Heron Lake II Apartments, L.P. v. Lowndes Cnty. Bd. of Tax Assessors

• Decision Date: 12 September 2016
• Docket Number: S16A0691
• Citation: 791 S.E.2d 77,299 Ga. 598
• Parties: Heron Lake II Apartments, L.P. et al. v. Lowndes County Board of Tax Assessors.
• Court: Georgia Supreme Court

299 Ga. 598

791 S.E.2d 77

Heron Lake II Apartments, L.P. et al.

v.Lowndes County Board of Tax Assessors.

S16A0691

Supreme Court of Georgia.

Decided: September 12, 2016

Edward Fowler Preston, Coleman Talley LLP, P.O. Box 5437, Valdosta, Georgia 31603–5437, for Appellant.

Henry R. Chalmers, Jeffrey Clayton Adams, Jennifer Lynne Shelfer, Arnall Golden Gregory, LLP, 171 17th Street, N.W., Suite 2100, Atlanta, Georgia 30363–1031, for Amicus Appellant.

Anthony Ashley Rowell, Jennifer Dorminy Herzog, Hall Booth Smith PC, 1564 King Road, Tifton, Georgia 31793, Kimberly Anne Reid, Gardner, Willis, Sweat & Goldsmith, P.O. Drawer 71788, Albany, Georgia 31708–1788, for Neutral Amicus.

Walter Gus Elliott, II, William Gus Elliott, II, Elliott, Blackburn & Gooding, PC, 3016 North Patterson Street, Valdosta, Georgia 31602, for Appellee.

HINES, Presiding Justice.

This is an appeal by the owners of residential rental properties in Lowndes County from a final order of the superior court declaring that OCGA § 48–5–2 (3) (B.1),¹ which excludes low-income housing income tax credits from consideration for the purpose of assessing ad valorem tax, is unconstitutional as violating the taxation uniformity provision of the Georgia Constitution, Ga. Const. of 1983, Art. VII, Sec. I, Par. III (a) (“taxation uniformity provision”).² For the reasons which follow, we affirm the judgment of the superior court.

The following facts are not in dispute in this appeal. The properties at issue are eligible to receive federal and state low-income housing income tax credits (“tax credits”) pursuant to Section 42 of the Internal Revenue Code of 1986, as amended (“Section 42 ”), and OCGA § 48–7–29.6.³ In exchange for receiving a ten-year award of tax credits, the property owners agreed to lease their rental units to eligible low-income tenants at below-market rents set by the Georgia Department of Community Affairs (“GDCA”) for a period of 30 years or more. Income tax credits are claimed in equal amounts for a ten-year period beginning with the taxable year in which a qualified building is placed in service or, if elected by the owner, the succeeding taxable year (the “credit period”). During the credit period, the owner may not sell, transfer, or exchange the property without first requesting GDCA's approval of the proposed sale, transfer, or exchange. The GDCA will not recognize a new owner until all required documentation is submitted and the new owner agrees in writing to assume the requirements and restrictions set forth in covenants applicable for low-income housing tax credits, Section 42, and corresponding federal regulations. After being awarded state and federal income tax credits by the GDCA, the property owners in this case “sold” the tax credits to investors in that they allowed investors to purchase limited partnership interests. The tax credits would “flow through” the partnerships to the limited partners, who would then use the tax credits to reduce their individual income tax liabilities.

On March 25, 2015, the Lowndes County Board of Tax Assessors (the “Assessors”) filed in the Superior Court of Lowndes County a petition for declaratory judgment as to the constitutionality of OCGA § 48–5–2 (3) (B.1), which precluded the Assessors from considering the tax credits in determining the fair market value of the real property at issue, as of January 1, 2015. As noted, the superior court declared OCGA § 48–5–2 (3) (B.1) to be unconstitutional as running afoul of the taxation uniformity provision, and affected property owners have filed the present appeal from the adverse ruling.

Again, OCGA § 48–5–2 (3) (B. l) prohibits the tax assessor from considering tax credits in determining the fair market value of real property.⁴ Yet, OCGA § 48–5–2 (3) (B) (vi),⁵ as amended in 2014, provides, in determining the fair market value of real property, that the tax assessor is to apply rental limitations, operational requirements, and other restrictions imposed on a property in connection with the property being eligible for any income tax credits described in OCGA § 48–5–2 (3) (B. l). Consequently, as the superior court stated, the issue is whether, given OCGA § 48–5–2 (3) (B) (vi), as amended in 2014, OCGA § 48–5–2 (3) (B.1) violates the uniformity requirement of Ga. Const. of 1983, Art. VII, Sec. I, Par. III (a). The constitutionality of a statute presents a question of law, and this Court's review of a trial court's holding regarding the constitutionality of a statute is de novo. Atlanta Oculoplastic Surgery, P.C. v. Nestlehutt , 286 Ga. 731, 732–733, 691 S.E.2d 218 (2010).

