ATLANTA — The Georgia Supreme Court ruled Tuesday that when assessing affordable housing properties, tax assessors could use what’s known as the income approach to determine property taxes.
The ruling reversed previous court decisions in a lawsuit between Gateway Pines Hahira and Lowndes County in south Georgia, as well as potentially impacting low-income housing communities across the state.
The court’s ruling means federal Low-Income Housing Tax Credits can be assessed based on incomes coming in, which includes the LIHTC funds, but there’s a catch.
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The tax credits cannot be used in the calculation unless they are actively generating income.
“We granted certiorari in this case to determine whether property tax assessors seeking to determine the fair market value of ‘Section 42 properties’ — that is, affordable housing properties that qualify for low-income housing income tax credits under Section 42 of the Internal Revenue Code (“Section 42 tax credits”)1 — may use a specific method of estimating the fair market value of real property known as the ‘income approach.’”
Section 42 housing is a property that is built or rehabbed with a federal Low-Income Housing Tax Credit program for funding reasons.
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The program incentivizes developers building and/or maintaining more affordable housing rentals with a reduced rate based on Area Median Income, but it is a different program from the typical Housing Choice Vouchers/Section 8 funding programs.
Housing company Gateway Pines Hahira LP sued the Lowndes County Board of Tax Assessors over how it determined property fair market values, challenging a tax assessment notice that.
The case centers around Lowndes County tax assessor policy prohibiting assessors from factoring LIHTC funds into property assessments, which GSC said “created an unconstitutional subclass of tangible property subject to preferential treatment for ad valorem tax purposes.”
Essentially, Georgia’s highest court said Gateway Pines Hahira was right and that the Lowndes County Tax Assessor cannot count federal housing tax credits as income when calculating a Section 42 property’s fair market value.
It means property taxes for affordable housing complexes cannot be increased based on the LIHTC funding coming in.
The Court of Appeals had previously ruled that, as structured, Section 42 tax credits do not constitute actual income and thus could not be used in the income approach for determining fair market value.
The Court of Appeals’ interpretation was based on the court’s reading of current statutes and earlier cases, according to the judge’s order in the GSC.
However, the GSC found that the Court of Appeals misinterpreted the statute and precedent, stating that the income approach is permissible as long as the tax credits are not counted as income unless they generate actual income.
GSC said the new ruling aligns with the plain language of the statute, which allows for the consideration of tax credits in determining fair market value under specific conditions.
Tax assessors have the flexibility to use different approaches, including the income approach, to ensure that property appraisals conform to the definition of fair market value as outlined in Georgia law, the court said.
The Supreme Court of Georgia decision clarifies the methods available to tax assessors for valuing Section 42 properties, potentially impacting how these properties are assessed for tax purposes across the state.
With the decision, GSC reversed the appeals court ruling and sent it back down to a lower court for reconsideration.
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