Last week, the Senate Insurance and Financial Institutions Committee amended and passed House Bill (HB) 38 to include provisions of HB 751, which modifies the Board of Revision (BOR) process for certain property valuation challenges for businesses as a result of the COVID-19 pandemic for tax years 2020, 2021, and 2022.
The bill is expected to go to the floor this week for a vote in both the Senate and the House. Please call your Senators and Representatives to urge them to vote no on the bill. Points to emphasize in your communications are outlined below.
Dollar for Dollar Loss in Revenue to Local Governments
Since tax rates for 2020 have already been set (with the first half of property taxes for tax year 2020 due next month), local governments will lose dollar for dollar in revenue on challenges authorized under HB 38. This is due to the acceleration of the BOR process provided for under HB 38 and the inability for HB 920, or property tax reduction factors, to apply retroactively. In general, HB 920 applies to equalize tax rates, so that when property values decrease (or increase), the effective tax rate increases (or decreases), and the taxing entity receives roughly the same amount of actual revenue.
However, by HB 38 accelerating the BOR process for 2020, the provisions of HB 920 cannot be applied retroactively to allow the county auditor to increase the tax rates on other property to achieve this equalization since tax bills for 2020 have already gone out. Therefore, local governments will lose dollar for dollar revenue on these challenges due to this retroactive application. In addition, because businesses can repeat their valuation challenges authorized in HB 38 in tax years 2021 and 2022 in such a matter that auditors cannot adjust the effective millage rates, the impact of revenue loss for schools and other government entities could extend to those years.
The Legislative Service Commission summarizes HB 38’s impact on schools: “The bill could result in loss of tax revenue to school districts and other units of local government.
Increased Burden on Local Governments to Participate in BOR Process
In addition, local governments will have additional, unbudgeted costs associated with these valuation disputes. Typically, valuation disputes involve the hiring of an appraiser to identify comparable valuations in a particular case. Further, due to unclear language in the bill, it is likely that more subjective arguments will be made for valuation challenges related to the COVID-19 pandemic, which will further complicate the BOR process. Thus, the proposed legislation is extremely likely to result in local governments incurring increased legal costs to properly review and defend these challenges.
Please Consider Alternative Measures to Provide Relief
The COVID-19 pandemic has had a detrimental impact on all Ohioans. The desire to provide commercial taxpayers relief, especially our small business owners, is understandable. However, shifting this burden to our local governments, including schools, counties, cities, townships and libraries, needs to be fully evaluated and not in a mere matter of days. These local governments are already operating on reduced budgets and suffering from revenue shortfalls due to the COVID-19 pandemic. Please urge your local legislators to consider alternatives to HB 38, such as issuing property tax credits to these commercial taxpayers.
Please contact your Senators and Representatives and urge them to consider these issues and the impact of HB 38 on local governments.
If you have any questions, please do not hesitate to contact us.
Important Resources
Legislator Contact Lookup Resources: