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HomeMy WebLinkAboutAgenda - 06-20-2023; 8-d - Tax Refund Request – Walker Hall Busby, Jr. 1 ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: June 20, 2023 Action Agenda Item No. 8-d SUBJECT: Tax Refund Request — Walker Hall Busby, Jr. DEPARTMENT: Tax Administration ATTACHMENT(S): INFORMATION CONTACT: Busby Email Refund Request Nancy T Freeman, Tax Administrator, North Carolina General Statute 105-381 (919) 245-2735 Coates' Cannons Blog — Appraisal vs Clerical Error Resolution PURPOSE: To consider a refund request for taxes submitted by Walker Hall Busby, Jr. BACKGROUND: Walker Hall Busby, Jr. submitted a refund request for property identified as PIN 9779209961 and owned by Walker Hall Busby, Jr. and Marjorie G. Busby for taxes improperly assessed from 2021 through 2022. The claim for this request is based on the premise that for 2021, the County incorrectly calculated the finished area of the residence of the property to be 4,216 square feet, whereas a 2023 inspection of the property resulted in a re-measuring of the residence and a revised finished area calculation of 2,975 square feet. Mr. Busby maintains that the values for 2021 and 2022 are incorrect due to a clerical error on the part of the Orange County Tax Office appraisers. Mr. Busby has requested a refund in the amount of $2,959.57 for overpayment of taxes due to this calculation error. Based on Tax Office review, if the property value were changed as proposed from $610,200 to $523,100, the appropriate calculated refund amount would be $2,808.71. Each year, property owners have the opportunity to appeal their values prior to the adjournment of the Board of Equalization and Review. Once the Board adjourns, the Assessor has no statutory authority to make adjustments on the current assessments. The value for the 2023 tax year was adjusted on March 27, 2023 to $523,100 representing a correction to an appraisal error for the property initiated by the taxpayer's return of a data validation form mailed by the Orange County Tax Office. North Carolina General Statute (NCGS) 105-381(a) allows the refund and release of taxes only under very limited circumstances, including clerical error. In the 1997 case Ammons vs. Wake County, the NC Court of Appeals concluded that to qualify as a clerical error, a mistake must be one that 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 such as an appraisal error. 2 In this instance, the change in value made for the 2023 tax year by the Orange County Tax Office represents a correction to an appraisal error. The appropriate procedure is to correct the error and valuation for the current tax year and subsequent years, which has been done for 2023 and forward according to NCGS 105-287. FINANCIAL IMPACT: Approval of the refund request would result in a $2,808.71 loss as calculated by the Tax Office. SOCIAL JUSTICE IMPACT: There is no Orange County Social Justice Goal impact associated with this item. ENVIRONMENTAL IMPACT: There is no Orange County Environmental Responsibility Goal impact associated with this item. RECOMMENDATION(S): The Manager recommends that the Board approve the attached resolution denying the refund request based on consultation with the County Attorney. 3 From: Walker Busby Jr <walkerbusby@gmail.com> Sent: Tuesday, April 18, 2023 11:48 AM To: Nancy Freeman; Bonnie Hammersley; Anna Richards; Amy Fowler; Earl McKee; Jean Hamilton; Phyllis Portie-Ascott; Sally Greene; Roger Gunn; Steven "Chad" Phillips Subject: [EXTERNAL MAIL! ] Re: Overpayment of property taxes in 2021 Hello: My responses to your letter AND the professor (just one lawyer's opinion and an incorrect one I suggest) would include: 1) Your department has admitted a serious 'error' in the specified square footage and that I was indeed overcharged. You are now making excuses not to re-pay me. I am now quoting the professor, " Very few appraisals are based on the actual physical inspections of the property at issue" "and at the end of the day it was a judgement error" . Your professor also states and I quote "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" . This was a physical inspection however and any error was not "judgment", therefore a refund would be entirely appropriate. 2) 'Clerical' error and and case law also seem to be key words in the 'professors' reasoning and clerical errors are valid as reasons for issuing refunds. I suggest that there MUST have been a 'clerical' error in the appraisal of my house by your appraiser, which according to the professor would again allow for a refund. The appraiser wrote down an incorrect length because he misread his monitor; when back at his office, he couldn't read his writing and typed in the wrong numbers; he merely typed in the wrong numbers when calculating the square footage. . . . . . . . . .ALL Clerical errors, NOT an error in judgement. Your staff clearly had access to all the permits needed for this addition, otherwise you would not have known to re-appraise the house. Easily found within these permits is the square footage of the addition and that it was brick. . . .all that was needed, besides your actual physical verification, to re-value the house. Contained within these permits are the 525 sq feet that were added to an existing 2450 square feet home data. . .not possibly resulting in 4216 sq feet. 3) If the appraiser is a member of your staff, has he been questioned about this matter? 