Preauditing Electronic Transactions Just Got (A Little) Easier

The preaudit is a statutory internal control process to ensure that public funds are spent appropriately. If implemented properly the preaudit can be an effective tool in preventing and/or mitigating employee mistake, misappropriation, and even fraud. The problem with the preaudit process is that it is difficult to follow the strictures of the statute, particularly when conducting electronic transactions. New rules, promulgated by the State’s Local Government Commission (LGC), will now make that process easier, or at least make it possible for local government entities to comply with the law. (The rules are part of the North Carolina Administrative Code (20 NCAC 03.0409 and 20 NCAC 03.0410).

This blog post reviews the requirements of the preaudit process and identifies when the process is triggered. It then discusses how the process can be carried out for certain electronic transactions, specifically purchase card (p-card), credit card, and fuel card transactions, under the new rules. Read more »

Maintenance of vacant or neglected commercial buildings: options for NC local governments

UPDATE 2021: Some statutory provisions referenced in the original post were relocated to new Chapter 160D of the North Carolina General Statutes, effective January 1, 2021. This post has been updated with the new statutory references.

The downtown buildings in the Town of Old Well have “good bones.” The structures lining the four downtown blocks of Main Street are solid brick and reflect their historic character, harkening back to a time when downtown was thriving with retail on the ground floor and residential units on the second floor. The very center of downtown is in fairly good shape, and some committed merchants have established a pocket of commercial activity there. However, even that central area is pocked with a handful of underutilized and neglected retail buildings. The downtown blocks immediately outside of the center, where vacant buildings outnumber those with active uses, are not inviting to pedestrians.

Residents and downtown merchants have complained to Town officials about the privately-owned vacant buildings within and surrounding the center of downtown. Some of the vacant structures are in fair condition but are used for storage; peering through the wide display windows reveals piles of boxes, dusty floors, litter, or worse. Some display windows are papered over to conceal the interior. While a handful of vacant buildings appear to be in good condition, others look visibly worse than those with active uses. Can Town officials enact any regulations to govern the appearance and general maintenance of these commercial buildings? Yes, they can. Read more »

Does Partial Construction Count as “Use” for Property Tax Exemptions?

Loyal readers of this blog know that most property tax exemptions and exclusions require that property be used for exempt purposes to avoid being taxed.  The fact that a qualified owner (school, religious organization, charitable non-profit, etc.) owns a building does not automatically make that building exempt.  That building must be used for the owner’s exempt purpose (education, religious worship, charitable endeavors, etc.) to be exempt from property taxes.

For example, if the non-profit Food Bank of Western NC builds a new food warehouse, that building will likely be exempt from property taxes because it is used for the organization’s charitable purpose.  But if the Food Bank builds a small office building and rents it out to commercial tenants (coffee shop, nail salon, etc.), that building would not qualify for an exemption because it is not being used for a charitable purpose.

Because of the use requirement, vacant land and buildings are generally taxable even if they are owned by a qualified owner because they are not being used for the owner’s exempt purpose.  But what about property that is being prepared for use but not yet ready for that use as of January 1 (the listing date)? Consider a partially constructed building or a parking lot site being graded but not yet paved.  Is that property being “used” for an exempt purpose?

Most exemption/exclusion statutes don’t address this issue, meaning it’s up for county assessors to make this call.  Most North Carolina assessors would say no, construction does not count as an exempt use. If property is under construction as of January 1, 2018, the property will be taxable for 2018 and might be exempt for 2019 if construction is completed and the building is put into use by the end of the year.

This might change after a bombshell of an opinion issued by the Property Tax Commission in January.

Read more »

Your Reservation Has Changed: Regulating the Sharing-Economy

Picture this: You’re the attorney for a small town that is not commonly visited by tourists. There are only about five short term rental properties in your jurisdiction listed on Airbnb. One of these rental properties is in a quiet residential neighborhood on a dead-end street. The neighboring property owner is furious that the property is being used as an STR. He claims that STRs threaten neighborhood safety and demands that the town act NOW to ban transient rentals. What’s a town attorney to do? The answer: maybe nothing. It’s really up to the municipality to consider the pros and cons of regulating this market.

