Property Tax Post: Border Wall May Close Off Owners’ Property Tax Options


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Last month, the U.S. House of Representatives Appropriations Committee released a proposed Department of Homeland Security appropriations bill for fiscal year 2018 that would set aside $1.6 billion dollars to facilitate “physical barrier construction along the U.S. southern border.” As the federal government takes steps toward acquiring land that is necessary for the project, homeowners along the southern border (which spans roughly 2,000 miles) may find themselves at the mercy of the federal government’s eminent domain power. Generally, persons whose property has been taken by eminent domain are entitled to “just compensation,” which can have tax implications in some jurisdictions.

In some cases, this compensation includes payment for property taxes. Property owners may be entitled to a total or partial property-tax abatement in other situations. In Texas, for example, if the state or federal government acquires taxable property by way of eminent domain, property taxes must be prorated based upon when the property was conveyed or transferred pursuant to a court order.[1] Similarly, in Arizona, property taken by eminent domain is exempt if the taking is completed before a tax is levied on the property. But if the taking is completed afterward, property taxes must be paid to the local taxing authority from the compensation awarded.[2]

California takes a different approach on this issue because of its unique taxing scheme under Proposition 13. Proposition 13 requires property taxes to be assessed not against the property’s current value, but rather against the purchase price, which, for tax assessment purposes, may increase no more than 2 percent annually. Additionally, under Proposition 3, if a homeowner’s property is taken by a government entity, assessors must transfer the base year value of the condemned property to the taxpayer’s replacement property. However, if the replacement property’s value exceeds 120 percent of the compensation, the value in excess of 120 percent[3] will be added to the property’s base year value.[4] On the other hand, if the market value of the replacement is lower than the base year value of the condemned property, the lower value will be assigned to the property.

Although discussions regarding the border wall seems to have projected the government’s eminent domain powers back into the news recently, private land acquisition by governments is nothing new. Eminent domain has been used by the United States’ government, in particular, “to facilitate transportation, supply water, construct public buildings, and aid in defense readiness,” according to the U.S. Department of Justice. That being said, property owners throughout the U.S. may be interested in knowing who is responsible for paying the local tax man if their property has been subject to a government taking.

Here is a look at how other states around the country address property tax obligations where property has been taken via eminent domain:EDchart  

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Does your state extinguish or pro-rate property taxes levied against property subject to eminent domain?

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[1] Tex. Tax. Code Ann. § 26.11(a).

[2] Arizona Op. Atty. Gen. No. 64-15 (June 12, 1964).

[3] For example, a taxpayer’s base year value for condemned property is $75. The taxpayer is awarded $100 in compensation from the government. The fair market value of the replacement property is $220. The replacement property’s value exceeds the compensation by 120 percent. Thus, the replacement property’s base year value will be the sum of $75 plus $120.    

[4] Base year value is either the fair market value of the property on March 1, 1975, the property’s fair market value on the acquisition date (purchase price), or the fair market value on the lien date following completion of new construction.