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HomeMy WebLinkAbout8B - Board of Review .. W~ ~~:~ CITY COUNCIL AGENDA REPORT MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: DISCUSSION: MAY 4, 1998 ~ ~~ BOYLES, CITY MANAGE~V BOARD OF REVIEW Historv: Minnesota Statute provides that the County or City Council can sit as the local Board of Review. The City Council has decided it wishes to fulfill this function. Current Circumstances: The Board of Review this year is scheduled for Monday, May 4, 1998 at 8:00 PM in the Fire Station City Council Chambers. County Assessor Leroy Arnoldi will be present to assist the City Council in conducting the Board meeting. The Issues: The only issue before the City Council sitting at the Board of Review is the valuation placed upon each parcel by the County Assessor as of January 1, 1998. Property owners received their valuation notice last weekend on Apri125. A property owner wishing to contest his or her valuation must do so in person or in writing at the Local Board of Review. This will allow the party to continue the appeal to the County Board of Review or court system should they desire. Conclusion: The Council should review the attached report provided by Leroy Arnoldi to refami1iarize itself with appraisal and valuation related issues. The Mayor should open the Board of Review as it is a hearing. I will provide a brief overview of the purpose of the Board of Review. Assessor Arnoldi will give his report. Then each property owner present should be given the opportunity to state their concerns about their valuation as of January 1, 1998. For those questions requiring additional research, Mr. Arnoldi will prepare a report and provide it to the Board of Review prior to the extension of the Board of Review meeting scheduled for May 18, 1998 at 8:00 p.m. 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER Memorandum To: Local Boards Of Review cc: From: Leroy T. Arnoldi, SAMA - Scott County Assessor Date: April 28, 1998 Subject: 1998 Local Boards Of Review This booklet will serve to provide you with information about the property assessment process and your responsibilities in the process acting as the Local Board of Review. The assessment in Scott County is done by a combination of the efforts of two local assessors and their staffs and the County Assessor's Office; consisting of six staff appraisers, the County Assessor, a Deputy County Assessor, and an Assessment Technician. These individuals are responsible for an annual valuation and classification of over 33,000 parcels of property. The total taxable market value exceeds 4 billion dollars, which bears a total property tax burden of in excess of 81 million dollars. With real estate taxes bearing a large burden of the cost of government, the local Board of Review is an important step in maintaining an equitable property tax system. We hope that all members take their jobs very seriously and look forward to working with you throughout the process. Please be aware any reductions that the Board may make will have the effect of shifting the tax burden to all other property. We must avoid the "easy way out" of reducing all individuals that appear as it would be unfair to property owners that have not appealed. Call me at 496-8124 with any questions you have about Local Boards of Review or information within this booklet. FORMATFORLOCALBOARDSOFRE~EW At the 1998 Local Boards of Review, we will utilize a standardized sIgn III sheet, and report/recommendation to the Local Boards from the Assessor. The format for the Local Boards of Review will be: . On a first come, first serve basis, the individuals will make their presentation to the Local Board of Review. The Assessor will make notes of taxpayer comments and respond to questions, but will not make specific recommendations during the appearance. The issues that the taxpayer should be discussing are the January 2, 1998 valuation and/or classification of the property. . If there is more than one meeting, the Assessor will collect as much information as possible on appealing properties after the first meeting and make specific recommendations on each case at the second meeting. The level of detail provided to the Local Board and number of properties inspected will depend upon the number of properties appealing. Hopefully, the report will be provided to the Local Board prior to its reconvened meeting. But, due to time constraints, there may be cases where it is presented to the Board at that meeting. . The Local Board may accept the Assessor's recommendations as a whole, may accept part of the Assessor's recommendations, or may deal with the properties on a case by case basis. 