Best Practices to Evaluate and Improve Property Tax Policy and Administration

BEST PRACTICES TO EVALUATE AND IMPROVE PROPERTY TAX POLICY AND ADMINISTRATION Best of U.S. & International Property Tax Administration ** Virginia Small Business Commission ** Presenters: Fred Nicely, COST Pat Reynolds, COST October 8, 2019

Agenda Agenda Background on COST s Scorecards & COST Background on COST s Scorecards & COST- -IPTI Property Tax Administrative Scorecard Property Tax Administrative Scorecard Highlights of Some Property Tax Scorecard Highlights of Some Property Tax Scorecard Administrative Issues Administrative Issues Summary of Improving Virginia s Administrative Summary of Improving Virginia s Administrative Property Tax Practices Property Tax Practices IPTI 2

Background on COSTs Background on COST s Scorecards & COST Scorecards & COST- -IPTI Property Tax Administration Scorecard Tax Administration Scorecard IPTI Property 3

Background on COSTs Scorecards Background on COST s Scorecards Purpose Purpose of Scorecards is to grade the state tax systems on an objective basis and to work with the states policy makers both executive and legislative to improve state and local tax administration for multijurisdictional businesses. COST s Scorecards COST s Scorecards State Administrative Scorecard State Administrative Scorecard Increase in independent tribunals & appeal period from 30 to 60 days Unclaimed Property Scorecard Unclaimed Property Scorecard Increase in state exemption of gift cards and b2b transactions Property Tax Administration Scorecard Property Tax Administration Scorecard International and improvement of some states appeal processes Sales Tax Systems Scorecard Sales Tax Systems Scorecard The Best & Worst of State Sales Tax Systems: COST Scorecard on Sales Tax Simplification, Uniformity and the Exemption of Business Inputs First Edition released April, 2018 All Scorecards are Publicly Accessible on COST s Website All Scorecards are Publicly Accessible on COST s Website: WWW.COST.ORG 4 WWW.COST.ORG

COST/IPTI Property Tax Scorecard COST & IPTI have issued two scorecards on international property tax administration (initial COST Scorecard only on US property tax administration) Focus is on using objective criteria of important property tax administration with bias towards issues of concern with business taxpayers Grading is for comparison purposes with goal to encourage tax policy makers (e.g., legislators) to improve administrative practices It is acknowledged and understood, especially in the U.S. that property tax administration can vary significantly locality by locality in general, to the extent a state allows a locality to use what is considered a poor administrative practice that was used as the scoring basis even though all the localities in a jurisdiction may not use that practice COST/IPTI appreciate input in the process and wish to personally thank all the property tax administrators that answered our surveys on the property tax administrative practices in their jurisdictions 5 Tax rates, other than disparate rates/valuations, not evaluated

COST/IPTI Property Tax Scorecard Contd Evaluation of Three Categories of Property Tax Administration with each category having three Evaluation of Three Categories of Property Tax Administration with each category having three subcategories that were evaluated subcategories that were evaluated: Transparency of Property Tax System Consistency of Property Tax Administration Procedural Fairness with Tax Appeal Process Grading format for scorecard Grading format for scorecard: No points if jurisdiction has good administrative process One point if jurisdiction has average administrative process Two points if jurisdiction needs improvement to administrative process 6

Highlights of Some Property Tax Highlights of Some Property Tax Scorecard Administrative Issues Scorecard Administrative Issues 7

Best Practices Criteria (COST/IPTI) Transparency Transparency Laws adequately explained on website Adequate notice of proposed valuation Ability to compare values placed on other properties No disclosure of income and expenses Frequent revaluations Consistency Consistency Uniform tax forms Equal assessment ratios Centralized oversight of local assessors' practices including required training Procedural Fairness Procedural Fairness Sufficient time for taxpayers to file appeals Balanced burden of proof review before independent arbiter Ability to partially pay disputed tax Interest rate paid on refunds matches rate on underpayments 8

Comparison of Overall Grade Distribution Comparison of Overall Grade Distribution between US states and international jurisdictions between US states and international jurisdictions 4% 13% 23% 41% 41% 59% 59% 60% US States & PR US States & PR International Jurisdictions International Jurisdictions A A B B C C D D F F Source: The Best (and Worst) of International Property Tax Administration, COST & IPTI, June 2019 9

