills. The court's decision relied on G.S. 105 -348, which provides taxpayers with notice of their taxes regardless of when or if they receive tax bills, and G.S. 105 -394, which forgives minor defects — "immaterial irregularities" in the language of the statute — during the taxation process.14 Although the taxpayer in Morgan did not seek a release under G.S. 105 -381, the result would be the same had she done so. Morgan makes clear that it is legal for interest to accrue on taxes billed after the delinquency date due to tax office error. A release is, therefore, not justified under G.S. 105 -381. property that was disposed of prior to January 1. This relatively common situation involves a dispute over the valuation of the taxpayer's aggregate personal property as opposed to a dispute over the existence of taxable property. Accordingly, the taxpayer's opportunity to contest the issue should be through the list- ing and appraisal appeal period, not through the refund and release process. 12. G.S. 105- 273(15). 13. 362 N.C. 339, 661 S.E.2d 733 (2008). 14. For more on Morgan and the immaterial irregularity provisions, please see Christopher B. McLaughlin and Stan C. Duncan, "Discovery, Immaterial Irregularity, and the Morgan Decision," Prop- erty Tax Bulletin No. 147 (March 2009), available online at www.sog.unc.edu /pubs /electronicversions / pdfs /ptbl47.pdf. © 2010 School of Government. The University of North Carolina at Chapel Hill Property Tax Bulletin 15 5. How many years of taxes can be released or refunded? Different rules apply depending on whether the taxpayer seeks a refund of paid taxes or a release of unpaid taxes. Refunds are limited to the later of (1) five years from the tax's original due date and (2) six months from the date the taxes are paid. Releases of unpaid taxes may be granted at any time. For example, assume that Carolina County improperly levies taxes for 2005 -9 on a boat that Tina Taxpayer keeps permanently moored in Ocean County. These taxes are illegal and justify relief under G.S. 105 -381. If Tina has never paid the boat taxes to Carolina County, she can obtain a release of the taxes and interest at any time. She can ask for a release immediately upon discovering the mistake in 2010 or wait years to submit her request; either way, Tina will be entitled to a full release as long as the taxes have not been paid. If Tina has been paying the Carolina County taxes punctually each year, then the refund rules apply. Tina can obtain a refund for all taxes that were originally due within five years of her refund request. Her 2005 taxes were due on September 1, 2005; as long as she requests a refund before September 2, 2010, she is entitled to a refund of the 2005 taxes and all subsequent taxes. If Tina submits her request after September 1, 2010, she cannot obtain a refund of the 2005 taxes. The six months from payment provision will apply if Tina learns of the Carolina County taxes in 2010 and pays in full for the years 2005 -9 on June 1, 2010. In this case, six months from the date of payment (December 1, 2010) will be later than five years from the tax's original due date (September 1, 2010). Tina will, therefore, have until December 1, 2010, to request a refund of the 2005 taxes. 6. If the governing board denies a request for a refund or release, does the taxpayer have the right to appeal that decision? Yes. If the governing board denies the taxpayer's request or fails to act on the request within ninety days, the taxpayer has the right to bring a civil action in state court within three years." The taxpayer must pay the disputed taxes before initiating a lawsuit if the request is for a release. If the taxpayer prevails, the taxing jurisdiction must refund the disputed taxes plus six percent interest, as well as all costs and attorneys' fees incurred by the taxpayer. 7. Does G.S. 105 -381 govern the refund or release of other taxes or fees collected by a local government? No. In addition to property taxes, local governments are authorized to levy a variety of taxes on activities ranging from owning a pet to selling alcohol to renting cars. All of these taxes may be collected using Machinery Act remedies of attachment, garnishment, and levy." However, none of the authorizing statutes for these various taxes specifically incorporates the Machin- ery Act refund and release provisions. Local governments are, therefore, free to develop their own refund and release policies for taxes other than property taxes or can choose to adopt 15. G.S. 105- 381(c). 