Imagine that the Wonka Chocolate Factory is the largest employer in your county.  They list substantial amounts of business personal property (“BPP”) for taxation every year.  In January 2023, Wonka lists BPP totaling $65,000,000, which is roughly $25,000,000 more than the average value of their BPP in the past few years.  In August 2023, the county sends a BPP bill to Wonka based on the $65M valuation.  In November 2023, Wonka contacts the county tax office and explains that their accounting office made a major mistake on their BPP listing and inflated the value by a substantial amount.  According to Wonka, the listing should have shown a valuation of $40,000,000.  Wonka requests that their BPP valuation be reduced by $25M and that the taxes on the “excess” $25M be released.

How should the county respond?

I posed a similar question to the Assessors listserv and received a bevy of thoughtful responses. Here is my analysis of the legal issues involved with this common scenario and a summary of the input offered by assessors from across the state.

1. The deadline to file a formal appeal of the 2023 BPP tax assessment has passed.

Under GS 105-317.1(c), the taxpayer has 30 days from receiving notice of the tax value of their personal property to appeal that valuation.  The tax bill is considered notice of value, unless the county provides an earlier notice of valuation prior to issuing the bill.

In the scenario I describe above, Wonka received formal notice of the county’s valuation of Wonka’s BPP when Wonka received the 2023 county property tax bill in August. Presumably, this valuation was based on Wonka’s January listing form. If Wonka wanted to formally appeal this valuation to the assessor/board of equalization and review/Property Tax Commission, it needed to file an appeal within 30 days of receiving the 2023 BPP tax bill.  Because Wonka did not raise any concerns about its BPP valuation until November, Wonka missed the appeal window.

What other avenues might the taxpayer use to request a reduced 2023 BPP valuation once the appeal window closes?

        2.  Request for a release under GS 105-381: is this an illegal tax?

One option might be the refund/release provision in GS 105-381.  As I’ve discussed here and here, a refund/release is justified only if the tax in question were levied due to clerical error by the county or if the tax were illegal.

The clerical error justification won’t help Wonka, because the error involved was made by the taxpayer and not by the county.

Could the (allegedly) inflated valuation constitute an illegal tax?  I think the answer is yes if the taxpayer bases its claim on a situs or ownership error.  But I think the answer is likely no if the taxpayer bases it claim on a valuation error.

Situs: if the taxpayer can prove that the BPP it mistakenly listed was not located in the county as of January 1, 2023, then I think a release is justified.  That would be a situs problem, and I think situs issues are always ripe for resolution under GS 105-381 because it is illegal for a county to tax property that is not sited in its jurisdiction as of the listing date.

Ownership: I think a release would also be justified if Wonka can prove that it did not own the BPP as of January 1. If Wonka could provide sufficient evidence that another party owned the property as of January 1, then the county could release the bill issued to Wonka under GS 105-381’s illegal tax justification.  GS 105-306(b) allows the county to correct the ownership on a listing and bill the taxes to the correct owner without the need for a discovery.

Valuation: I do not believe that an inflated valuation error should qualify as an illegal tax, regardless of whether that error originated from a taxpayer’s erroneous listing form or from an inaccurate appraisal by the county. Valuation errors are issues that need to raised as a timely appeal of the tax assessment.  If valuation errors could be rectified through GS 105-381, then the appeal deadline created by GS 105-322 (the board of equalization and review (“BOER”) adjournment date) would become meaningless because taxpayers could seek reductions in their tax valuations years after they were initially issued.  Courts always attempt to avoid interpreting one statute in a manner that renders another statute irrelevant.

Remember that releases and refunds need to be approved by the board of county commissioners (“BOCC”), not the tax office.  While the BOCC can delegate authority to approval small releases/refunds (under $100) to the manager, finance officer, or attorney, that authority may not be delegated to the assessor or tax collector.

        3. May the BOCC reduce the valuation under GS 105-325?

Another possible option for the taxpayer is to ask the assessor to request a reduction in their BPP tax assessment from the BOCC under GS 105-325(a)(6).  This provision permits the BOCC “to appraise or reappraise property when the assessor reports to the board that, since adjournment of the board of equalization and review, facts have come to his attention that render it advisable to raise or lower the appraisal of some particular property of a given taxpayer in the then current calendar year.” The issue needs to be one that could have been remedied by the BOER had a timely appeal been filed.

I think the BOCC could, if it wished, lower Wonka’s 2023 BPP valuation under GS 105-325 because it is a valuation error that could have been heard by the BOER.  The BOCC would need to act prior to the end of December so that it satisfies the statute’s “then current calendar year” limitation.

Whether the BOCC should lower Wonka’s 2023 valuation that was based on Wonka’s own erroneous listing is another question entirely.  This is a policy question, and reasonable people might disagree on the best approach.

If I were advising the BOCC, I would recommend against this action.  I believe that agreeing to lower valuations for taxpayers who miss the appeal deadlines, especially for a business taxpayer that presumably has some sophistication in these matters, sets a poor precedent.  It reduces the motivation for taxpayers to accurately list their property and makes county budgeting more difficult.  I don’t think GS 105-325 was meant to serve as a second bite at the apple for a taxpayer who didn’t get their act together in time to meet the regular appeal deadline.

That said, I could imagine that there would be reasonable political pressure on the BOCC to grant a reduction in value when the error made by the taxpayer is both so large as to be punitive to the taxpayer and one that arguably should have been evident to the tax office.  If a taxpayer’s BPP listing increases dramatically in a given year, is it reasonable to expect that the tax office would check with the taxpayer to confirm the accuracy of that listing? There certainly is no legal obligation to do so, but it might be best practice to avoid these unpleasant situations.  The BOCC might view this situation as the county taking advantage of an honest mistake by the taxpayer and agree to lower the valuation.

        4. What do NC assessors think?

Most assessors who responded to my query recommended an approach similar to that described above.  They would support a release of the 2023 tax under GS 105-381 if the error involved situs or ownership but not if the error was solely a valuation issue. One county is currently involved in litigation over the refusal to issue a release under GS 105-381 for a valuation error made by the taxpayer.

Several assessors reported that their board would prefer to issue a release even if the issue involved only a valuation error by the taxpayer.

One county stated that it has a policy of contacting any taxpayer whose listing form increases the valuation of their BPP by $5 million or more so that the county can confirm this valuation before issuing a tax bill on that amount.

For more on correcting taxpayer mistakes, please see this blog post.