Are You Sure? Is That Improvement / Construction Real Property For Ohio State/Local Tax Purposes?

2016-01-08 17:09:06

Your Ohio business may substantially benefit from personal property characterization for an improvement to be constructed or even an existing building / structure. How can that be? This is because Ohio no longer has a personal property tax. As a result, real estate taxes are avoided if the property, or any portion thereof, is properly characterized as real property.   Keep in mind, the characterization of property as real or personal property is governed by the same statutory provisions for purposes of all Ohio state and local taxes, and consisting of R.C. 5701.02 (real property) and 5701.03 (personal property). Real property includes land, buildings, improvements, fixtures and structures, while personal property includes “business fixtures”. These terms are statutorily defined with the most critical aspect being that property devoted to a special business purpose conducted on the land generally is not real property, but is a business fixture.   So, how can that be? A massive improvement, building or structure permanently attached or embedded into the land can be characterized as personal property? Well, based upon existing Ohio Supreme Court authority (and even the Ohio Department of Taxation’s own guidance), if the property at issue is devoted to the particular business conducted on the land (i.e., not likely to have utility to a subsequent user in a different line of business), the item is personal property. This is the rule even if for non-tax purposes the property is clearly real property under the general property laws of Ohio. <em>See</em> the Ohio Supreme Court’s decision in <em>Funtime, Inc. v. Zaino</em> (2004) (Court held that personal property included station houses sheltering patrons waiting in line to ride an amusement park attraction). Clearly, many Ohio buildings, structures and improvements, or components thereof, have the requisite special purpose so that they are not real property and, thus, should not be subject to real estate tax.   Of course, this article assumes that the subject property is permanently attached. So, the focus is on the purpose for the property. Does the property have utility to a subsequent owner or tenant in a different line of business? If the answer is “no” – that the property has some degree of special purpose confining its use to a similar business, it is likely personal property. However, if the property does have broad utility so that almost any subsequent owner or tenant would use it, then the property is likely real property.   Even as real property, all is not lost since the property may independently be exempt from real estate tax based upon its use (e.g., charitable exemption) or location (e.g., enterprise zone). Moreover, from a sales tax perspective, if the item is real property, only the party purchasing the materials and incorporating them into the real property owes the sales tax on the material cost. There are also sales tax exemptions for materials incorporated into government owned property or property to be owned by certain charitable institutions.   Let’s assume you can support personal property characterization and thereby avoid real estate tax. Well, how about sales tax? Yes, sales tax is due on the purchase of personal property at rates ranging from 6.5% to 8.0%. However, there are many exemptions, including the purchase of the seller’s own used property, in which case the casual sale exemption would apply. Also, if the property is used for an exempt purpose, it would not be taxable upon purchase. Exempt purposes include property used in:   <table style="height: 219px;" width="711"> <tbody> <tr> <td width="348">·         Manufacturing, processing and assembling ·         Refining ·         Mining ·         Agricultural, floriculture, and horticulture</td> <td width="283">·         Farming ·         Rendering a public utility service ·         Oil/gas production ·         Water production</td> </tr> </tbody> </table> Even if the property is not exempt upon its purchase using one of the above exemptions or the casual sale exemption, perhaps the one-time sales tax is offset by real estate tax to be saved – real estate taxes to be saved forever! Presumably, the handful of years without real estate tax, surely offsets the one-time sales tax paid upon purchase of the tangible personal property.   Business owners should closely revisit their property holdings and future purchases, including property to be constructed. Then, they must strongly consider the potential for classifying some of their holdings as personal property and thereby avoid real estate tax, especially if sales tax can also be avoided based upon an exemption.   <em>This article was originally published in Properties Magazine.</em>    

Ohio Board of Tax Appeals Accepts Taxpayer's Retroactive Valuation of Personal Property

2013-03-29 14:53:33

<a href="">Upon remand from the Ohio Supreme Court</a>, the <a href="">Board of Tax Appeals recently ruled</a> in favor of a taxpayer’s valuation of its personal property using a different method than the statutorily prescribed “302 Computation.” The taxpayer presented a retrospective appraisal report prepared after the relative tax valuation dates. The BTA accepted the taxpayer’s valuation as probative evidence of the property value as of the relative tax lien dates, overruling the Tax Commissioner’s objections. Although the personal property tax has been repealed, this case provides helpful support for real estate valuations. <a href="">Steve</a> represented the taxpayer, WCI Steel, Inc., in this case.

