One More Problem with COVID-19: Property Tax Refunds

by Sam Cohen

For many tribes, COVID-19 closed off-reservation hotels and other businesses. Nevertheless, these off-reservation tribal businesses will be assessed for property taxes. Assessors are arguing that these property taxes are necessary to fund schools and local government.

While the law is unclear (as is everything with COVID-19), there are a number of low cost acts tribes can take to minimize their property taxes. Tribes should be aware that nearby non-tribal businesses are asking the Assessor for property tax relief. Tribes are merely taking advantage of property tax relief mechanisms available to all commercial property owners.

Can We Fix 2020 Property Tax Bills?

Commercial property assessments are different than residential property assessments. Residential property is usually valued based on comparable sales, sometimes referred to as “comps.” Commercial property can also be valued by “comps” but is also valued based on its stream of income. Closure of a commercial property, especially when due to a casualty or calamity, can dramatically reduce its value.

While each state assesses property taxes differently, they all have a lien date for the determination of annual property taxes. Generally, any appeal of this annual assessment is based on reductions in assessed value as of that lien date. For California, the lien date was January 1, 2020, which was before the March 2020 COVID-19 closures.

Some states like California allow mid-year calamity reassessments. California enacted Proposition 8 that allowed mid-year reassessments for property damage. This article does not take a position as to whether COVID-19 damages property or just results in loss of use. Be aware that many assessors are resisting such mid-year assessments.

There is no reason why tribes should not ask for a mid-year reassessment. If your state has a calamity reassessment, you should file whatever form your state has for a calamity or other reassessment. In addition, if your state allows informal meetings with the Assessor, you should also ask for such an informal meeting after you request the reassessment (informal meetings are not a substitute for a request for reassessment). Please check with your Assessor as to any filing fees for calamity or other reassessments or even for an informal meeting. For example, Santa Barbara County in California does not charge for either the request for a calamity reassessment or for an informal meeting.

Finally, you might consider filing an assessment appeal for 2020 depending on the appeal deadline. For example, the California assessment appeal deadline has already passed on November 30, 2020 (check your state law to see if this is extended to the following business day if a weekend). Reassessment appeals almost always have a filing fee, which can be a flat fee or based on assessed value or a combination of both.

The 2021 Lien Date

Any reduction in revenue for 2020 should reduce the value of commercial property as to the 2021 lien date. Arguably, Assessors should recognize the effects of COVID-19 in 2020 and 2021 when calculating the 2021 assessed valuation on the 2021 lien date.

Of course, out of an abundance of caution, you should file your calamity reassessment or general reassessment for 2021 as soon as possible. You can also ask for an informal meeting with the Assessor, which you may file before or after you submit your requests for reassessment. If you have a great relationship with the Assessor, you might try the informal meeting first; if your relationship is more business-like, you might want to file first for the reassessment.

Assessment Appeal for 2021

After you make your request for reassessment, you need to start preparing for your assessment appeal. First, you need to determine your filing deadline to appeal. Failure to appeal in a timely manner will be fatal to any appeal absent extraordinary judicial relief.

Any reassessment will depend on documented lost revenues as a result of COVID-19. Prior to any assessment appeal hearing, you will need to engage a commercial real property appraiser to document the diminution of the assessed value as of the 2021 lien date. You should consider both lost revenues during any closures and reduced revenues as a result of travel and other restrictions.

Preparing for any appeal hearing is when the tribe will start to incur substantial expert witness fees for the commercial appraisal and for legal fees. Prior to going forward with any assessment appeal hearing, the potential property tax refund as discounted by litigation risk must be weighed against certain appraisal and legal fees.

The entire area of COVID-19 property tax reassessments is in flux and developing. For now, tribes need to file all reassessment requests and property tax appeals to preserve the refund rights of the tribe. Only by making timely filings, can the tribe participate in the discussion of COVID-19 property tax refunds.  

Sam Cohen is Government Affairs and Legal Officer for the Santa Ynez Band of Chumash Indians. He can be reached by calling (805) 688-7997 or email [email protected].