Case Study: How A Manufacturer Reduced Its Property Tax Assessed Value By $7 Million

Posted by Anne Sheehan on Jul 2, 2015

Case Study: How A Manufacturer Reduced Its Property Tax Assessed Value By $7 MillionIf your company is one of the largest taxpayers in a small town or city, appealing your commercial property taxes may be a sensitive subject in terms of local politics and your corporate image. You don’t want to end up on the front page of the paper, held responsible for how lowering your property tax could affect the town. 

At the same time, an incorrect assessment is likely to inflate your property value beyond its fair market value. For example, if the property was assessed by cost but failed to factor in all forms of depreciation, you could end up with an unfair and above-market property tax burden.That’s what happened with a manufacturing plant in a small town in Tennessee. The plant has been manufacturing commercial air conditioning units since it was built in 1957. Through various expansions of the original building, the plant now contains over a million square feet on 98 acres. The manufacturing plant also sits in the middle of the small town on the main road, and it’s the largest taxpayer in the county. While the property is zoned for heavy industrial use, chain retail stores and restaurants have been built around it, including a shopping center across the street.

The local jurisdiction’s assessment more closely reflected the value of the nearby retail rather than the value of the actual manufacturing plant, resulting in an assessment of $18.5 million. That’s approximately $18 per square foot, which is too high for a manufacturing plant built over 65 years ago. 

But when it comes to commercial property taxes assessments, the property’s assessed value must be based on its  industrial use.

Challenges And Strategy

The manufacturer worked with RPTA to appeal the assessment. The challenge was to prove that the facility suffered from physical, economic and functional obsolescence, and to quantify the effect of these components on the property’s value.

For this air conditioner manufacturer, the original plant had been expanded several times. But due to the shape of the land, these additions had to go wherever there was room, instead of in a single line. Ideally, you’d bring in raw material on one side of your facility, and move it in a linear fashion until the finished goods emerge on the opposite side of the facility as inventory is ready to ship. But when companies add on to their buildings to meet growing demand, it’s difficult to maintain that ideal linear process.

As a result, the manufacturing process took place in four different areas, and the company was losing a lot of time and efficiency by having to constantly move these materials and units back and forth.

RPTA met with the plant manager, facility manager and engineers to ask, “If you could build a new building, what would you build?” While the current facility was over a million square feet, they calculated that the manufacturer would only need 600,000 square feet in an ideal building, and still have room to expand. 

In appealing the assessment, the company explained the difference between its current process and the ideal process, and showed that the plant had 400,000 square feet of inefficient laid out space that would be eliminated in a new building. RPTA quantified the value of that inefficient space and requested that the county deduct it from the property value.

Results

At the end of the day, the county reduced the assessment value by nearly 40% - almost $7 million, down to $11.6 million. This was a huge win for the manufacturer, coming in $1 million lower than what it had requested. The manufacturer saved $0.13 per square foot in operating expenses by lowering its property taxes, or about $128,000 dollars.

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