A taxing decision

At first, it impacted fewer than two dozen property owners in Incline Village and Crystal Bay. A few years and several court decisions later, the manner in which property taxes are assessed has the potential to reverberate far beyond Washoe County to affect every Nevadan depending on a forthcoming decision by the Nevada Supreme Court. The decision also could have wide-ranging ramifications for county governments and their citizens if tax rollbacks drain county coffers.

Currently, the Supreme Court is reviewing several cases that could set precedents for handling of tax cases and appraisals. As with any legal ruling, there are a wide variety of scenarios, each with its own striking economic impact, but depending on the outcome, the court could make sweeping changes in the methodology used to assess taxes in the state. It is possible that Washoe County could lose an estimated $30 million in property tax revenue over the next several years just from the handful of Incline landholders. If the court decides that property taxes must be equalized and reduced across Washoe County, many more millions of dollars could be lost to the county. If the court rules equalization must occur across the state, everyone's property taxes would be reevaluated thereby affecting tax revenues in all 17 of Nevada's counties.

How it happened

The issue began when Incline Village property owners received notices of property taxes that were dramatically larger than had been historically imposed. The small group objected to the Washoe County assessor's evaluation of their properties and eventually had hearings before the county and the state.

For example, the appraisers estimated a property's view of Lake Tahoe without actually seeing it because they could not go on the property. In addition, appraisers determined the value of property based on whether the beachfront was sandy, rocky or had boulders. However, there was no standard by which anyone could say what made a lakefront beach rocky versus one with boulders, and how this might affect value.

After a series of appeals, their case, known as Nev. Board of Equalization v. Bakst, was ultimately decided by the Nevada Supreme Court, which ruled the assessments were not legally valid. The Supreme Court sent the case back to Washoe County and ordered a refund of the taxes.

In ruling on the Bakst case, the Nevada Supreme Court discussed extensively and for the first time the Nevada Constitution's requirement that assessments be "uniform and equal." The court held the Washoe County assessments of the Incline property up to that standard, and found that these assessments did not meet that standard because the assessor had used appraisal methodologies which were not previously established by the Nevada Tax Commission, and were not used in the county as a whole. The court also found that the methods used were not used in other counties.

Before the matter was finally resolved by the Supreme Court, the Department of Taxation implemented a number of regulations concerning assessment of property, including guidance on using a comparable sales approach and considering a view component. However, these regulations still leave open the question of when the view from a property should be utilized as a factor.

A variety of "view" points

In making its ruling on Bakst, the Supreme Court did not further define what was "equal and uniform." Today, there are several cases pending before the Nevada Supreme Court which may further define the "equal and uniform" constitutional requirement. One case is an appeal by Washoe County involving Incline taxpayers and the Board of Equalization's actions. This case is similar to Bakst, but instead of citing Bakst as precedent and remanding it back, the Supreme Court recently ordered full briefing on the issue. The court's decision could be announced at any time.

On the facts of the new case, the Supreme Court has an opportunity to set standards for appraisals across the state. The evidence in this case, as well as the Bakst case, establishes that appraisers in Lake Tahoe used view components in appraisals, while most appraisers in other counties did not factor in views, at least not on a consistent basis. The Supreme Court could require that "uniform and equal" means that every property being appraised under the comparable sales approach be considered for view evaluation. Currently, Lake Tahoe is the only area in Nevada that seems to have the view component used in determining value. The court could also decide that the view component, except in special circumstances such as Lake Tahoe, is already factored into the other considerations in the comparable sales approach.

Winning isn't everything

Just recently, the Nevada Board of Equalization ordered the Washoe Board of Equalization to explain the reasoning for its across the board reduction in Incline Village. If the blanket reduction is authorized, this may become a mandate to "equalize" all of the property in Washoe County, since Incline would be appraised at a far lower value than the rest of the county. If this happens, the state Board of Equalization might have to "equalize" across the state using the reduction at Incline as a basis for equalization. Hundreds of millions of tax dollars would be refunded, thereby dramatically impacting county budgets across the state.

The resolution of the Washoe County issues could result in significant changes in property taxes, as well as property tax appraisal methods. Depending on what the Supreme Court decides, the appraiser may have a mandatory list of factors which must be considered in establishing value. Or, adjacent property owners may be able to complain about assessed value because of the "superior view" of a neighboring property, and the effect on its value. Depending on the results of the Bakst case as it goes through the process, taxes may well be changed all over the state.

The issue is fascinating because there very well could be no real winners in the end. While property owners could see significant relief if their property taxes are lowered and monies are refunded, county governments may struggle to provide critical services to their residents.

Michael R. Griffin recently retired after serving for 28 years as a district court judge in Carson City. He is an attorney with the firm of Kummer Kaempfer Bonner Renshaw & Ferrario, where his practice emphasizes mediation, arbitration and dispute resolution.