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State Residential Property Tax Assessments (OLO Report 2018-1)

Summary Analysis by the
Montgomery County Taxpayers League, February 26, 2018
https://www.montgomerycountymd.gov/OLO/Resources/Files/2018%20Reports/OLOReport2018-1.pdf

Executive Summary
Did you know that Maryland is one of only two states that assess residential property at the state level
(OLO 2018-1, pg. 1)? Is this antiquated system fair? Are reassessments delayed and incomplete? Are
there inefficient workflows between the state and Montgomery County?

 Tax Equity- Unimproved property taxpayers are subsidizing more expensive, improved property
owners. Under assessments are much more than the $20M a year estimated by OLO. And,
improved homes with missed final inspections are not always picked up in the out-of-cycle
reassessment process.
 Lost Revenues- Fixing this process that Montgomery County shares with the state would capture
additional revenues the County needs to help with projected revenue shortfalls. Plus, reducing
reliance on volatile income taxes by boosting property tax revenues is a good strategy. The County’s
conclusion that higher assessments for major improvements are subject to Charter limits is
questionable.
 Fairness and Extra Revenue- Montgomery County is already paying for half of the state’s very labor
intensive process. It might be less costly to have the County perform the entire process as is done
by most local governments around the nation. If the county got such a waiver, we could realize an
additional $140M in annual property tax revenue, make reassessments fair, and earn the 10% share
of property taxes we give to the state.

Background on the Underassessment Problem

How big is the underassessment problem? The County’s Office of Legislative Oversight (OLO) recently
released this report which estimates that the County residential property assessment base would be
$2.7 to $3.6 billion higher if sales prices were fully incorporated into the State Department of
Assessments and Taxation (SDAT) assessment methodology. This translates overall into $20M to
$26.9M additional annual property tax revenue (at the current general county tax rate of $0.7484 per
$100 of assessed value).

The County’s interpretation of the charter limit on overall property tax increases, which we believe is
misguided for major improvements, currently prevents realizing this revenue. It would also permit a
$01.1 cent decrease in the property tax rate if the assessment base were increased. Further, while the
Department of Finance has estimated that “escaped property” costs the County only $1M a year,
“escaped property” represents properties that were never assessed, and excludes underassessments of
existing and improved properties. Of the two, the underassessment problem is much bigger.

Based on an earlier report by the County’s Office of the Inspector General (OIG), Communication of
Building Permit Information to SDAT (OIG-17-001) which was critical of how the Department of
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Permitting Services (DPS) works with SDAT, the Taxpayers League met with DPS Director Diane Schwartz
Jones and Treasurer Mike Coveyou. The purpose of those meetings was to understand why some of the
OIGs recommended corrective actions were not implemented.

Our preliminary review led us to conclude that DPS is inefficient in how it handles work critical to
reassessments. We also concluded that additional Department of Finance controls are needed to
improve collections (only one person has been assigned to review compliance for property tax
revenues). In addition, only 85 Inspectors and 30 Permit Technicians were identified as part of the DPS
process. If the remaining 121 employees are not directly involved in the permitting process, that results
in an unacceptable overhead rate of 51%.

Our business case for an independent review of DPS and the Dept. of Finance is included as Attachment
1. We asked DPS and the Department of Finance for comments. Chief Administrative Officer (CAO)
Firestine responded in the spring of 2017 (also shown in Attachment 1), and we agreed to address these
comments once this OLO review was complete.

This summary connects OLOs review of SDAT practices with the OIGs earlier review of DPS, and with the
Taxpayers League business case for DPS and Department of Finance changes. Opportunities to improve
the business process between the County and SDAT are summarized along with a complete optimization
alternative that puts the County in the driver’s seat to restore incentives, accountability and fairness.

