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Heron Lake II Apartments, LP v. Lowndes County Board of Tax Assessors

Supreme Court of Georgia

September 23, 2019

HERON LAKE II APARTMENTS, LP et al.
v.
LOWNDES COUNTY BOARD OF TAX ASSESSORS.

          Boggs, Justice.

         This is the second appearance before this Court of the dispute between appellee Lowndes County Board of Tax Assessors ("the Board") and eight partnerships which built and now operate affordable housing apartment complexes ("Section 42 properties") in Lowndes County (collectively, "Appellants"), with the help of federal and state Low Income Housing Tax Credits ("LIHTCs" or "Section 42 Tax Credits"), in connection with which they executed Land Use Restrictive Covenants. See 26 U.S.C. § 42.[1] The dispute before us turns on the valuation of these tax credits when calculating ad valorem real property taxes.

         As explained below, we conclude that the trial court had subject matter jurisdiction to decide this case, and that LIHTCs do not constitute "actual income" for purposes of OCGA § 48-5-2 (3) (B) (vii) (II). Moreover, OCGA § 48-5-2 (3) (B) (vii) (I) and (II) do not run afoul of the Georgia Constitution's taxation uniformity provision. See Ga. Const. of 1983, Art. VII, Sec. I, Par. III (a).[2] Accordingly, we reverse the judgment of the trial court.

         1. OCGA § 48-5-2 (3) defines the phrase "[f]air market value of property" for purposes of ad valorem real property taxation as "the amount a knowledgeable buyer would pay for the property and a willing seller would accept for the property at an arm's length, bona fide sale." The statute then specifies when certain approaches to valuation are to be used and certain criteria that must or may be used in making the valuation. See OCGA § 48-5-2 (3) (B). The General Assembly has repeatedly revised OCGA § 48-5-2 (3), and, in 2001, amended it by adding subparagraph (B.1), which provides as follows:

the tax assessor shall not consider any income tax credits with respect to real property which are claimed and granted pursuant to either Section 42 of the Internal Revenue Code of 1986, as amended, or Chapter 7 of this title in determining the fair market value of real property.

Ga. L. 2001, p. 1098, § 1 (emphasis added). [3] That was the genesis of the dispute between the Board and Appellants.

         (a) The Prior Litigation

         In 2015, the Board filed a declaratory judgment action in Lowndes County Superior Court challenging the 2001 amendment, and the trial court entered an order finding that subsection (B.1) was unconstitutional because it violated the taxation uniformity provision of the Georgia Constitution. This Court affirmed that order in Heron Lake II Apartments, L.P. v. Lowndes County Board of Tax Assessors, 299 Ga. 598 (791 S.E.2d 77) (2016) (hereinafter "Heron Lake I"), addressing the underlying statutory and policy issues in detail. See id. at 610. The opinion began by noting OCGA § 48-5-3's mandate that "all real property . . . shall be liable to taxation" and considered the status of the LIHTCs as part of "the bundle of rights, interest, and benefits connected with the ownership of real estate" in the Georgia Department of Revenue's Appraisal Procedures Manual, which is written to "guide county officials." Id. at 606. See Ga. Comp. R. & Regs., r. 560-11-10-.02 (1) (x). After reviewing the Court of Appeals' analysis of subsection (B.1) in Pine Pointe Housing, L.P. v. Lowndes County Board of Tax Assessors, 254 Ga.App. 197 (561 S.E.2d 860) (2002), and noting the General Assembly's unsuccessful attempt in 2002 to amend the Georgia Constitution to permit the classification of qualified low-income building projects as a separate class of property for ad valorem property tax purposes, this Court concluded that the LIHTCs "are a benefit connected to the real estate itself, " that the tax credits are not "intangible personal property" because of their dependence on the real estate giving rise to them, and that excluding them from the assessment of fair market value "grants preferential treatment for ad valorem taxation purposes and creates a subclass of tangible property other than as permitted by the State Constitution, " "which runs afoul of the taxation uniformity provision." Heron Lake I, 299 Ga. at 608-610 (Citation and footnote omitted).

