Mississippi Supreme Court Upholds New Site Valuation Method

On Oct. 17, the Mississippi Supreme Court upheld the income approach to valuation of affordable housing sites in Mississippi. Mississippi Code Section 27-35-50(4)(d) prohibits local governments from including the value of federal tax credits in their valuation of the properties for tax assessment purposes. The court confirmed the constitutionality of Mississippi Code Section 27-35-50(4)(d) and the Income Valuation Approach provided in the Mississippi Department of Revenue's Appraisal Manual.

The case involved Willow Bend Estates and Woodyard Gardens (Willow Bend), two privately owned housing complexes developed, in part, using federal low-income housing tax credits (LIHTCs). To receive the LIHTCs, Willow Bend agreed to restrict the amount of rent it may charge its tenants and to rent only to tenants whose incomes are at or below a certain level.

Local tax assessors are required by law to assess all the lands in their respective counties, to appraise the lands according to the “true value,” and to assess the land in proportion to the true value. Mississippi Code Section 27-35-50(d) directs assessors to utilize the appraisal procedure set forth in the Appraisal Manual to arrive at the true value of an affordable rental housing development. The statute dictates that the procedure must require the appraisal be made according to actual net operating income attributable to the affordable rental housing development. The Appraisal Manual provides a model Income Approach to Value calculation and then states, “the monies received from the sale of the tax credits (subsidy) shall not be used in determining the true value of the property for ad valorem tax purposes.”

Beginning in 2006, Humphreys County, despite the Appraisal Manual, included the value of the LIHTCs awarded to Willow Bend to determine its value for ad valorem tax purposes. This resulted in annual property tax bills of $70,000 over the amount due when calculated according to the Appraisal Manual's formula. Humphreys County claimed that the Income Valuation Method was an unconstitutional tax, citing Section 112 of the Mississippi Constitution: “Taxation shall be uniform and equal throughout the state.” The county asserted that “Section 42 developments would be . . . in Class II along with completely private, multi-unit properties.” The argument followed that affordable housing sites should be taxed the same as privately owned market-rate housing developments.

The Court recognized and defined fundamental differences between Willow Bend and completely private, multi-unit properties. “It has a different financing scheme, a restricted clientele, minimal liquidity, and very few financing avenues.” The Court ruled that Willow Bend and traditional market-rate multi-unit housing can and should be valued differently. The case was reversed and sent back to the Humphreys County Circuit Court with instructions to refund all taxes erroneously collected since 2006 [Willow Bend Estates, LLC v. Humphreys County Board of Supervisors, October 2013].