Are back assessments of property tax legal?
We continue with our series about a timeshare association suing the county, with the county then back-assessing the association for $10 million.
Here we examine: “Are back assessments of property tax legal?”
In most of our counties, the ordinances say that the assessor is to make a tax assessment list each year by a certain time. The county then sends out bills to the property owners with the numbers off the list. Owners then either pay, or appeal.
But what if your property isn’t on the list?
This can happen very easily if you have just signed a lease for state lands. The state doesn’t have to pay real property tax because governments generally don’t tax each other, so there is no previous assessment of the land. A lessee of state lands, however, isn’t a government and therefore needs to pay real property tax. But let’s say, for whatever reason, the real property tax bill doesn’t come in the mail for a couple of years. The ordinances call that “omitted property,” and they say that the county can assess the current year, and any back years, whenever the county gets around to doing that. And when they do, if you want to appeal the assessment you need to do it within 30 days — which isn’t much time.
If you go to the county and say that the assessment is unfair and illegal, you won’t get much sympathy. “You’ve received fire and police protection, trash pickup and many other benefits that come with occupying that property,” they’ll say. “Didn’t you think it strange that you were receiving all these valuable benefits for free while everyone else in the county has to pay for them through their property taxes?” As it turns out, there is a court case holding that this type of assessment, called an omitted property assessment, is perfectly legal.
In our Maui County case, however, the facts were quite different. The plaintiffs were timeshare associations. The county had assessed the property — but they didn’t assess the intervals or the condominium units, they assessed the master parcel. The county sent the bills to the associations, and the associations paid the assessments in full.
“But wait,” the county seemed to say. “We didn’t assess the intervals, which are the units of property that are being bought and sold. They are therefore omitted property, and we get to assess them whenever we want!”
So, the county back-assessed the interval owners, and they assessed a lot more tax because the method it used to assess the master parcel was based on its cost while the method it used to assess the intervals was based on market value. But then it needed to figure out what to do about the payments that already had been made on the property. And it decided to credit each of the interval owners for a proportionate part of the payments that were previously made.
Fair, perhaps. But it was also an admission that tax previously had been paid on the property assessed, so the county had no business calling it omitted property. “If the County can retroactively assess already-assessed real property to change the valuation and impose additional taxes, even many years later as it argues it can here,” the Maui judge wrote, “property owners can never have confidence that they have satisfied their tax obligation for any previous years. Potential buyers can never have confidence that a purchased property will not later be burdened by a hefty ‘amended assessment’ for some year long before their purchase.”
Well said, judge. Now we’ll see how well his judgment fares in the appellate courts.
* Tom Yamachika is president of the Tax Foundation of Hawaii.