         (b) The Current Litigation

         In 2017, the General Assembly further amended OCGA § 48-5-2 (3). See Ga. L. 2017, p. 25, § 1. The amendment changed the second sentence of paragraph (3) to mandate the consideration of data provided by the property owner, and added a new division (vii) to subparagraph (B). The new OCGA § 48-5-2 (3) (B) (vii) is further subdivided, and says, with emphasis added:

(I) In establishing the value of any property subject to rent restrictions under the sales comparison approach, any income tax credits described in division (vi) of this subparagraph that are attributable to a property may be considered in determining the fair market value of the property, provided that the tax assessor uses comparable sales of property which, at the time of the comparable sale, had unused income tax credits that were transferred in an arm's length, bona fide sale.
(II) In establishing the value of any property subject to rent restrictions under the income approach, any income tax credits described in division (vi) of this subparagraph that are attributable to property may be considered in determining the fair market value of the property, provided that such income tax credits generate actual income to the record holder of title to the property. . . .

         Moreover, the 2017 amendment rewrote OCGA § 48-5-2 (3) (B) (vi) to provide that in determining the fair market value of Section 42 properties, tax assessors shall apply, among other things, the following criterion:

Rent limitations, higher operating costs resulting from regulatory requirements imposed on the property, and any other restrictions imposed upon the property in connection with the property being eligible for any income tax credits with respect to real property which are claimed and granted pursuant to either Section 42 of the Internal Revenue Code of 1986, as amended, or Chapter 7 of this title or receiving any other state or federal subsidies provided with respect to the use of the property as residential rental property; provided, however, that properties described in this division shall not be considered comparable real property for the assessment or appeal of assessment of properties not covered by this division. . . .[4]

         Finally, the amendment redesignated former OCGA § 48-5-2 (3) (B) (vii) as OCGA § 48-5-2 (3) (B) (viii), and that provision says that in determining the fair market value of real property, tax assessors shall also consider "[a]ny other existing factors provided by law or by rule and regulation of the commissioner [of revenue] deemed pertinent in arriving at fair market value."

         In the past, the Board has appraised appellants' state and federal tax credits using the income approach appraisal method. According to the Board, after the 2017 amendment passed, this approach was no longer viable, so it filed a new declaratory judgment action seeking a ruling that the 2017 amendment was unconstitutional for violating the Georgia Constitution's taxation uniformity provision. The Board also asked the trial court to interpret the 2017 amendment to allow LIHTCs to continue to be treated as regular income.

         In a November 9, 2018, Final Order, the trial court cited Heron Lake I and Pine Pointe and declared OCGA § 48-5-2 (3) (B) (vii) (I), which addresses the sales comparison approach, unconstitutional for violating the taxation uniformity provision. The trial court also held that LIHTCs could be considered "actual income" under OCGA § 48-5-2 (3) (B) (vii) (II)'s income approach and, alternatively, that OCGA §48-5-2 (3) (B) (vii) (II) would violate our Constitution's taxation uniformity provision if it were read to exempt LIHTCs from being considered as "actual income."

         On appeal, Appellants raise the following three enumerations of error: (1) the trial court lacked jurisdiction over the Board's petition because, when the Board filed suit, it had not yet assessed the Appellants' properties for the 2018 tax year; (2) the trial court erred in finding that LIHTCs were "actual income" rather than offsets against tax liability; and (3) the trial court erred in declaring OCGA § 48-5-2 (3) (B) (vii) (I) and (II) unconstitutional, given the General Assembly's power to forbid the use of improper appraisal methods. Appellants argue that the valuation methodology the Board used – the income approach, counting LIHTCs as "actual income" – substantially inflated their tax assessments and, by negating the intended benefit of LIHTCs, will significantly reduce the availability of affordable housing in Georgia.

         2. Appellants contend that the trial court lacked subject matter jurisdiction to consider this case, because when the Board filed suit in 2017, it had not yet assessed taxes on the appellants' properties for tax year 2018. We disagree.

         "It is a settled principle of Georgia law that the jurisdiction of the courts is confined to justiciable controversies, and the courts may not properly render advisory opinions." Fulton County v. Cityof Atlanta, 299 Ga. 676, 677 (791 S.E.2d 821) (2016) (citations and punctuation omitted). A controversy is justiciable "when it is definite and concrete, rather than being ...


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