Now that much of the craziness and uncertainty of the COVID-19 pandemic has passed, which affected the normal process for 2020 and (somewhat) 2021, Kentucky returns to its normal two-week appeal period the first week of May. This will be a busy year for appeals as many businesses will continue to look to challenge any increase in their real property values, or even if there wasn’t an increase in 2021, based on the catastrophic effect the pandemic had on many businesses and their properties, as well as with local property tax administrators (“PVAs”) after many PVAs put their annual reassessments on hold the past few years
Therefore, it will be even more important for taxpayers to consider appealing their real property tax appeals in 2022. This article has you covered with all the basics for Kentucky’s real property tax appeal process.
You Snooze, You Lose – Kentucky’s Two-Week Annual Appeal Period in May
Every year in early April, many Kentuckians will receive a notice of assessment from their local PVA notifying them that the value of their personal and/or business property has increased. This may be good news for some in terms of your property’s resale/market value, but for most, it simply means that you will pay higher taxes on the property. As this is one of the most common issues I am asked about as a tax practitioner each year, this article provides taxpayers with an overview of what to look for when you receive a property tax bill in Kentucky, why your values have increased, and the deadlines and options you have for appealing same.
Kentucky real property tax is assessed on January 1 of each year. If there is a change in value from the prior year, the owner of record for that year (as of January 1) will receive a Notice of Assessment (“Notice”) from the PVA. While typically sent in April, you do not have to receive a Notice in order to contest your property value as you have the right to do so each year.
In Kentucky, you only have one chance, each year, to appeal your property values, and if you miss it, you lose your ability to appeal the value until the following year. Kentucky law allows for a two-week “Open Inspection Period” annually at the beginning of May that property owners may file a property tax appeal with their local PVAs (more on that in a bit).
Whether appealed or not, the PVA typically sends out a final property tax bill for that year around October. So, for example, if you received a tax bill in October 2021, the tax bill was required to be paid by December 31, 2021, or else it becomes delinquent, and additional interest, penalties and fees will be assessed, and the property may eventually be sold at auction or the tax bill sold to third-party collectors pursuant to local processes (a story for a different day).
Properties may be reassessed in a given year due to various situations which demonstrate an increase in value, including a recent sale of the property or a business on the property, major improvements on the property, and/or nearby sales or developments. But remember, Kentucky PVAs are required to physically inspect properties every four years, so a Notice could come any given year regardless of whether any changes to/near the property have occurred. So, as you check your early Derby racing forms in April, also be sure to check your mailbox for a Notice because you only get one shot to appeal, beginning the first week of May.
Notice Received – Should I Appeal, and What is the Process for Doing So?
Once a property owner receives a Notice, one must go through a variety of questions to determine whether to file an appeal. A step-by-step process for such a determination includes:
Step 1: When Is the Deadline to Appeal?
The Open Inspection Period begins the first Monday in May and continues for a 13-day period (excluding Sundays). Therefore, each year the exact dates of this appeal period may change.
For the 2022 tax year (i.e., property owners as of January 1, 2022), the Open Inspection Period begins Monday, May 2, 2022, and ends May 16, 2022. This is just the statutory minimum, as some of the larger counties in Kentucky, like Jefferson County (Louisville) and Fayette County (Lexington), will often extend the deadline to file such an appeal by opening the period early or extending for an additional time period, so it is important to stay on top of these dates or contact your local tax practitioner to verify. Jefferson County has already extended this timeframe in 2022 by opening the period up ten days early – starting April 21, 2022 (and may even extend it beyond the May 16 deadline, too, depending on the volume of appeals at a later date).
Why is this so important? Because if you don’t file an appeal during this period, you are barred from appealing the value that year and must wait until the next annual Open Inspection period to challenge same. This is critical because not only would a property owner have to pay higher taxes for that year, but it makes it that much more difficult the next year for a taxpayer to argue the value was too high (because if it was, why didn’t you appeal it the prior year?).
Step 2: Should I Appeal? 2022 Continues to Present a Unique Opportunity After COVID
Even if you believe your property is overvalued, it is always wise to determine if the increase in value, and corresponding increased tax, is enough to make an appeal worthwhile. A review of Kentucky’s real property tax rates is a good place to start. Like 2021, 2022 may also be a prime year for taxpayers to aggressively challenge real property values due to the effect COVID had on commercial properties. It is a rare chance to show how these unusual circumstances greatly reduced the value of your property, and how the business is still trying to recover, especially for income-producing properties like hotels, apartment complexes and other in the retail and hospitality industry.
