Maryland Appeals Court Expands "Date of Finality" Rule

MaryLAND APPEAL COURT EXPANDS

 “DATE OF FINALITY” Rule for PROPERTY TAX ASSESSMENTS

 A recent decision by Maryland’s intermediate appellate court changes the way most practitioners understood the application of the “date of finality” rule.  Prior to the decision, it was generally understood that when real property is valued every three years as of January 1 – the date of finality – only sales of comparable properties prior to January 1 could be considered.  In Supervisor of Assessments v. Lane, 222 Md. App. 107 (2015), however, the Court of Special Appeals held that sales after the date of finality can also be considered in certain circumstances.  This article reviews the Lane case and its effect on property tax appeals in Maryland.

            In the proceedings leading up to the Lane decision, the Supervisor of Assessments of Montgomery County issued a notice of assessment of $2,130,000 on a high-rise condominium unit in the tony enclave of Chevy Chase, Maryland.  The assessment was effective as of the date of finality of January 1, 2011.  The owner appealed the valuation to the local assessment office and was given a “first level” review hearing with the assessor.  The assessor refused to lower his original assessment.  As was her right, the owner filed an appeal to the Property Tax Assessment Appeals Board.  At the Board hearing, she argued that other comparable units were valued at a lower rate.  After considering the evidence, the Board affirmed the valuation and noted that the “floor premium” used by the assessor should be higher than comparable units on lower floors.      

            The owner appealed again to the Maryland Tax Court, an independent agency that provides the highest administrative level hearings for state and local tax-related appeals.  During a de novo trial, the State Department of Assessment and Taxation (SDAT) presented evidence of condominium sales in the same building after the date of finality, January 1, 2011.  The State’s appraiser testified about sales of three condominium units that closed in May 2011.  Over the owner’s objections, the Tax Court received this new evidence for consideration.  Ultimately, the Tax Court granted the owner a nominal reduction in value to $2,075,000.

            As permitted under state law, the owner petitioned for judicial review in the circuit court in which the property is located – the Circuit Court for Montgomery County.  The owner argued to the circuit court that, inter alia, the Tax Court committed an error of law by considering sales that occurred after the date of finality.  She cited to the Maryland Code, which provides that for property tax assessments “the value of real property shall be its value on the date of finality.”  Md. Code, Tax-Prop. Art. § 8-102.  In a later section of the Code, the “date of finality” is defined as “the January 1 immediately before the 1^st taxable year in which the assessment based on the new value is applicable.”  Tax-Prop. § 8-104(b)(2).   The owner argued that the language of this statute prohibited the consideration of sales subsequent to the date of finality.  The circuit court agreed and remanded the case to the Tax Court for reconsideration.

            While the owner may have felt briefly vindicated, any celebration was short-lived.  The State appealed the circuit court decision to the Court of Special Appeals of Maryland, which assigned a three-judge panel to consider the matter.  The Court disagreed with the owner’s reading of the statute, noting that the statute provides that property must be valued as of the date of finality but does not specify how it is to be done.  The Court observed that valuation of real property is not an “exact science” and the goal is to determine value.  In this regard, the Court noted that, since 1992, SDAT and its local taxing authorities have considered sales after the date of finality when such sales are found to be reasonably close in time to the date of finality and otherwise comparable.  Ultimately, the Court held that admissibility of evidence is determined by relevancy and post-finality sales might well be relevant to valuation.

            The Court addressed one other issue that was less significant, although still interesting to the property tax practitioner.  As a secondary argument, the owner claimed that SDAT had violated the State’s Constitution, the Maryland Declaration of Rights, by failing to uniformly assess her condominium unit in relation to similar units in the same building.  This, she argued, was arbitrary and capricious.  The Court rejected her argument, holding that the Constitution requires the rules for determining assessed values to be uniform, not that the assessments of individual properties be the same.  The latter would be impossible to achieve, the Court noted.  Moreover, SDAT employs a mass appraisal approach when initially valuing properties.  When an appeal is filed, however, SDAT conducts a traditional sales approach directed to the property in question, which may yield a result different from the earlier proceedings.  Since the Tax Court hearing is de novo, the information may be new and different than what was presented in the earlier forum.

             The Lane case represents an infrequent foray by the Maryland Court of Special Appeals into property tax law.  Property tax appeals generally terminate at the Maryland Tax Court and are rarely appealed further due to the deference the appellate courts give the Tax Court.  Once again, the appellate court made clear that it will defer to the Tax Court in considering the relevance of evidence, even when such consideration appears to go beyond the reach of the applicable statute.  The “date of finality” rule previously seemed to represent a firm date by which comparable sales were limited – nothing beyond the date of finality could be considered because the valuation had to be as of January 1.  In light of the Lane decision, property tax practitioners, and their appraisers, should be aware that the Tax Court will consider subsequent sales that are “close in time” to the date of finality.  This expansion of the applicable timeframe can work in favor of the property owner when such post-finality sales support a reduction in value.

 Update:  The Lane case is now on further appeal before the Court of Appeals of Maryland.