Every year in early April, many Kentuckians will receive a notice of assessment from their local property tax administrators (“PVA”) notifying them that the value of their personal and/or business property has increased. This may be good news for some in terms of your property’s resale/market value, but for most, it simply means that you will pay higher taxes on the property. As this is one of the most common issues I am asked about as a tax practitioner each year, this article provides taxpayers with an overview of what to look for when you receive a property tax bill in Kentucky, why your values have increased, and the deadlines and options you have for appealing same.
You Snooze, You Lose – Kentucky’s Two-Week Annual Appeal Period in May
Kentucky real property tax is assessed on January 1 of each year. If there is a change in value from the prior year, the owner of record for that year (as of January 1) will receive a Notice of Assessment (“Notice”) from the PVA. While typically sent in April, you do not have to receive a Notice in order to contest your property value as you have the right to do so each year.
Kentucky is unlike many states in that you only have one chance, each year, to appeal your property values, and if you miss it, you lose your ability to appeal the value until the following year. Kentucky law allows for a two-week “Open Inspection Period” annually at the beginning of May that property owners may file a property tax appeal with their local PVAs (more on that in a bit).
Whether appealed or not, the PVA typically sends out a final property tax bill for that year around October. So, for example, if you received a tax bill in October 2019, unless you appealed it during May of 2019, the tax bill must be paid by December 31, 2019, or else it becomes delinquent and additional interest, penalties and fees will be assessed, and the property may eventually be sold at auction pursuant to local processes (a story for a different day).
Properties may be reassessed in a given year due to various situations that demonstrate an increase in value, including a recent sale of the property or a business on the property, major improvements on the property, and/or nearby sales or developments. But remember, Kentucky PVAs are required to physically inspect properties every four years, so a Notice could come on any given year regardless of whether any changes to/near the property have occurred. So as you check your early Derby racing forms in April, also be sure to check your mailbox for a Notice because you only get one shot to appeal, beginning the first week of May.
Notice Received – Should I Appeal, and What is the Process for Doing So?
Once a property owner receives a Notice, one must go through a variety of questions to determine whether to file an appeal. A step-by-step process for such a determination is provided below:
Step 1: When is the Deadline to Appeal?
The Open Inspection Period begins the first Monday in May and continues for a 13-day period (excluding Sundays). Therefore, each year the exact dates of this appeal period may change.
For the 2020 tax year (i.e., property owners as of January 1, 2020), the Open Inspection Period begins Monday, May 4, 2020 and ends May 18, 2020. Note that this is just the statutory minimum, as some of the larger counties in Kentucky, like Jefferson County (Louisville) and Fayette County (Lexington), will often extend the deadline to file such an appeal by opening the period early or extending for an additional time period, so it is important to stay on top of these dates or contact your local tax practitioner to verify. Jefferson County has already extended this timeframe in 2020 by opening the period up ten-days early – a rare move – starting April 24, 2020 (and may even extend it beyond the May 18th deadline too depending on volume of appeals at a later date).
Why is this so important? Because if you don’t file an appeal during this annual two-week period, you are barred from appealing the value during that year and must wait until the next annual Open Inspection period to challenge same. This is critical because not only would a property owner have to pay higher taxes for that year, but it makes it that much more difficult the next year for a taxpayer to argue the value was too high (because if it was, why didn’t you appeal it the prior year?).
Step 2: Should I Appeal?
Even if you believe your property is overvalued, it is always wise to determine if the increase in value, and corresponding increased tax, is enough to make an appeal worthwhile. A review of Kentucky’s real property tax rates is a good place to start.
Most Kentucky real estate is subject to full state and local rates. The state real property tax rate can vary from year to year and is computed by the Department of Revenue’s Office of Property Valuation typically by July 1, but it has remained at $0.122 per $100 value since 2008. The local tax rates make up the bulk of a taxpayer’s real property taxes as it often includes not only the county’s tax rate, but also taxation by local schools, cities, and other municipal jurisdictions. For example, a property in Louisville has a county rate ($0.1235/$100), a sizeable school tax rate ($0.7040) and possible additional city and other local district taxes on top. Accordingly, the potential tax savings for challenging the increased assessment not only for the tax year at issue, but also for future years, can be substantial, making an appeal well worth the fight.
In addition to determining how much the increase in value will cost you in additional taxes, a property owner should also understand that it must provide support for your belief that the increased value was wrongful. Knowledge of recent/nearby sales, recent appraisals, insurance policies, or other documentation can be very persuasive in an appeal. A taxpayer must also understand how the PVA may calculate or support its increase in value as it is entitled to use one of three valuation methods – the cost method (how much does the land/improvements cost), the sales method (recent/comparable property sales), and the income method (detailed income/expense analysis). The latter method is the most commonly used for income-producing properties such as commercial and rental properties, and is often the most complicated as it requires the use of a subjective “capitalization rate” which is based on the location (Tier I, II, III or tertiary city), quality/amenities (e.g., Class A-C), and type of property (e.g., office, industrial, retail, multifamily, hotel, etc.). Given these different, and often complicated and subjective, calculation methods, both sides may have strong cases if a property is officially appealed.
Step 3: How Do I Appeal?
In order to file a timely real property tax appeal, the property owner must first have a “conference” with the local PVA during the Open Inspection Period. For many Kentucky counties, you must physically schedule an in-person meeting with your local PVA official to discuss why you disagree with the value. However, many local PVAs allow for, and often require (e.g., Jefferson County), such a “conference” be held remotely online or via telephone. As part of this conference, a property owner typically must provide certain financials and other relevant documents (e.g., recent appraisals, contracts, policies, etc.), as well as an income/expense worksheet for income-producing properties, to support the property owner’s assertion of the “fair cash value” of the property under Kentucky law. Again, knowing your county’s local requirements and customs is critical to a timely filed, and successful, appeal.
If a property owner provides sufficient/compelling information, data or documentation to support its position that property was overvalued, the local PVA may agree to an adjustment. But oftentimes, the PVA will uphold its increase/assessment, and the property owner only has until one day after the Open Inspection Period closes to appeal this decision to your local Board of Assessment Appeals (“BAA”). Note that there are occasions where this deadline is also extended in larger counties, like Jefferson County.
This appeal is a more formal process than the PVA conference as it requires an in-person hearing with the local BAA (comprised of three members from the local community) who will consider the property owner and PVA’s positions, any supporting documents, and will then issue a decision either: (i) upholding the PVA’s value/assessment, (ii) adjusting the assessment (e.g., meeting in the middle); or (iii) agreeing with the value asserted by the property owner.
A party aggrieved by the local BAA’s decision ( the property owner and/or PVA) may then appeal this decision to the Kentucky Claims Commission (“KCC,” f/k/a the Kentucky Board of Tax Appeals) within 30 days of the mailing date of the BAA’s decision. This is the next level of formality as a Petition of Appeal must be filed by a Kentucky-licensed attorney, and both parties may potentially issue discovery, make substantive filings, and retain experts (e.g., appraisers, consultants, etc.) for a full-evidentiary hearing before the KCC. However, in my personal experience, many of these appeals often get resolved prior to reaching this stage which is often the best approach for cost-tax savings purposes.
Pro Tip – Be Ready at the Starting Gates or You May Get Disqualified
Challenging an increase in your property value can often be a confusing and complex process, so you should contact your local, trusted tax practitioner or advisor to help you. And don’t forget: the first week in May is not just for the Derby, but also for appealing your personal or business property value; otherwise you will be scratched from that year’s race.