How thoroughly do Virginia local tax assessors have to look at an affordable housing property's actual operating expenses, and do they have to follow generally accepted appraisal practices?

Plain-English summary

Virginia Attorney General Jason Miyares concluded that assessors must carefully consider an affordable rental property's actual operating expenses and the effect of additional expenses. A quick look at an income and expense statement does not meet the duty in Virginia Code § 58.1-3295. That statute also requires consideration of contract rent and rent restrictions, restraints on transfer of title, and, for income-producing affordable housing, use of the income approach to assessment.

The AG further concluded that affordable housing assessments must follow generally accepted appraisal practices, procedures, rules, and standards prescribed by nationally recognized professional appraisal organizations. He drew that requirement from the standard governing a taxpayer's court challenge under § 58.1-3984. The opinion says a taxpayer challenging an assessment must, in part, prove that it was not reached in accordance with those practices and applicable Virginia valuation law. It does not say that showing alone guarantees victory. The AG declined to decide whether any particular appraisal method or assessment complies with the standards.

What this means for you

If you own or manage affordable rental property

Give the assessor the property's income and expense information and identify the actual operating expenses and any additional expenses that affect value. The opinion says the assessor must think about that information carefully and take it into account. It does not determine the value of any specific property or decide whether a particular assessment should be reduced.

If you assess affordable housing for a locality

A cursory review of the owner's statement is insufficient. Section 58.1-3295(A) calls for careful consideration of contract rent and rent restrictions, restraints on transfer, and actual expenses and their impact. For income-producing affordable housing, subsection (E) requires the income approach based on the property's current use, income restrictions, arm's-length contracts, and the other statutory factors. The opinion also concludes that the assessment must comply with generally accepted appraisal practices.

If you are considering a court challenge

The AG ties the assessor's duty to § 58.1-3984, which governs applications to circuit court to correct erroneous local tax assessments. He quotes the requirement that a taxpayer challenging an assessment must, in part, prove a failure to follow generally accepted appraisal practices and applicable Virginia valuation law. He does not resolve all elements of a challenge or decide how those standards apply to a particular property's figures.

Common questions

Q: Is it enough for an assessor to glance at my affordable housing property's income and expense statement?
A: No. The AG says § 58.1-3295 requires careful thought about the specified information; “token consideration” does not satisfy it.

Q: Must the assessor use the income approach?
A: Yes, for affordable rental property generating income as affordable housing. The opinion quotes § 58.1-3295(E), which says that property “shall be assessed using the income approach.”

Q: Does any failure to follow appraisal standards automatically win a tax appeal?
A: The opinion does not say that. It says a taxpayer must, in part, prove that the assessment was not arrived at under generally accepted appraisal practices and applicable Virginia valuation law. It does not address the remaining proof needed for a particular challenge.

Q: Did the AG choose a capitalization rate or decide another specific appraisal dispute?
A: No. He declined to interpret or apply particular appraisal guidelines because those questions did not present a question of law for an advisory opinion.

Background and statutory framework

Section 58.1-3295(A) says assessors “shall consider” contract rent and rent restrictions, restraints on transfer of title, and actual operating expenses and expenditures and the impact of additional expenses. The AG explains that “shall” is mandatory and “consider” calls for attentive thought. He concludes that a cursory review of an income and expense statement falls short. Subsection (E) requires the income approach for affordable rental property that is generating income and specifies factors on which that approach must be based.

Code § 58.1-3984 addresses applications to circuit court to correct erroneous local tax assessments. The opinion quotes its standard requiring a taxpayer, in part, to prove that an assessment was not reached in accordance with generally accepted appraisal practices and applicable Virginia valuation law. Reading the two statutes together, the AG concludes that affordable housing assessors must follow those appraisal practices. He leaves questions about how to apply the practices in a particular assessment unresolved.

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2023/22-063-Coyner-issued.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

COMMONWEALTH of VIRGINIA
Office of the Attorney General

Jason S. Miyares
Attorney General
October 26, 2023

The Honorable Carrie Coyner
Member, House of Delegates
Post Office Box 58
Chesterfield, Virginia 23832

Dear Delegate Coyner:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You inquire regarding the tax assessment of real property that is operated in whole or in part as affordable rental property. Citing a lack of consistency among the various jurisdictions in the assessment of affordable housing developments, your questions concern the interpretation and application of §§ 58.1-3295 and 58.1-3984 by local assessors. You first ask whether assessors comply with considerations mandated under § 58.1-3295 by merely reviewing the property's statement of income and expenses. You also ask whether assessors, in conducting an assessment by methods you specify, arrive at assessments of affordable housing property in accordance with generally accepted appraisal practices, procedures, rules, and standards prescribed by nationally recognized professional appraisal organizations (GAAP).

Response

It is my opinion that an assessor does not properly consider an affordable housing property's actual operating expenses and expenditures and the impact of any such additional expenses or expenditures by simply reviewing the property's statement of income and expenses. Whether an assessment comports with GAAP is a question that is beyond the scope of an opinion of this Office.

Applicable Law and Discussion

The Constitution of Virginia directs that "[a]ll assessments of real estate . . . shall be at their fair market value, to be ascertained as prescribed by law." Fair market value generally is understood as "the price which [property] will bring when it is offered for sale by one who desires, but is not obliged, to sell it, and is bought by one who is under no necessity of having it." Virginia Code § 58.1-3295 sets forth the manner the General Assembly has prescribed for determining the fair market value of property operated in whole or part as affordable rental housing.

