By Annie Goeller, Daily Journal of Johnson County staff writer
Booming growth in two of the county's most popular areas for businesses likely will mean increases in those companies' tax bills.
The reason: Property on State Road 135 and Emerson Avenue in northern Johnson County is selling for higher prices, meaning the land needs to be valued higher for property tax purposes.
Property tax bills are based on a complicated formula that includes the value of land and buildings and how much money government needs to operate. And the worth of the land and buildings, known as assessed value, is designed to be fair market value, or a true reflection of how much the property and structures would sell for.
On State Road 135, land has sold for as much as $1 million per acre, county assessor Mark Alexander said.
So the assessed value of neighboring property is going up.
North of Olive Branch Road on the state highway, the value of land per acre has more than doubled from $217,800 to $550,000 in a year.
The county increased the value of land along Emerson Avenue and Interstate 65, between County Line Road and Main Street, from $217,800 per acre to $320,000, a 47 percent increase.
A true assessment
Last year, when the county reassessed properties for the first time since 2002, the office was conservative in increasing the assessed values, increasing the land rate about $87,000 or 67 percent, for the State Road 135 area.
But this year, when the office saw land selling for as much as $1 million an acre along State Road 135, they used those prices to truly assess land values, he said.
The assessor's office determines the rate per acre for different business corridors throughout the county, such as State Road 135 or along Interstate 65, based on land sales in areas of the county.
Businesses also are assessed for their buildings, by taking the replacement cost of the building and subtracting an amount for depreciation based on its age.
The values, in part, determine how much the business should pay in property taxes.
With the big increases, Alexander is expecting appeals from business owners.
But some said they think the values are right.
"I wish I could say it's high, but when you look at everything along here and what I've researched, it's pretty reasonable," said Bonnie McClurg, who owns Honey Grove Educational Day Care off State Road 135 and Olive Branch Road.
She has seen her property taxes increase every year since she opened her day care in 2002. Since 2005, her property taxes increased 41 percent.
And she isn't expecting anything different this year, since her assessment increased more than 40 percent from $854,700 to $1.2 million.
But that doesn't mean she won't struggle to afford another tax increase. A higher tax bill, along with rising prices of gas and other supplies, means McClurg may have to consider raising her prices, she said.
"It is eating into your profit and with being a small business that can be hard to do," she said.
Jumping off the charts
But a local developer says he thinks the values are too high.
Developer Mike Duke believes the county is putting too much weight into a small number of sales that aren't reflective of what's really happening, such as the piece of land that sold for $1 million an acre.
Duke thinks the county has overvalued the land by looking at sales along busy intersections or in areas where much of the land is already developed, where the price is higher.
"You can't look at what you sell land for to a drug store and think that's happening everywhere," Duke said.
Alexander says he's ready for the appeals and he has the numbers to back up the assessments, such as examples of land sales in the areas with increases.
Developers say land values are increasing, though maybe not as much as the new rates show.
The assessor's office was right to increase the values along State Road 135, which has been growing for years and now that development is moving south, said Phil Tinkle, director of land acquisition for G. Brizendine Co.
"But some of those values have jumped off the charts," he said.
Each land sale is different, depending on the zoning of the land and what the buyer plans to use it for. Plus, some properties, such as corners, will sell for a much higher price than land that just fronts a busy road, Tinkle said.
But even if not every value is correct, Tinkle said the county is correctly increasing the value of land along State Road 135 north of Olive Branch Road, and that trend will likely soon continue south.
He predicts that the intersection of Stones Crossing Road and further south will be the next big growth area.
Since the new Walmart came to the intersection of County Line Road and Emerson Avenue, businesses have been flocking to the area, said Bob Wildman, legal counsel for the Greg Allen Commercial Group.
The development company has filled up 77 percent of its available office space and about 73 percent of its retail space.
And more phases are planned in the coming years, including expanding to the northeast side of the intersection, Wildman said.
From what they have seen so far, Wildman said there is definitely enough interest to continue filling up retail and office space at the intersection.
Some won't pay larger bill
Not all property owners in those booming areas will see a big increase in their assessment this year.
The per-acre rates apply to land that is in the process of being developed for a business or that already has a business on it, Alexander said.
Vacant, undeveloped land is assessed for its use before it was purchased, which is farmland in most cases.
That means that even if a developer paid millions for the land, it could be assessed for years at a fraction of that price tag.
For example, a developer paid nearly $4.3 million for about 40 acres of land along State Road 135, north of Stones Crossing Road, but the land is assessed at a farmland rate of $84,700, or 2 percent of the purchase price.
That tax cut is called a developer discount, which is allowed under state law, to encourage development.
Once the developer sells the land to a builder or a building permit is issued for the property, that discount goes away. But there isn't a timeframe for how long the discount can last, Alexander said.
Without that tax break, counties could say goodbye to much of the development in their area, Duke said.
Developers couldn't invest in land for a big project, such as a subdivision, if they were to be taxed on what that land will be worth after developed, he said.
So, they either wouldn't buy the land or they would pass the cost onto the homebuyers or businesses, he said.
"Someone's got to pay for it, so it's either not going to happen or the consumer is going to have to pay for that," Duke said.
Problems with assessment persist
But some landowners don't believe the tax break is fair.
Felson Bowman owns about 300 acres in the Center Grove area along State Road 135, between Stones Crossing and Smokey Row roads.
Last year, he paid more than $15,000 in taxes on that land.
This year, his property was given a higher value than the 158 acres Clarian Health Partners bought for more than $10 million at the southwest corner of State Road 135 and Whiteland Road.
Bowman isn't planning to develop his land. Much of it is used as farmland, he said.
"It's certainly not fairly assessed. The problem is influential developers making sweetheart deals," he said.
Another property that decreased in value is Greenwood Park Mall, by far the highest assessed property in Greenwood.
The mall's value decreased about 15 percent in value, from $79.1 million to $66.8 million.
That drop was because the value was taken as of March 2007, which was after anchor store L.S. Ayres closed and construction was not finished on the new stores and restaurants that would take its place, Alexander said.
Other businesses, such as Walmart and the Best Buy distribution center in Franklin, saw only slight increases in their assessments.