1 ," il ... The 1998 Scott County Assessment April 27, 1998 The real estate tax is an ad valorem which is based on the value of property and not on the ability of the property owner to pay. The values placed on all real estate in Scott County are based on the estimated value of land and the improvements upon the land, while no consideration is given to who owns the land. The assessment is updated in a uniform, objective manner each year. Each year the assessor analyzes the previous twelve months' real estate sales to modify the mass appraisal system to properties. For the January 2, 1998 valuation, sales from October, 1996 to September, 1997, were analyzed both for market trends as well as the assessment to sale ratio (assessor's value divided by the sale price) on the sales. There are two reasons why valuations are changed. The most obvious is inflation or deflation of prices in the real estate market. While inflation has slowed down in recent years, there is still inflation in some parts of the residential market. The second reason for a valuation change is, even in a stable market, if a property based on an analysis of sales is perceived to be under-assessed either in relation to comparable properties or to the "target" level of assessment, the valuation may increase. It also is a result of continually attempting to improve the mass appraisal system to treat all property in a uniform manner. This "fine tuning" of the assessment causes some properties to receive larger valuation increases than other properties. The Commissioner of Revenue requires a level of assessment between 90 and 105 percent of market value. It should be noted that an increase in valuations will not necessarily result in an increase in tax. Increased taxes are the result of increased government spending. If the tax base increases and spending remains stable, there is a corresponding decrease in the tax rate and taxes will stay the same. 3 The 1998 Scott County Assessment April 27, 1998 SALES RATIO Evidence suggesting a forced sale, foreclosure, sale to a relative, or anything but an arm's- length transaction results in the sales information being discarded. This is important because the real estate sales information is the data base for the statistical comparisons necessary to make the property assessment. The accuracy of the Assessor's Office estimated market values is measured by the sales ratio, which is the Assessor's estimated market value divided by the actual selling price. For example, a house having its estimated market value assessed at $90,000 and an actual selling price of $1 00,000 gives a sales ratio of 90 percent. For areas in Scott County, the accepted range for the median sales ratio measurement is 90 to 100 percent. In other words, the median (or midpoint) of the sales ratios for all properties sold should fall within 90 to 100 percent. A sales ratio of slightly less than 100 percent is desirable in order to avoid having a great many properties valued at more than their actual market value. If the sales ratio were at 100 percent, it would mean that half the properties were assessed at less than market value and half were higher, with too many over the actual market value. On the other hand, a sales ratio of 92.5 percent means half the properties are below 92.5 percent of actual market value, half are higher, and a relatively low number are valued by the assessor at more than actual market value. Therefore, the acceptable range is 90 to 100 percent. Median 100 Median 92.5 92.5 90 95 105 110 80 85 ~ ~/ . 95 100 -----~. / i",,- / ~,~ ~ ~ ......... HALF THE VALUES ARE OVER 100% FEW VALUES ARE OVER 100% 5 The 1998 Scott County Assessment April 27, 1998 RESPONSIBILITIES OF LOCAL BOARDS OF REVIEW The town board of each town and the councilor other governing body of each city is the Board of Review, except in cities whose charters provide for a Board of Equalization. The County Assessor shall fix a day and time when the Board of Review or the Board of Equalization shall meet in the assessment districts of the County. On or before February 15 of each year, the Assessor shall give written notice of the time to the city or town clerk. The meetings must be held between April 1 and May 3 1 each year. The clerk shall give published and posted notice of the meeting at least ten days before the date of the meeting. The Board shall meet at the office of the clerk to review the assessment and classification of property in the town or city. No changes in valuation may be made by the County Assessor after the Board of Review or the County Board of Equalization has adjourned. This restriction does not apply to administrative in nature. The Board shall determine whether the taxable property in the town or city has been properly placed on the list and properly valued by the assessor. If real or personal property has been omitted: the Board shall place it on the list with its market value; correct the assessment so that each tract or lot of real property and each parcel, or class of personal property is entered on the assessment list at its market value. No assessment of the property of any person may be raised unless the person has been duly notified of the intent of the Board to do so. On application of any person feeling aggrieved, the Board shall review the assessment or classification, or both, and correct it as appears just. A Local Board of Review may reduce assessments upon petition of the taxpayer, but the total reductions must not reduce the aggregate assessment made by the County Assessor by more than 1 percent. If the total reductions would lower the aggregate assessments made by the County Assessor by more than 1 percent, none of the adjustments may be made. The assessor shall correct any clerical errors or double assessments discovered by the Board of Review without regard to the 1 percent limitation. 