OLO Review Scope and Objectives

The OLO 2018-1 report scope focused on accurately and timely assessing major improvements, and
makes two worthwhile recommendations: (1) to review with SDAT incorporating sales prices into in and
out-of-cycle assessments, and (2) to review with SDAT better ways to identify properties for out-of-cycle
assessments. However, the OLO report did not go far enough to call out SDAT assessment deficiencies,
identify actionable opportunities for improvement, or suggest that major improvements could increase
County property tax revenues by interpreting major improvements as “new construction” under the
County Charter. (We make additional recommendations following our summary of OLO findings.
Attachment 2 summarizes our concerns about the OLO study methodology).

The OLO review scope excludes DPS and Finance processes that we cited in the fall of 2016 (except for
the inclusion of one control over the validation of cost data on permits shared with SDAT, see
Attachment 1). The scope does include a review and comparison of resale values to reassessments for
15,541 residential properties from July 2013 to December 2014 (OLO 2018-1, pg. 9). Furthermore, the
objectives were to review SDATs methodology for reassessing properties with more than $100,000 in
renovations or additions, and to compare assessments to the sales prices of residential properties. We
believe that timely and accurate major improvement assessments support tax equity by ensuring that
those with more expensive homes have a higher assessment and pay more taxes. Identifying properties
that have had $100,000 or higher value improvements is the first step to achieving tax equity.

Lastly, the report raises, without resolving, a central question about whether or not reassessments are
limited by “uniform standards” to costs per square foot, or whether recent market sales prices can be
used, as seems to be implied. This is critical to establishing a reassessment methodology that is fair to
taxpayers. Taxpayer League research concluded that Maryland law permits using sales prices to assess
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property value and also permits properties to be individually assessed (Attachment 2 includes citations
and our research).

Taxpayers League Summary of OLO Findings and Conclusions

We distilled four summary findings from the OLO report below, each followed by our conclusions that
the SDAT process is inefficient and unfair to taxpayers who subsidize homeowners that make
unassessed improvements:

1. SDAT reassessment process is inefficient and relies on poor DPS data (OLO Findings 1 and 2).
SDAT says it receives sufficient information from DPS to perform reassessments. DPS began
including information to SDAT needed to improve reassessments in August 2016 (pgs. 4-5). SDAT
representatives report that they receive all the data needed from DPS permits for out of cycle
reassessments, but OLO notes that construction costs do not translate to market value and this
may be a key factor in under assessments. Only about 25% of residents respond to SDAT
requests for more cost information. Finally, OLO notes that the reliability of permit cost
estimates is poor, even though SDAT uses this data.

Conclusion: The SDAT business process is still broken, is unfair because it misses properties that
need to be reassessed; poor DPS permit data contributes to the problem.

2. SDAT does not use market values for reassessments, and the scope misses internal
improvements (OLO Findings 3 and 4). SDAT does not use sales prices to determine values, but
rather uses square foot cost factors and depreciation (pg. 15). State law requires out of cycle
reassessments by SDAT for improvements greater than $100,000, but these assessments are
typically based on exterior observations only (pgs. 2-3). These SDAT external assessments
ignore interior improvements that add substantial market value. SDAT assessors do not take
into account market factors for out of cycle reassessments (pgs. 4 and 5).

Conclusion: SDAT practices contribute to under assessments which are unfair.

3. SDAT doesn’t look at or assign enough people to review reassessment opportunities (OLO
Finding 5). SDAT reassessed 91 residential improvements over $100,000 in 2017 that added
$36.3M in property value (pg. 8). Also, SDAT has assigned only 7 assessors to residential
property new construction and improvements over $100,000 In Montgomery County (pg. 3).

Conclusion: SDAT relies on physical inspections but doesn’t assign enough people to perform
inspections. SDAT work done represents only 13 inspections per assigned SDAT assessor in all
of 2017. Automated systems are needed to identify reassessment opportunities to improve
productivity.
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4. SDAT practices result in an estimated $20M in lost property tax revenues (OLO Findings 6, 7
and 8). OLO sampled 15,541 home sales where assessments were performed after sale only,
comparing assessed values to sales prices, and found that 69% of the homes were under
assessed, compared with 80% in Howard and 55% in Prince Georges Counties, although the total
value of underassessments was greater in Montgomery County ($178.3M) which extrapolates to
$2.7 to $3.6 billion for all residential properties in Montgomery County (pgs.10-11).
Underassessments contribute to $20M in lost property tax revenues after taking into account
Charter limits (pg. 12), although this estimate includes properties that didn’t have new
construction.

