Property Tax Obsolescence: Navigating Disruption for Print Industry

Posted by Anne Sheehan on Feb 25, 2020

Print Industry Property TaxThere’s no question that printing companies have experienced their fair share of disruption. First, it was the 2008 recession where printers who managed to survive the stock market crash did so by taking huge financial hits. The second and more recent impact is a byproduct of consumers preferring to receive and consume information digitally. 

This increasing demand for digital content has resulted in the production of newspapers and magazines plummeting, leaving large manufacturing facilities operating at half capacity. To remain competitive in the new digital age, the industry has seen widespread efforts to consolidate as printers struggle to maintain margins, adding new business lines to thrive in a disrupted saturated marketplace. 


Take the recent attempt by Quad Graphics and LSC Communications to merge earlier this year. The consolidation of these companies under one ownership would have resulted in a truly integrated printing and digital provider offering a full suite of marketing products and services. However, the Department of Justice soon blocked the merger, citing anti-trust laws and contending that the merger would give Quad Graphics an unfair advantage.

In addition to merging with other providers to enhance their capabilities and service offerings, many printers are critically reviewing all aspects of the business to identify opportunities for cost savings, including the closing of certain printing plants altogether. Consequently, the printing industry has been negatively disrupted by changes outside of their properties, which makes each plant a candidate for tax savings. How? By leveraging property tax obsolescence analysis for the machinery and equipment, including the buildings, to support an appeal.   

What Is Property Tax Obsolescence? 

Property tax obsolescence is any form of deprecation in value that your property experiences. In the cost approach, physical depreciation over the life of the assets is commonly accepted. There are two less well-known and much more difficult-to-calculate forms of depreciation, functional and external obsolescence, and are also accepted methodologies.   

Physical deprecation refers to the physical wear and tear of all assets over time. Functional obsolescence is the deprecation or loss in value caused by conditions within the property that prevent it from optimal use. Finally, external obsolescence is the additional loss in value due to external factors that negatively impact the value of both the real estate and business personal property. An example of external obsolesces are companies disrupted by technology, consumer preference, or lack of diversity in product mix. 

Understanding the True Value of Printing Assets 

State laws in all 50 states generally mandate fair market value assessments for property tax assessment purposes. The problem is that most jurisdictions have limited resources to derive fair market value for both real estate and business personal property assets. This is further compounded by the introduction and acceptance of the state court’s new definitions of market value, which are not found in other resources. This results in confusion at every level when the taxable interest is defined but not included in state law.

To arrive at the fair market value of a commercial real estate property, tax assessors often default to the cost approach. The cost approach generates the fair market value of commercial real estate property by calculating the value of an existing property’s reproduction cost new minus physical depreciation plus the land value. Very few taxing authorities finish the cost approach in its entirety by determining if there is additional depreciation due to functional or external obsolescence. They simply lack the resources to complete the cost approach. It is these critical last steps in the cost approach that provide an accurate market value of the property. 

Leveraging External Property Tax Obsolescence to Appeal Property Tax 

As a printing company, it is important that you understand the impact of additional deprecation on your property’s taxable value and remedies to reduce property tax liability. Getting an accurate valuation of your real estate and personal business property helps you build a strong case for property tax savings.  

If you believe that your company is a candidate for tax savings, you probably suspect that calculating this obsolescence is not in your wheelhouse. Consider working with a property tax expert who understands the parameters of external obsolescence and how to present the proper analysis to your jurisdiction to get the best accommodation that you can get.   

 

Interested in learning more? Explore how one printing company was able to realize $250,000 in tax refunds with a property tax obsolescence appeal.

Read the Case Study

Tags: obsolescence, property taxes

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