DFA Assessment Coordination Division Proposes Property Tax Exemption Rules Requiring Every Exempt Parcel to Reapply

Update (May 30, 2021): Feedback from ACD indicates that PILOT exemptions will not be subject to the proposed application requirements and that schools, churches, and local governments will have much simpler exemption applications than those envisioned for charities. 

The Assessment Coordination Division (ACD) of the Arkansas Department of Finance and Administration has proposed rules on tax exemption determinations as mandated by Act 819 of 2019. The rules would require every exempt parcel to reapply for exemption in 2023, and the draft exemption application would require a large amount of information to prove entitlement to the exemption. The rules do not provide substantive guidance about what kinds of uses of property should or should not qualify for exemption. The deadline for comment on the proposed rules is May 31, and a hearing on the proposed rules will be held June 1. Interested parties should consider participating in the rulemaking process.

The Arkansas Constitution ultimately governs tax exemptions: "The following property shall be exempt from taxation: public property used exclusively for public purposes; churches used as such; cemeteries used exclusively as such; school buildings and apparatus; libraries and grounds used exclusively for school purposes; and buildings and grounds and materials used exclusively for public charity." Ark. Const. art. 16, § 5(b). All other property is subject to tax. Ark. Const. art. 16, § 5(a).

The Arkansas Tax Reform and Relief Legislative Task Force (2017-2018) identified inconsistent property tax exemption determinations as an issue that needed reform, and so Act 819 of 2019 tasked ACD with establishing mandatory guidelines for identifying exempt property and with adopting rules for the general guidance and assistance of county assessors in identifying exempt property. Ark. Code Ann. § 26-26-1125. (Similar guidelines and rules are to be forthcoming for the assessment of business inventory too.) A county that does not follow the guidelines can have its turnback funds withheld.

The proposed rules would require every exempt parcel to reapply to the county assessor between January 1 and May 1, 2023, with respect to the 2023 assessment year. The application would require very extensive financial and operational information and some supporting documents. The assessors would have to send copies of all applications to ACD, and ACD would audit all the granted exemptions. Landowners could also appeal exemption denials to ACD. Once an exemption was in place, no further applications generally would be required except upon request of the assessor or ACD. 

The proposed rulemaking does not provide any substantive guidance to property owners or assessors about what should or should not qualify for tax exemption under the various exemption categories. It does say that the entitlement to an exemption must be proved beyond a reasonable doubt, Proposed Rule 6.02.02(E), which could place a heavy burden on taxpayers seeking exemption.

Interested parties should review the proposed rules, consult with their tax and legal advisors, and consider providing comments to ACD. Since "Act 9 bonds" payment in lieu of taxes (PILOT) arrangements involve tax exemptions, businesses under PILOT agreements should also consider potential applicability and impacts. Comments should be submitted to ACD Director Sandra Cawyer by May 31, 2021. The hearing will be June 1 at 1:30 p.m. in Room 102 of the DFA Building, 1509 West Seventh Street, Little Rock.

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