You asked us to summarize the laws for revaluing property, determine when the legislature set the deadlines for boards of assessment appeals to act on appeals, and explain why courts conduct new trials when hearing these appeals. This report summarizes the revaluation laws; we will address the questions regarding assessment appeals in a subsequent report.

SUMMARY

Towns tax property based on its fair market value, which fluctuates over time. For this reason, local tax assessors must revalue all property at least once every five years or their town forfeits 10% of its total annual state formula grants. Assessors can revalue property by inspecting it or examining the recent sales of comparable properties. But they must inspect each property at least once every 10 years. This requirement allows them to fulfill the five-year revaluation by inspecting some properties and using sales statistics for the others.

Towns can defer their next five-year revaluation if sales statistics show little or no change in fair market value. They can cushion a revaluation’s impact by phasing in fair market values or providing tax credits to people who own and occupy their homes. But towns must recover the cost of doing this by imposing a surcharge on business real and personal property.

FAIR MARKET VALUE

Revaluation refers to the process for periodically determining the fair market value of real property. CGS § 12-62a requires towns to tax property based on its present true and actual value, which, according to CGS § 12-63, is the property’s fair market value, not its value at a forced sale or auction. Towns must then assess all properties—residential, commercial, industrial, etc. —at 70% of its fair market value and tax them at a uniform (mill) rate.

TIME FRAME FOR REVALUING PROPERTY

Since a property’s fair market value could change over time, in any given year a property owner could wind up paying more or less taxes than he might otherwise pay, depending on whether the value of his property increased or decreased. For this reason, CGS § 12-62 (b) requires towns to revalue all property at least once every five years or risk losing 10% of their annual state formula grants until they do so, as CGS § 12-62 (d) requires. But the Office of Policy and Management secretary (OPM) secretary can waive the penalties under specified conditions.

A hypothetical example shows how a postponing a revaluation could affect owners’ tax bills. To understand how this could happen, one has to remember that the bill depends on the property’s assessed value and the town’s mill rate. Table 1 compares two properties whose values changed over five years. It assumes that the town did not revalue the properties in the fifth year, as the law requires, and a constant mill rate.

Table 1: Hypothetical Example of how Delaying a Revaluation Could Affect Tax Bills

REVALUATION METHODS

The statutes recognize two methods for determining fair market value—physical inspections and property sales statistics. Assessors often use both during a revaluation. Physical inspections allow the assessor (or a private appraiser he supervises) directly to measure value by viewing and appraising the inside and outside of a property.

It takes less time and money to revalue property by comparing recent sales of comparable properties, but the accuracy of the results depends on the degree to which the properties are comparable. For this reason, assessors check the results by inspecting some of the properties.

The statutes seem to recognize the limitations of these methods—physical inspections are more accurate than comparing comparable sales, but take more time (and money) to complete. For this reason, they require assessors to physically inspect each property at least once every 10 years instead of inspecting all properties every five years (CGS § 12-62(a)(3)). Consequently, assessors can stagger physical inspections over 10 years and still revalue property every five years.

An example shows how assessors could do this. Assume that a town revalued property in 2005 and must do so again by 2010. Starting in 2006, the assessor could inspect at least 10% the properties per year for 10 years. At that rate, he will have inspected at least half of the properties by 2010, the deadline for the next townwide revaluation. He could base the revaluations for these properties on the inspections and the remainder on statistics.

The assessor could then inspect the other properties over the next five years and base their revaluations in 2015, the next revaluation year, on the inspections. He could base the revaluations for the other properties (the ones he initially inspected between 2005-2010) on statistics. The assessor could restart the inspection cycle in 2015.

DEFERRING A REVALUATION

CGS § 12-62 (k) allows a town to skip its next scheduled revaluation if statistics show little or no change in property values since the last revaluation. The statutes specify the requirements the town must meet and the process it must follow for doing so.

TAX RELIEF AFTER A REVALUATION

Phase-ins

As we explained above, increases in fair market value between revaluations could trigger higher tax bills. To cushion this shock, the law authorizes two methods a town’s legislative body can use to gradually phase in the increase.

CGS § 12-62a allows the legislative body to phase in the increase in a property’s assessed value after revaluation. It can phase in some or all of the increase in equal increments for up to four years, but can stop doing so before the phase-in period ends (CGS § 12-62a(e) and (f)).

Alternatively, CGS § 12-62c allows the legislative body to phase in the increase based on a percentage instead of the difference in assessed values. The percentage equals the difference between two ratios:

1. the ratio of the property’s assessed value before revaluation to its fair market value after revaluation and

2. the ratio of the property’s assessed and fair market values after revaluation, which is always 70%.

For example, assume that a property’s fair market value increased from $ 100,000 to $ 200,000 after revaluation. The property’s assessed value (i. e. , 70% of fair market value) correspondingly increased from $ 70,000 to $ 140,000. Under CGS § 12-62c, the legislative body could base the phase-in on the ratio between $ 70,000 (the assessed value before revaluation) and $ 200,000 (the fair market value after revaluation). That ratio is 35%, half of the mandated 70% assessment ratio.

In this example, the town divides the difference (35%) by four and increases the assessment ratio by that amount in each of the next four years. Thus, it increases the assessment ratio by 8. 75% per year until the ratio equals 70% of fair market value, as Table 2 shows.

Example of a Phase-in Under CGS § 12-62c

Tax Credits

CGS § 12-62d allows a town’s legislative body to provide tax credits to people who own and occupy one- to three-family homes if the town’s effective tax rate on residential property after revaluation is 1. 5% or more. The legislative body must determine that rate by dividing the total tax on all residential property by such properties’ total fair market value. It can grant the credits for five years.

The legislative body must decide whether to (1) give an equal credit to each residential owner or (2) link the size of the credit to the property’s tax. Under the first option, the maximum credit is $ 750. Under the second, the credit is the amount by which the property’s tax exceeds 1. 5% of its market value. But the maximum credit can be no more than 2 ½ times the average credit. Under both options, the credit remains constant over the five-year period.

The legislative body must recover the cost of the credits by imposing a maximum 15% surcharge on commercial, industrial, and public utility real and personal property (except motor vehicles) taxes. It must maintain the surcharge for five years without change.

The town must also study how it assesses taxes, manages its finances, and spends it funds within one year after authorizing the credits. It must hold at least two public hearings and prepare a management plan, which it must file with OPM and the legislature. The town stands to lose 10% of its statutory formula grants if it fails to comply with this requirement.

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