98-1148
CORRECTIVE
ACTION ORDER
Signed 12/3/98
BEFORE THE
UTAH STATE TAX COMMISSION
____________________________________
PETITIONER, ) FINDINGS OF FACT,
) CONCLUSIONS OF LAW,
Petitioner, ) AND FINAL DECISION
)
v. ) Appeal No. 98-1148
)
PROPERTY TAX
DIVISION OF ) Tax Type:
Corrective Action Order
THE UTAH STATE
TAX )
COMMISSION, ) Presiding: Pacheco
)
Respondent. )
_____________________________________
Presiding:
Joe Pacheco,
Commissioner, presiding, with Pam Hendrickson, Commissioner and R. Bruce
Johnson, Commissioner
Appearances:
For Petitioner: Gregory Garff, County Assessor
For Respondent: Michelle Bush, Attorney General's Office
STATEMENT
OF THE CASE
This matter came before the Utah State
Tax Commission for a Formal Hearing on November 19, 1998. Based upon the evidence and testimony
presented at the hearing, the Tax Commission hereby makes its:
FINDINGS OF
FACT AND CONCLUSIONS OF LAW
1.
Respondent issued a
Corrective Action Order dated October 22, 1997 ("the 1997 Order")
to Petitioner pursuant to Utah Code
Annotated sections 59-2-303.1 and 59-2-704.
That order directed Petitioner to make adjustments to the county's 1998
assessment rolls as follows:
a. Factor Commercial Property county-wide
by 1.09.
b. Factor Secondary Residential Property
county-wide by 1.15
c. Factor Vacant Land in the recreational
subdivisions by 1.06.
2.
Petitioner did not appeal
that order.
3. In
July 1998, Respondent conducted a
compliance audit of the 1997 Order and found that Petitioner had failed to
fully comply with the actions ordered regarding secondary residential property
and vacant land in recreational subdivisions.
4. On
August 17, 1998, Respondent issued another Corrective Action Order ("the
August 1998 Order") and a letter notifying Petitioner of its findings and
ordering Petitioner to adjust the values of all vacant land in recreational subdivisions
to reflect an increase of 6% over 1997 values, and to adjust the values of all
secondary residential property county wide to reflect and increase of 15% over
1997 values. The August 1998 Order
granted Petitioner 15 days in which to file a Petition for
Redetermination.
5. Petitioner
filed a Petition for Redetermination of the August 1998 Order on August 31, on
the basis that some vacant land in recreational areas had been reappraised
within two years prior to the factor order, and a factor adjustment would
result in a value higher than other like properties in the county. Petitioner also objected to three sales that
had been included in the 1997 sales ratio study on secondary residential
property.
6. The
parties entered a stipulated agreement dated September 23, 1998, which excluded
specific subdivisions from the adjustment that had been ordered on vacant
recreational properties. The agreement
disposed of that issue.
7. An
Initial Hearing on the remaining issue was held on September 25, 1998 before
Judge Jane Phan. The order issued from
that hearing approved the parties' stipulated agreement with regard to vacant
property and upheld the factor order with regard to secondary residential property.
8. Upon
Petitioner's request for a Formal Hearing, the hearing was held before the
Commission on November 19, 1998.
APPLICABLE
LAW
1. Utah Code Ann. ' 59-2-303.1 (1)
states in pertinent part:
(a) The commission shall take corrective action
if the commission determines that:
. . .
(ii) the sales-assessment ratio, coefficients of
dispersion, or other statistical measures of appraisal performance related to
the studies required by Section 59-2-704 are not within the standards provided
by law;
. . .
(b) For purposes of this section,
"corrective action" includes:
(I) factoring pursuant to Section 59-2-704;
. . . .
2. Utah Code Ann. ' 59-2-704 states in pertinent part:
(1) Each year . . . the commission shall conduct
and publish studies to determine the relationship between the market value
shown on the assessment roll and the market value of real property in each
county.
. . .
(2) The commission shall each year, order each
county to adjust or factor its assessment rates using the most current studies
so that the assessment rate in each county is in accordance with that
prescribed in Section 59-2-103.
. . .
3. Utah Administrative Rule R861‑1A‑11
states in pertinent part:
A. Appeal of Factor Order. Any county appealing a factor order issued
pursuant to Utah Code Ann. Section 59‑2‑704(2), or any amendment
initiated by the Commission to the order, shall, within 15 days of the mailing
of an order to factor, request in writing a hearing before the Commission. The Commission shall immediately set the
time and place of the hearing which shall be held no later than March 1 of the
tax year to which the factor applies.
. . .