By its express terms, the taxation uniformity provision of the Georgia Constitution mandates that property of the same class be assessed and taxed uniformly. Paragraph III (b) of the taxation uniformity provision states that, with specified limited exceptions, “the classes of subjects for the taxation of property shall consist of tangible property and one or more classes of intangible personal property....” See n. 2 supra.

The Constitution creates “tangible property” as a single class of property. See Art. VII, Sec. I, Par. III(b). “Tangible property” includes real and personal property, and the General Assembly has no authority to establish different classes or subclasses of tangible property other than as fixed by the [Constitution]. The types of tangible property that may be separately classified and subclassified by the General Assembly under the [taxation uniformity provision] are listed in subsection (b) of Article VII, Section I, Paragraph III

Blevins v. Dade Cty. Bd. of Tax Assessors , 288 Ga. 113, 114, 702 S.E.2d 145 (2010). Neither Section 42 real property nor tax credits are part of this limited list of express exceptions. However, the property owners urge that this is of no moment because the tax credits are intangible personal property, and therefore, can be assessed differently from real property without violating the uniformity requirement. Thus, the threshold inquiry is the relationship of the tax credits to the tangible property at issue, that is their appropriate classification, for the purpose of ad valorem taxation.

OCGA § 48–5–3 mandates that,

[a]ll real property including, but not limited to, leaseholds, interests less than fee, and all personal property shall be liable to taxation and shall be taxed, except as otherwise provided by law. Liability of property for taxation shall not be affected by the individual or corporate character of the property owner or by the resident or nonresident status of the property owner.

The appraisal of real property for tax purposes is subject to regulation. Indeed, the Georgia Department of Revenue has adopted regulations, which have been compiled in an “Appraisal Procedures Manual” (“APM”), to guide county tax officials in appraising real property. See Ga. Comp. R. & Regs. r. 560–11–10–.01.⁶ “The APM defines ‘real property’ as ‘the bundle of rights, interest and benefits connected with the ownership of real estate.’ ” Morton v. Glynn Cty. Bd. of Tax Assessors , 294 Ga.App. 901, 904, 670 S.E.2d 528 (2008) ; Ga. Comp. R. & Regs. r. 560–11–10–.02 (1) (x). “ ‘Real estate’ means the physical parcel of land, improvements to the land, improvements attached to the land, real fixtures and appurtenances such as easements.” Ga. Comp. R. & Regs. r. 560–11–10–.02 (1) (v). Also, OCGA § 44–1–2 (a) defines “real estate” to be:

(1) All lands and the buildings thereon;

(2) All things permanently attached to land or to the buildings thereon; and

(3) Any interest existing in, issuing out of, or dependent upon land or the buildings thereon.

As is evident, the very existence of tax credits is inextricably bound with the ownership of real estate. As the Court of Appeals concluded in Pine Pointe Housing, L.P. V. Lowndes County Board of Tax Assessors , 254 Ga.App. 197, 561 S.E.2d 860 (2002), “Section 42 tax credits provide a ... stream of value tied solely to the property.” Id. at 200 (1) (b), 561 S.E.2d 860. Although the Court of Appeals determined that it was inappropriate to retroactively apply OCGA § 48–5–2 (3) (B.1) to the underlying controversy in Pine Pointe Housing, much of the analysis in the case in regard to ad valorem tax valuation is apposite here.

In 1996, Pine Pointe Housing, a limited partnership, constructed a 71–unit rental housing project in Valdosta, and the property received an allocation of tax credits. As in the present case, the limited partnership permitted the tax credits to “flow through” to the tax benefit of its limited partners. Pine Pointe appealed the 1997 ad valorem tax assessment of the property to the Lowndes County Board of Equalization, and the Lowndes County Board of Tax Assessors then appealed the ruling of the board of equalization to the superior court, which held a de novo hearing in the matter in November 2000. The issue was the fair market value of the property as of January 1, 1997, and, specifically how to value the property for ad valorem tax purposes given the applicable rental restrictions and federal income tax benefits. On November 30, 2000, the superior court issued its order establishing the fair market value of the property; in doing so, the superior court concluded that the mortgage equity or debt equity income approach to valuation was valid and applicable to the property and that in determining fair market value, it had to consider, inter alia, restrictive covenants of record and the associated tax credits. Pine Pointe appealed, contending, among other things, that the superior court erred in considering the tax credits in determining fair market value. The Court of Appeals disagreed, rejecting Pine Pointe's arguments that the tax credits had, in economic effect, been sold, and thus had no value to Pine Pointe; that consideration of the tax credits was inconsistent with the APM; that the tax credits could not be considered income for accounting purposes; that the superior court's ruling was inconsistent with...