Equity from the Assessor s Perspective

Transcription

1 Institute of Municipal Assessors 55th Annual Conference Equity from the Assessor s Perspective Andy Anstett Legislation & Policy Support Services MPAC June 7th, 2011

2 Key Aspects of Equity Test Defining current value Analyzing ranges of value Principle of equity Equity analyses The vicinity and similar trade offs ASRs and sample sizes

3 Correctness and Equity (The 2- Part Test) For 2009 and subsequent taxation years, the ARB shall: Determine the current value of the property (correctness) AND Have reference to similar lands in the vicinity and adjust the current value to make it equitable only if comparison results in reduction (equity)

4 Preparation of the Assessment Roll Mass Appraisal The process of valuing a group of properties as of a given date using common data, standardized methods and statistical testing Employed to set the current value on the vast majority of properties in the province and test the equity of those values Usually uses hundreds/thousands of sales for a market area Single Property (Fee) Appraisal Appraisal of properties one at a time Employed to review and test correctness of current values through RFR and on appeal and Usually up to six sold properties used

5 What is current value current value means, in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm s length by a willing seller to a willing buyer current value is not necessarily a specific property s sale price although it can be current value is a point within range of values current value is the most probable value within a range - not the highest, lowest, or average adjusted sale amount

6 What is current value current value assumes a willing buyer and a willing seller, with no advantage being taken by either buyer or seller current value assumes an arm s-length transaction in the open market, with no special financing and a reasonable time for exposure to the market current value recognizes both the present use and the potential use of the property and implies that both buyer and seller are well informed about the property, including the uses to which the property may be put

7 Current Value Analyses Range of Value For single property appraisals for RfR review or appeal purposes, MPAC selects only sold properties as many as the ARB s longstanding limit of six properties Time adjusted sale prices are further adjusted to allow for apples-to-apples comparisons to the subject in accordance with principles of direct comparison approach to value The greater the comparability, the fewer adjustments required, to compare to subject; but high degree of similarity not always possible in heterogeneous market areas Regardless of comparability, adjusted sales should provide a context for the value of the subject property This context is better focused by adjusting the sale prices of sold properties for time as well as any physical differences from the subject

8 List price When Does a Transaction Occur? Vendor Purchaser Base price RANGE Maximum Price Bid Price

9 Current Value Analyses: Balance of Probabilities Although an exact value cannot be proven, MPAC can have a high confidence that the assessed value either the returned assessed value or a revised/recommended value, lies within the acceptable range of value as determined from the market In effect, correctness is not per se proven beyond a reasonable doubt but it is inferred from the evidence provided that on the balance of probabilities the assessment is correct F.H. v. McDougall (2008)(Supreme Court of Canada) : the balance of probabilities requires that proof be clear and convincing and based upon cogent evidence (para. 31)

10 Principle of Equity in Assessment Equity in property assessment is fundamentally different than equitable treatment or fairness in other forms of taxation Property assessment is the distribution mechanism for collecting an annually set amount of municipal tax revenue - rating Issues of fairness or equity focus on levels of assessment and resulting taxes amongst taxpayers collectively The incidence or tax rate for income tax, sales taxes, excise tax and other forms of provincial and federal taxation is predetermined by government tax policy and revenue fluctuates with economic activity Questions of equity, fairness, progressivity or regressivity focus on tax rates applied to individuals; therefore for these taxes, tax policy matters

11 Principle of Equity in Assessment The Assessment Act and the common law require assessments to be equitable or fair. The purpose of the equity test in section 44 (3)(b) of the Assessment Act is to ensure that the municipal tax burden is shared fairly and equitably amongst all similarly situated property tax payers. If the level of assessment for similar property in the vicinity is at or near 100% of current value, equity has been achieved. An equity adjustment is only required when level of assessment of similar property in the vicinity is below current value Justice Kelly in Empire Realty (Ontario Court of Appeal): some percentage of actual value substantially less than one hundred

