My prayers are with all affected by the devastation that Hurricane Helene inflicted on western North Carolina. I know that tax issues are far down the list of concerns right now, but I’ve already begun to receive questions about how tax offices can respond to this disaster. Today’s post covers a variety of storm-related tax questions, many of which are similar to those discussed here during the COVID crisis.
May 2024 property taxes on structures that were damaged or destroyed by Helene be reduced or waived entirely?
No. Property taxes for 2024-25 are levied on the value of property as of January 1, 2024, the listing date. (See this post for more.) Damage to property that occurs after January 1 will be reflected in the taxable value of that property for the following year’s taxes. Buildings that remain damaged or destroyed as of January 1, 2025 will be reappraised and taxed at a lower value (or zero value) for 2025-26 taxes.
Local governments are not authorized to reduce, waive, or refund property taxes unless the taxes in question were levied illegally or due to clerical error. Absent a statutory change to the Machinery Act, local governments may not waive property taxes as a response to a natural disaster. See GS 105-380, -381, and blog posts here and here.
May a local government extend the delinquency date for 2024-25 taxes beyond January 6, 2025 so that interest does not begin to accrue on unpaid taxes as of that date?
No. The delinquency date and start of interest accrual is set by statute and is mandatory for all local governments. Waiver of interest is limited by the same rule that limits waiver of principal taxes to situations involving illegality or clerical error. See GS 105-360 and this blog post. Note that the disaster recovery act recently passed by the General Assembly waived some income tax and sales tax deadlines but did not address property taxes at all.
Following a major winter storm in early 2018, the General Assembly amended GS 105-395.1 to extend the delinquency date (or more accurately, to extend any taxpayer deadline created by the Machinery Act) when these three situations exist:
- The tax office is closed;
- The USPS was not providing service to the taxpayer’s address; and,
- A disaster declaration has been declared for the county by the governor.
It seems unlikely that all three requirements will be satisfied as of January 2025. Even if disaster declarations remain in effect for much of western NC, county tax offices are likely to be open and mail is likely to resume by then.
If this provision is satisfied by the situation in your county in January 2025, it does not grant your board the authority to extend the delinquency date to a future date of its choosing. Taxes will become delinquent and accrue interest when any one of those three requirements are not met. For example, if the tax office were to open on January 15, then 2024 taxes would become delinquent and accrue interest on that date.
Read this post for more.
May a local government change its property tax rate for the 2024-2025 tax year?
As my colleague Kara Millonzi wrote here, the answer to this question is usually no.
Once its budget is adopted, a local government may change its property tax rate only if ordered to do so by a court or a state agency or if it “receives revenues that are substantially more or less than the amount anticipated.” GS 159-15.
Will the hurricane result in “substantially” less property tax revenue than expected for 2024-25 in western NC counties? I’m not sure that’s true. But if so, that would open the door for the board to amend the budget ordinance and change the tax rate.
However, any change to the tax rate must be adopted before January 1. Local leaders considering an amendment to their budget ordinances must act before 2025 arrives.
May a county postpone a reappraisal scheduled for 2025?
Yes, assuming that (i) the county makes that decision before January 1, 2025 and (ii) the county is not at the end of the maximum 8-year reappraisal period created by GS 105-286.
As this bulletin describes in detail, the issue of postponing county-wide reappraisals hit the headlines following the stock market crash in late 2008. Taxpayers in counties with 2009 reappraisals reacted poorly when they received new (increased) tax values on their properties while the national economy seemed to be in a free fall. They pressured county commissioners to reverse the 2009 reappraisals and lower their tax values to their pre-reappraisal levels. Several counties complied with these demands and rescinded their 2009 reappraisals, despite guidance from the SOG and the Department of Revenue (DOR) that the Machinery Act did not authorize these actions.
The controversy continued to boil over as the NC Attorney General’s office issued a legal opinion confirming that the Machinery Act did not authorize counties to rescind reappraisals after January 1. The DOR then threatened legal action against the counties that had done so. The General Assembly had the final word, passing a bill that permitted counties to rescind their 2009 valuations only if they took action by June 30, 2009.
But importantly, the bill passed by the General Assembly in 2009 applied only to 2009 reappraisals. It did not create authority for counties to rescind future reappraisals. As a result, the Attorney General’s opinion from 2009 remains valid. A county may not rescind a reappraisal after it takes effect on January 1. Counties that wish to postpone their 2025 reappraisals must act before the end of the calendar year.
The other restriction to keep in mind is the mandatory 8-year reappraisal cycle created by GS 105-286. A county may not go more than 8 years without conducting a reappraisal, meaning that if a county’s last reappraisal was in 2017 then it could not postpone its 2025 reappraisal. Similarly, a county that has been forced to reappraise in 2025 due to sales-assessment ratio concerns (see this blog post for details) likewise could not postpone its reappraisal.
May a local government waive interest or penalties on occupancy taxes? Could it eliminate occupancy taxes entirely?
Yes, with some limitations.
The restrictions on waiving property taxes and interest on property taxes in GS 105-381 do not automatically apply to other local taxes such as occupancy taxes. The lack of an explicit prohibition on the waiving of occupancy tax interest and penalties means that local governments are free to develop their own rules on this issue. Many local governments have informally or formally adopted the restrictive GS 105-381 rules for occupancy taxes, but that is not required. And even if a local government had previously been applying GS 105-381 to occupancy taxes, it could change its policies on this issue at will. I think this means a local government can develop its own policies for waiving principal occupancy taxes and/or penalties and interest for late occupancy taxes in response to Helene.
Penalties for failure to file and pay occupancy taxes are tied to the penalties for late state tax filings and payments in GS 105-236. GS 105-249.2 automatically waives those penalties for late state tax returns and payments when a federal disaster declaration does so for federal tax deadlines. In response to Helene, the federal government has waived most federal tax penalties through May 1, 2025. Tying all of those provisions together, it may mean that local occupancy tax penalties must also be waived through May 1, 2025. But that’s not entirely clear, because the boilerplate occupancy tax provisions in G.S. 153A-155 for counties and G.S. 160A-215 for cities don’t specifically reference GS 105-249.2. My advice: local governments covered by the federal disaster declaration might consider formally waiving their occupancy tax penalties through May 1, 2025 in order to correspond to the waivers of state and federal tax deadlines through that date.
Occupancy taxes may also be reduced or eliminated entirely by a local government. However, under the boilerplate occupancy tax provisions in GS 153-155 and GS 160A-215, any reduction or repeal of an occupancy tax does not take effect until the end of the fiscal year in which the repeal or reduction occurs. This means that any reduction or repeal a local government’s occupancy tax that occurs at any time between now and June 30, 2025 will not take effect until July 1, 2025. It is not possible to reduce or eliminate occupancy taxes for the rest of this fiscal year, which runs from July 1, 2024 to June 30, 2025. The board may waive interest and penalties for late payment of those taxes, but it cannot eliminate the tax entirely until July 1, 2025.
A board that chooses to reduce or eliminate its occupancy taxes as of July 1, 2025 could later restore those taxes simply by adopting a new resolution or ordinance. (Note that the reinstatement of those taxes could take effect no sooner than the second month after the resolution is adopted.) Those taxes would then have to remain in place for the full fiscal year in which they were re-levied.
Remember that any actions concerning the waiver of occupancy tax interest and penalties or the lowering or elimination of occupancy taxes must be accomplished by the governing board (the county commissioners or the municipal council) and not by the tourism development authority that spends occupancy tax revenues.