Request By:
Claude B. Slone, Commissioner
Department of Property Taxation
Revenue Cabinet
Frankfort, Kentucky 40620
Opinion
Opinion By: David L. Armstrong, Attorney General; Frank F. Chuppe, Assistant Deputy Attorney General
You have written requesting a formal Attorney General's Opinion on the following question:
In the case where an improvement on real property is not assessed because it has been left off the tax roll but the land is included on the tax roll and assessed, can the improvement be assessed as omitted property?
You refer to OAG 79-239
YOU REFER TO @OAG 79-239 which opined that failure of a property valuation administrator to include improvements on real property listed does not permit the assessment of such property as omitted property, but merely constitutes an undervaluation of that property. You further state that:
Adherence to this opinion would serve to vitiate the powers granted the taxing authorities by the General Assembly and would encourage property owners to purposefully omit their improvements in hopes of evading taxes until their improvements are discovered by the PVA. . . .
The statutory definition of omitted property is found at KRS 132.290 which states:
Any property which has not been listed for taxation for any year in which it is taxable by the time the board of supervisors completes its work for that year shall be deemed omitted property.
The case law in Kentucky which has attempted to further define "omitted property" has not been altogether uniform. In Thomas' Executrix v. Commonwealth, 308 Ky. 695, 215 S.W.2d 546, 550 (1948), the Kentucky Court of Appeals characterized omitted property as that which has not been assessed at all, and does not include property which, by mistake and in good faith, has been assessed in the wrong county in the belief that it was located in that county. While this case does narrow the definition of omitted property, it is important to remember, in that case, the taxpayer did list the property in question, albeit in the wrong county. That apparently differs from the situation described in your letter where the improvements were not listed at all.
Another case pointing to what may be assessed as omitted property is Boyd v. Commonwealth, 149 Ky. 656, 149 S.W.914 (1912). There the taxpayer failed to list a county bond provided in a schedule for listing "Bonds," but rather contended he included the value of the bond in the list for miscellaneous personalty. The property was held to be omitted property. The same result was reached in Hillman Land & Iron Company v. Commonwealth, 148 Ky. 331, 146 S.W.776 (1912). In that case, a taxpayer listed a smaller number of acres of farmland than he actually owned. The acres not listed were treated as omitted property, despite the taxpayer's contention that it did not matter if the number of acres was correctly listed as long as the amount of the valuation was accurate. The Court held that when a taxpayer seeks to avoid taxation on omitted acreage, it is incumbent upon him to establish, by convincing evidence, that the omitted property was taken into consideration by him in fixing a valuation on the acreage he listed.
By contrast, see Kentucky Union Company v. Commonwealth, 177 Ky. 746, 198 S.W.46 (1917) which held that a taxpayer who has listed several tracts of land as one unit was not liable for an assessment for omitted property where the description given included the total acreage and general location. The common thread of these cases, in our view, is that while an incorrect description of property may not result in an assessment as omitted property, the failure to list property does make it subject to assessment as omitted property.
Another apparent theme in the available case law is the significance of whether the failure to assess the property is based upon the taxpayer's error or an error by the property valuation administrator. This distinction is also supported by KRS 132.220(3), which makes it the responsibility of the property owner to list the property in the taxing district where it is located. This distinction should then be a factor in determining when property should be subject to assessment as omitted property, in order to reduce the likelihood of the situation described in your letter where a taxpayer may attempt to avoid taxation by failing to list improvements on property.
Finally, the effect of KRS 132.230 on this question should not be overlooked. The relevent portion of KRS 132.230(1)(a) states as follows:
(1) Every person listing his property with the property valuation administrator shall state:
(a) Each separate tract of land, with the number of acres in each tract; the value per acre; each of the improvements thereon . . . . (Emphasis added.)
This statute, of course, imposes a requirement upon the taxpayer to itemize improvements as well as listing the total number of acres. Since a failure to correctly list all acreage creates a presumption that the acreage not listed is omitted property (Hillman Land and Iron Company v. Commonwealth, supra), a similar result should occur when significant improvements are not listed by the taxpayer. Therefore, it is our opinion that the taxpayer's failure to list a major improvement on property, such as a house, would also subject the improvement to assessment as omitted property. We would, however, not classify as omitted property the following:
(1) improvements not assessed for any reason other than the taxpayer's failure to comply with KRS 132.230, and,
(2) improvements which are merely undervalued or inadequately described.
To the extent that OAG 79-239 conflicts with this Opinion, it is hereby withdrawn. We hope this opinion is of some assistance to the Department of Property Taxation in addressing this difficult question.