Last June the condominiums at 555 Mass were sent five years worth of bills by the Office of Tax and Revenue (OTR) for Vault space rent. These bills totaled over $150,000 and 555 Mass was afforded only 10 days to provide payment. Bewildered by these enormous bills arising from seemingly nowhere the condominium’s UOA was forced to raid their operating capital to comply with payment. The building’s leadership has since spent time researching how these taxes were calculated and questioning how the developer (JBG) was allowed to leave them holding the bag.
What is a vault?
A vault is an underground storage area which extends beyond the building owner’s property and into a public area, such as a sidewalk or roadway. Vaults are commonly used to extend underground parking garages and to house electrical transformers and other utility related uses.
What does DC charge for the use of the vault?
The District of Columbia imposes vault taxes on property owners who use publicly owned spaces outside the private property line called a public space rent. While typically secondary in magnitude to the real property taxes levied on a commercial building, it can nonetheless be difficult to determine how vault taxes factor in to the overall real estate tax equation. The formula used by OTR to determine the public space rental is as follows:
Vault Tax = (the assessed value of the land in which the vault is located) X (the square footage of the vault) X (the utilization factor)
In the District of Columbia, vaults are taxed separately from a building’s general real property tax. Similar to Business Improvement District (BID) taxes, vault taxes constitute a supplemental assessment by the District of Columbia’s Office of Tax and Revenue
The assessed value of the land is determined by OTR. The vault square footage is confirmed by the District’s Department of Transportation and the utilization factor as of January 1, 2008 was 1.8% for vaults with a single level and 0.45% for additional levels.
What is the problem for condominiums with the formula?
A condominium is made up of individual owners who have separate ownership in their living units but have shared ownership in the remainder of the building. The building itself does not pay property taxes and the building itself does not have an assessed value. Without an assessed land value, the condominium also does not have the ability to protest the value used by OTR for determining public space rent. In the case of 555 Mass OTR made the determination that unit 101 would be the proxy for the building’s value for the calculations.
What is the problem with the City’s methodology?
Tax records have a variety of data fields. Land Area and Land Value represent two of the data fields however we now know they are derived independently by ratios and not suitable for use together. It would seem the Real Property Division charged with determining the bills did not fully understand the meaning of those data fields. Without going into all the detail that 555 Mass provided me, their bills were calculated with a land value of $1310/sf. Considering total assessed value (land + improvements) for a downtown condo is generally around $500/sf you have to wonder how the the gross misapplication of land value was not caught before billing. The true value of land for purposes of this calculation should hover somewhere in the $60-$135 range. That would mean the bills to the condominiums would be several thousand bucks rather than $30-50K each year.
How is this being resolved for 555 and other condominiums?
Four months after receiving the bill, the 555 Board President finally met with representatives from OTR and DDoT to begin understanding the methodology behind the bill and getting a resolution. Through these direct discussions, and debate on the issue during the forum with Mayor Fenty at the January DNA Meeting, OTR has agreed to:
- Place a moratorium on new billings to all condominiums until the issue has been corrected.
- OTR will create a dummy lot and a unique tax ID for 555 Mass. Ave Association for purposes of recalculating past bills and calculating future bills. The lot will be from our original plans. This solution will also take unit 101 out of this process entirely and the vault lease off that unit’s tax records.
- OTR will recalculate the land values for all five years of bills and refund any money due to the Association.
- Create a new bill going forward which includes the square footage along with the land value used. 555 will be able to protest the land value in the annual bills if we believe the value may be in error (as well as the past bills that we’ve already paid).