In my first blog on short term rentals (which I suggest reading first), found here, I note that the great majority of North Carolina’s cities have not enacted separate ordinances to regulate short term rental properties (“STRs”). This is likely because there is no need for additional regulation (STRs are not problematic) or because a preexisting ordinance sufficiently regulates this area. Thus, if you’re concerned that your municipality has lagged behind by not taking action to regulate this market, fear not. There may not be a need to regulate unless you have valid concerns that fall within the scope of the police powers. See here for more on this.

For those of you who are interested in adopting some type of regulations, this blog is for you. Its purpose is to discuss the varied aspects of regulating STRs and provide local governments with a better understanding of how to collect the taxes generated by these types of rentals.

Our city is considering regulating STRs—now what?

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The Airbnb Gold Rush: What’s a City to Do?

Most of us know that Airbnb is popular, but how big is it really? Well, the statistics are mind-boggling. Airbnb is currently valued at $31 billion. By mid-2017, it had 4 million listings in 191 countries worldwide, which surpassed the number of available rooms in the top five hotel brands combined, with a mere 3.3 million global listings. According to the News & Observer, Asheville residents earned nearly $20 million in 2017 by renting their homes to nearly 160,000 guests. Charlotte, Raleigh and Durham also profited—residents in these cities made 8.7 million, 3.8 million and 3.1 million respectively. And approximately 25% of leisure travelers are expected to book a stay on Airbnb at least once. The answer: it’s HUGE.

It is not just Airbnb that is exploding. As the sharing economy continues to grow, web-based booking sites like VRBO, Homeaway and FlipKey are also gaining momentum. These booking platforms are here to stay. Local governments have begun to ask what, if any, steps they should take to regulate the short term rental market? To be clear, a short term rental (“STR” for short) is usually for a term of 30 days or less. Both nationwide and locally, the regulation of these properties has become a hot topic as some cities have opted to ban these rentals while others have chosen to let sleeping dogs (or houses) lie.

This is my first of two blogs on STR regulation. It discusses the key issues surrounding regulation and highlights how a few North Carolina municipalities are responding to this changing market. The second blog goes into more detail on how to regulate STRs and discusses the tax implications. You can find it here.

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Beyond the Property Tax

Local government tax offices do a lot more these days than collect property taxes.  Many local tax officials are charged with collecting a variety of other taxes (occupancy, beer and wine, or animal taxes, perhaps) and fees (EMS, nuisance abatement, and storm water, to name a few).  Enforcement remedies, interest,and penalties can vary widely from tax to tax and fee to fee.

My new bulletin (Property Tax Bulletin #174) summarizes the collection details for a number of these other taxes and fees (14 of them, in fact.)  Much has changed since I last wrote a bulletin on this topic in 2011, most significantly the adoption of the “Tag & Tax Together” system for motor vehicle taxes in 2013 and the elimination of local privilege license taxes in 2015. Read more »

Let it Snow!?!? Interest and Inclement Weather

[UPDATE: The 2018 budget bill included a provision that applies the “weekend & holiday” rule to extend payment deadlines when a county is the subject of a state disaster declaration by the governor and the county tax offices are closed. See Section 38.9(a) of this session law.]

Facebook postings of icebergs floating off the coast of Nags Head are fake news, but snow and ice is in fact predicted for eastern North Carolina over the next few days.  This storm is poorly timed for last-minute taxpayers because the delinquency date for 2017 property taxes is this Saturday, January 6.  If taxpayers don’t pay their 2017 taxes by Friday, they will accrue 2% interest for the month of January.

The possible collision of ice and interest has caused many county officials to contact me with this question:

If the county tax office is closed on Friday due to inclement weather, may the county move the delinquency date to next week and allow taxpayers to pay their 2017 property taxes without interest on Monday, January 8?

The legal, technical answer is “no.” But the practical answer is “it’s probably okay if your commissioners and attorney sign off on that decision.”

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