If you want to lower your commercial property tax payment, you must first understand why you’re able to lower payments in the first place.
Since the basis of property tax is the presumed market value of the taxable property, it is by nature a subjective matter. Market forces ebb and flow, and so does the value of your property.
All tax payers, including business that pay commercial property taxes, have the right to contest the tax value of their property to get it reduced. The fact that such a process exists speaks to the subjectivity of the basis of commercial property taxes.
So, how do you go about exercising your right to contest and (hopefully) lower your commercial property taxes? Follow these tips for guidance:
1. Realize that property tax is not a fixed cost:
Don’t make the mistake of treating commercial property taxes like income taxes. Income tax is essentially a formulaic, fixed cost. Property tax, because it’s subjective by nature, is a variable cost. It’s not uncommon for companies to focus their property tax efforts into ensuring taxes are paid on time without really questioning whether they’re paying a fair amount. Local taxing jurisdictions can easily overstate your property’s tax value, but it’s up to you to determine whether that’s the case.
2. Make sure your property is located in the correct jurisdiction and maintain accurate records of assets:
This point primarily applies to personal property. Perhaps some manufacturing machinery is moved out of a plant, but no one ever communicates that to accounting, meaning the equipment is on your books as residing in the wrong place.
What if this property was moved from a state that taxes personal property to a state that does not? If you haven’t accounted for the change, you could be paying needless taxes. Or, what if you discard three forklifts that no longer function? If that’s not correctly reported, you’ll continue to pay personal property taxes on those forklifts.
3. Find ways to better classify your assets for valuation:
It’s important to understand the difference between taxable and non-taxable real estate and personal property. Sometimes the lines get blurred. For example, how should you classify the large liquid silos used to hold milk at a dairy farm? Without careful review, the liquid silo could be misclassified and (wrongly) get taxed twice, once as personal property and again as real estate.
Make sure your personal property is properly classified when you report it to the taxing jurisdiction. For instance, the jurisdiction may ask for a list of all your manufacturing equipment along with your property tax return and a separate list of all computer equipment in your business. Computers often have a more favorable tax position than machinery, but sometimes they’re components of manufacturing equipment. You may have a $1 million piece of machinery which includes $100,000 of computer equipment that could potentially be segmented out and given a more favorable tax valuation. You’ll want to classify all of the above assets to gain the best tax position.
4. Explore tax abatements and check up on your neighbors:
If you’re going to build a new manufacturing plant and create new jobs, it’s worthwhile to shop around between states, or even different jurisdictions within a state, and see where you’ll get the best tax rate for locating your operation there. States often use tax abatements as an incentive for businesses.
Also, be sure to check your property valuations based on sound appraisal theory. Look at your assessor’s appraisal methodology to ensure your property is fairly valued and compare your property valuation to other values in the same jurisdiction for similar properties. If your property is valued $200,000 higher than that of your neighbors, you need to find out why.
If keeping track of all this sounds like it requires more time and resources than you have available, consider outsourcing your commercial property tax management or getting assistance for a portion of the process. Expert property tax consultants are equipped to help get you the best tax returns on your valuable investments.
Want to learn more about how to lower your commercial property tax payments? Download your free tax management tip sheet now.