Although many factors contribute to the fair market value of any given property, § 58.1-3295(A) provides that, "[n]otwithstanding any other provision of law," local assessors "shall consider" several enumerated factors when ascertaining the fair market value of affordable rental housing. The considerations specifically set forth are as follows: 1) "[t]he contract rent and the impact of applicable rent restrictions"; 2) "[r]estrictions on the transfer of title or other restraints on alienation of the real property"; and 3) "[t]he actual operating expenses and expenditures and the impact of any such additional expenses or expenditures."

For affordable rental property that is income producing, § 58.1-3295(E) directs further that, "[n]otwithstanding any other provision in this section or other law," such property "that is generating income as affordable housing shall be assessed using the income approach . . . ." In general, the "income approach" appraisal methodology "measures market value as the present worth of monetary benefits anticipated to be derived in the future from ownership of the asset." The General Assembly has specified that, for purposes of assessing income-generating affordable housing, such approach is to be "based on: the property's current use, income restrictions, provisions of any arm's-length contract including but not limited to restrictions on the transfer of title or other restraints on alienation of the real property, . . . and all other provisions of [§ 58.1-3295]." Accordingly, real property generating income as affordable housing must be assessed a fair market value that has been determined using the income approach based upon the factors set forth in § 58.1-3295(E), which incorporates the factors set forth in subsection (A).

You first ask whether an assessor who "simply review[s] (i.e., giv[es] a cursory glance to)" an affordable housing property's statement of income and expenses complies with § 58.1-3295. "Taxes can only be assessed, levied and collected in the manner prescribed by express statutory authority." Section 58.1-3295 clearly establishes that an assessor "shall consider . . . [t]he contract rent . . . and [t]he actual operating expenses and expenditures and the impact of any such additional expenses or expenditures" in determining the fair market value of real property operated in whole or in part as affordable rental housing. "When the language of a statute is unambiguous, we are bound by the plain meaning of that language." In applying statutory language, courts will "giv[e] to every word and every part of the statute, if possible, its due effect and meaning, and to the words used their ordinary and popular meaning, unless it plainly appears that they were used in some other sense."

In general, the use of the word "shall" in a statute implies that its provisions are mandatory, and "[t]ax assessors have no power to make an assessment except in the manner prescribed by law[.]" The ordinary meaning of the word "consider" is "'to reflect on: to think about with a degree of care' or 'to think of . . . in an attentive . . . way.'" The term "cursory," on the other hand, means "rapidly [and] often superficially performed with scant attention to detail: . . . hasty." A superficially performed review of an affordable housing property's statement of income and expenses is inconsistent with the plain language in the statute. Moreover, § 58.1-3295 calls for not only consideration of the contract rent and actual operating expenses and expenditures, but also "the impact of any" additional expenses or expenditures. I therefore conclude that real estate assessors must think about the information required by § 58.1-3295 carefully and take it into account when determining the fair market value of affordable housing properties. "[T]oken consideration" is insufficient.

You next inquire regarding an assessor's duty to comply with GAAP in assessing the fair market value of affordable rental housing. Although no statute expressly requires tax assessors to conduct real estate assessments in accordance with GAAP, such a requirement is implied from the language of Code § 58.1-3984, which addresses applications to the circuit court to correct erroneous assessments of local taxes, including real property tax assessments.

To successfully challenge an assessment under § 58.1-3984, the taxpayer, in part, must prove that the assessment "was not arrived at in accordance with generally accepted appraisal practices, procedures, rules, and standards as prescribed by nationally recognized professional appraisal organizations . . . and applicable Virginia law relating to valuation of property." Because §§ 58.1-3295 and 58.1-3984 both address the assessment of real estate taxes, the methodology imposed by § 58.1-3295 for assessments of affordable housing properties should be construed in pari materia with the standard of proof set forth in § 58.1-3984 requiring assessments to be ascertained in accordance with GAAP. The required showing under § 58.1-3984 evinces a legislative intent for assessors to conduct their assessments in accordance with GAAP. Indeed, in reviewing tax assessments, the Supreme Court of Virginia has stated that "Code § 58.1-3984(B) requires an assessment to be reached based on 'applicable Virginia law relating to valuation of property.'" It stands to reason that it similarly requires an assessment to be reached in accordance with GAAP.

I therefore conclude that assessments conducted under § 58.1-3984 must be performed in accordance with GAAP. Your inquiry, however, encompasses specific questions concerning the proper application of GAAP within the context of assessing affordable housing properties. In essence, you thus seek counsel regarding the interpretation of guidelines prescribed by GAAP. As has been noted previously, "[t]he traditional role of this Office regarding requested opinions has been to interpret applicable statutes to the extent possible utilizing the pertinent rules of statutory construction and general application of the statutory provisions." Opinions historically are limited "to matters that concern an interpretation of federal or state law, rule or regulation"; accordingly, among other circumstances, Attorneys General have declined to opine on matters when they do not involve a question of law. Because your questions pertaining to GAAP requirements do not present a question of law, I decline to render an advisory opinion on those portions of your inquiry.

Conclusion

For the foregoing reasons, it is my opinion that assessors must consider fully an affordable housing property's actual operating expenses and expenditures and the impact of any such additional expenses or expenditures, rather than conduct a cursory review of the property's statement of income and expenses. It is further my opinion that tax assessments of affordable housing properties must be performed in accordance with generally accepted appraisal practices, procedures, rules, and standards prescribed by nationally recognized professional appraisal organizations; but I decline to render an opinion regarding the interpretation and application of such practices and standards.

With kindest regards, I am,

Very truly yours,

Jason S. Miyares
Attorney General