How thoroughly do Virginia local tax assessors have to look at an affordable housing property's actual operating expenses, and do they have to follow generally accepted appraisal practices?

Plain-English summary

Delegate Carrie Coyner asked how Virginia local assessors should value Low-Income Housing Tax Credit (LIHTC) and similar affordable rental properties when those properties operate under federal restrictions that depress rents and require unusual reserves and operating expenses. Two questions: can the assessor satisfy § 58.1-3295 by simply reading the property's income-and-expense statement, and do assessments have to follow generally accepted appraisal practices?

Attorney General Jason Miyares said no to question one, yes to question two. Section 58.1-3295 uses "shall consider," which is mandatory and means real, attentive review. The statute lists three required factors: (1) the contract rent and the impact of rent restrictions, (2) restrictions on transfer of title or other restraints on alienation, and (3) actual operating expenses and expenditures and the impact of any such additional expenses or expenditures. The opinion contrasts "consider" (think about with care) against "cursory" (rapid, superficial). A glance at the income-and-expense statement is not consideration.

The income approach is mandatory for income-producing affordable rental property under § 58.1-3295(E): the assessor cannot fall back on a sales-comparison approach or a pure cost approach. The income approach must be built on the property's current use, income restrictions, contract terms, and the other § 58.1-3295 factors.

On GAAP, the AG reads §§ 58.1-3295 and 58.1-3984 in pari materia. Section 58.1-3984(B) gives a taxpayer challenging an assessment the right to win on a showing that the assessment "was not arrived at in accordance with generally accepted appraisal practices, procedures, rules, and standards." That standard is meaningless if assessors can ignore it on the front end. So § 58.1-3295 assessments must be GAAP-compliant.

The AG declines to rule on the specific question Delegate Coyner raised about capitalization-rate methodology. That, the AG says, is an applied-appraisal-science question, not a question of law, and is beyond the scope of the advisory opinion process.

What this means for you

If you own or operate affordable rental housing in Virginia

The opinion holds that an assessor does not satisfy § 58.1-3295 by giving a cursory review to the property's income-and-expense statement. The statute requires the assessor to "consider," meaning think about with care, the contract rent and applicable rent restrictions, restrictions on transfer of title, and the actual operating expenses and expenditures (and the impact of any additional expenses). For income-producing affordable property, § 58.1-3295(E) makes the income approach mandatory. The opinion also concludes that assessments must be performed in accordance with generally accepted appraisal practices (appraisal GAAP). It does not address any individual property's assessment.

If you are a local real estate assessor

The opinion reads "shall consider" in § 58.1-3295 as mandatory and attentive: a "token" or "cursory" review of the income-and-expense statement does not comply. For income-producing affordable rental property, the income approach is required under § 58.1-3295(E), built on the property's current use, income restrictions, and arm's-length contract terms. The opinion does not prescribe a particular workfile format or assessment procedure beyond what the statute requires.

If you are a city, county, or tax-appeal attorney

The opinion concludes that the GAAP standard in § 58.1-3984(B), which lets a taxpayer prevail by showing the assessment "was not arrived at in accordance with generally accepted appraisal practices," implies that assessments themselves must be conducted in accordance with GAAP, reading the two statutes in pari materia. The opinion expressly declines to resolve how GAAP applies to specific questions such as capitalization-rate methodology, treating that as an applied-appraisal question outside the scope of an advisory opinion.

If you are a housing finance agency or developer organization

The opinion is interpretive guidance, not an order, and it does not change any property's tax bill. For each affected audience it stands for two holdings: assessors must give the § 58.1-3295 factors genuine consideration rather than a cursory glance, and affordable-housing assessments must comport with appraisal GAAP.

Common questions

Q: What programs does § 58.1-3295 apply to?
A: The statute lists IRC § 42 (LIHTC), IRC § 142(d), HUD programs at 24 CFR §§ 236, 241(f), 221(d)(3), and the federal Rental Assistance Demonstration (RAD) program. It also covers state-law and locality-adopted affordable programs. The list is broad.

Q: Does this require a specific capitalization rate?
A: No. The AG expressly declined to opine on cap-rate methodology, treating the application of GAAP guidelines as an appraisal-science question rather than a question of law, and so outside the scope of the advisory opinion.

Q: Can the assessor still consider general factors like neighborhood and property condition?
A: Yes. Section 58.1-3295 says "[n]otwithstanding any other provision of law" the listed factors must be considered, but it does not exclude other factors. General factors that affect fair market value (location, condition, age, design) remain relevant; they just cannot displace the mandatory considerations.

Q: Does this opinion change the property tax bill on existing affordable housing?
A: Not by itself. The opinion is interpretive guidance, not an order. To get a reduction, an owner must appeal to the assessor (informal appeal) or file under § 58.1-3984 in circuit court. The opinion strengthens the legal arguments available in those proceedings.

