To Calculating How Entity Sales Affect Property Tax Rates
In 2016, an apartment building in Athens County took out a loan for $48.3 million. Yet it was paying property tax as if it were valued at $13.8 million, a whopping $35 million difference. When the Cleveland Plain Dealer first reported on this in 2018, it got us thinking: there’s a lot of great data out there that we could put together to see how much this actually costs our readers.
Basically we looked at public records in aggregate to see how large the scope of the problem is. Banks have an incentive to report the amount of their loans, so that they can recover their security if a borrower doesn’t pay them back. And businesses have an incentive to obscure the total amount they paid for a property, because that lowers their property tax bill. Though there’s a law that mandates paying property tax, there’s no law saying that a business has to report what it paid for another business!
If you’re familiar with coding in R, you can see step-by-step instructions detailing how we computed what tax rates should be in Warren, Franklin, and Cuyahoga Counties.
We also set up a GitHub page to show how to collect information through automated data downloads. And we obtained some information through Freedom of Information Act requests.
Keep in mind though that our calculation is smaller than what it should be for several reasons:
- Updating: Over the past several months, properties have been bought and sold and so some of our data will be slightly out of date.
- Doesn’t Include All Sales: Getting a mortgage is just one way to buy a property. Businesses can also pay cash, swap stock, or do a 1031 exchange to obtain a property. We reached out to several commercial sales information companies, who track all commercial sales and offer data subscriptions. However, none of them were overly enthusiastic about our publishing their data, or even summaries of their data, and as we would need to publish our findings, this was a dealbreaker.
- Categorical Exclusion: Each property has a land use code, which was very helpful in determining which types of properties had which types of value. We ended up excluding lots of categories if we couldn’t tell if the mortgage covered more than the value of the property. For example, a motorcycle dealership took out a $12 million loan– which as it turns out, was $10 million for the inventory and only $2 million for the property. Since the last thing we wanted to do was to over count, we just excluded dealerships and businesses with a lot of inventory. There is some pretty good case law that property-based businesses like apartments, hotels, and nursing homes are closer in value to the valuation of a mortgage, so we stuck with that.
- Equity: This also assumes that the mortgagee didn’t put down any money as a down payment.
- Special Assessments: These are rare, and usually don’t involve the property value, and depend on each district. So we did not include them.
- Quality of the Data: For Cuyahoga County, we only have mortgages from 2016 through 2019, and even then not all of them are entered in via computer. Some are just in scanned PDF form. So that’s probably why Cuyahoga’s value is much lower.
- Exempt Properties‘ Pending Applications: If a nonprofit buys a property, that nonprofit can then ask for their property tax to be exempt. This is an application process that takes a bit of time, so again, this might not always be updated.
- Auditor’s Assessment Method: Ohio Auditors actually don’t necessarily use recent sales to compute market value. And values are only updated according to a statutory cycle. So often values lag behind.