New Property Tax Exemption for Newly Developable or Redevelopment Property New Property Tax Exemption for Newly Developable or Redevelopment Property

New Property Tax Exemption for Newly Developable or Redevelopment Property

Senate Bill 235, which became effective March 28, 2017, made changes to laws that deserve the attention of Ohio economic development professionals. In particular, Revised Code Section 5709.52, which was newly enacted in SB 235, contains provisions that provide permissive authority for a township, county or municipality to exempt from real property taxation the increase in value of property planned for commercial or industrial development while the property is in the pre-development stage. This new law could be a useful tool for subdivisions actively seeking industrial or commercial development or redevelopment; however, it also could result in unexpected revenue losses to subdivisions, in particular townships and counties, who are unaware of its existence.
 
Under the act, the taxing authority may exempt from real property taxes the increase in the value of a parcel of land while it is in the pre-development stage for a period of six years. This exemption can be applied to newly developable property, where commercial or industrial buildings are planned. In addition, it applies to redevelopment property, which is defined as existing commercial or industrial property that is no longer in use, where redevelopment is planned. Parcels to be used in whole or in part for residential purposes do not qualify for exemption.
 
Each parcel is valued for taxation according to its fair market value as of January 1, the tax lien date. As provided in Section 323.11 of the Revised Code, the fair market value of an uncompleted improvement situated on a parcel is calculated on the basis, as of the tax lien date, of either its value or its estimated completed value multiplied by the percentage completed. Under Senate Bill 235, parcels continue to be valued in this manner, but any increase in value occurring during the abatement period is exempted from real property taxation.
 
Applying for the exemption
 
The process for obtaining the exemption differs for properties in municipalities, as opposed to those properties in unincorporated areas. Municipalities, in general, have authority to grant exemptions for properties located within their boundaries, unless those properties are already subject to an existing tax increment financing (TIF) exemption. In order to receive the exemption for a property located in the unincorporated area of a township, a qualifying parcel’s owner must apply to either the county or the township, unless the parcel is already subject to a TIF exemption. Any parcel subject to a TIF exemption must apply to the township, county or municipality that authorized the TIF exemption. A township cannot exempt a parcel already exempted by a county, nor can a county exempt a parcel already exempted by a township.
 
The application to be filed by the property owner must certify that (i) the parcel is newly developable property or redevelopment property and (ii) zoning regulations do not prohibit the construction or redevelopment of a commercial or industrial building on the parcel. In addition, the property owner must obtain a certificate from the county treasurer stating the property is current with respect to property taxes and special assessments.
 
If the application is complete and the local subdivision intends to grant the exemption, the local subdivision must notify the school district and joint vocational school district in which the parcel is located. In addition, a county or township must notify the township or county, respectively, in which the parcel is located of its intent to provide an exemption. No time period is prescribed for this notice. Furthermore, no consent of any other subdivision is required for this exemption to be granted.
 
Granting the exemption; disqualifying events
 
Once the notices have been given, the subdivision may grant the tax exemption. The exemption may begin either in the current tax year or the following tax year and continues for six years thereafter, unless (1) the owner receives a certificate of occupancy for the property, (2) the owner transfers title to another person, (3) the property is zoned or rezoned so that commercial or industrial buildings cannot be constructed on the property or (4) commercial, agricultural or industrial operations are conducted on the property.
 
In the event that (1) the owner transfers the property during the exemption period to another person without having made any improvements on the parcel or (2) commercial, agricultural or industrial operations are conducted on the parcel before a certificate of occupancy is issued, a recoupment charge must be levied. This recoupment charge is to be equal to the amount of taxes that would have been, but were not, levied against the parcel during the three years before one of those events occurred.
 
Considerations
 
The commercial/industrial tax exemption program offers opportunities and challenges to certain subdivisions, especially townships. Townships should be aware that, unlike enterprise zones where consent of taxing subdivisions is required, counties and municipalities holding property within the township may exempt property from real property taxation without the consent of the township. Townships that engage in advance discussions or agreements with boards of county commissioners having jurisdiction over their territory may avoid disputes or undesired consequences.
 
In addition, townships may wish to consider whether they might be able to use this exemption as an incentive to induce owners of industrial, commercial or agricultural property to enter into joint economic development districts (JEDDs). Such an arrangement could potentially lower the cost of development of commercial or industrial facilities, while ensuring the township can receive income tax revenue once such commercial or industrial facilities are operational. 
 
For further information regarding these exemptions, please contact Kip Wahlers, Chris Magill or any member of our Ohio Public Finance or Economic Development Team.
 
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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