Property Tax Relief for NC Businesses Affected by COVID-19

Property Tax Relief for NC Businesses Affected by COVID-19

Over the past year, we've fielded more than a few calls from clients and potential clients asking whether we were aware of any proposed legislation in North Carolina meant to provide property tax related COVID relief. Until very recently, the answer to that question has been "no," but N.C. House Bill 119 could change that.

The bill, to be entitled "An Act to Provide Relief From Property Tax Liability for COVID-19 Businesses," has 40 sponsors — one third of the NC House of Representatives - and the list of sponsors is bipartisan. It passed the 1st reading on November 23, 2021 and was referred to the Committee on Finance. From there, if voted favorable, it will move to the Rules, Calendar, and Operations of the House. So, we may not know for some time whether the bill will become law. Based on some language and deadlines in the bill itself, it appears that lawmakers want to move quickly. 

If it becomes law, it will offer potential property tax relief to certain businesses impacted by COVID-19. Here's how in its current form:

First, the bill would require North Carolina assessors to temporarily take into account the effect of COVID-19 relief efforts that effectively changed the legally permitted use of a property in determining property value. In other words, where closure or forced reductions in occupancy/capacity, hours, or other things that impacted normal business operations occurred by order of the Governor or through regulations, assessors would need to make reductions to assessed values. Critically, this requirement is not limited to those counties conducting county-wide revaluations effective January 1, 2021, but all counties. This means the mandated reductions would be, in many cases, "mid-stream" (non-revaluation year) valuation reductions, which assessors would likely otherwise argue are prohibited by law. 

The bill includes language that would require "appropriate modification where the COVID-19 pandemic caused..." a 25% or more reduction in gross revenues and/or, for retail businesses that collect sales tax, a 25% or more reduction in sales tax collections. The measuring period would be March 2020 through December 2020, as compared to the same period for 2019. 

Finally, the mandated reduction appears to apply only for a portion of the year (when the governmental regulation was in effect). So, it appears to us that impacted properties would wind up with two different assessments. The first would apply from January 1, 2020 through March 2020 and the second would apply from March 2020 through December 2020.

This would be a significant deviation from North Carolina's typical revaluation cycle, both in terms of the mandated "mid-stream" value change and in terms of a mid-year change. It is extraordinary relief for an extraordinary problem.

The relief summarized above would be by application, which would require supporting documentation and an application deadline of May 1, 2021 (for relief related to 2020 taxes). This deadline date is one reason why we think legislators behind this bill intend to do what they can to push it along.

Second, the bill creates what is effectively a potential deferment program for 2020 property taxes. This program is available only to a property owner who can demonstrate that the COVID-19 pandemic caused a reduction of at least 25% gross revenues and/or, for retail businesses that collect/pay sales tax, a reduction of at least 25% in sales tax collections during the period March 2020 through December 2020 as compared to the same period in 2019. If a taxpayer qualifies, then it would allow it to apply for relief no later than May 1, 2021. The impacted and applying taxpayer could be permitted to enter a payment plan for its 2020 property taxes, allowing it to spread its liability out through equal monthly installment payments to be fully paid before December 31, 2021. During this period, no interest would accrue and no enforced collections would take place, as long as the taxpayer makes the payments and does not sell or transfer the underlying property. 

We'll keep an eye on this bill as it moves along and write more as things develop.


 

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John A. Cocklereece, Jr.

John Cocklereece concentrates his practice on property tax appeals, business law, tax controversies, and estate planning and administration.
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