Overall Grades for U.S. States and Puerto Rico WA ME MT ND VT OR MN NH MA CT ID WI SD MI NY WY RI PA IA NV NE NJ MD OH IN DE IL UT CA WV CO DC VA KS MO KY PR NC TN OK AZ NM AR SC GA AL MS AK TX LA HI FL A B C D F Source: The Best (and Worst) of International Property Tax Administration, COST & IPTI, June 2019

Specifics on Virginias Grade Virginia s Overall Grade Virginia s Overall Grade was a C grade Transparency Transparency was a D grade Consistency Consistency was a B grade Procedural Fairness Procedural Fairness was a C grade C Grade 11

Comparison to Surrounding Jurisdictions Overall Property Tax Scorecard Grade Overall Property Tax Scorecard Grade DC DC C C Kentucky Kentucky C C Maryland Maryland B B- - North Carolina North Carolina C C- - Tennessee Tennessee C C- - West Virginia West Virginia D D- - 12

TRANSPARENCY: TRANSPARENCY: Comparison of Grade Distribution between US states Comparison of Grade Distribution between US states and international jurisdictions and international jurisdictions 7% 10% 11% 21% 23% 48% 45% 35% US States & PR US States & PR International Jurisdictions International Jurisdictions A A B B C C D D F F Source: The Best (and Worst) of International Property Tax Administration, COST & IPTI, June 2019 13

TRANSPARENCY: Grades for U.S. States and Puerto Rico WA ME MT ND VT OR MN NH MA CT ID WI SD MI NY WY RI PA IA NJ NV NE MD OH IN DE IL UT CA WV CO DC VA KS MO KY PR NC TN OK AZ NM AR SC GA AL MS AK TX LA HI FL A B C D F Source: The Best (and Worst) of International Property Tax Administration, COST & IPTI, June 2019

Specifics on Virginias Transparency Grade Virginia s Transparency Grade Virginia s Transparency Grade was a D grade Key Issues: State does not have a good website that explains property tax valuation, lists the laws and regulations, and provide tax forms Valuation notice only required if there s a change in value and limited information on how to appeal Revaluation varies from 1 to 4 years for cities and 4 to 6 years for counties Information on valuation available at local, but not state level D Grade 15

Comparison to Surrounding Jurisdictions Overall Overall Transparency Transparency Property Tax Scorecard Grade Property Tax Scorecard Grade DC DC C C Kentucky Kentucky D D Maryland Maryland A (good state to model) A (good state to model) North Carolina North Carolina D D Tennessee Tennessee D D West Virginia West Virginia D D 16

Select Transparency Grading Centralized Website explanation of system (0 2 points with low being rated better) 0 = clear explanation of property tax system 1 = exists but limited explanation and difficult to navigate 2 = very limited or not available Virginia received 2 points Clear valuation notice (including property category information) 0 = Clear and complete 1 = Implementation by local assessors varies 2 = Little explanatory information Virginia received 1 point Information about other assessments and tax rates 0 = Detailed valuations and rates published online 1 = Values published but no detailed information 2 = Values not published online Virginia received 1 point 17

CONSISTENCY: CONSISTENCY: Comparison of Grade Distribution between US states Comparison of Grade Distribution between US states and international jurisdictions and international jurisdictions 2% 8% 7% 15% 17% 33% 30% 48% 40% US States & PR US States & PR International Jurisdictions International Jurisdictions A A B B C C D D F F Source: The Best (and Worst) of International Property Tax Administration, COST & IPTI, June 2019 18

CONSISTENCY: Grades for U.S. States and Puerto Rico WA ME MT ND VT OR MN NH MA CT ID WI SD MI NY WY RI PA IA NJ NV NE MD OH IN DE IL UT CA WV CO DC VA KS MO KY NC PR TN OK AZ NM AR SC GA AL MS AK TX LA HI FL A B C D F Source: The Best (and Worst) of International Property Tax Administration, COST & IPTI, June 2019

Specifics on Virginias Consistency Grade Virginia s Consistency Grade Virginia s Consistency Grade was a B grade Key Issues: State does not require standardized forms Ratios for all properties are 100% of fair market value (good) Property tax valuations published at local level, but not state level No set due date, generally May 1, but localities can set their own dates Assessors are required to have certification and continued training (good) B Grade 20

Comparison to Surrounding Jurisdictions Overall Overall Consistency Consistency Property Tax Scorecard Grade Property Tax Scorecard Grade DC DC C C Kentucky Kentucky B B Maryland Maryland B (good state to model) B (good state to model) Maryland s biggest issue is assessment ratios and caps can vary based on property type/location North Carolina North Carolina B B Tennessee Tennessee C C West Virginia West Virginia F F 21

