On December 8, 2016, the Ohio legislature passed Senate Bill 235 (SB 235) which, among other things, adds Section 5709.52 to the Ohio Revised Code (“ORC”). Effective March 28, 2017, this section authorizes local governments to approve property tax exemptions for the increase in property value for property that is either “newly developable property” or “redevelopment property.” These terms essentially mean that as to a parcel of property, no commercial, industrial or agricultural operations are currently taking place on the property and that construction or reconstruction of a commercial or industrial building(s) is planned, but a certificate of occupancy has not yet been issued.
During this pre-development phase, the property tax exemption provided by SB 235 effectively freezes the taxable value in place during the exemption term until a certificate of occupancy is issued or upon the occurrence of other circumstances, as discussed below.
To receive such property tax exemption, the qualifying property owner must first submit an application to the political subdivision where the property is located. If the parcel is already subject to a TIF (tax increment financing), the property owner must apply to the local government that approved the TIF. SB 235 does not specify how the tax exemption should interact with a TIF. However, layering the SB 235 property tax exemption on top of a TIF may affect the calculation of service payments generated by the TIF, as those are tied to the real property tax rate. Counties or cities applying for this tax exemption should therefore consider any effect this pre-development tax exemption might have on statutory service payments generated by a specific TIF.
The application for the property tax exemption must include a statement certifying the following information:
- that the parcel is a newly developable property or redevelopment property, as defined in ORC 5709.52;
- that either the parcel is zoned to permit the construction or reconstruction, as applicable, of a new commercial or industrial structure or, conversely, that no applicable zoning regulation prohibits such construction or reconstruction on that parcel; and
- a certificate from the county treasurer confirming that, as of the date of issuance, there are no outstanding real property taxes, assessments, penalties, or charges that are due and unpaid with respect to the property
Before the application is approved, the legislative body of the political subdivision reviewing the application must first notify the board of education in each school district in which the parcel is located of its intent to grant the property tax exemption. The legislative body must also specify the tax year for which the exemption shall commence, which must be the year the application is filed or the ensuing tax year.
After approval by the political subdivision, in order to effect the exemption authorized by ORC 5709.52, the property owner will also need to file a tax exemption form pursuant to ORC 5715.27. This will likely be accomplished through filing of a standard DTE Form 24 with the County Auditor of the County in which the property is located, but final guidelines have not yet been established.
The term of the property tax exemption shall be no longer than six years. However, the property tax exemption terminates once an occupancy permit is issued, the owner transfers title to the property to another person, zoning regulations are imposed disqualifying the property, or any commercial, industrial or agricultural operations commence on the property.
SB 235 imposes a three-year tax recoupment on property subject to the tax exemption if (1) title is transferred before any improvements are made or (2) any commercial, industrial, or agricultural operations occur before the certificate of occupancy is issued. The recoupment charge is levied on the exempted parcel to recover any benefits gained by the tax exemption.
In conclusion, SB 235 provides a potentially useful property tax exemption, but one with limited application. It is particularly suited to protecting tracts of property from suffering large increases in tax valuation due to ambient development around those tracts (e.g. an undeveloped farm owned by a developer near a new, large housing development).
In determining whether this tax exemption might create value for your business, it is important to consider that (i) the exemption is only for any increases in the taxable value of the parcel, (ii) that the exemption is available to both zoned and unzoned parcels of real property, and (iii) that the exemption may be lost not only by commencing commercial or industrial operations on the property, but also by the commencement of agricultural operations on the property. Because the exemption is only applicable to property currently devoid of any productive use but otherwise primed for development, this exemption will likely be utilized most effectively in conjunction with the development of life style centers or other developments spanning vast tracts of previously undeveloped property.
KMK Legal Alerts and Blog Posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.
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Kendall Kadish practices in the firm's Real Estate Group. His practice focuses on commercial real estate development (retail, office, industrial, medical and mixed-use) and general business law matters.
Kendall has represented ...
Richard C. Spoor practices in the firm’s Real Estate Group. Richard advises public entities, underwriters, and private clients in economic development and public finance transactions, as well as state and federal tax ...
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