C. Decisions and Orders. The Commission shall render its decision and
order no later than March 15. Upon
reaching a decision, the Commission shall immediately notify the county
assessor or if unavailable, his deputy, by telephone and shall confirm the
order by mail. A county desiring to
appeal the order must petition for reconsideration within ten days after the
county assessor has been notified by telephone. No petition for reconsideration will be entertained unless
evidence not reasonably available at the time of the hearing is to be
presented. Oral argument on
reconsideration will be heard only if the Commission determines it to be in the
public interest. The Commission shall
render a decision and order on a petition for reconsideration no later than
March 31 and shall notify the county assessor by telephone and by mail.
. . . .
4. Utah Administrative Rule R884-24P-27
(B) states in pertinent part:
B. The Tax Commission adopts the following
standards of assessment performance regarding assessment level and uniformity:
1. Adjustment shall be ordered for a property
class or subclass if the measure of central tendency is not within 10 percent
of the legal level of assessment or the 95 percent confidence interval of the
measure of central tendency does not contain the legal level of assessment.
a) The measure of central tendency shall be the
mean for parametric samples and the median for nonparametric samples.
. . .
3. To achieve statistical accuracy in
determining assessment level under B.1. and uniformity under B.2. for any
property class or subclass, the acceptable sample size shall consist of 10 or
more ratios.
a) To meet the minimum sample size, the study
period may be extended.
b) A smaller sample size may be used if that
sample size is at least 10 percent of the class or subclass population.
c) All input to the sample used to measure
performance shall be completed by September first of each study cycle.
DISCUSSION
AND ANALYSIS
Respondent issued a Corrective Action
Order to Petitioner in October of 1997 pursuant to section 59-2-704 of the Utah
Code. Petitioner did not object to the
order within the time period allowed under Utah Administrative Rule R861‑1A‑11. However, in implementing the order,
Petitioner concluded that strict application of the order as directed could
create inequities in certain property valuations, so he did not fully implement
the order.
Respondent conducted a compliance audit
of the 1997 Order in July of 1998 and found that Petitioner was not in full
compliance. Respondent issued the
August 1998 Order directing Petitioner to make the necessary adjustments to
come into compliance with the original order.
Petitioner objected to the August 1998 Order and brought this action
before the Commission.
Pending the hearing on the appeal, the
parties entered a stipulated agreement that resolved all issues on appeal
except the application of a factor to all secondary residential properties on a
county wide basis. That is the issue
before us now.
The original 1997 Order directed
Petitioner to apply a factor of 1.15 to all secondary residential properties in
the county. Petitioner argues that an
application of the factor county wide would compromise the equalization among
like properties in areas where secondary and primary residential properties sit
side by side in the same subdivisions.
The Commission acknowledges that if
primary and secondary properties are situated in factored areas as described by
Petitioner, the factor order may result in inequities among like
properties. If the information only
became available after the appeal period lapsed, Petitioner should have
presented that additional data to the Respondent as provided in the 1997
Order. If that data was available when
the 1997 Order was issued, Petitioner should have objected to the factor order
within the time frame set for him to do so.
He did neither, and the Commission has no specific evidence before it
now to justify overturning the 1997 Order.
Petitioner next contends that the sales
ratio study underlying the 1997 Order was invalid. Before addressing Petitioner's argument, it is useful to explain, at least in general terms, how
Respondent uses sales ratio data to determine whether to order corrective
action.
Rule R884-24P-27 sets out a two prong
test for making the determination.
Respondent first examines the sales ratio data to determine if the
measure of central tendency is within 10 percent of the legal assessment level
of 100 percent. If the measure of
central tendency falls between 90 percent to 110 percent, corrective action is
not necessary. However, if the measure
of central tendency falls outside of that range, Respondent next tests the
upper and lower confidence levels of the study to determine if the range
includes the legal assessment level of 100 percent. If not, corrective action must be ordered.
In the case before us, the sales ratio
study was based on 12 sales. The study
yielded a mean of 68.65, failing the first prong of the test. The statistical confidence levels ranged
from approximately 51 percent to 87 percent, failing the second prong of the
test and triggering corrective action.
Petitioner objected to the inclusion of
three of the 12 sales used in the sales ratio study. Petitioner argued that the sale of parcel R157 distorted the study because the property was
purchased by a government entity well below market value as part of a large
land purchase. Petitioner also objected
to the use of the sales of parcels CRVP-6 and D-102 arguing that they were not
comparable to the other secondary residential properties that are the subject
of the study. Petitioner contends that
if these sales were excluded from the study, the sample size would be too small
to satisfy subsection (B) (3) of Rule R884-24P-27, thereby invalidating the
study. We note at the outset that if
Petitioner disagreed with the inclusion of these sales in the study, he should
have raised that objection within the time frame allowed for appeal of the
original order. Even if Petitioner had
raised a timely objection and persuaded the Commission to exclude the sales from
the study, we would not summarily overturn the 1997 Order. We would merely look to Respondent to
conduct the study using some suitable alternative method. In this case, after being notified of
Petitioner's concerns, Respondent extended the study period pursuant to Rule
R844-24P-27 (B) (3) (a). The extended
study confirmed that the assessment level on secondary residential properties
was outside the acceptable legal limits.
