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on Friday, 30 June 2023 in Dirt Alert: David C. Levy, Editor

Lincoln Cnty. Bd. of Equalization v. W. Tabor Ranch Apartments, LLC, 314 Neb. 582 (2023)

To calculate real property taxes, county assessors must appraise the underlying real estate at its “actual value.”  Neb. Rev. Stat. § 77-201(1).  Actual value is “the market value of real property in the ordinary course of trade.”  § 77-112.  While comparable sales or facility costs are common measures of actual value, an exception is made for rent restricted housing projects in section 77-1333(3), which requires assessors to utilize the “income approach calculation to determine the actual value of a rent-restricted housing project,” utilizing the property’s actual reported operating results.

Western Tabor Ranch Apartments, LLC (“Western Tabor”) acquired a rent-restricted apartment complex in Lincoln County (the “Property”).  Western Tabor paid $1,346.000 for the Property.

A private appraiser subsequently valued it at $1,350,600.  Using the income approach, however, the Lincoln County Assessor (“Assessor”) valued the Property at $1,519,000 based on several years’ reports filed with the Tax Commissioner detailing the Property’s operating results.

Western Tabor protested.  The Lincoln County Board of Equalization (the “Board”) affirmed, and Western Tabor appealed to the Tax Equalization and Review Commission (“TERC”).  

TERC determined the Assessor failed to show the financial reports were reflective of the Property’s actual value.  TERC thus reversed the Board’s valuation and instead accepted the $1,350,600 private appraisal.  The Board appealed to the Nebraska Supreme Court arguing that section 77-1333 required TERC to use the income approach.

The Nebraska Supreme Court affirmed TERC’s determination.  While section 77-1333 imposes a requirement for use of the income approach by county assessors, the court held that TERC has discretion to utilize another valuation method, including for example a market approach relying on sales of comparable properties, when TERC concludes that an alternative approach to valuation would better determine the actual value of a rent restricted project.  This discretion, the court held, stems from TERC’s general appellate authority to determine actual value under sections 77-5007 & 77-5016(8). 

Evidence at the TERC hearing in this particular case included competing income reports with some uncertainty as to their accuracy, an appraisal, and a recent sale of the property.  The Supreme Court held that TERC could rely on that evidence to determine actual value, notwithstanding the requirement for use an income approach under section 77-1333(3).

Although a victory for Western Tabor, this decision may enhance property tax risk for owners of Section 42 housing projects.  Despite the protections within section 77-1333, the Court decided that TERC now has discretion to choose an approach to valuation that does not correspond with the property’s actual financial performance.  The ruling gives TERC significant discretion to implement the valuation method it prefers, and that method may not always benefit the landowner.

Hannes D. Zetzsche
Isaac C. Lawrence, Summer Associate

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