7 The 1998 Scott County Assessment April 27, 1998 RESPONSIBILITIES OF THE COUNTY BOARD OF EOUALIZA TION The County Board of Equalization follows the Local Board of Review in the assessment process. In every county, the basic charge of county equalization is essentially the same. It involves the equalization of the assessment level between the individual assessment districts and between the various classes of property within the county. Property owners who are not satisfied with the results of their appearances at the Local Boards of Review may appeal to the County Board of Equalization. Assessments of property are made to measure each taxpayer's share in paying the costs of government in his city, township, school district, and county. If the cost of local government is to be fairly shared among the taxpayers, it is necessary all taxable property be listed on the assessment rolls and all valuations be made as professionally and accurately as possible. COMPOSITION OF BOARD The County Commissioners, or a majority of them, with the County Auditor; or, if he cannot be present, the Deputy County Auditor, form a board for the equalization of the assessment of property of the County. The County Board may appoint a special Board of Equalization to which it may delegate all of the powers and duties and discretion of the appointing County Board and be subject to the same lawful regulations as the County Board of Equalization would be. The appointing Board determines the number of members to be appointed to the special Board, compensation, expenses to be paid, and the term of office of each member. At least one member of the special Board of Equalization must be an appraiser, realtor, or other person familiar with property values in the County. The County Auditor is a nonvoting member and serves as the recorder for the special Board. 9 The 1998 Scott County Assessment April 27, 1998 The Board cannot, however, reduce the aggregate value of all property in its County, as submitted to the Board with the additions made thereto by the Auditor, by more than 1 percent. Taxpayers who feel that the assessments for the current year are unfair must first appear before the Local Board of Review before the County Board of Review may hear their appeal unless it is established that the taxpayer did not receive notice of the market value at least five days prior to the Local Board of Review meeting or that the assessment was made subsequent to the meeting of the Local Board as provided in M.S. 273.01. Any complaints or objections to the current year's assessment made by taxpayers who may appeal to the County Board of Equalization must be considered by the Board. Such assessments must be reviewed in detail and the Board has the authority to make any corrections it believes to be just. In reviewing a protest to an assessment, the Board may ask the County Assessor to investigate and report back later. The County Board of Equalization does not have the authority in any year to reopen former assessments on which taxes are due and payable. The Board considers only the assessments that are in process in the current year. Occasionally, a taxpayer may appear to protest an assessment that was made in a previous year. The Board should explain tactfully that it has no authority to consider such matters and that after taxes have been extended, adjustments can be made only by the process of application for abatement or by legal action. The County Board of Equalization may not exempt property from taxation. The County Board of Equalization may not place omitted property on the assessment books. This power is vested only in the Local Boards of Review and to the County Auditor. However, when it comes to the attention of the Board that any property subject to taxation has not been assessed, the Board may, by resolution, request the Auditor to place such property on the tax tolls. The County Board of Equalization has no authority to make original assessments. Its duties are restricted to review and equalization of assessments already made. 1 1 The 1998 Scott County Assessment April 27, 1998 RESPONSES TO TYPICAL T AXP A YER QUESTIONS 1. Q. Why did my taxes increase? A. The fundamental reason for increase in taxes is increased government spending. The government suffers from inflation, just as individuals do, as well as demand for increased services. Additionally for property taxes payable in recent years, there have been some changes in State aids to school districts and local units of government. Generally speaking, a larger share of the costs of doing government are being borne by the property tax. 2. Q. Why are my taxes so high? A. (For Residential Homestead Property) Property taxes are based on the valuation of the property. There is a progressive system for computing the tax capacity from the market value. This results in a progressive property tax for owner occupied property. The State of Minnesota has an income adjusted property tax refund for homeowners. There are different benefits for senior citizens, disabled individuals, income levels, or based on the number of dependents. Information about the M-IPR form, (which is mailed out to individuals along with their State Income Tax Forms) is available by calling 296- 3781. If you are a homeowner and your property tax for 1997 increased by more than 12 percent, you may be eligible for a special refund this year. 3. Q. What is State Paid Tax Relief? A. This is your pro-rated share of a State aid paid to Scott County to reduce the property tax level. This is already within the calculations of your taxes. 