Is Your Homeowners Association Paying Too Much Property Tax on its Common Areas?
A significant number of subdivisions include common areas. As most of us are aware, common areas are parcels of property that are owned by a homeowners association within a subdivision. Homeowners who live in the subdivision generally have easement rights to use the common areas but will not have any direct ownership of that property. Typical examples of common areas include property at the entrance of a subdivision on which the subdivision entrance features are located, such as a sign or landscaping, and property on which the subdivision amenities are located, like a pool, tennis courts, or clubhouse. Detention ponds, retention ponds, lakes, parks and greenways are also frequently located on common areas.
Wherever the common areas are located in a subdivision, the board of directors for the homeowners association will need to make sure the county property taxes on the common areas are being paid. If the property taxes are not paid, the county may issue a document called a tax fi.fa. and the common areas may thereafter be sold at public auction on the courthouse steps. In such a situation, the homeowners association does have a statutory right to “redeem” the property and require the purchaser of the property to transfer it back to the association. The problem with that, however, is that the redemption must be done in strict compliance with the statute and, of course, most boards would prefer that the common areas under their control not be sold at public auction.
There are several different reasons why boards fail to pay property taxes. One of the more common reasons is that many boards simply do not realize that property taxes must be paid on common areas. Also, when there is more than one common area in the subdivision, the fact that each common area generally has its own tax identification number with the county can sometimes lead to property taxes being paid by the association on only one of the common areas rather than on all of them. Another reason is that a developer of a subdivision might not have properly transferred ownership of the common areas to the homeowners association, and as a result, the county tax assessor’s office continues to send tax invoices to the developer well after the subdivision has been built out. It is therefore extremely important for the board to have a title search done on its common areas to make sure the ownership of that property has been properly transferred to the association from the developer.
The board should also review the assessed value of the common areas because a growing number of county tax assessors have recognized that common areas owned by a homeowners association should receive special tax treatment. This special tax treatment is that common areas are assessed at a nominal value, and when property is assessed at a nominal value, the property tax that becomes due on that property is likewise nominal. For example, when a common area that includes a pool and tennis courts is assessed at its full value, the annual property tax may be well over a thousand dollars. On the other hand, if the same common area is assessed at a nominal value, the annual property tax is often a lot less than one hundred dollars. This special tax treatment for common areas has also been recognized in tax appeals when common areas were previously assessed at their full value instead of a nominal value, thereby possibly resulting in a refund to the association.
There are two reasons why county tax assessors give common areas this special tax treatment. The first reason is that Georgia law requires all property to be taxed at its fair market value. County tax assessors have routinely recognized that common areas, which are usually encumbered by easements and various restrictive covenants, are not marketable and, therefore, have a nominal value. The second reason is that when the value of each lot in the subdivision is assessed, the county tax assessor generally includes within the value of each lot the fact that each lot includes easement and access rights to the common areas; and since the value of the common areas is already included within the assessed value of each lot in the subdivision, taxing the common areas a second time at their full value would result in the common areas being taxed twice and likely constitute an unconstitutional double taxation.
Board members for homeowners association should accordingly confirm that the ownership of all common areas has been transferred to the association, that the county tax assessor’s office correctly has the association listed as the owner for each common area and has the correct association address for tax invoices, and that common areas are being assessed at a nominal value so that the annual property tax on the common areas is likewise nominal. In the event the board discovers that any of the above has not been done, the board should contact its community association attorney for assistance.