Therefore, the Commission reaffirms the 1997 Order.
We now turn to the more difficult issue
in this case, that of remedy. Section
59-2-704 of the Utah Code requires the Commission to conduct sales ratio
studies and to order the adjustments indicated by the study each year. Sections 59-2-303.1 (1) (b) (I) and 59-2-704
(4) of the Utah Code authorize the Commission to bring a legal action against
the county or to take steps to make the adjustments itself and charge all
administrative costs to the county.
Either course of action assumes a fairly lengthy time frame, but the
statutes do not address the legal or practical issues that arise when
adjustments are ordered retroactively after the property taxes have been timely
paid.
From a legal perspective, we must
consider our authority to make retroactive
adjustments. When a county fails
to implement a Corrective Action Order, the Commission is required under
section 59-2-704 (4) of the Utah Code to take steps to implement the
order. The Commission finds, then, that
it has a duty to order the adjustments retroactively.
Retroactive adjustments create practical
and administrative problems. The County is
faced with the possibility of sending out hundreds of amended tax
notices for the purpose of assessing and collecting a few extra cents or
dollars from each affected property owner.
Additionally, amended assessment notices will trigger new appeal rights
which, in turn, may require the Commission to reconvene the county board of
equalization especially for the purpose of considering appeals of the
adjustments. Finally, we anticipate
that the affected property owners will find this process perplexing. Therefore, in the interest of administrative
efficiency, we order Duchesne County to include the 1998 adjustment as a
separate item on the 1999 tax notices.
Affected property owners will have the opportunity to appeal the
adjustments during the normal board of equalization period in 1999.
The Commission acknowledges that the
extreme time pressures of the property tax calendar are problematic for the
counties and the Property Tax Division.
These pressures are highlighted by this case. With that in mind, we take this opportunity to give guidance on
this issue as follows:
1. Upon
completion of the sales ratio study each year, the Property Tax Division will
issue Corrective Action Orders as appropriate.
Any affected county assessor who objects to the Corrective Action Order
must file a petition with the Commission's Appeal Unit within 15 days of the
order. The appeal will be given the
highest priority and will be set for a formal hearing before the Commission at
the earliest available time in accordance with Rule R861-1A-11 (A). If the county fails to timely file its
appeal or if it does not prevail on appeal, the Corrective Action Order becomes
final.
2. The Respondent's county representatives
should work closely with assessors to assist them in implementing Corrective Action Orders before the
assessment rolls are closed on May 22 of the following year. Any difficulties the assessors identify in
applying the Corrective Order should be resolved with the Property Tax Division
before the Rolls are closed.
3. If the Respondent is not satisfied that
the assessor is complying with the Corrective Action Order, the Respondent's
county representative should initiate a compliance audit as soon after May 22
as practical. The findings of that
audit should be issued prior to July 1 so that
taxpayer notices will contain the requisite adjustment and any taxpayer
appeals arising from the adjustments can be considered during the scheduled
meeting of the Board of Equalization. A compliance audit is not subject to appeal.
A county cannot fail to exercise its
appeal rights, then raise an objection only after it receives notice of noncompliance.
In this case,
Petitioner was granted an appeal because the August 1998 Order purported to
grant additional appeals rights. We
direct the Respondent to remove appeal
language from future compliance audit notices.
If an audit shows that a county failed to comply with the Corrective
Action Order, Respondent is directed to give the county notice of its findings,
then implement the order.
4. With regard to final Corrective Action
Orders, Respondent retains continuing authority to correct errors in the order
upon agreement with the affected county.
The parties need not bring an action before the Commission seeking
approval of the amended order, but Respondent must notify the Commission of the
action. Note, however, that if the
parties enter a stipulated agreement while an appeal is pending before the
Commission, that agreement is subject to approval by an order of the
Commission.
DECISION
AND ORDER
Based upon the
foregoing, the Tax Commission upholds the 1998 Corrective Action Order and
reaffirms the 1997 Order, as amended by stipulation of the parties. The Commission further orders the County to
include the 1998 adjustments as separately listed items on the 1999 tax
notices for the
affected properties. Finally, the
Commission directs the Respondent to draft amendments to Rule R884-24P-27 to implement
the guidance provided herein.
BY ORDER OF THE
UTAH STATE TAX COMMISSION:
DATED this 3rd
day of December, 1998.
Richard B.
McKeown Joe
B. Pacheco
Chairman Commissioner
Pam Hendrickson R.
Bruce Johnson
Commissioner Commissioner
^^