13 The 1998 Scott County Assessment April 27, 1998 7. Q. What is the tax rate? A. The term tax rate replaces the former term mill rale. The tax rate is expressed in percentages and is multiplied by the tax capacity resulting in the tax obligation prior to any reduction by credits. 8. Q. How do you arrive at the tax amount? A. All taxable property is classified and valued as of January 2 of each year. This classification and valuation is the basis for the property tax payable in the following year. For example, your 1998 property taxes are based on the valuation and classification as of January 2, 1997. Based on the classification of the property, the market value is taken times the statutory tax capacity percentage to compute a gross tax capacity. Ifa residential property has a value of$125,000, the computation: o the first $75,000 in value x 1.0 % = 750 o above $75,000 is value x 1.85% = 925 o totaling those computations = 1,675 (This represents the tax capacity.) The gross tax capacity is taken times the tax rate to yield the tax. For example, if the tax rate were 1.50, the 1,675 would be taken times 1.50 to yield a tax of $2,512.50. The tax rate will differ depending on the school district, township, or city. The first half is payable by May 15, the second half payable by October 15. 15 The 1998 Scott County Assessment April 27, 1998 10. Q. My property was reassessed last year, so why should I get a State imposed aggregate increase? A. Aggregate changes in assessment are made by the State Board of Equalization. The purpose of these changes is to ensure that the assessment level lies with the 90 to 105 percent of market value corridor which is required by the Department of Revenue. The changes are made on a class of property rather than on individual properties. If a property was revalued and received an increase, it is possible for the State in their statistical analysis of the assessment to impose another increase. After the aggregate increase from the State, if the property's estimated market value for property tax purposes exceeds what it could be sold for on the open market, the value should be reduced to within the 90 to 105 percent acceptable corridor. 11. Q. What can I do about my taxes? A. The Assessor deals with the classifications and valuation of the property which provides the basis for the taxes, but not the specific tax amount. If the classification or valuation is in error, the first step is to discuss your concerns with your local assessor or a staff appraiser from the Scott Count Assessor's Office. If an agreement cannot be reached, a more formal method of appeal may be necessary. There are basically three methods of appealing the valuation or class- ification of a property. They are: [] The abatement process [J Local Board of Review, County Board of Equalization o Tax Court, including the Small Claims Division 17 ; , J;... The 1998 Scott County Assessment Property Tax Classification Rates: What They Are, How They Work Apri127,1998 The classification rates on selected properties for taxes payable in 1998 are shown below: PROPERTY CLASS TAXES PAYABLE 1998 CLASSIFICATION RATE Residential Homesteads First $75,000 of market value Value over $75,000 Residential Non-Homestead (single unit) First $75,000 of market value Value over $75,000 Commercial and Industrial First $150,000 of market value Value over $150,000 Farm Homesteads House, garage, one acre 1.0% 1.85% 1.9% 2.1% 2.7% 4.0% Same as residential homesteads Land value up to $115,000 Land value over $115,000 Up to 320 acres Over 320 acres Farms Non-Homestead Land Residential Rental (apartments) 3 or fewer units 4 or more units 0.4% 0.9% 1.4% 1.4% 2.1% 2.9% Seasonal Cabins (non-commercial) First $75,000 of market value Value over $75,000 1.4% 2.5% How to Use Classification Rates: Example: Suppose your home is valued at $90,000 and your local tax rate is 1.35 (135% of tax. capacity) Then: Your Home's Tax Canacitv =($75,000 times .01) + ($90,000 minus $75,000) times .0185=$1,027 Your Pronertv Tax = $1,027 times 1.35 = $1,387 (Note: Homesteads also receive the education homestead credit to reduce thdr school taxes. For 1998, this credit would be approximately $121 for a $90,000 home.) 