16. G.S. 153A -147 (counties) and G.S. 160A -207 (municipalities). © 2010 School of Government. The University of North Carolina at Chapel Hill Refunds and Releases the Machinery Act approach. Regardless of the chosen method, local governments would be wise to adopt formal refund and release policies for all of their various taxes in order to avoid controversy. The same approach holds true for local government costs and fees that may be collected using Machinery Act enforced collection remedies for delinquent property taxes. These include special assessments, public nuisance abatement costs, and solid waste fees. 17 Like the taxes discussed above, the authorizing statutes for these fees and costs do not specifically incorporate the Machinery Act refund and release provisions. As a result, local governments are free to craft their own refund and release provisions for most of the fees and costs they collect. The only exceptions are special assessments, which are governed by their own amendment procedures.18 17. For special assessments for the cost of public works projects such as water and sewer system extensions, see G.S. 153A -195 (counties) and G.S. 160A -228 (municipalities). For mowing, trash collec- tion, or other costs incurred abating public nuisances on private property, see G.S. 153A -140 (counties) and G.S. 160A -193 (municipalities). For solid waste fees included on property tax bills, see G.S. 153A -293 (counties) and G.S. 160A- 314.1(b) (municipalities). 18. G.S. 153A -198 (counties) and G.S. 160A -231 (municipalities) permit special assessments to be modified only in cases of "irregularity, omission, error or lack of jurisdiction." © 2010 School of Government. The University of North Carolina at Chapel Hill This bulletin is published and posted online by the School of Government to address issues of interest to government officials. This publication is for educational and informational use and may be used for those purposes without permission. Use of this publication for commercial purposes or without acknowledgment of its source is prohibited. To browse a complete catalog of School of Government publications, please visit the School's website at www.sog.unc.edu or contact the Publications Division, School of Government, CB# 3330 Knapp- Sanders Building, UNC Chapel Hill, Chapel Hill, NC 27599 -3330; e -mail sales @sog.unc.edu; telephone 919.966.4119; or fax 919.962.2707. 16 Coates' Canons: NC Local Government Law Blog » When Does An Appraisal Error Justify a (ailffif>3 17 - Coates' Canons: NC Local Government Law Blog - http: / /canons.sog.unc.edu - When Does An Appraisal Error Justify a Refund? Posted By Chris McLaughlin On February 14, 2013 @ 9:49 PM In Finance & Tax I !' ;;, a,irml,irml ,ir;U Which of these appraisal errors justifies a property tax refund? 1. Taxpayer is taxed for property that did not have a taxable situs in the jurisdiction. 2. Taxpayer is taxed for a house that burned the prior December. 3. Taxpayer has vacant land but is taxed for the land plus a house. 4. Taxpayer has an unfinished attic but was taxed for a finished attic. Finish was never verified by appraiser. 5. Taxpayer has a 1,500 square -foot house but the assessor appraised it at 1,750 square feet based on the size of similar houses in the same neighborhood. Most property tax professionals would agree that a refund is justified in situations 1, 2 and 3. So do I. But situations 4 and 5 are tougher nuts to crack. Property tax refunds and releases are governed by _,......,..!' �5_,, .::::..v...:: E13, which limits them to circumstances in which the tax either was levied due to clerical error or was illegal. While those terms are not defined by the statute, they've been analyzed several times our state courts. The most detailed of these opinions came from the N.C. Court of Appeals when it analyzed the meaning of the term "clerical error" in the 1997 case ir7rl,irml,�a,irIs,,,,V.,,,,,,1 d�lllce,,,_�'��.U.Irl „�,y E23. As I discussed in this 2010 post E33, the court concluded that to qualify as a clerical error the mistake must be that one produces an unintended result and is apparent from the face of the documents, such as a transcription mistake (for example, recording 5,200 square feet instead of 2,500 square feet.) The term "clerical error” does not include errors in judgment or law on such issues as market value, quality of construction, or eligibility for a property tax exclusion. These types of non - clerical errors must be resolved through the annual appeal process and may not be corrected retroactively under G.S. 105 -381. Applying the Ammons analysis to the five situations above, I don't think any qualifies for a refund due to clerical error. In each situation, the appraisal was that intended by the assessor. None of the situations involved an unintended appraisal —in each instance the assessor produced an appraisal that he /she thought was appropriate at the time. But clerical error is only one of two justifications for a property tax refund. Might any of the five situations above qualify as "illegal taxes "? Here's our court defines that term: "[G.S. 105 -381] and our case law recognize a distinction between an erroneous tax and an illegal tax or invalid tax. An illegal or invalid tax results when the taxing body seeks to impose a tax without authority, as in cases where it is asserted that the rate is unconstitutional or that the subject is exempt from taxation." Redevelopment Comm. V. Guilford County, 274 N.C. 585 (1968). I think it's clear that situations 1 and 2 would constitute illegal taxes because the taxing unit had no authority to tax property not in its jurisdiction (situation 1) or that did not exist as of January 1 (situation 2). Similarly, situation 3 seems to be an illegal tax because a taxing unit has no authority to tax property that never existed. In contrast, situations 4 and 5 involve property that did exist in the taxing unit's jurisdiction as of the listing date but that received