Conclusion: SDAT under assessments are a material problem, and could be greater than $20M if
homes that did not have major improvements were eliminated from OLOs sample. The problem
is not limited to Montgomery County, and basing assessments on sales would increase revenues
significantly.

Taxpayer League Recommendations

The fact that Maryland is one of only two states that does assessments at the state level is a red flag.
Before doing any further study of how to improve the state and County processes, the Montgomery
County should first recalculate lost annual property tax revenues to size the problem and get a better
understanding of the revenue opportunity from improving the business process.

Montgomery County should then consider the costs and benefits of taking over the responsibility for
reassessments from SDAT to improve efficiency and tax equity. A waiver from the state’s current
uniform assessment process could be negotiated in exchange for the 10% portion of property taxes now
received by the state. This would monetize the value of all the additional process steps the county now
performs for SDAT and allow the County to further streamline the process and make it fair. The
Taxpayers League would support this transfer of responsibility and revenues only if the additional
revenues that formerly went to the state are set aside in a lock-box to fulfill a decade old promise to
eliminate the energy tax. Establishing a DPS revenue budget for property taxes would create missing
controls to incentivize and discipline needed improvements.

This would also align the business process and revenues squarely where the incentives lie, at the County
level. Such a change must be accompanied by a rigorous plan by DPS and the Dept. of Finance to
implement needed controls to make this function work efficiently and effectively, in accordance to
Taxpayer League comments 1, 2 and 3 from our 2016 review (see Attachment 1). We are particularly
concerned about delayed and incomplete DPS final inspections, since timely final inspections are key to
triggering reassessments. CAO Firestine’s January 8, 2018 response to the OLO report centers on the
fact that the law requires a uniform assessment process, and that relying on market, not cost data
would be at variance with this requirement. We think the law supports use of sales data, but this needs
to be resolved by the County in negotiations with the state over cost and revenue responsibility.

Here are eight additional process oriented recommendations to increase tax revenues in the short-term:

1. Report properties with building permits issued for $75,000 or higher costs or an equivalent
square footage, and check whether or not an out-of-cycle tax bill was issued to indicate a
major improvement was reassessed.
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2. Use sales price and MSL listing information (price, features, pictures) to set assessment value
for for-sale mansionizations, where developers expand or rebuild existing residences to sell.
The County could provide such information to SDAT or SDAT could access it directly. If the
house is not sold until after SDAT reassesses it, the sales price should be used for the next
triennial reassessment.

3. Fix the issues hindering SDAT from accurately identifying permits for major improvements,
such as using/verifying both cost and square footage data, and fixing/preventing data entry
errors.

4. Identify outlier properties that have sold for much more than their assessed value and
earmark these properties for SDAT to use in developing the next triennial assessment.

5. Investigate assessments for the 2,688 properties that had permits for $100,000 or higher value
issued but not finalized since 2000. Work with SDAT to reassess properties where
improvements were made but not reassessed.

6. Ensure that expired permits are followed up on immediately after their expiration and clear
the backlog of expired permits.

7. Work with SDAT to fix grossly antiquated valuations and methods used to assess to value
features in a property (ceiling height, baths, kitchens, fireplaces, porches/balconies, exterior
finishes, etc.) and the quality levels. The methods and valuations do not extend high enough to
capture the value of today’s higher end additions and renovations in Montgomery County.

