I bought a Kansas property and took on its unpaid special assessments -- can the county add that balance to my purchase price to set my taxable value?

Plain-English summary

Special assessments are charges a city levies on nearby property to pay for public improvements — a sewer line, water service, streets. They often run for years, and when the property sells, the buyer typically takes over the remaining payments.

That creates a valuation puzzle the directive states plainly: "The cash given for the property under these circumstances may be significantly less than the cash given for similar properties that were sold unencumbered by special assessments." The buyer paid less cash precisely because they also picked up a debt. So is the property worth the cash, or the cash plus the debt?

The Division's answer starts with a presumption favoring the cash. The county appraiser "shall presume that the cash given for a property subject to special assessments represents its sales price, and thus should be given substantial weight for purposes of determining the property's fair market value."

That is a presumption, not a conclusion. The directive is careful: "an arms-length sale may be given substantial weight, but it is not the sole criteria of fair market value for ad valorem tax purposes. Other factors in K.S.A. 79-503a are important as well."

Rebutting the presumption. It "may be rebutted if the county appraiser has evidence to the contrary," and the directive lists three kinds:

1. "A well informed buyer knowingly assumed the obligation to pay a substantial balance of special assessments"
2. "The cash given for the property subject to special assessments is considerably less than the cash given for similar properties unencumbered by special assessments in open market transactions without any undue influences"
3. "The market has demonstrated that the public improvements underlying the special assessment add value to private property in the market place"

But the burden is explicitly the county's: it "must be able to demonstrate that the cash given for the property does not fully reflect its fair market value, because part of the consideration given for the property was in the form of assuming the obligation to pay special assessments."

The shortcut the directive forbids. Even where the presumption is rebutted, the county may not simply do the arithmetic: "A county appraiser shall not as a matter of standard practice value a property subject to special assessments by adding the special assessment balance to the cash sales price. Even when this technique is employed recognizing the present worth of future payments, it may result in valuing the property inappropriately."

The reasoning is that cost is not value. The directive observes that "the courts do not require a local governing body to assess the total cost of public improvements based upon the exact benefit to each affected property. Furthermore, the cost of an improvement does not necessarily equate to value in the market place. Finally, the market must demonstrate what portion of the public improvement actually enhances the value of private property and is therefore taxable."

What the directive prefers instead. Look at the market: property subject to special assessments "may be valued based upon arms-length sales of similar properties benefited by similar public improvements that have sold unencumbered by special assessments. Under this method, the market defines how much actual value is added to the private property by the public improvement." The elegance of that approach, in the directive's words, is that "the parties to such sales recognize that only the private property is being acquired, not the public property. Thus, only the enhanced value of the private property is captured for tax purposes."

What this means for you

Buyers who assumed special assessments

If your valuation notice looks like your purchase price plus the assessment balance, that is the specific technique the directive tells appraisers not to use as standard practice. Ask the appraiser what evidence rebutted the presumption that your cash price is the sales price, and how the added value was demonstrated from the market rather than from the assessment balance.

Owners in a newly improved subdivision

The directive's framing helps explain why two similar houses can be valued the same though one carries assessments and the other does not. Where the developer paid for the improvements up front and passed the cost through in the price, and your neighborhood financed them through assessments instead, the market value of the finished property may well converge — what differs is how it was paid for. The correct comparison, per the directive, is to similar benefited properties that sold unencumbered.

Developers and homebuilders

Note the point that the amount assessed need not track the benefit to each parcel: "the courts do not require a local governing body to assess the total cost of public improvements based upon the exact benefit to each affected property." A large assessment is not, by itself, evidence of a large value increase.

Accountants, appraisers and tax professionals

Three usable points in an appeal. The presumption starts with the cash consideration. The burden of rebutting it is the county's, and it must be demonstrated, not asserted. And adding the assessment balance to the cash price is disfavored even when present-worth adjusted — the directive cross-references its own earlier directives 92-029 and 92-035 for the proposition that "added costs do not necessarily equate to added value."

Common questions

Q: Can the county add my unpaid special assessments to my purchase price to get my taxable value?
A: Not as standard practice. The directive says an appraiser "shall not as a matter of standard practice" value the property that way.

Q: What is the starting assumption?
A: That the cash you paid is the sales price, entitled to substantial weight in determining fair market value.

Q: Can the county ever depart from that?
A: Yes, on evidence — such as that a well informed buyer knowingly assumed a substantial assessment balance, or that the market shows the public improvements added value. The county must demonstrate it.

Q: Doesn't a sewer or street add value to my property?
A: It may, but the directive requires that to be shown by the market rather than assumed from cost: "the market must demonstrate what portion of the public improvement actually enhances the value of private property and is therefore taxable."

Q: How is the property supposed to be valued then?
A: Preferably from "arms-length sales of similar properties benefited by similar public improvements that have sold unencumbered by special assessments."

Q: Is my sale price the only thing that matters?
A: No. An arms-length sale gets substantial weight, "but it is not the sole criteria of fair market value," and the other K.S.A. 79-503a factors still apply.

