March 14, 2016

Kentucky Board of Tax Appeals Rejects Comparable Sales Approach and Decreases Value of Commercial Building by Fifty Percent

Written By

By Erica Horn and Maddie Schueler

The Kentucky Board of Tax Appeals (the “Board”) recently found in favor of a taxpayer from Harlan County, Kentucky, decreasing an assessment of the Harlan County Property Valuation Administrator (the “PVA”) by fifty percent.[1] At issue was a parcel of commercial property on Central Street in downtown Harlan, valued at $180,000 by the PVA.  The taxpayer valued the property at $90,000 and appealed the PVA’s assessment to the Harlan County Board of Assessment Appeals, which affirmed the PVA’s assessment.  The taxpayer appealed the local board’s ruling to the Board.

Although the taxpayer did not present an appraisal, she offered testimony with respect to the property’s condition.  Specifically, the taxpayer testified before the Board that the three story building on the property had no air conditioning or heating and had not been leased.  She also testified that the building had a major roofing problem, which resulted in water damage and required the removal of walls and wiring and led to continuous issues with mold.  The walls and wiring had not been replaced as of the assessment date, and the taxpayer testified that the roof continues to leak.

In support of the assessment, the PVA presented information from five sales in downtown Harlan, and a representative from the Department of Revenue offered a cost approach study for the property.  However, no adjustments were made to the five sales prices to account for size or condition of the property.  Thus, the Board found the sales offered by the PVA were not comparable to the subject property.  The Board also noted that the cost approach did not account for the extensive damage to the building.

Ultimately, the Board was persuaded by color pictures of each floor of the property entered into the record by the taxpayer.  The pictures showed that the top two floors of the building had no drywall or ceilings, and Board found these floors currently were not inhabitable.  Although a portion of the first floor appeared to be inhabitable, the Board noted that this floor, too, appeared to have been renovated and had obvious mold removed in order to be livable.  Based upon this evidence, the Board concluded the building could not be compared to other inhabitable buildings in downtown Harlan. 

Interestingly, in May 2015, four months after the January 1, 2015 assessment date, the building sold at an absolute auction for $15,000.  The Board noted that while an appraisal may have shown the building was worth even less than the taxpayer’s claimed value of $90,000, the taxpayer was bound by the value claimed in her petition.  Thus, the Board reversed the final ruling of the local board and directed that the property be assessed at a fair cash value of $90,000.       


[1] Ruby Bennett v. Harlan Cnty. Property Valuation Adm’r, K15-S-39, Final Order No. K-25033 (Ky. Bd. Tax App. Feb. 25, 2016).