8. Change what qualifies as “new construction” for major improvements. While a County
Charter provision limits growth of the County property tax base, new construction is exempted
and can increase the property tax base. “New construction” is not a defined term in the County
Charter, so the County has some latitude in determining what qualifies as “new construction.”
The County currently does not use assessments for major improvements to increase the
property tax base, but it could do so if it interpreted major improvements to be “new
construction” for purposes of the County Charter limit. There is nothing that would prevent
this, and it is a reasonable interpretation. The County should evaluate this change, as it is
currently missing out on appropriately taxing the large amount of expensive infill development
that is occurring in the County.
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Attachment 1
Efficiency Review Business Case, Department of Permitting Services (DPS)

Montgomery County Taxpayers League, October 2016

We were pleased to meet with you to go over how DPS is addressing corrective actions for
improving building permit information provided to the State Department of Assessments and
Taxation (SDAT, OIG-17-001, August 25, 2016). You made it clear to us that DPS does not
agree with the appropriateness and cost-effectiveness of several of the IGs recommendations.

We also learned that DPS is responsible for a wide range of permitting services, and has to
consider how best to allocate resources between competing public safety and economic
development objectives as it processes its workload.

We believe, as we’re sure you do, that efficient tax collection depends on compliance by permit
applicants who expect fair and equitable enforcement, and efficient and effective DPS and SDAT
workflows. We think DPS is at a critical juncture with SDAT, and the County needs to improve property
tax collections or face even higher tax burdens.

We were unaware of the complexity of the tasks your 85 inspectors and 30 permit technicians perform,
comprising 115 of the total 236 DPS employees. In addition to SDAT, you talked about interfaces with
the Dept. of Finance, MNCPP (for address data base to get tax IDs), and with the public. It appears that
over time DPS has had its core mission expanded to include collection of impact taxes, and funding and
even doing SDATs job. While we compliment you on performing next day inspections, we wonder if it
comes at the cost of weak follow-up for existing permits since we’ve heard of instances where
occupancy permits are granted in arrears, when homes are sold.

In short, permitting is a complex business process. We believe DPS must be managed to optimize
property reassessment tax revenues while achieving public safety and economic development
objectives. This may be a tall order for an organization with aging work flows and systems and a
growing work load. We estimate that inefficient DPS and SDAT processes cost the County $10M a year
in reassessment revenues, although this may be subject to estimating errors due to our small sample
and assumptions about data we had no access to. A critical a new Finance Department internal control
could detect and correct errors by comparing expired permits to assessments, and measure and monitor
the size of this problem. Based on your comments, we make three preliminary observations and
recommendations below to make revenue collections more efficient:

1. Relationship with SDAT Needs More Controls- SDAT may not be able to implement the
changes needed to get timely and accurate reassessments without more help from DPS.
DPS has reached out to SDAT with technology and technical assistance. However,
SDAT only gets 10% of collections, which amounts to a poor incentive for the state. We
learned that Montgomery County pays ½ of SDAT costs and deserves more control over
reassessments. The recent history of new DPS reports (those for occupancy permits,
demolitions, residential and commercial use, and tax IDs), all took place in the last year,
under duress of audit and Council scrutiny, not as a result of continuous improvement by
on-going control systems.
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2. Data Collection and Integrity Weaknesses- There are issues that need to be resolved related
to responsibility for missing or incorrect tax IDs, erroneous or lowball cost estimates submitted
by home owners on permit applications, alternatives SDAT has for information needed to trigger
reassessments outside of 3 year cycle, and how cost validation could slow down permit
processing by DPS permit technicians. DPS responsibility for verifying construction completion
independent of builder notifications was also questioned, although a recent procedure to
compare sales to permits outstanding was cited as an improvement. In short, improved data
could involve more work by DPS and higher costs, but could also lead to higher compliance
rates. We have learned about some expired permits were corrected with occupancy permits at
the time of sale with no retroactive change to assessments. We are also concerned that if key
data doesn’t get validated, it creates lots of rework, and sends a message to applicants that we
don’t care.