4) The appraiser never asked about the attic above the room, nor came inside to look at it. It is an 'unfinished' attic. 5) I am sure that in a year when there are NOT countywide re-assessments in value, that the increase in square footage largely determines an increase in taxes. 6) You know your department made an egregious error, yet you had to ask a professor whether or not LEGALLY you have to correct the mistake. Disappointing. I suggest the professor failed to make his case; there was no 'judgment' , but an actual physical appraisal, that was clearly wrong. Commissioners, please correct this wrong. Sincerely, Walker Busby 4 On Thu, Apr 13, 2023 at 1:49?PM Nancy Freeman <nfreeman@orangecountync.gov> wrote: Good afternoon Mr. Busby and Chair Bedford, Mr. Busby, as Real Property Manager Roger Gunn explained to you in response to your email of March 16, North Carolina General Statutes (NCGS) allow for refunds only in limited situations. These are explained in NCGS 105-381 (a) (1) : § 105-381. Taxpayer' s remedies. (a) Statement of Defense. - Any taxpayer asserting a valid defense to the enforcement of the collection of a tax assessed upon his property shall proceed as hereinafter provided. (1) For the purpose of this subsection, a valid defense shall include the following: a. A tax imposed through clerical error; b. An illegal tax; C. A tax levied for an illegal purpose. Your square footage error is not a clerical error, it is considered an appraisal error, and is not entitled to a refund according to this statute. A clerical error must be apparent from the record, such as a transcription error (example would be recording 6,200 square feet instead of 2, 600 square feet) . As you stated, and verified by the North Carolina Department of Revenue, refunds requested of our office must be approved by the Board of County Commissioners (BOCC) . However, our office would not recommend a refund in your situation to the BOCC because it does not meet the requirements of the statute. I have attached an opinion from Chris McLaughlin, Associate Professor of Public Law and Government at the UNC School of Government, that will help to explain why we are unable to recommend your request for refund. You are correct that the square footage of improvements (in this case, your home) are not included on the annual tax bill. As there are multiple factors that determine the value of a property, including but certainly not limited to land value and improvement value, there is not sufficient room on the annual bill for a full description of each property. That information is available on our website, and we encourage property owners to review their property record online, which includes an option to report a data issue. We send annual listing forms each January for property owners to notify us of changes to their property. The listing form includes instructions for reviewing your property' s detailed data online. Our appraisal staff is also available to discuss the details of your property during business hours at 919-245-2100, option 2 . Orange County conducts a revaluation every four years. Revaluation is a process by which all property tax assessments in Orange County are reassessed to their market value as of the revaluation date. The most recent revaluation date was January 1, 2021 . The data validation form you recently received is part of the process we use to update and correct our records in preparation of the upcoming revaluation, which will be effective January 1, 2025. The change in value for your 2021 tax bill was not limited to the change in square footage due to the one- 5 bedroom addition and the error in the square footage. It was also due to bringing your property value in line with current market value. The value prior to the January 1, 2021 was $387, 000. The value for 2023 is $523, 100, which encompasses the new addition at the correct square footage, and the increase in market value, all as of January 1, 2021 . As a side note, we mailed value change notices on April 11, and you may have already received the notice of the 2023 value. Please contact our office if you have questions about the notice. In Mr. Gunn' s email to you, he offered to assist you with any questions that you might have about the information he provided. I will offer the same to you now. If you have additional questions, please do not hesitate to reach out to me, or to Mr. Gunn for assistance. The email that you originally used, tax@orangecountync.gov, is a group email that our management team receives and to which we respond. We are also available to assist by phone or in person. Mr. Gunn' s direct extension is 919-245- 2118 and email is rgunn@orangecountync.gov. You can reach me at 919-245- 2735 or nfreeman@orangecountync.gov. I hope this information is helpful for you. Best, Nancy Freeman, Director Orange County Tax Administration 228 S. Churton St, PO Box 8181, Hillsborough, NC 27278 I office: (919) 245-2735 1 nfreeman@orangecountync.gov CONFIDENTIALITY NOTICE: All email messages, including any attachments, generated from or received by this account are the property of Orange County Government and as such are considered public