If you're attempting a property tax appeal in North Carolina and your case is going to the North Carolina Property Tax Commission, you'll need to familiarize yourself with the applicable burden-shifting framework.
Taxpayer's Burden: Presentation vs Proof
When the case begins, the deck is stacked against the taxpayer.
The tax assessment being challenged is presumed to be correct. To change that, the taxpayer must present "competent, material and substantial" evidence that tends to show that:
- The assessment is based upon an arbitrary or illegal method of valuation; and
- The assessment substantially exceeds the true value of the property.
Court cases have simplified this burden by holding that an appraisal method is necessarily illegal and arbitrary if it doesn't result in true value. So, the taxpayer just needs to present competent material and substantial evidence tending to show that the assessment is substantially excessive. If and only if the taxpayer meets this burden of presentation, then the taxing jurisdiction is faced with meeting the burden of proof; it must prove that its assessment equates to true value despite the taxpayer's evidence to the contrary.
Dismissal Before a Hearing
A clear understanding of this burden-shifting framework and its practical implications is critical. If the taxpayer is unable to meet its initial burden of presentation — and in our experience sometimes even when the taxpayer does meet its initial burden — the Commission will dismiss the matter before ever even hearing from the taxing jurisdiction. Those dismissals often become the subject of appeals to the North Carolina Court of Appeals. In multiple decisions, the Court of Appeals has reversed the Commission's early dismissals, making clear that the initial burden on the taxpayer should not be difficult to carry.
From a practical perspective, success at the Commission is predicated upon obtaining a well-supported appraisal by a certified real estate appraisal. However, doing so isn't a requirement to meet the taxpayer's burden of presentation.
For example, in one recent case the Commission dismissed a challenge in which the taxpayer did not include a professional appraisal as part of the evidence. The Commission reasoned that the taxpayer couldn't have shown that the assessment was excessive without an appraisal conducted by a certified appraiser. But the taxpayer had offered testimony of a non-appraiser who had experience in and a knowledge of valuations of properties like the one in question, and that person had provided his opinion that the assessment was excessive. In reversing the Commission's dismissal of the case, the Court of Appeals held that "[a]lthough evidence from a licensed real estate appraiser is surely sufficient, and perhaps best practice, there is no such requirement."
This example illustrates the point that the taxpayer's burden is not to prove that the assessment is excessive. Instead, the taxpayer's burden is to offer evidence that tends to show that the assessment is excessive. According to the Court of Appeals, that is — or should be — much easier to do. Based on this case, we believe any number of types of evidence could be sufficient in carrying the taxpayer's burden. Good examples include:
- testimony from a non-appraiser with experience in the buying, selling, listing, or marketing of a particular property type, like an investor or a real estate broker
- evidence of open market sales or listings of the property under appeal or properties that are comparable to the property under appeal
- evidence of conditions that affect the property in question in some way that isn't observable by or known to the taxing jurisdiction — from condition of the property and deterioration to environmental issues
Ultimately, if you have an appeal before the Commission, you'll need to spend the money on an appraisal from a certified real estate appraiser if you want to maximize your chances of success. However, the law does not require one and, in fact, requires much less from taxpayers in order to meet their burden of presentation.
Image by Gustavo Trapp released into the public domain.