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OLR Research Report


December 22, 2011

 

2011-R-0448

PROPERTY TAX REFUNDS FOR BUSINESSES THAT CLOSE

By: John Rappa, Chief Analyst

You asked several questions about the property tax liability of a business that pays the tax and subsequently closes. Below, we restate and answer the questions.

1. Is a business entitled to a property tax refund if it closes after paying its real and personal property taxes?

No. The law does not authorize property tax refunds for businesses that close after paying their property taxes. Property owners are liable for taxes on real and personal property they own as of October 1. The tax assessment equals 70% of the property's value on that date. Municipalities levy taxes based on the October 1 assessment in the following fiscal year, which starts July 1. A business property owner is liable for the taxes on its property as long as it owns it; the business' closing does not affect the business' tax liability.

2. If the business closes three months after paying the first installment, does it still have to pay the second installment?

Yes, but the party that actually pays that installment depends on several factors, including whether the business' owner is an individual, corporation, or some form of partnership. For example, if the business is structured as a partnership, the agreement under which it is dissolved may assign the property to one of the partners, who would then be responsible for paying the taxes until the property is sold or conveyed to a new owner.

If the business sells the property, it could negotiate with the buyer to pay some or all of the outstanding taxes. The parties to the sale may agree to prorate the taxes based on the amount of time the business owned the property during the fiscal year, the Newington revenue collector explained. For example, if the owner sells the property on May 1, 10 months into the fiscal year, the owner may include two months (May and June) worth of property taxes in the sales price.

(Municipalities prorate the taxes only when motor vehicles change hands. Attachment 1 is an OLR Report discussing this requirement (2004-R-0113).)

JR:ro