DILLARD, P. J., RICKMAN and PIPKIN, JJ.
RICKMAN, JUDGE.
In this
dispute between Freedom Heights, LP, and the Lowndes County
Board of Tax Assessors ("the Board") concerning the
ad valorem tax assessment of a rent-restricted apartment
complex, Freedom Heights appeals from the trial court's
order granting partial summary judgment to the Board and
denying partial summary judgment to Freedom Heights. On
appeal, Freedom Heights argues that the trial court erred by
finding that the income approach to valuation is inapplicable
and by adopting the Board's form of the cost approach.
For the reasons that follow, we affirm.
The
record shows that Freedom Heights owns an apartment complex
in Valdosta, Georgia. All of the rental units have various
income or rent restrictions. The cost of constructing the
apartment complex was partially financed with federal
low-income housing tax credits under Section 42 of the
Internal Revenue Code of 1986, as amended, and state
low-income housing tax credits (together "LIHTCs").
Freedom Heights' limited partnership structure allows the
tax credits to pass through to the benefit of its limited
partners.
The
Board issued a tax assessment notice to Freedom Heights
valuing the apartment complex at $12,790,200 for the 2021 tax
year. Freedom Heights appealed the assessment to the Lowndes
County Board of Tax Assessors, which made no changes. The
Lowndes County Board of Equalization subsequently upheld the
assessment, and Freedom Heights appealed the Board of
Equalization's decision to the Lowndes County Superior
Court.
Freedom
Heights filed a motion for partial summary judgment asking
the trial court to enter an order declaring that the property
may be valued using the income method and that the
Board's current valuation is illegal. The Board filed two
motions for partial summary judgment. In the first motion
the Board requested that the trial court rule that
"excluding low-income housing tax credits awarded a
Section 42
property from the assessment of fair market value would
violate Georgia law including the taxation uniformity
provision of the Georgia Constitution." In the second
motion, the Board sought a ruling that for purposes of
determining the fair market value of a Section 42 property,
(a) The sales comparison approach to valuation of property is
inapplicable and may not be used to value a Section 42
property for ad valorem property tax purposes absent evidence
of sales of other Section 42 properties with unused income
tax credits.
(b) The income approach to valuation of property is
inapplicable and may not be used to value a Section 42
property for ad valorem property tax purposes based on the
current structure of LIHTCs which the Supreme Court has held
does not generate actual income to the taxpayer.
(c) Tax assessors have alternative methods to the sales
comparison and income approaches of assessing the fair market
value of Section 42 properties. These alternative methods are
set forth in regulatory law that (a) directs the appraisers
to consider the cost approach to valuation and (b) provides
when unusual circumstances are affecting value, they should
be considered. OCGA § 48-5-2 (3) (B) (vii) (I) and (II)
do not preclude consideration of LIHTCs in determining the
fair market value of a Section 42 property when using these
alternative approaches.
The
trial court granted the Board's motions for partial
summary judgment and denied Freedom Heights' motion
ruling as follows:
As for the Board's First Motion, the Court finds that the
ruling of the Supreme Court case [Heron Lake II Apts. v.
Lowndes County Bd. of Tax Assessors, 306 Ga. 816 (833
S.E.2d 528) (2019) ("Heron Two")] shall
apply to the case at hand. Therefore, Section 42 Tax Credits
shall be considered a benefit connected to the real estate
itself. Further, excluding these benefits from the fair
market value would grant preferential treatment to these
properties which would be a violation of the taxation
uniformity provision of the Georgia Constitution.
As to the Board's Second Motion, the Court holds that
OCGA § 48-5-2 (3) (B) (vii) shall be applied in the same
way in which the Court in Heron Two applied the
statute. Therefore, this Court is affirming three contentions
that apply when assessing the value of Section 42 properties:
1) the sales comparison approach is not to be used unless
there is evidence of sales of other Section 42 properties
with unused tax credits; 2) the income approach is
inapplicable and may not be used based on the current
structure of the tax credits which does not provide any
actual income to the taxpayer; and 3) tax assessors can use
other methods to assess the value of the property, including
the Cost Approach and the Unusual Circumstances method. The
tax credits should not be excluded when using those two
methods.
This
appeal followed.
1.
Freedom Heights contends that the trial court erred by
finding that "the income approach is inapplicable and
may not be used based on the current structure
of the tax credits which does not provide any actual income
to the taxpayer." We disagree.
All
property must be returned for taxation at its fair market
value. OCGA § 485-6. The taxation uniformity provision
of the Georgia Constitution, Ga. Const. of 1983, Art. VII,
Sec. 1, Par. III (a) ("taxation uniformity
provision"), requires that property of the same class be
assessed and taxed uniformly. Heron Lake II Apts. v.
Lowndes County Bd. of Tax Assessors, 299 Ga. 598, 605
(791 S.E.2d 77) (2016) ("Heron One"). In
Heron One, the Supreme Court of Georgia held that
OCGA § 485-2 (3) (B.1), which excludes low-income
housing income tax credits from consideration for the purpose
of assessing ad valorem tax, is unconstitutional because it
violates the taxation uniformity provision. Heron
One, 299 Ga. at 610.
After
the Supreme Court's decision in Heron One, the
Georgia Assembly in 2017 amended OCGA § 48-5-2, revising
OCGA § 49-5-2 (3) (B) (vi) to provide that tax assessors
shall apply, among other criteria, the following:
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[.]
See Ga.
L. 2017, p. 25, § 1. The 2017 amendment also added to
subparagraph (B) a new division (vii), which provides as
follows:
(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[.]
OCGA
§ 48-5-2 (3) (B) (vii).
In
Heron Lake II Apts. v. Lowndes County Bd. of Tax
Assessors, 306 Ga. 816 (833 S.E.2d 528) (2019)
("Heron Two"), the Supreme Court explained
that OCGA §
48-5-2 (3) (B) (vii) (I) and (II) "tell tax assessors
how they can use the sales comparison and income approaches
in determining the fair market value of Section 42
properties" and held that low-income housing tax credits
do not constitute "actual income" under OCGA §
48-5-2 (3) (B) (vii) (II). Heron Two, 306 Ga. at
821, 823 (3).
The
Supreme Court then considered the constitutionality of OCGA
§ 48-5-2 (3) (B) (vii). Heron Two, 306 Ga. at
824-828 (4). The Court noted that
all presumptions are in favor of the constitutionality of an
act of the legislature and that before an Act of the
legislature can be declared unconstitutional, the conflict
between it and the fundamental law must be clear and palpable
and [the Supreme] Court must be clearly satisfied of its
unconstitutionality. Moreover, because statutes are presumed
to be constitutional until the contrary appears, the burden
is on the party alleging a statute to be
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