12 Principle of Equity in Assessment Conceptually four interests at ARB hearings, but only three statutory parties to an appeal with hearing participation rights: the property owner the municipality MPAC AND the fourth interest - all other similarly situated ratepayers The interests of the collectivity of other ratepayers are represented by the principle of equity in common law and the statute

13 Equity Analyses MPAC s equity analysis is the same type of analysis historically used since about 1975 during the pre-reform freeze years, and subsequently, under the names level study, assessment level or ratio study In order to determine equity, first establish the level of assessment for similar real property in the vicinity using an Assessment to Sale Ratio (ASR) study Analyses require two numbers current value & assessed value for each property Sales proxy for current value; other proxy measures possible Assessor selects criteria for similar properties in the vicinity, and selects all eligible sales Sale prices are time adjusted to the valuation date currently January 1, 2008.

14 Vicinity May expand or contract on the basis of the number of available sales of similar properties in proximity to the subject property. For equity test, vicinity may not expand beyond the municipal boundaries. (Note that for current value, vicinity may expand beyond the municipal boundaries) Municipal boundary limit confirmed by ARB decision released on July 6, 2010 respecting four Chrysler Dealerships in Toronto Rationale was sharing of municipal & school tax burden equitably among similarly situated property tax payers ARB decision subject of leave application on question of law by property owner.

15 similar property The word similar does not necessarily mean comparable in the appraisal sense Case law has confirmed repeatedly that similarity criteria should be "the same general nature, character or function For example: Bayview Summit Development Ltd. v. Ontario (Regional Assessment Commissioner, Region No. 14) (OMB 1998) - ARB erred in law in accepting assessment per square foot as a basis for determining equity Test on equity of assessment is on final assessed value not on value per unit of a single specific parameter Generally case law has endorsed more latitude in similarity criteria for equity analyses, than for market value

16 similar property The same principle applies to the assessment of farm land as to commercial and other land in a municipality. The differences referred to by the Municipal Board do not relate to the real nature of the lands in question. They are all farm lands and their varying physical characteristics and uses do not alter their basic quality but merely affect their value for assessment and other purposes. There is nothing in the Assessment Act which justifies arbitrary distinctions between different types of farm land any more than for other types of land. All the lands in the Township of West Gwillimbury used for agricultural purposes have "the same general nature, character or function". They do not become dissimilar for the purpose of this section simply because they may differ in appearance or in the uses to which they are put. (Devald et al. and Regional Assessment Commissioner, Region No. 16 et al. Ontario Court of Appeal Feb.1977)

17 similar property Assessment appealed for 131 bank branches in old City of Toronto Market values accepted by complainants; at issue was level of assessment 1949 base year compared to 1988 market value Level based on relationship between 1993 assessments returned for 1994 taxation and 1988 market value impact study values determined by Property Assessment Division (PAD) ARB agreed banks over-assessed based on level for all retail commercial; i.e., level from thousands of properties not only banks ARB used PAD vicinities because they include a substantially larger sample with property codes to differentiate between special purpose commercial and retail properties Decision subsequently applied to hundreds of bank branches across balance of Metro Toronto (T. W. Dowling; ARB Decisions , , and )

18 Equity Analysis Sample Size Assessment to Sales Ratio (ASR) - the relationship between the assessed value and the time adjusted sale price of a property In order to reach a meaningful conclusion, it is necessary to have a sufficient sample size. At least 30 ASRs and certainly no less than 15, should be used to determine the level of assessment for similar properties within a vicinity. The median ASR of the sample will define the level General Rule: If the median ASR for the vicinity is within , equity has been achieved - a reasonable guideline that ought to be followed in most instances. [Wyger DM100066] Arbitrarily choosing a smaller number of ASRs not appropriate - can lead to accusations of cherry-picking Sample sizes of 1-8 ASRs are not statistically reliable, and should not be relied upon by assessors or the Board

19 Thank you