't I , 0 The 1998 Scott County Assessment April 27, 1998 CLASSIFICATION OF PROPERTY The classification of property after the valuation is complete to identify the property as residential, commercial, homestead, non-homestead, etc. Each class refers to a different statutory assessment rate. It is based on the use as of the assessment date. CLASS RATE Statutory percentages applied to the estimated market value of a parcel based on the parcel's classification to arrive at the tax capacity. COEFFICIENT OF DISPERSION In statistics, the ratio of a measure of absolute dispersion to an appropriate average usually expressed as a percent. It may be computed from either the quartile or mean deviation, but is usually expressed as a ratio of the standard deviation to the mean. A measure of relative dispersion. COST APPROACH That approach in appraisal analysis which is based on the proposition that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility as the subject property. It is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exist no comparable properties on the market. 21 The 1998 Scott County Assessment April 27, 1998 FUNCTIONAL DEPRECIA TlON Impairment of functional capacity of efficiency. Functional obsolescence reflects the loss in value brought about by such factors as overcapacity, inadequacy, and changes in the art, that affect the property item itself or its relation with other items comprising a larger property. The inability of a structure to perform adequately the function for which it is currently employed. FUNCTIONAL CURABLE DEPRECIATION Functional obsolescence which may be corrected or cured when the cost of replacing the outmoded or unacceptable component is at least offset by the anticipated increase in utility, and, hence, ultimately in value, resulting from the replacement. FUNCTIONAL INCURABLE DEPRECIA TION Functional obsolescence that results from structural deficiencies or superadequacies that the prudent purchaser or owner would not be justified in replacing, adding or removing, because the cost of effecting a cure would be greater than the anticipated increase in utility resulting from the replacement, addition, or removal. ECONOMIC OBSOLESCENCE Impairment of desirability or useful life arising from factors external to the property, such as economic forces of environmental changes which affect supply-demand relationships in the market. Loss in the use and value of a property arising from the factors of economic obsolescence is to be distinguished from loss in value from physical deterioration and functional obsolescence, both of which are inherent in the property. Also referred to as Locational or Environmental Obsolescence. ESTIMATED MARKET VALUE The value which the Assessor has estimated the property to be worth. This value is required to be at least 90 percent of what similar properties are actually selling for. 23 The 1998 Scott County Assessment April 27, 1998 NON-HOMESTEAD Residential property that does not qualify for a full year or mid-year homestead. The tax capacity is higher, hence, a higher tax. INCOME APPROACH That procedure in appraisal analysis which converts anticipated benefits (dollar income or amenities) to be derived from the ownership of property into a value estimate. The income approach is widely applied in appraising income-producing properties. Anticipated future income and/or reversions are discounted to a present worth figure through the capitalization process. LEGAL DESCRIPTION A statement containing a designation by which land is identified according to a system set up by law or approved by law. LOCAL T AX RATE Rate of tax applied to the tax capacity of property to calculate the tax due. Formerly known as the mill rate. MARKET APPROACH A process of analyzing sales of similar recently sold properties in order to derive an indication of the most probable sale price of the property being appraised. The reliability of this technique is dependent upon (a) the availability of comparable sales data, (b) the verification of the sales data, (c) the degree of comparability or extent of adjustment necessary for time differences and (d) the absence of non-typical conditions affecting the sale pnce. MARKET VALUE The highest price in terms of money which a property will bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. 25 The 1998 Scott County Assessment April 27, 1998 PARCEL A piece of land, regardless of size, in one ownership. PROPERTY TAX REFUND Also know as the "Circuit Breaker". State-reimbursed refund to owners of homesteaded property and renters based on income. REV ALUA TION The mass appraisal of all property within an assessment jurisdiction to obtain equalization of assessed values. Also for reappraisal of a former assignment. SALES ASSESSMENT RATIO The ratio derived by dividing the estimated market value by the selling pnce. AGGREGA TE RA TID The ratio determined by dividing the total assessed value of all sales by the total selling prices. MEAN RA TID The total of all the ratios in a given set divided by the number of items in the set. MEDIAN RA TlO The value of the middle item where an odd number of items are arranged (arrayed) according to size; or the arithmetic average of the two central items, if there is an even number of items. It is a positional average and is not affected by the size of extreme values. SPECIAL (LOCAL) ASSESSMENT Street, sewer, curb, etc, cost determined by local municipality. 27