Budget Bill Fix to VAP Automatic Tax Exemption

This blog has previously detailed some of the ambiguity of the Voluntary Action Program ten year automatic tax abatement provisions set forth in Revised Code 5709.87. (See prior posts here and here). Three primary issues caused significant problems for developers attempting to leverage the VAP automatic tax abatement:
  1. How to value the abatement- The prior law was ambiguous as to how to value the abatement;
  2. Timing- The timing for locking in the tax abatement was difficult to navigate causing some developers to lose out on millions of dollars in tax abatements; and
  3. Exclusion for New Improvements and Structures- Until an Ohio Supreme Court ruling, the law was somewhat unclear as to whether the abatement covered the land and only existing buildings.  The Ohio Supreme Court clarified that new improvements and buildings were not covered by the automatic tax abatement. 

House Bill 463 included language to fix the first two issues. (H.B. 463 changes to R.C. 5709.87)

How to Value the Abatement

The act specifies that the beginning point for measuring the increase in value subject to abatement is the beginning of the year in which environmental remedial activities began.  Under the prior law, the value was based  upon the date of issuance of the tax abatement order by the Tax Commissioner.  At the start of a brownfield project, it wasn't certain which year would be used as the base value for determining the exemption.

The changes enacted through House Bill 463 specify that the exemption is to measured using the year remedial activities were initiated as the base year.  Each of the ten years during which the property is exempted, any increase in value from the base year is exempted from taxes.

Timing

The other issue with the prior law related to timing.  The date of the exemption and calculation of the value of exemption was not tied to a specific year.  Rather, the exemption was tied to the tax list of the year prior to when the Tax Commissioner issued their abatement order.  The fact the value "floated" with the date the Tax Commissioner issued their order meant it was difficult to secure the full value of abatement. 

For example, assume remediation commenced in 2012 and the property was valued a $1 million. The VAP Covenant-Not-to-Sue (CNS) is issued in 2015.  By 2015, some improvements were completed and the property doubled in value to $2 million.  The Tax Commissioner issues the abatement order in 2016, which means the 2015 tax value (not the 2012 value) would be used to determine the value of the abatement.  This means the developer would lose out the abatement for the increase in taxes associated with property values increasing between 2012 and 2015.

This created challenges for developers who had to time completion of improvements with completion of the VAP CNS and Tax Commissioner Order.  Some developers didn't plan correctly or were confused by the law and lost out on millions in abatement. 

For instance, once Cincinnati company lost out on a potential tax exemption on a $4 million dollar increase in the value of the property simply because the paperwork was not issued by the government officials in a timely fashion.  see, Hamilton Brownfields Redevelopment LLC v. Zaino, Tax Commissioner of Ohio.

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