domain and are subject to the North Carolina Public Records Law. Certain confidential information may be transmitted and any unauthorized review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please contact the sender by reply email and destroy all copies of the original message. From: Jamezetta Bedford <jbedford@orangecountync.gov> Sent: Monday, April 3, 2023 2 :03 PM To: Walker Busby Jr <walkerbusby@gmail.com>; Anna Richards <arichards@orangecountync.gov>; Amy Fowler <afowler@orangecountync.gov>; Earl McKee <emckee@orangecountync.gov>; Jean Hamilton <jhamilton@orangecountync.gov>; Phyllis Portie-Ascott <pportie- ascott@orangecountync.gov>; Sally Greene <sgreene@orangecountync.gov> Cc: Nancy Freeman <nfreeman@orangecountync.gov>; Bonnie Hammersley <bhammersley@orangecountync.gov> Subject: Re: [EXTERNAL MAIL! ] Overpayment of property taxes in 2021 Mr. Busby, I am copying our county tax director, Ms. Freeman, who will check into your situation and be in touch. I am glad that NCDOR referred you to our county government for this tax matter. 6 Sincerely, Jamezetta Bedford, Chair From: Walker Busby Jr <walkerbusby@gmail.com> Sent: Monday, April 3, 2023 10:30 AM To: Anna Richards; Amy Fowler; Earl McKee; Jamezetta Bedford; Jean Hamilton; Phyllis Portie-Ascott; Sally Greene Subject: [EXTERNAL MAIL! ] Overpayment of property taxes in 2021 Hi: My wife and I overpaid our property taxes by $2, 959.57 in 2021 due to the County's error. A Mr Roger Gunn has replied "Unfortunately, the NC general statutes only allow for refunds under very limited circumstances, and the situation you described falls into a category that would not be statutorily refundable. " This is unacceptable and an inquiry by me to the NC Dept of Revenue confirmed this. He told me that you, the Orange County Commissioners, could instigate this refund. Our property tax bill in 2020 was $6, 693.09. In 2021 the bill was $10, 032 .43. This was because we added on a 525 sq foot downstairs bedroom/bath as we are getting old and having more difficulty with stairs. If one notices on the tax bill, there is NO indication for square footage, so when the appraiser, re-appraised our home, after the addition, we had no idea he had re-appraised it to 4216 sq ft. and we paid our taxes. Previously our house was appraised at 2450 sq ft. The addition of one bedroom/bath at 525 sq ft could not possibly have increased the sq footage to 4216sq ft. This seems strange. After asking for a re-appraisal, Bill Hiltbolt re-appraised the house at 2975 Sq ft. which is entirely correct. I do expect a refund of $2, 959.57 . (2975sq ft/4216sq ft= 70.50; overpayment of 29.50) While the expenses of hiring a lawyer would not be feasible for this amount; if denied, I would send a letter to all nearby newspapers explaining my situation and suggesting that each homeowner request a re-appraisal of their home. I would not sound so angry if Roger Gunn had not denied the complete possibility of a refund, which the NC Dept of Revenue office said was entirely up to you, the Commissioners. Sincerely, Walker Busby 103 Rainbow Dr Carrboro, NC 27510 7 § 105-381. Taxpayer's remedies. (a) Statement of Defense. — Any taxpayer asserting a valid defense to the enforcement of the collection of a tax assessed upon his property shall proceed as hereinafter provided. (1) For the purpose of this subsection, a valid defense shall include the following: a. A tax imposed through clerical error; b. An illegal tax; C. A tax levied for an illegal purpose. (2) If a tax has not been paid, the taxpayer may make a demand for the release of the tax claim by submitting to the governing body of the taxing unit a written statement of his defense to payment or enforcement of the tax and a request for release of the tax at any time prior to payment of the tax. (3) If a tax has been paid, the taxpayer, at any time within five years after said tax first became due or within six months from the date of payment of such tax, whichever is the later date, may make a demand for a refund of the tax paid by submitting to the governing body of the taxing unit a written statement of his defense and a request for refund thereof. (b) Action of Governing Body. — Upon receiving a taxpayer's written statement of defense and request for release or refund, the governing body of the taxing unit shall within 90 days after receipt of such request determine whether the taxpayer has a valid defense to the tax imposed or any part thereof and shall either release or refund that portion of the amount that is determined to be in excess of the correct tax liability or notify the taxpayer in writing that no release or refund will be made. The governing body may, by resolution, delegate its authority to determine requests for a release or refund of tax of less than one hundred dollars ($100.00) to the finance officer, manager, or attorney of the taxing unit. A finance officer, manager, or attorney to whom this authority is delegated shall monthly report to the governing body the actions taken by him on requests for release or refund. All actions taken by the governing body or finance officer, manager, or attorney on requests for release or refund shall be recorded in the minutes of the governing body. If a release is granted or refund made, the tax collector shall be credited