Select Consistency Grading Strong oversight via law or regulation of ratio studies, equalization, and reappraisal orders 0 = Full oversight or assessment function at higher level 1 = limited oversight over local assessor 2 = no oversight Virginia received 0 points Equal application of tax rate, assessment ratio, and caps 0 = Effective rates are same for residential and commercial 1 = Some variation for different property types 2 = Vary widely across different types of properties Virginia received 1 point (note this should probably be adjusted to 0 points) 22

Select Consistency Grading Contd Assessors / Appraisers required to possess recognized professional qualifications 0 = Required or must hold a license 1 = Suitable with some qualifications 2 = Not required Virginia received 0 points Continuing professional development requirements 0 = At least 10 hours per year 1 = Fewer than 10 hours per year or recommended programs 2 = No requirement Virginia received 0 points 23

PROCEDURAL FAIRNESS: PROCEDURAL FAIRNESS: Comparison of Grade Distribution between US states Comparison of Grade Distribution between US states and international jurisdictions and international jurisdictions 4% 10% 15% 22% 33% 42% 33% 41% US States & PR US States & PR International Jurisdictions International Jurisdictions A A B B C C D D F F Source: The Best (and Worst) of International Property Tax Administration, COST & IPTI, June 2019 24

PROCEDURAL FAIRNESS: Grades for U.S. States and Puerto Rico WA ME MT ND VT OR MN NH MA CT ID WI SD MI NY WY RI PA IA NJ NV NE MD OH IN DE IL UT CA WV CO DC VA KS MO KY NC PR TN OK AZ NM AR SC GA AL MS AK TX LA HI FL A B C D F Source: The Best (and Worst) of International Property Tax Administration, COST & IPTI, June 2019

Specifics on Virginias Procedural Fairness Grade Virginia s Procedural Fairness Grade Virginia s Procedural Fairness Grade was a C grade Key Issues: Allow/require pre-assessment conferences with property tax owner (presently after assessment issued) Notice of assessment increase only has to be mailed 15 days before hearing date understood assessment rolls need completed but more time should be allowed to determine if appeal warranted 60 days ideal Property owners can request an assessor s working papers (good) Burden of valuation dispute is on property owner by preponderance of evidence ideally should be equal burden with assessing jurisdiction often having more valuation information than property owner (as compared to sales and income taxes) C Grade

Specifics on Virginias Procedural Fairness Grade Virginia s Procedural Fairness Grade Virginia s Procedural Fairness Grade was a C grade Key Issues Continued: Property owner on appeal has right to an independent review and may introduce new facts (good) While disputed property tax must be paid, subject to qualification, disputed amount can be put in abeyance (good) Political subdivisions have independent appeal right of commissioner of revenue s corrections C Grade

Comparison to Surrounding Jurisdictions Overall Overall Procedural Fairness Procedural Fairness Property Tax Scorecard Grade (unfortunately, there is no A state Grade (unfortunately, there is no A state to model) DC DC C C Kentucky Kentucky C C Maryland Maryland D D North Carolina North Carolina D D Tennessee Tennessee C C West Virginia West Virginia D D Property Tax Scorecard to model)

Select Procedural Fairness Grading At least 60 days to file initial appeal of assessment 0 = 60 days or more 1 = 30 59 days 2 = Fewer than 30 days Virginia received 2 points Burden of proof which party? 0 = On the assessor or equal weight 1 = On taxpayer by preponderance of evidence 2 = Heavier burden imposed on taxpayer Virginia received 1 point Can taxpayer withhold payment or place disputed tax into escrow during appeals? 0 = Yes, appeal puts collection, penalty and interest into abeyance 1 = Disputed amount or may partially pay 2 = No, full amount must be paid Virginia received 0 points 29

Summary of Improving Virginias Summary of Improving Virginia s Property Tax Administrative Property Tax Administrative Practices Practices 30

Summary on Improving Virginias Property Tax Administration Practices Virginia should be able to easily fix some transparency issues by improving information provided on the Tax Department s website presently it only links to the local assessing jurisdictions Consistency improvements should focus on statewide property tax forms and consistent due dates Procedural Fairness improvements could be made by giving the property owner and assessor equal weight on appeal, allowing more time for property owners to file appeals, and concerns have been raised with the consistency of board of equalization decisions C Grade 31

And finally . . . And finally . . . Thank You Any Questions? Fred Nicely, COST, fnicely@cost.org Pat Reynolds, COST, preynolds@cost.org 32