Tax lien certificate sales

District of Columbia: Definition amended; tax sales addressed

Among other provisions, an omnibus act clarifies the taxation of out-of-state catalog sales for purposes of District of Columbia compensating use tax, increases the threshold at which corporate liability for the underpayment of estimated corporate franchise (income) tax is incurred, explains the corporate franchise (income) tax return filing requirements for exempt organizations with unrelated business income and for political organizations with income subject to tax under IRC sec 527, addresses tax sale procedures, and amends various administrative, property, transfer and deed recordation, and personal income tax provisions.

Property Tax

Definition of real property: For property tax purposes, the definition of "real property" is amended to mean real estate identified by plat on the records and cadastral maps of the Office of Tax and Revenue according to square, parcel or reservation, and lot, together with improvements. Previously, "real property" was defined as real estate identified by plat on the records of the District of Columbia Surveyor according to lot and square, together with improvements.

Lower-income home ownership tax abatement and incentives: For purposes of the five-year property tax exemption for lower-income, first-time property purchasers, a taxpayer does not qualify as lower income if the fair market value of the unit or residential property exceeds $250,000 as of the date that the application for an exemption from property tax is filed.

Furthermore, if the household loses its exempt status because it exceeded the income limitations, then the Chief Financial Officer must rescind the exemption as of the first full tax year following the date that the household ceased to qualify for the exemption. The tax is owed in the same manner as tax is owed for an erroneous or improper homestead deduction.

Property owner: The holder of a possessory interest in real property subject to a life estate or a lease or ground rent for at least a 30-year term is deemed to be the property owner for purposes of receiving notices of proposed assessed value, receiving bills, and filing any petition or appeal. Previously, the holder of the possessory interest was deemed the outright property owner.

Refunds: A refund for the overpayment of property tax will not be allowed if the refund is the result of a property tax exemption.

Real property exempt use report: Every institution, organization, corporation, or association owning exempt property must file a report by April 2 (previously, April 1) of each year, showing the exempt purposes for which its exempt property was used during the preceding calendar year.

Penalty and interest abatement: The Chief Financial Officer may waive penalties, interest, or both, on unpaid tax when, in his or her judgment, it would be equitable, just, or in the public interest to do so. Furthermore, he or she may compromise any tax due if there is reasonable doubt as to liability or collectibility. If there is reasonable doubt as to collectibility, the property is transferred to a new owner unrelated to the previous owner and subordinate liens are released before the tax is compromised. Previously, the Chief Financial Officer could not abate interest or penalties or compromise taxes.

Tax Sales

Transfer of tax lien: A lien transferee must certify a payoff statement within 30 days of demand by the Chief Financial Officer. If the transferee fails to certify the payoff statement, then the District will accept a reasonable redemption payment and the lien held by the transferee will be forfeited.

Furthermore, a lien transferee must begin foreclosure proceedings before October 1, 2002 to bring closure to the 1996 securitization of real property tax liens.

Rate of interest: The rate of interest for purposes of redeeming property at a tax sale is 1.5% per month. Previously, the interest rate was 18% per year.

Tax sale agency fee: The agency conducting the property tax sale may charge a fee in an amount up to 10% of the redemptive value of the tax as compensation for the use of its resources.

Notice: A notice of impending sale or final notice to a property owner may include the amount due on an attached bill.

Deposit. A bidder at a tax sale must have 20% of the purchase price on deposit in order to bid on the property. Previously, the required deposit was the greater of $100 or 20% of the purchase price.

Deposit forfeiture: A tax sale purchaser that fails to redeem property within five business days after a tax sale will forfeit 20% of the deposit. Previously, the entire deposit was forfeited.

Notice of foreclosure by another tax sale purchaser: A tax sale purchaser will only be notified of another tax sale purchaser's foreclosure of the right of redemption if the tax sale purchaser records his, her, or its certificate of sale with the applicable current mailing address.

Fraud: If the Superior Court finds fraud on the part of the tax sale purchaser and the real property is not redeemed because of an undue hardship to the owner, then the Superior Court may set aside the sale.

Nuisances: A tax sale purchaser cannot prevent the District from abating nuisances on a tax sale property.

Penalties and Abatements

For personal property, corporate franchise (income), personal income, and sales and use tax purposes, a taxpayer that reports a property's value or the adjusted basis of the property to be greater than or equal to 400%, or less than or equal to 25%, of the amount determined to be the correct amount is guilty of a gross valuation misstatement and is subject to a penalty assessment. Previously, a gross valuation misstatement occurred when the property's value was reported in an amount that was 400% or more greater, or less, than the actual determined correct value of the property.

For personal property, corporate franchise (income), personal income, and sales and use tax purposes, a taxpayer that understates income in an amount greater than or equal to 200%, or less than or equal to 50%, is guilty of a substantial valuation misstatement and is subject to a penalty assessment. Previously, a substantial understatement of income occurred when the taxpayer understated income in an amount 200% or more greater than or less than the taxpayer's actual income. (D.C.A. 14-381, Laws 2002, effective June 6, 2002, for a 90-day period expiring on September 4, 2002.)

See also D.C.A. 14-381, Laws 2002, under "Income Taxes," "Sales and Use Taxes," and "Miscellaneous Taxes."