Real Property Tax Valuation Complaint Filed Under Power of Attorney Dismissed for Lack of Jurisdiction

2013-02-18 15:47:01

A recent <a title="" href="">Ohio Board of Tax Appeals (BTA) ruling</a> found that a real property tax valuation complaint did not invoke the jurisdiction of the county Board of Revisions (BOR). The complaint was filed by the daughter of the property owner, who had been designated as her parents' attorney-in-fact under an unlimited durable power of attorney. However, relying upon precedent from the Ohio Supreme Court, the BTA found that a non-attorney engages in the unauthorized practice of law when preparing and filing a complaint with the BOR, despite being authorized to act on behalf of the property owners under a power of attorney. The BTA's decision provides caution to those helping older or incompetent family members, duly authorized under a power of attorney, advising that they cannot act as their agent in property tax matters before a BOR.

Steve Dimengo Interviewed by WKSU Regarding Recent Property Tax Victory

2011-08-17 20:01:23

<p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-family: Times New Roman; font-size: small;">The Ohio Supreme Court in <i><a href=""><span style="text-decoration: underline;"><span style="color: #800080;">WCI Steel, Inc. v. Testa</span></span></a> </i>recently held that a taxpayer was permitted to introduce a new property valuation at the Board of Tax Appeals, provided the proper objections were preserved. In an <a href=""><span style="text-decoration: underline;"><span style="font-family: Times New Roman; color: #800080; font-size: small;">interview with WKSU</span></span></a><span style="font-family: Times New Roman; font-size: small;">, <a href="index.php?option=com_content&view=article&id=46:steven-a-dimengo&catid=37"><span style="text-decoration: underline;"><span style="font-family: Times New Roman; color: #0000ff; font-size: small;">Steve</span></span></a><span style="font-family: Times New Roman; font-size: small;"> explains that this holding applies to real property tax cases too, even though <i>WCI Steel, Inc.</i> involved Ohio personal property tax.</span></span></span></p> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: small;"><span style="font-family: Times New Roman;">For more information regarding this case, check out our previous post <i><a href=""><span style="text-decoration: underline;"><span style="color: #0000ff;">Taxpayer Allowed To Present New Appraisal In Property Tax Appeal.</span></span></a></i></span></span></p>

Taxpayer Allowed To Present New Appraisal in Property Tax Appeal

2011-08-02 12:20:41

<p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-family: Times New Roman;"><span style="font-size: small;">In a property tax valuation case, <a href="">Steve Dimengo</a> and <a href="">Dave Hilkert</a> recently succeeded in obtaining a favorable judgment with the Ohio Supreme Court for their client, WCI Steel, Inc.  The Court's 7-0 decision essentially allows a property owner to introduce a new appraisal to the Ohio Board of Tax Appeals (BTA) even though it was not previously presented at the administrative appeal to the Ohio Tax Commissioner.  Further, the decision ruled that "The jurisdiction of the Board of Tax Appeals (BTA) is invoked to review an assessment in which the tax commissioner has determined the value of personal property if the notice of appeal from the determination (1) states the appellant's objection to the commissioner's actions in valuing the property and (2) identifies the treatment the commissioner should have applied."  The Supreme Court remanded the case to the BTA to address the value of WCI's property, taking into consideration the appraisal at issue. <a title="blocked::" href=""><span style="font-family: Calibri;"><span style="text-decoration: underline;"><span style="color: #810081; font-size: small;">View the full summary here</span></span></span></a><span style="font-size: small;"><span style="font-family: Times New Roman;">.</span></span></span></span></p>  

Church Administrative Offices Denied the Real Property Tax Exemption

2010-01-06 14:58:40

Churches and other places of worship have had two available  exemptions from Ohio real property taxes, but this may be changing. Property where public worship actually occurs is specifically exempt. However, since this public worship exemption does not encompass buildings used by churches for ancillary purposes, such as administrative offices, churches have historically been granted exemption for such buildings based upon a separate exemption for property used primarily for “charitable purposes.” The property at issue in <em>Church of God in Northern Ohio, Inc. v. Levin</em> was the regional administrative office for the church, containing offices, conference rooms and classrooms used for church leadership meetings and ministerial teaching and training. The taxpayer in this case argued that through its support of public worship the property was being used for charitable purposes. Shockingly, the Ohio Supreme Court, contrary to previous decisions, found that “while public worship often encourages its participants to engage in other distinctly charitable activates as part of the spiritual benefit that it confers, that does not establish that the worship service itself constitutes charitable activity.” Accordingly, the Court limited the exemption for property used primarily for charitable purposes to exclude all of the property at issue, which it found was “merely supportive of public worship.” This decision puts into question whether ancillary buildings operated by churches and other places of worship, such as social halls and offices where actual worship does not occur, are entitled to an exemption from Ohio real property taxes. It remains to be seen whether this decision is limited to separate, free-standing buildings (although there is no language in the decision to support such a distinction).  <a href="">Click here to obtain a full copy of the opinion in  <em>Church of God in Northern Ohio, Inc. v. Levin</em>, 2009 Ohio 5939 (Nov. 18, 2009).</a>