3. Accountability Gaps- Trade-offs between public safety and economic development objectives
need to be resolved to improve DPS workflows. The limited controls over data or processing
errors noted above lead to reduced property tax collections, in part because responsibilities and
property tax revenue targets for reassessments are not set for DPS or the Dept. of Finance.
Inspectors are key to moving the process along and reaching milestones for reassessments, but
it was noted that inspector productivity has not been benchmarked against Howard or Fairfax
counties. It appears to us that whatever standards exist, may be the product of negotiations
with the union and not objective, outside benchmarks. Also, productivity standards for permit
technicians were not mentioned. Legal questions include how far back the county can go to tax
a major improvement that it did not reassess after the improvement was built, and how far back
can the county collect tax if a reassessment after improvement had errors (e.g., not enough
square feet, property quality or condition not accurate)?

Given these observations, we recommend an independent review be performed of DPS workflows and
Finance Department controls, productivity and organizational accountabilities to determine what’s best
for the county. The study would need to look at alternate workflows and automation to replace legacy
systems that would improve productivity, timeliness and quality. It would also need to look at strategic
issues like improved accountability and controls for new and issued permit follow-up, and even new
legislation to increase revenues by shifting responsibilities from SDAT to DPS to streamline
reassessments.

Executive Response
CAO Tim Firestine in a 2/2/17 email responded to these observations and comments with the following
comments:

Following the October 26, 2016 Montgomery County Taxpayers’ League (MCTL) meeting to
discuss Final Advisory Memorandum OIG 17-001 dated August 25, 2016 from the Office of the
Inspector General and to discuss assessment questions raised by the MCTL, you submitted an e-
mail to me that included your “observations and recommendations.” I appreciate your message
and would like to clarify the County’s role as it pertains to your specific comments:
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MCTL comment 1: Relationship with SDAT Needs More Controls - SDAT may not be able to
implement the changes needed to get timely and accurate reassessments without more help from
DPS. DPS has reached out to SDAT with technology and technical assistance. However, SDAT
only gets 10% of collections, which amounts to a poor incentive for the state. We learned that
Montgomery County pays ½ of SDAT costs and deserves more control over reassessments. The
recent history of new DPS reports (those for occupancy permits, demolitions, residential and
commercial use, and tax IDs), all took place in the last year, under duress of audit and Council
scrutiny, not as a result of continuous improvement by on-going control systems.

The Department of Permitting Services (DPS) has provided SDAT access to its databases and
building plans for close to two decades. For nearly 13 years, DPS has provided SDAT with
nightly reports on the residential and commercial building permits that it issues in accordance
with State law.

DPS has consistently and promptly provided additional information and support as requested by
SDAT. For example, in 2014, SDAT raised a concern that, despite the licenses provided by DPS
to its systems, SDAT could not access plans to determine if reassessment had occurred. After
further investigation, it was determined that the lack of access was a result of SDAT staff
turnover. DPS immediately provided new licenses so SDAT could again access permit plans.
Additionally, in spring 2016, SDAT requested a variety of additional information from DPS. As
a result, DPS began sending monthly reports in multiple formats. DPS also provided reports on
use and occupancy permits and demolition permits, and granted access to its new ePlans
database.

MCTL Comment 2: Data Collection and Integrity Weaknesses: There are issues that need to be
resolved related to responsibility for missing or incorrect tax IDs, erroneous or lowball cost
estimates submitted by home owners on permit applications, alternatives SDAT has for
information needed to trigger reassessments outside of 3-year cycle, and how cost validation
could slow down permit processing by DPS permit technicians. DPS responsibility for verifying
construction completion independent of builder notifications was also questioned, although a
recent procedure to compare sales to permits outstanding was cited as an improvement. In short,
improved data could involve more work by DPS and higher costs, but could also lead to higher
compliance rates. We have learned about some expired permits that were corrected with
occupancy permits at the time of sale with no retroactive change to assessments. We are also
concerned that if key data doesn’t get validated, it creates lots of rework, and sends a message to
applicants that we don’t care.
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DPS’s chief function is to optimize the safety of the public by efficiently processing permits and
overseeing construction activities. DPS’s expertise lies in code analysis and, as such, it validates
plans for compliance with critical building codes for the safety and welfare of the using public.
As required, DPS provides the building permit information to SDAT.

