How many taxpayers have asked you this question: “Can I get a partial refund on my property taxes if I sell the property in the middle of the year?” The short answer is normally, “No, we don’t prorate property taxes.” But that’s not the complete answer.
Under the Machinery Act (the odd name for the portion of North Carolina General Statutes Chapter 105 that governs local property taxes), property taxes are a bit like pregnancy; property is either taxable for the full year or it’s not taxable for any of the year. There is usually no in-between.
The are only three situations in which taxes are prorated based on the number of months the property is taxable:
- Annexations, for the first year of municipal taxes on the annexed property. Taxes are prorated based on the number of full months remaining in the fiscal year after the annexation becomes effective. Assume Parcel A is annexed by Wolfpack Town on October 1, 2021. Parcel A should be taxed for 8/12 of the town’s 2021 tax levy because there were 8 full months remaining in the 2021-2022 fiscal year (November to June) after the date of annexation;
- Registered motor vehicles which are sold or removed from the state and for which the tags are surrendered to the DMV. The taxpayer is entitled to a refund of taxes based on the number of full months remaining in the vehicle’s tax/registration year after the date on which the tags were surrendered. (For more details, see page 17 of this bulletin.) Assume the tax/registration year on Tommy Tar Heel’s Honda Civic runs from October 2021 to September 2022. If Tommy sells the Honda in December 2021 and turns in his tags that same month, he would be entitled to a refund of 9/12 of this 2021 tax bill on the vehicle (for the months of January 2022 to September 2022); and,
- “Gap” bills on motor vehicles for the period in between registrations during which a motor vehicle was unregistered (see page 10 of this bulletin to learn more about gap bills). Assume Betty Blue Devil lets the registration on her Ford F-150 expire in September 2021. She decides to register the truck again in March 2022. The county tax office should prepare a personal property tax bill on the truck for the “gap” in its registration (the 5 months from October 2021 to February 2022 during which the truck was not registered).
(Did I miss any other situations in which we prorate taxes? If so, let me know in the comment section below . . . )
But outside of these specific situations, we don’t prorate property taxes in North Carolina. Why? Because GS 105-285 states that the listing date for property taxes, meaning the date on which ownership and situs (location) is determined, is the January 1 prior to the start of the tax year on July 1. Further, GS 105-380/381 limit refunds and releases to taxes that were levied illegally or due to clerical error and make no mention of prorated taxes or refunds.
Combined, those statutes lead us to this rule: absent specific authorization for the proration of taxes (as exists for annexation, the surrendering of tags on registered motor vehicles, and gap bills, as described above), if property is sited in a jurisdiction and taxable as of January 1 then the property is taxable for the full coming tax year regardless of what occurs later in the year.
Consider these situations in which taxpayers may be disappointed to learn that taxes will not be prorated:
- Tommy Tarheel sells his boat to Betty Blue Devil in August 2021. When he receives the bill for the boat later that month, he asks the tax collector to prorate the taxes so that he pays the taxes for July 2021 and Betty pays the bill for August 2021 through June 2022. Sadly for Tommy, the Machinery Act does not permit such prorating of taxes between two owners. Under GS 105-365.1, Tommy will be liable for the entire 2021 tax bill on the boat because he was the owner as of the listing date (January 1, 2021) for those taxes.
- Tommy doesn’t sell his boat, but instead it sinks off the Outer Banks in September 2021. Can he get a refund or release for the 9 full months remaining in the 2021-2022 tax year? The boat was owned by Tommy in North Carolina as of January 1, 2021, and as a result it is taxable for the entire 2021 tax year.
- Betty Blue Devil sells her house to Wanda Wolfpack in July 2021. She asks that her 2021 taxes be prorated so that she pays half of the total bill (for the months January 2021 to June 2021), because that is how her sales contract with Wanda allocates the property taxes. Betty’s request is problematic, for several reasons. First, taxes are levied on a fiscal year (July to June) basis, not a calendar year basis. The 2021 taxes cover the time period July 2021 to June 2022. Second, as discussed above, real property taxes are never prorated other than in cases of annexation. Third, private agreements to allocate taxes between a seller and buyer (which are almost always based on the calendar year) are not enforceable against local governments. The county’s obligation and right to enforce the taxes on Betty’s property are not affected by the agreement between Betty and Wanda. Under 105-365.1, the owner as of the delinquency date (in this case, January 6, 2022) is responsible for unpaid taxes on real property. This is true regardless of the terms of the agreement between Betty and Wanda.
- Betty doesn’t sell her house, but instead it is destroyed by fire in September 2021. The house remains taxable for the full 2021 tax year, for same reasons that Tommy’s boat was fully taxable for 2021 despite the fact it now resides on the bottom of the Atlantic.
- Big Corp. closes its factory in Carolina County in October 2021 and moves its equipment to Virginia. Because the equipment was sited in Carolina County as of January 1, 2021, it is taxable for the full 2021 tax year even though it was later removed from the state.
- Mike Mountaineer sells Parcel B to Appalachian State University in June 2021 for use as athletic fields and overflow parking. Is the property taxable for all of 2021 despite the fact it was transferred to an exempt owner in mid-year? Yes. Because the property was owned by a taxable owner on January 1, 2021, it is taxable for the full year. Appalachian State University should pay the 2021 taxes from the sales price as required by GS 105-385. (See this post for what happens when the reverse of that situation occurs, with property transferred from an exempt owner as of January 1 to a taxable owner later in the year.)