What is the impact of a property tax appellate decision on tax years following the one under appeal? That’s the dispute at issue in a recent N.C. Court of Appeals decision that required Graham County to return $45,000 in post-appeal taxes. This blog discusses the details of the case, Miller v. Graham County, and the lessons to be learned from it.
Graham County removed property owned by Reid Miller from the present-use value (“PUV”) program in 2013. Miller appealed that decision to the state Property Tax Commission (“PTC”). Thanks in large part to continuances (delays) requested by the taxpayer, it took three years for the PTC to hear Miller’s appeal. In December 2016, the PTC ruled against the county and concluded that Miller’s properties “were entitled to continued deferred taxation” in the PUV program. The county did not appeal the PTC’s decision.
During the three years between the county’s removal of Miller’s PUV eligibility in 2013 and the PTC’s eventual reversal of that action, the county taxed Miller’s property at its full, non-PUV tax value. Miller neither paid nor appealed those assessments, presumably under the assumption that if she won her 2013 appeal those assessments would be reduced back to PUV levels.
That did not occur. Just a few months before the PTC issued its decision in favor of Miller, Graham County garnished over $30,000 from Miller’s bank accounts for the post-appeal tax years (2014, 2015, 2016). Six days after the PTC decision, Miller provided an additional $15,000 to the county for the rest of the amount the county claimed that she owed on 2016 taxes. The county agreed to hold the entire $45,000 in escrow pending resolution of the back taxes issue, in part to help Miller complete a sale of the property in late December 2016.
The parties apparently could not resolve their differences over the escrow funds, because in 2017 Miller filed a lawsuit against Graham County. She asked the court to issue a declaratory judgment that the county should have lowered the taxable value of the properties for 2014, 2015, and 2016 to PUV levels after the PTC decision and that the county must release the $45,000 in back taxes being held in escrow.
The trial court ruled in favor of the county, dismissing Miller’s lawsuit and ordering that the escrow funds be released to the county. Miller appealed to the court of appeals and won. The county has decided not to ask the N.C. Supreme Court to review the case, meaning the decision in favor of the taxpayer is final.
In a nutshell, the court of appeals concluded that the PTC decision concerning the 2013 tax year also applied to subsequent tax years. The PTC determined that the property never should have been removed from the PUV program in 2013. As a result, the property should have been remained in the PUV program for 2014, 2015, and 2016 unless the county could point to a disqualifying event other than the disqualifying event in 2013 that PTC reviewed and rejected. Because the county did not identify another disqualifying event, the court of appeals required the county to retroactively lower the 2014, 2015, and 2016 tax values to PUV levels and turn over the escrow funds to Miller.
See the timeline above for an illustrated version of this confusing sequence of events.
Two Questions to Help Understand the Case
First: Why was the county attempting to collect taxes on the full, non-PUV value of Miller’s property while Miller’s appeal was pending before the PTC?
This question is relatively simple to answer. Unless and until an appellate body said otherwise, the county’s decision to remove the properties from the PUV program in 2013 remained effective. And because Miller chose not to pay the 2014, 2015, and 2016 tax bills while her 2013 appeal was pending, the county was well within its rights to use enforced collections for those post-appeal tax years. G.S. 105-378(d) prohibits enforced collections for tax assessments that are under appeal, but that prohibition applies only to the specific tax year under appeal and not subsequent years. In this case, Miller appealed the 2013 assessment, not 2014, 2015, or 2016 assessments. As a result, G.S. 105-378 did not prevent the county from using enforced collections for those post-appeal tax assessments.
All of that explains why the county garnished and held $30,000 in back taxes for 2014 and 2015 prior to the PTC’s ruling on Miller’s 2013 appeal in December 2016. It also explains why the county and the taxpayer might have agreed to an escrow arrangement for the 2014, 2015 and 2016 taxes a few days after the PTC decision. The taxpayer wanted to sell the property A.S.A.P. and I’m sure the buyer didn’t want to inherit any delinquent tax liens. And at that point, the county still had several weeks to appeal the PTC decision. Given the possibility of a victorious county appeal and the taxpayer’s desire to sell the property immediately, the escrow arrangement made sense at that point.