SDAT’s role is to assess property in Maryland, which is a process of valuation that does not only
equate to cost. SDAT assigns tax ID numbers by addresses and maintains that database, though it
does use the DPS-provided Excel spreadsheets to ensure that the information in reports is
properly attributed to the tax ID number. Also, DPS continues to work with MNCPPC to
download information MNCPPC receives from SDAT so that the information will appear on
permit reports. This brings full circle back to SDAT its own information which SDAT has stated
is unnecessary for DPS to provide.

Cost information is provided by the International Codes Council for permit fee purposes for
jurisdictions that charge fees on that basis. Generally, DPS construction permits are based on a
rate per square foot.

Assessments are triennial and DPS provides the necessary information about building permits
that SDAT can use to determine if an interim reassessment is warranted for a given property. In
addition to declared cost, information we provide to SDAT includes square footage and type of
construction which we believe is useful in determining whether a mid-cycle reassessment should
be undertaken. Given SDAT’s access to reports on demolition permits, building permits,
occupancy permits, and information relative to addresses, dates of issuance, square footage of
construction, type of construction, declared cost, etc., we believe SDAT should have sufficient
data to determine if reassessment is in order.

MCTL Comment 3 - Accountability Gaps: Trade-offs between public safety and economic
development objectives need to be resolved to improve DPS workflows. The limited controls over
data or processing errors noted above lead to reduced property tax collections, in part because
responsibilities and property tax revenue targets for reassessments are not set for DPS or the
Dept. of Finance. Inspectors are key to moving the process along and reaching milestones for
reassessments, but it was noted that inspector productivity has not been benchmarked against
Howard or Fairfax counties. It appears to us that whatever standards exist may be the product of
negotiations with the union and not objective, outside benchmarks. Also, productivity standards
for permit technicians were not mentioned. Legal questions include how far back the county can
go to tax a major improvement that it did not reassess after the improvement was built, and how
far back can the county collect tax if a reassessment after improvement had errors (e.g., not
enough square feet, property quality or condition not accurate)?
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DPS maintains performance standards such as its signature service of providing next day
inspections. The inspections that are called for in the County are based on building codes and are
virtually the same as in Fairfax and Howard counties. These inspections may be summarized as
footing, framing, close-in, electrical/mechanical, and final inspections.

DPS does not inspect for purposes of valuation of property but instead to assure that timely
inspections occur as phases of work are completed and to determine if construction work is in
accordance with building codes and the approved construction drawings.

SDAT’s responsibility encompasses all assessment-related activities. While this cost figure can
be a trigger for SDAT to review the assessment of a property outside of the three-year cycle,
reassessment is actually required only when the improvements made add at least $100,000 to the
value of the property (Tax-Property Section 8-104). The cost information, which is not required
by state law, is information that may lead SDAT to consider the value of the property, similarly
achievable by the verified square footage of construction, data which is also available to SDAT.

Many factors are considered when assessing property value, and there is not a one-to-one
relationship between the cost of the added improvements and the value that the improvements
add. In fact, the National Association of Realtors (“Remodeling Impact Report 2015”) estimates
that while converting a basement to living space adds 69% to the cost of the project as new value
to the property, adding a new bathroom only nets a 52% ROI (52% of the Cost of the
improvement is value for the property). A basement conversion that costs $100,000 would only
add $69,000 to the value of the property, and would therefore not lead to an updated assessment
(under state law). As discussed at the October 26 meeting by Mr. Coveyou and Ms. Jones, cost
does not equal value.