inflated appraisals. Is a tax on non - existent market value illegal and subject to a refund under G.S. 105 -381? http://canons.sog.unc.edu/?p=6994&print=l 5/20/2013 Coates' Canons: NC Local Government Law Blog » When Does An Appraisal Error Justify a (adff»3 IN Not normally. In Kinro, Inc. v. Randolph County, 108 N.C. App. 334 (1992), the court of appeals concluded without analysis that "over assessed values of personal property" do not constitute an illegal tax. If the taxpayers in situations 4 and 5 were complaining only of market value errors —let's say they thought that the assessor ignored relevant sales of comparable properties — clearly they would not be entitled to refunds. Market value judgments may be challenged only during the appeal process for the current tax year. But that's not really the case in situations 4 and 5. The taxpayers don't claim that the assessor simply made a poor estimate of what the properties would have sold for on January 1. Instead, the taxpayers claim that the assessor appraised and taxed physical property features (a finished attic, additional square feet) that did not exist in the taxing unit's jurisdiction as of the listing date (and in fact never existed at all). That sounds pretty darn similar to situations 1,2, and 3, doesn't it? If refunds are justified in the first three situations of non - existent property, aren't they also justified in the last two? I think the best answer is no. A valuation error cannot justify a refund as an illegal tax even if that error was caused by the valuation of property features that never existed. Very few appraisals are based on actual physical inspections of the property at issue. Instead, assessors rely on the mass appraisal process which requires countless judgment calls about specific physical features and their market value. If we open up every one of those judgment calls to retroactive review for five years under G.S. 105 -381, we would do serious harm to finality of our local government tax bases. And without that finality, budgeting for local governments would become far more difficult than it already is. No doubt, some valuation errors make compelling arguments for refunds. Consider an example similar to situation 5 above, but assume that instead of mistakenly appraising a 1,500 square -foot house as 1,700 square feet the assessor appraises it at 5,000 square feet. Is a refund justified when the judgment error is so egregious? Despite the size of the error, I still don't think it qualifies as an illegal tax because at the end of the day it was a judgment error. And once you start refunding any judgment error, you open the door for countless retroactive appraisal reviews. But my veteran assessor SOG colleague Ken Joyner thinks when an appraisal error is so large— appraising a house at more than 3 times its actual square footage, for example —the result must have been unintended. If so, then a refund would be justified under the clerical error criterion even if we conclude that it was not an illegal tax. In other words, any truly egregious appraisal error must have been unintended and therefore should be eligible for a refund. Similarly, a county could adopt a rule of reason: if an appraisal error is large enough, then a refund is justified. For example, a county might adopt a policy under which appraisal errors of greater than 10% justify a refund, but errors smaller than that do not. Both suggestions sound reasonable. But neither the Machinery Act nor property tax case law from state courts make any distinction for refunds based on the size of the error involved. If an error truly was clerical, as Ken suggests a huge error likely would be, then clearly a refund is justified. But if the error was truly one of judgment, then I don't think a refund is justified regardless of how big the error was. Remember that the General Assembly sets policy, not mere mortals such as you and me. I can't in good faith recommend a policy, no matter how reasonable, if it contradicts the black - letter statutory law. Unless and until the law is changed or we get more guidance from the courts, my advice remains the same: local governments should construe the refund provisions in G.S. 105 -381 very narrowly. Taxpayers can use the appeal process to correct erroneous value judgments for the current tax year going forward, but they cannot attack those judgments retroactively. http://canons.sog.unc.edu/?p=6994&print=l 5/20/2013 Coates' Canons: NC Local Government Law Blog » When Does An Appraisal Error Justify a (a3 f»3 19 (Hat tip to my friend Lee Harris of Orange County for raising this interesting issue. Lee's wise counsel has been invaluable during my time at the SOG.) Article printed from Coates' Canons: NC Local Government Law Blog: http: / /canons.sog.unc.edu URL to article: http: / /canons.sog.unc.edu / ?p =6994 URLs in this post: [1] G.S. 105 -381: http: / /www.ncga. state. nc. us /gascripts /statutes /statutelookup.pI? statute = 105 -381 [2] Ammons v. Wake County: http: / /www.aoc. state. nc. us /www/ public /coa /opinions /1997/960574 -1.htm [3] 2010 post: http: / /canons.sog.unc.edu / ?p =1861 Copyright © 2012 School of Government at the University of North Carolina. 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