with the amount released or refunded in his annual settlement. (c) Suit for Recovery of Property Taxes. — (1) Request for Release before Payment. — If within 90 days after receiving a taxpayer's request for release of an unpaid tax claim under (a) above, the governing body of the taxing unit has failed to grant the release, has notified the taxpayer that no release will be granted, or has taken no action on the request, the taxpayer shall pay the tax. He may then within three years from the date of payment bring a civil action against the taxing unit for the amount claimed. (2) Request for Refund. — If within 90 days after receiving a taxpayer's request for refund under (a) above, the governing body has failed to refund the full amount requested by the taxpayer, has notified the taxpayer that no refund will be made, or has taken no action on the request, the taxpayer may bring a civil action against the taxing unit for the amount claimed. Such action may be brought at any time within three years from the expiration of the period in which the governing body is required to act. (d) Civil Actions. — Civil actions brought pursuant to subsection (c) above shall be brought in the appropriate division of the general court of justice of the county in which the taxing unit is located. If, upon the trial, it is determined that the tax or any part of it was illegal or levied for an illegal purpose, or excessive as the result of a clerical error,judgment shall be G.S. 105-381 Page 1 8 rendered therefor with interest thereon at six percent (6%) per annum, plus costs, and the judgment shall be collected as in other civil actions. (1901, c. 558, s. 30; Rev., s. 2855; C. S., s. 7979; 1971, c. 806, s. 1; 1973, c. 564, s. 3; 1977, c. 946, s. 2; 1985, c. 150, s. 1; 1987, c. 127.) G.S. 105-381 Page 2 9 https://canons.sog.unc.edu/zoi3/oz/when-does-an-appraisal-error-justify-a-refund/ � SCHOOL of JNC GOVERNMENT Coates' Canons NC Local Government Law When Does An Appraisal Error justify a Refund? Published: 02/14/13 Author Name: Chris Mclaughlin 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 G.S. 105-381,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 Ammons v. Wake County.. As I discussed in this 2010 post, 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 Copyright©2009 to Present School of Government at the University of North Carolina. 10 https://canons.so .unc.edu/zoi3/oz/when-does-an-appraisal-error-justify-a-refund/ 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). 1 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? Not normally. In Kinro, Inc. a 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 Copyright©2009 to Present School of Government at the University of North Carolina. 11 https://canons.sog.unc.edu/zoi3/oz/when-does-an-appraisal-error-justify-a-refund/ 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% Copyright©2009 to Present School of Government at the University of North Carolina. 12 https://canons.sog.unc.edu/2013/02/when-does-an-appraisal-error-justify-a-refund/ 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. (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) All rights reserved.This blog post is published and posted online by the School of Government to address issues of interest to government officials.This blog post is for educational and informational use and may be used for those purposes without permission by providing acknowledgment of its source.Use of this blog post for commercial purposes 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 Bookstore,School of Government,CB#3330 Knapp-Sanders Building,UNC Chapel Hill,Chapel Hill,NC 27599-3330;e-mail sales@a sog.unc.edu;telephone 919.966.4119,or fax 919.962.2707. Copyright©2009 to Present School of Government at the University of North Carolina. 13 NORTH CAROLINA RES-2023-051 ORANGE COUNTY REFUND RESOLUTION(Denial) Whereas,North Carolina General Statutes 105-381 allows for the refund of taxes when the Board of County Commissioners determines that a taxpayer applying for the refund has a valid defense to the tax imposed;and Whereas,the properties listed in the attached"Refund Request"has been taxed and the tax has been collected: and Whereas,as to the property listed in the Refund Request,the taxpayer has timely applied in writing for a refund of the tax imposed but has not presented a valid defense to the tax imposed as indicated on the Request for Property Tax Refunds. NOW,THEREFORE,IT IS RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF ORANGE COUNTY THAT the property tax refund recommended for denial are denied. Upon motion duly made and seconded,the foregoing resolution was passed by the following votes: Ayes: Commissioners Nayes: I,Laura Jensen,Clerk to the Board of Commissioners for the County of Orange,North Carolina, DO HEREBY CERTIFY that the foregoing has been carefully copied from the recorded minutes of the Board of Commissioners for said County at a regular meeting of said Board held on , said record having been made in the Minute Book of the minutes of said Board, and is a true copy of so much of said proceedings of said Board as relates in any way to the passage of the resolution described in said proceedings. WITNESS my hand and the corporate seal of said County,this day of Clerk to the Board of Commissioners