Q: What if my assessor used the cost approach (replacement cost less depreciation)?
A: Under § 58.1-3295(E), income-producing affordable rental property "shall be assessed using the income approach." The cost approach is not available for income-producing affordable property. The opinion (citing McKee Foods) makes that mandatory.

Background and statutory framework

Article X, § 2 of the Virginia Constitution requires real estate assessment at fair market value, "to be ascertained as prescribed by law." The General Assembly enacted § 58.1-3295 to specify that prescription for affordable rental housing. Subsection (A) requires assessors to "consider" the three listed factors. Subsection (E) makes the income approach mandatory for income-producing affordable rental property.

Section 58.1-3984 is the appeal vehicle. Subsection (B) lets the taxpayer prevail on either of two grounds: (1) the assessment was at more than fair market value (that the property was overvalued), or (2) the assessment was not arrived at in accordance with generally accepted appraisal practices. The "GAAP" the statute uses is appraisal-practice GAAP, not accounting GAAP.

The AG reads these provisions in pari materia: because both address real estate tax assessment, the methodology § 58.1-3295 imposes is construed alongside § 58.1-3984's standard of proof. The point is that an appellate standard requiring GAAP compliance presumes assessments are conducted in compliance with GAAP, otherwise the standard would be illusory.

The opinion borrows from Van Dorn Associates (Alexandria Cir. Ct. 1983), an older trial court opinion, for the practical observation that capitalization rate selection "contains an element of subjectivity," that "honest differences of opinion" exist among experts, and that "[t]he rate of return on similar investments, the risk factors, depreciation, taxes and the rate of return of other investment opportunities in the market place should be considered."

Citations

• Va. Const. art. X, § 2; Va. Code Ann. § 58.1-3201
• Va. Code Ann. § 58.1-3294 (income/expense statements)
• Va. Code Ann. § 58.1-3295 (affordable housing assessment)
• Va. Code Ann. § 58.1-3984 (correction of erroneous assessments)
• 26 U.S.C. § 42; 26 U.S.C. § 142(d); 24 C.F.R. §§ 236, 241(f), 221(d)(3), 983
• McKee Foods Corp. v. Cnty. of Augusta, 297 Va. 482 (2019)
• Western Ref. Yorktown, Inc. v. Cnty. of York, 292 Va. 804 (2016)
• Portsmouth 2175 Elmhurst, LLC v. City of Portsmouth, 298 Va. 310 (2020)
• City of Richmond v. SunTrust Bank, 283 Va. 439 (2012)
• 1998 Op. Va. Att'y Gen. 71 (declining accounting questions)
• 2009 Op. Va. Att'y Gen. 138 (interpretive limits)
• 2010 Op. Va. Att'y Gen. 205 (income approach generally)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2023/22-063-Coyner-issued.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

COMMONWEALTH of VIRGINIA
Office of the Attorney General

Jason S. Miyares
Attorney General
October 26, 2023

The Honorable Carrie Coyner
Member, House of Delegates
Post Office Box 58
Chesterfield, Virginia 23832

Dear Delegate Coyner:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You inquire regarding the tax assessment of real property that is operated in whole or in part as affordable rental property. Citing a lack of consistency among the various jurisdictions in the assessment of affordable housing developments, your questions concern the interpretation and application of §§ 58.1-3295 and 58.1-3984 by local assessors. You first ask whether assessors comply with considerations mandated under § 58.1-3295 by merely reviewing the property's statement of income and expenses. You also ask whether assessors, in conducting an assessment by methods you specify, arrive at assessments of affordable housing property in accordance with generally accepted appraisal practices, procedures, rules, and standards prescribed by nationally recognized professional appraisal organizations (GAAP).

Response

It is my opinion that an assessor does not properly consider an affordable housing property's actual operating expenses and expenditures and the impact of any such additional expenses or expenditures by simply reviewing the property's statement of income and expenses. Whether an assessment comports with GAAP is a question that is beyond the scope of an opinion of this Office.

Applicable Law and Discussion

The Constitution of Virginia directs that "[a]ll assessments of real estate . . . shall be at their fair market value, to be ascertained as prescribed by law." Fair market value generally is understood as "the price which [property] will bring when it is offered for sale by one who desires, but is not obliged, to sell it, and is bought by one who is under no necessity of having it." Virginia Code § 58.1-3295 sets forth the manner the General Assembly has prescribed for determining the fair market value of property operated in whole or part as affordable rental housing.

Although many factors contribute to the fair market value of any given property, § 58.1-3295(A) provides that, "[n]otwithstanding any other provision of law," local assessors "shall consider" several enumerated factors when ascertaining the fair market value of affordable rental housing. The considerations specifically set forth are as follows: 1) "[t]he contract rent and the impact of applicable rent restrictions"; 2) "[r]estrictions on the transfer of title or other restraints on alienation of the real property"; and 3) "[t]he actual operating expenses and expenditures and the impact of any such additional expenses or expenditures."

