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Mississippi Supreme Court Orders Tax Refunds

by Jim Malphrus, Houston, November 2013

 

Local governments across Mississippi will have to refund millions of dollars in property taxes to developers of Section 42 low-income housing. The state Supreme Court ruled on October 17 that assessors have used the wrong methodology to assess affordable housing projects.

 

Background

 

The Legislature passed a law in 2005 to encourage the construction of more low-income rental housing. It requires the use of "actual net operating income" to determine Section 42 valuations. This way, developers are assessed by the income generated from the rental units rather than the cost of the property.

 

Despite the law, Humphreys County continued to use the cost approach in its valuation of the privately-owned Willow Bend complexes. Willow Bend appealed because under the income approach, it owed no property tax in 2009. While under the county's cost approach, it owed $74,038.

 

Supreme Court Upholds Law

 

The Mississippi Supreme Court reversed a circuit court ruling in favor of the county. In siding with Willow Bend, Justice Josiah Coleman said the Supreme Court found nothing ambiguous about the 2005 law.

 

The Court ordered Humphreys County to reimburse Willow Bend for taxes collected since 2006.

 

Statewide Impact

 

While this case involves a dispute between one county government and one housing developer, it will have a marked impact throughout the State of Mississippi.

 

Officials in Humphreys County say they have not determined how much tax they will have to refund to Section 42 developers. However in Harrison County, the assessor estimates they must repay $4.5 million.