Second: Why didn’t the county return those escrow funds to Miller after it decided not to appeal the PTC decision?
Once the PTC decision became final then it seems to me (and to the court of appeals) that the county had an obligation to return Miller’s property to the PUV program for 2013 and for all subsequent years unless and until another disqualifying event occurred that would have justified the removal of the properties from PUV. The court of appeals opinion suggests that there was no other disqualifying events other than the one in 2013 that the PTC considered and rejected. Without additional disqualifying events, the county had no basis to remove the properties from the PUV program for 2014, 2015, and 2016 and (in my view) should have returned the “extra” non-PUV taxes for those years to Miller.
I reached out to Graham County tax officials for insight as to county’s refusal to return those extra taxes. They reported that there was evidence of disqualifying events in 2014, 2015 and 2016 that justified the removal of Miller’s properties from the PUV program for those years.
According to the county, Miller had completely stopped logging the properties as of 2014. Some logging was required to remain eligible for PUV. From the county’s perspective, even if the PTC reinstated the properties’ PUV eligibility for 2013 the county was still justified in removing the properties from PUV for 2014 and forward due to these new and continuing disqualifying events. If the taxpayer disagreed with the county’s tax valuations for 2014, 2015, and 2016, the taxpayer should have appealed them. The taxpayer’s failure to do so meant that the county’s valuations for those years were final and that it was justified in keeping the escrowed additional tax payments.
In short, the county agrees that the PTC’s decision to reinstate the properties into the PUV program for 2013 would normally have also reinstated the properties into the PUV program for 2014 and future years. However, the county says that disqualifying events subsequent to 2013 intervened and justified the removal of the properties from the PUV program for 2014 forward.
I understand the logic behind the county’s argument. The problem is that the court of appeals’ decision makes no reference to any subsequent disqualifying events. Without such evidence, the county’s argument to keep the escrow funds falls short.
Lessons to be Learned
Much of the court of appeals opinion focuses on procedural disputes concerning whether the taxpayer took the appropriate steps to ask the court to order the return of the extra non-PUV taxes she paid for 2014, 2015, and 2016. Between those arguments and the confusing timeline, it is easy to lose sight of the case’s core issue: Does an appellate decision concerning a tax assessment in one year also affect tax assessments on the same property in subsequent years?
I have always assumed the answer to that question was yes. This court of appeals decision confirms that assumption. Given that perspective, here are my primary takeaways:
First, any change in tax value due to an appellate decision will normally affect subsequent years even if the taxpayer does not appeal the values for those years. In the Graham County case, the PTC lowered the taxable value of Miller’s properties only for 2013. The court of appeals concluded that this change should also lower the properties’ taxable values for 2014 and subsequent years despite the taxpayer’s failure to appeal the tax values for those years.
I think the only instances in which an appellate decision would not change the tax values for subsequent years is when the county can point to other intervening events. For example, if an appeal lowers Parcel A’s tax value for 2013 but the county has a revaluation in 2014, the county may use the new 2014 tax value for Parcel A without regard for the appellate decision concerning the 2013 tax value.
Second, a county should be sure to document any intervening event that might affect a property’s value in a post-appeal tax year. In this case, Graham County believed that there were new and continuing disqualifying events in 2014 and subsequent years that justified the removal of PUV status for the properties regardless of the appellate decision concerning 2013. But the court of appeals opinion implies that there was no evidence of any additional disqualifying events in the record. Although the county sent notice of the non-PUV tax assessments for 2014 and subsequent years, the court apparently viewed those assessments as based on the 2013 disqualifying event that the PTC rejected and not as evidence of new disqualifying events.
If a county intends to change a tax value for a property while an appeal is pending, as occurred in the Graham County case, then the county should be sure to maintain sufficient documentation to justify that decision. The taxpayer should be given notice of the fact that her property value is changing for reasons above and beyond those that are already the subject of her pending appeal. Such notice would make the taxpayer aware of the need to file additional appeals. Had Graham County issued notice of new disqualifying events for 2014 or later years then I think the county would have had a much better argument concerning Miller’s failure to appeal the tax values in those years.