Oof! You’ve been hit by one of those “oh no!” moments in which the county government notifies you that a commercial property in your portfolio is being assessed at an amount that’s higher than expected. You haven’t budgeted for this higher tax payment, and there is no money lying around. So panic sets in.
Because the assessment process doesn’t allow enough time for the assessors to look at each property individually or closely, they must apply assumptions and broad market trends. As a result, property tax assessments often fail to reflect changing conditions – both inside and outside the building – that cause the property value to decrease.
Even so, an estimated 85 to 90 percent of U.S. companies are paying their commercial property tax bills with no questions asked.
It's important to remember that your increased assessment is not necessarily the end of the story. In this article, we'll help you assess your options and move past that initial "oh no!" moment.
1) Check Your Deadlines
The first step after receiving an unexpectedly high tax assessment is to check the appeal deadline. If the appeal deadline has passed, there's nothing you can do but pay the bill and start planning your appeal for next year. If the deadline hasn't passed, you have options to consider.
Let’s assume you haven’t budgeted for the increase. A successful appeal could lower your property tax liability. But, depending on your unique situation, an appeal might not be worth the time and effort – and in some cases, it could even expose you to greater liability.
As we discussed in a previous blog, the need to act fast one way or another is paramount. Consulting a property tax advisor firm can help determine whether you have a case and improve your chances of winning. To get the process started, you’ll need copies of tax bills, confirmation of real estate holdings and some financial data on personal property (if applicable). A little legwork upfront could lead to significant tax savings.
2) Ask: To Appeal Or Not To Appeal?
Depending on the value of the property, your prospective property tax overpayment may amount to hundreds of thousands of dollars — if not more. The bigger the property portfolio, the greater the likelihood that some of your properties will be over-assessed and you’ll be caught unaware.
Factors to consider include:
- How large is your assessment increase?
- What’s the appeal deadline? In almost 100% of the cases in which the deadline has passed, there’s nothing you can do but pay your tax bill on time and start prepping for next year.
- If the deadline hasn’t passed, how much of the aforementioned documentation do you have?
- Where’s your property? Look at the assessor’s website or have a third party do so to understand the assessment history and what’s driving the increase. Have recent building renovations or enhancements been a driver? Conversely, what may have caused a decrease in the property’s valuation? Has your business suffered financially as a result of market forces, such as plummeting oil prices?
- What’s your industry? Sectors that benefit most from aggressive property tax appeals include distribution (in port cities and major hubs), manufacturing, office and professional services buildings, R&D space, retail and apartment complexes.
If any independent appraisals have been done recently, gather those for your case. If not, consider whether you want to engage a qualified appraiser or if the jurisdiction will eventually require an appraisal. This can be expensive depending on your location and portfolio.
If you decide to appeal, refer to our appeals checklist.
Regardless of whether you appeal or not, in most jurisdictions, you’re going to get a tax bill for the full amount. If you don’t pay the full amount indicated, the jurisdiction can nullify your appeal. Some jurisdictions require you to pay only a portion if you’ve filed an appeal. Check with the assessor’s office to find out the policy in your property’s area.
3) Avoid Future Shock Via Property Tax Management
If you miss the appeal deadline or lose the appeal, you have to pay. But, don’t let that stop you from gathering data, identifying dates and budgeting the appropriate amount for the following year so you don’t get caught off-guard again.
If you win your appeal, you’ll either receive a refund check or a reduced tax bill. Regardless, you need to put a process in place to avoid having the same thing happen next year.
Most important: If you don’t have the time or expertise to challenge your assessments alone, look for a property tax management consultant equipped to do the hard work, manage the critical dates and get results on your behalf.
Access more critical tips by downloading our free whitepaper, 5 Reasons You Should Challenge Your Current Commercial Property Tax Assessments.