Most Kentucky real estate is subject to full state and local rates. The state real property tax rate can vary from year to year and is computed by the Department of Revenue’s Office of Property Valuation typically by July 1, and is currently $0.119 per $100 value. The local tax rates make up the bulk of a taxpayer’s real property taxes as it often includes not only the county’s tax rate, but also taxation by local schools, cities, and other municipal jurisdictions. For example, the 2020 rates for a property in Louisville include a county rate ($0.1300/$100), a sizeable school tax rate ($0.8060) and possible additional city and other local district taxes on top. Thus, the potential tax savings for challenging the increased assessment not only for the tax year at issue, but also for future years, can be substantial, making an appeal well worth the fight.
In addition to determining how much the increase in value will cost in additional taxes, a property owner should also understand that it must provide support for your belief that the increased value was wrongful. Knowledge of recent/nearby sales, recent appraisals, insurance policies, or other documentation can be very persuasive in an appeal. A taxpayer must also understand how the PVA may calculate or support its increase in value as it is entitled to use one of three valuation methods – the cost method (how much does the land/improvements cost), the sales method (recent/comparable property sales), and the income method (detailed income/expense analysis). The latter method is the most commonly used for income-producing properties such as commercial and rental properties, and is often the most complicated as it requires the use of a subjective “capitalization rate” which is based on the location (Tier I, II, III or tertiary city), quality/amenities (e.g., Class A-C), and type of property (e.g., office, industrial, retail, multifamily, hotel, etc.). Given these different, and often complicated and subjective, calculation methods, both sides may have strong cases if a property is officially appealed.
Step 3: How Do I Appeal?
In order to file a timely real property tax appeal, the property owner must first have a “conference” with the local PVA during the Open Inspection Period. Traditionally for many Kentucky counties, you must schedule an in-person meeting with your local PVA official to discuss why you disagree with the value. However, many local PVAs allow for, and often require (e.g., Jefferson County), such a “conference” be held remotely online or via telephone, with many more counties likely to do so now and going forward after COVID. As part of this conference, a property owner typically must provide certain financials and other relevant documents (e.g., recent appraisals, contracts, policies, etc.), as well as an income/expense worksheet for income-producing properties, to support the property owner’s assertion of the “fair cash value” of the property under Kentucky law. Again, knowing your county’s local requirements and customs is critical to a timely and successful appeal.
If a property owner provides sufficient/compelling information, data or documentation to support its position that property was overvalued, the local PVA may agree to an adjustment. But oftentimes, the PVA will uphold its increase/assessment, and the property owner only has until one day after the Open Inspection Period closes to appeal this decision to your local Board of Assessment Appeals (“BAA”). Note that there are occasions where this deadline is also extended in larger counties, like Jefferson County.
This appeal is a more formal process than the PVA conference as it requires an in-person hearing with the local BAA (comprised of three members from the local community) who will consider the property owner and PVA’s positions, any supporting documents, and will then issue a decision either: (i) upholding the PVA’s value/assessment, (ii) adjusting the assessment (e.g., meeting in the middle); or (iii) agreeing with the value asserted by the property owner.
A party aggrieved by the local BAA’s decision ( the property owner and/or PVA) may then appeal this decision to the Kentucky Board of Tax Appeals (“KBTA”) within 30 days of the mailing date of the BAA’s decision. This is the next level of formality as a Petition of Appeal must be filed by a Kentucky-licensed attorney, and both parties may potentially issue discovery, make substantive filings, and retain experts (e.g., appraisers, consultants, etc.) for a full-evidentiary hearing before the KBTA. However, in my personal experience, many of these appeals often get resolved prior to reaching this stage which is often the best approach for cost-tax savings purposes.
Pro Tip – Be Ready at the Starting Gates or You May Get Disqualified
Challenging an increase in your property value can often be a confusing and complex process, so you should contact your local, trusted tax practitioner or advisor to help you. And don’t forget: the first week in May is not just for the Derby, but also for appealing your personal or business property value; otherwise, you will be scratched from that year’s race.
For more information please contact Daniel Mudd or any attorney in Frost Brown Todd’s Tax practice group. For up-to-date information on tax-related issues, visit our Tax Law Defined Blog.