Q: What types of property does this cover?
A: All of them — "this directive will address all types of property subject to special assessments."

Q: When exactly was this directive issued?
A: It is genuinely unclear. The approval line prints only "2002" with the month and day left blank, while the Division's directive index lists the entry with the parenthetical "(2-24-00)". The two official sources disagree, so no single issue date is stated here.

Citations and references

Authority for the directive: K.S.A. 79-505, and amendments thereto.

Valuation standard: K.S.A. 79-503a (fair market value factors).

Cases cited in the directive:

• Wolf Creek Golf Links, Inc. v. Johnson Board of Co. Comm'rs, 18 K.A. 2d 263, 266, 853 P.2d 62 (1993) — the volume abbreviation "K.A. 2d" is the Division's own; the parallel citation confirms the 1993 Kansas Court of Appeals decision
• Board of County Commr's v. Brookover, 198 Kan. 71, 77, 422 P.2d 906 (1967)

Related directives cross-referenced in the text: Directive 92-029 and Directive 92-035, cited by the directive for the proposition that "added costs do not necessarily equate to added value."

Source

• Landing page: Kansas Property Tax Directives
• Original PDF: PVD Directive 02-040

Original ruling text

STATE OF KANSAS DEPARTMENT OF REVENUE
%LOOUDYHVRYHUQRU 6WHSKHQ65LFKDUGV6HFUHWDU\

Mark S. Beck, Director
Department of Revenue (785) 296-2365
Division of Property Valuation FAX (785) 296-2320
915 SW Harrison St., Room 400 Hearing Impaired TTY (785) 296-3909
Topeka, KS 66612-1585 Internet Address: www.ksrevenue.gov

                                        Division of Property Valuation


                                          DIRECTIVE #02-040



     TO:            County Appraisers


     RE:            Special Assessments


     This directive is adopted pursuant to the provisions of K.S.A.79-505, and amendments thereto,
     and shall be in force and effect from and after the Director’s approval date.

     A question has arisen as to how to determine the fair market value of a property that is sold when
     the buyer assumes a substantial balance of special assessments to pay for public improvements
     that provide a direct benefit to the property. Such public improvements may include a sewer
     system, water service, streets, etc. The cash given for the property under these circumstances
     may be significantly less than the cash given for similar properties that were sold unencumbered
     by special assessments. In the latter instances, the developer would have paid for the public
     improvements benefiting the properties and passed these costs on to the buyers. This directive
     will address all types of property subject to special assessments.

     The county appraiser shall presume that the cash given for a property subject to special
     assessments represents its sales price, and thus should be given substantial weight for purposes
     of determining the property’s fair market value. An arms-length sale may be given substantial
     weight, but it is not the sole criteria of fair market value for ad valorem tax purposes. Other
     factors in K.S.A. 79-503a are important as well. Wolf Creek Golf Links, Inc. v. Johnson Board
     of Co. Comm’rs, 18 K.A. 2d 263, 266, 853 P.2d 62 (1993); Board of County Commr’s v.
     Brookover, 198 Kan. 71, 77, 422 P.2d 906 (1967).

     The presumption that the cash given for the property subject to special assessments is reflective
     of its fair market value may be rebutted if the county appraiser has evidence to the contrary,
     including evidence that:

     (1)     A well informed buyer knowingly assumed the obligation to pay a substantial balance of
             special assessments;




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(2) The cash given for the property subject to special assessments is considerably less than
the cash given for similar properties unencumbered by special assessments in open
market transactions without any undue influences; or
(3) The market has demonstrated that the public improvements underlying the special
assessment add value to private property in the market place.

The county appraiser must be able to demonstrate that the cash given for the property does not
fully reflect its fair market value, because part of the consideration given for the property was in
the form of assuming the obligation to pay special assessments. That being the case, the cash
given alone would not reflect the total amount in terms of money given in exchange for the
property. Still further, the cash given would not be viewed as the total arms-length sales price
that is entitled to substantial weight for purposes of determining fair market value.

A county appraiser shall not as a matter of standard practice value a property subject to special
assessments by adding the special assessment balance to the cash sales price. Even when this
technique is employed recognizing the present worth of future payments, it may result in valuing
the property inappropriately. See, e.g., Directive 92-029, 92-035 (Added costs do not necessarily
equate to added value.)

The technique of adding the balance of special assessments to the cash given for a property in
order to determine its total sales price may not reliably reflect the actual value added to the
private property by public improvements. The courts do not require a local governing body to
assess the total cost of public improvements based upon the exact benefit to each affected
property. Furthermore, the cost of an improvement does not necessarily equate to value in the
market place. Finally, the market must demonstrate what portion of the public improvement
actually enhances the value of private property and is therefore taxable.

Property subject to special assessments may be valued based upon arms-length sales of similar
properties benefited by similar public improvements that have sold unencumbered by special
assessments. Under this method, the market defines how much actual value is added to the
private property by the public improvement. The parties to such sales recognize that only the
private property is being acquired, not the public property. Thus, only the enhanced value of the
private property is captured for tax purposes.

Approved: __2002 _____
Mark S. Beck
Director of Property Valuation

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