State law, specifically Tax-Property Section 8-417(c) and Section 8-104(c), respectively,
although 8-104(c) does not speak to reassessments, per se, but assessments, is helpful in
understanding the statute on taxing a major improvement that was not reassessed after
improvements were made. Note that SDAT, not the County, assesses and/or reassess property.
When “escaped property” (Section 8-417) is discovered, SDAT assesses the property for the
current year and the three previous years, and the owner is then sent property tax bills for all four
years. When an assessment error is found, the property is reassessed and taxed beginning the
next July 1st. Whenever an “escaped property” is found and reported to the County, we send the
information to SDAT for disposition. This occurs infrequently.
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After reviewing the data, the Department of Finance (FIN) believes that any foregone revenues
due to “escaped property” or incorrect assessments within the County total less than $1 million.
Property that is not captured mid-cycle for reassessment will be captured in a matter of a few
years or less due to the triennial assessment cycle.
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Attachment 2

OLO Study Methodology Concerns, February 2018

1. Missing Reassessments

While the OLO study reports that SDAT feels it gets sufficient data from DPS now, it is only recently that
information flows from DPS to SDAT have improved to include monthly reporting of building permits
issued and finalized permits that are ready for reassessment. Previously SDAT had access to DPS
systems, but was not informed when building permits were finalized and ready for reassessment. This
lack of structured, usable reporting created strong possibilities that earlier completed major
improvements were not discovered by SDAT for reassessment. The OLO report did not specifically
address this issue.

- The OLO study does not identify how many properties had very large assessment/sales price
differences or find reasons for gross underassessments. Instead, OLO focused on average
differences in sales prices and assessments, which mixed properties with and without major
improvements.

- The OLO analysis of properties with major improvements does not analyze how many major
improvements SDAT failed to reassess, which DataMontgomery (CountyStat) data indicates
may be a major problem.

o From 2000-2010 DataMontgomery shows 2,228 addition or alteration residential

permits with a $100,000 plus value that were issued but never finalized (and thus
possibly never reassessed). From 2011 to mid-2016, 460 such permits were issued but
never finalized. Waiving property final inspection was in the past permitted under
County law and could result in a major property improvement not being reassessed.
Statistics on expired permit inspections are not reported, and DPS only performs expired
permit inspections as time permits.
o From 2000-2017, DataMontgomery shows 6,342 permits with a $100,000 or higher
values that were finalized. The County should match the associated property tax
Identification numbers with out-of-cycle tax bills to identify properties that were
possibly not reassessed. If it is determined that SDAT is incorporating some of these
reassessments in a triennial reassessment instead of in an out-of-cycle reassessment,
SDAT needs to change its practices, because the triennial assessment will phase in the
higher assessment over three years instead of incorporating the full value change as of
the date of completion, as is required by Maryland law for major improvement.
Reassessing the improvement in the triennial reassessment instead of at full value
would result in lower taxes for the homeowner and county.

2. Basis and Timing for Reassessments

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Taxpayer League research concluded that Maryland law permits using sales prices to assess property
value and also permits properties to be individually assessed. Maryland Tax – Prop Code Section 2-203
(2016) titled Assessment Reviews states in part:

(b) Manner of review. -- For the review under subsection (a) of this section, real property is not
required to be reviewed individually or separately, but it may be grouped:
(1) in areas;
(2) by character or use; or
(3) in any other manner that the Department considers to be helpful or necessary.

(d) Aids in reviewing property. -- When reviewing real property under this section, the
Department may use property description cards, property location maps, land classification
maps, unit value maps, land use maps, zoning maps, records of new construction, sales records,
building cost information, private appraisals, periodic surveys of assessment ratios, or any other
material or information that the Department considers to be a reliable aid in determining real
property value.

Maryland law permits a property to be individually assessed and the property’s sales price to be used in
the next triennial reassessment. As neighborhoods mature, homeowners renovate to different extents,
making neighborhoods less uniform, and assessments based on sales of other, non-comparable homes
less accurate. If a property is sold after undergoing a major improvement, the sales price can be used
to determine the new assessment value for the out-of-cycle assessment. (Under Maryland case law
precedent, the sale of a house cannot trigger an out-of-cycle assessment, but when completion of a
major improvement triggers the out-of-cycle reassessment, the sales price can be used in setting the
reassessment value). In this case the sale of the house would not trigger the reassessment, the major
improvement’s completion triggers the reassessment. If the initial reassessment is performed based on
cost estimates, the sales price information can be incorporated at the next triennial reassessment.