For affordable rental property that is income producing, § 58.1-3295(E) directs further that, "[n]otwithstanding any other provision in this section or other law," such property "that is generating income as affordable housing shall be assessed using the income approach . . . ." In general, the "income approach" appraisal methodology "measures market value as the present worth of monetary benefits anticipated to be derived in the future from ownership of the asset." The General Assembly has specified that, for purposes of assessing income-generating affordable housing, such approach is to be "based on: the property's current use, income restrictions, provisions of any arm's-length contract including but not limited to restrictions on the transfer of title or other restraints on alienation of the real property, . . . and all other provisions of [§ 58.1-3295]." Accordingly, real property generating income as affordable housing must be assessed a fair market value that has been determined using the income approach based upon the factors set forth in § 58.1-3295(E), which incorporates the factors set forth in subsection (A).

You first ask whether an assessor who "simply review[s] (i.e., giv[es] a cursory glance to)" an affordable housing property's statement of income and expenses complies with § 58.1-3295. "Taxes can only be assessed, levied and collected in the manner prescribed by express statutory authority." Section 58.1-3295 clearly establishes that an assessor "shall consider . . . [t]he contract rent . . . and [t]he actual operating expenses and expenditures and the impact of any such additional expenses or expenditures" in determining the fair market value of real property operated in whole or in part as affordable rental housing. "When the language of a statute is unambiguous, we are bound by the plain meaning of that language." In applying statutory language, courts will "giv[e] to every word and every part of the statute, if possible, its due effect and meaning, and to the words used their ordinary and popular meaning, unless it plainly appears that they were used in some other sense."

In general, the use of the word "shall" in a statute implies that its provisions are mandatory, and "[t]ax assessors have no power to make an assessment except in the manner prescribed by law[.]" The ordinary meaning of the word "consider" is "'to reflect on: to think about with a degree of care' or 'to think of . . . in an attentive . . . way.'" The term "cursory," on the other hand, means "rapidly [and] often superficially performed with scant attention to detail: . . . hasty." A superficially performed review of an affordable housing property's statement of income and expenses is inconsistent with the plain language in the statute. Moreover, § 58.1-3295 calls for not only consideration of the contract rent and actual operating expenses and expenditures, but also "the impact of any" additional expenses or expenditures. I therefore conclude that real estate assessors must think about the information required by § 58.1-3295 carefully and take it into account when determining the fair market value of affordable housing properties. "[T]oken consideration" is insufficient.

You next inquire regarding an assessor's duty to comply with GAAP in assessing the fair market value of affordable rental housing. Although no statute expressly requires tax assessors to conduct real estate assessments in accordance with GAAP, such a requirement is implied from the language of Code § 58.1-3984, which addresses applications to the circuit court to correct erroneous assessments of local taxes, including real property tax assessments.

To successfully challenge an assessment under § 58.1-3984, the taxpayer, in part, must prove that the assessment "was not arrived at in accordance with generally accepted appraisal practices, procedures, rules, and standards as prescribed by nationally recognized professional appraisal organizations . . . and applicable Virginia law relating to valuation of property." Because §§ 58.1-3295 and 58.1-3984 both address the assessment of real estate taxes, the methodology imposed by § 58.1-3295 for assessments of affordable housing properties should be construed in pari materia with the standard of proof set forth in § 58.1-3984 requiring assessments to be ascertained in accordance with GAAP. The required showing under § 58.1-3984 evinces a legislative intent for assessors to conduct their assessments in accordance with GAAP. Indeed, in reviewing tax assessments, the Supreme Court of Virginia has stated that "Code § 58.1-3984(B) requires an assessment to be reached based on 'applicable Virginia law relating to valuation of property.'" It stands to reason that it similarly requires an assessment to be reached in accordance with GAAP.

I therefore conclude that assessments conducted under § 58.1-3984 must be performed in accordance with GAAP. Your inquiry, however, encompasses specific questions concerning the proper application of GAAP within the context of assessing affordable housing properties. In essence, you thus seek counsel regarding the interpretation of guidelines prescribed by GAAP. As has been noted previously, "[t]he traditional role of this Office regarding requested opinions has been to interpret applicable statutes to the extent possible utilizing the pertinent rules of statutory construction and general application of the statutory provisions." Opinions historically are limited "to matters that concern an interpretation of federal or state law, rule or regulation"; accordingly, among other circumstances, Attorneys General have declined to opine on matters when they do not involve a question of law. Because your questions pertaining to GAAP requirements do not present a question of law, I decline to render an advisory opinion on those portions of your inquiry.

Conclusion

For the foregoing reasons, it is my opinion that assessors must consider fully an affordable housing property's actual operating expenses and expenditures and the impact of any such additional expenses or expenditures, rather than conduct a cursory review of the property's statement of income and expenses. It is further my opinion that tax assessments of affordable housing properties must be performed in accordance with generally accepted appraisal practices, procedures, rules, and standards prescribed by nationally recognized professional appraisal organizations; but I decline to render an opinion regarding the interpretation and application of such practices and standards.

With kindest regards, I am,

Very truly yours,

Jason S. Miyares
Attorney General