Ad Valorem (Latin: “According to Value”)
The primary tax on real property in Mississippi is imprecisely referred to as “ad valorem” tax, which means the tax is in proportion to its value. Because there are other ad valorem taxes – such as sales tax – in this article, we will unimaginatively refer to the ad valorem tax on real property as “real property tax.”
True Value, Assessed Value, Millage and & Resulting Taxes
As real property taxes are imposed “according to value,” the real property’s value must be ascertained. The value is then reviewed every four years. Mississippi delegates to the county tax assessor the duty of determining a property’s “True Value,” a statutorily-defined term of art, which resembles market value only as the mist resembles the rain. Simultaneously, the tax assessor determines the appropriate statutory use classification (Class I – V). Classifications dictate associated percentage factors, 10%-30%, which are then multiplied by True Value to determine the “Assessed Value.” Owner-occupied residential real property is considered Class I and has a 10% factor. Other real estate (rental property, commercial buildings, etc.) is considered Class II and has a 15% factor (resulting in a 50% larger tax burden per Assessed Value dollar). Taking into consideration all assessed value (real and personal property) in its jurisdiction, the governing body of the county or municipality then decides on the “Millage Rate” necessary to generate sufficient funds to meet its budget. A “mill” is 1/1000 or 0.001 of a dollar.
Let’s assume that Blackacre LLC owns an office building in Ridgeland, Mississippi. The Madison County Tax Assessor, following the Mississippi Department of Revenue’s (MDOR) guidelines, has deduced the office building is a Class II property and determined a True Value of $1,900,000. The True Value is then multiplied by the Class II factor of 15% to determine Assessed Value. The applicable Millage Rates are then applied to Assessed Value. Table 1 shows the resulting taxes.
Due Date, Delinquencies, and Tax Sales
Ad valorem taxes are due and payable in arrears on or before February 1 of the following year. For example, 2015 taxes are due and payable on February 1, 2016. Once delinquent, the taxes bear interest at the rate of 1% per month until they are “sold.” Most jurisdictions hold tax sales on the last Monday of August, although some (such as Amite County) hold tax sales on the first Monday in April. A party may “buy” the delinquent taxes at the tax sale, entitling the buyer to 1.5% interest rate per month on the taxes “purchased.” A tax sale “matures” two years after the initial sale date, and the tax sale purchaser may then request a tax deed to the property. If there is no purchaser at a tax sale, the property is said to “revert” to the State, and the Secretary of State takes title to the property following the maturity of the tax sale.
Some cash-strapped property owners use the tax sale process, including last-minute redemption, as an up-to-30-month, 17% average high interest rate loan. If Blackacre doesn’t pay the $30,569.10 due on February 1, 2016 and allows a tax sale to occur on August 29, 2016, then redeeming the tax sale on August 28, 2018 (assuming no redemption occurs prior to then) would require Blackacre to pay over $43,000. The calculation and process gets more complicated if a municipality – as does Oxford – collects its own taxes and conducts its own tax sale.
Real property tax exemptions available to for-profit businesses are limited in scope and duration. Select new and expanded facilities – such as warehouses, distribution centers, research facilities, processing centers and certain recreational facilities – may qualify for exemption on county and/or municipal real property taxes in connection with the issuance of conduit bonds. School district taxes are not subject to exemption. This tax break must be approved by the local governing authorities and is available for up to 10 years.
Odds & Ends
Real property taxation is subject to extensive laws and regulations, the formality of governing bodies, inflexible deadlines, special assessments, administrative proceedings and judicial contests. Owners contest valuations and refunds, valuations undergo “equalization,” and tax sales are disputed.
In connection with transfers and loans, nominal recording charges must be paid to the Chancery Clerk. Unlike many other states, Mississippi does not impose a value-based tax on liens (such as a mortgage tax) or transfers of real property. Moneys may, however, have to be withheld for possible income tax liability on certain transfers involving out-of-state entities. In connection with a sale, unpaid taxes are customarily pro-rated using the prior year taxes, as current year taxes are not known until year end.
Real estate taxes are the major source of revenues for local governments in Mississippi. Though it is a sizeable bite for businesses, WalletHub ranks Mississippi as the 15th most favorable state on assessment of real estate taxes.
Expanding on Benjamin Franklin’s veracious comment on taxes, in 1931 the aberrant American journalist Robert Quillen observed: “Another difference between death and taxes is that death doesn’t get worse every time the legislature meets.”
» Ben Williams and Molly Jeffcoat Moody are attorneys engaged in an active commercial law practice at Watkins & Eager PLLC. Ben and Molly are both recognized by Chambers USA and Best Lawyers in America. Ben was selected as Best Lawyer’s 2016 Project Finance Lawyer of the Year in Jackson, Mississippi. Additional information is available at www.watkinseager.com.
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