You dread opening a property assessment and finding a major spike in what your business owes. Unfortunately, it does happen – and it could happen to your company at any time.
Your business’s property taxes are its greatest cost of occupancy, and they’re totally unpredictable. That makes it difficult for you to plan for when and where spikes will occur.
In this article, we’ll help you understand why spikes in commercial property taxes happen, as well as what you should do as a property owner to combat them.
Why Do Property Tax Spikes Occur?
You may be wondering exactly how property tax increases come about in the first place, and this is an important piece of information in terms of understanding how to address them. First, your jurisdiction must be able to prove that the value of your property has increased based on market sales and rental rates. So, when you see a spike in commercial property taxes, that’s an indication that the jurisdiction believes it has collected enough data to support the increase.
Sometimes, real estate buyers pay a price for a property that includes more than the bricks and sticks. Equipment, inventory, workforce and the brand are all examples of typical features a buyer pays for that get rolled up into the total transaction price. However, commercial real estate assessments can only include the land and building value. The rest of the features are either business personal property or intangibles that are not taxable. But, the jurisdiction does not typically know this information.
Therefore, a buyer may knowingly pay more than the typical sale price in a submarket for these features of a property, and the transaction could artificially drive up the property value for comparable locations. The value of the buildings has not changed, but other properties in the submarket may be negatively impacted by the sale.
Understand that jurisdictions can’t simply target an industry, a submarket or a particular sale; they must have the market data to justify any assessment increase. Property taxes are governed by state law and implemented locally. The issue (and the opportunity) for companies lies in just how well the jurisdiction executes these state laws.
Different jurisdictions have access to different data resources, which also impacts annual assessment analysis. Some assessors may not have access to the resources that other jurisdictions provide, like sophisticated databases. Smaller jurisdictions with fewer commercial properties may not have enough data to accurately assess those values. This could work for or against your business. For instance, your jurisdiction may assess your property’s value at lower than what you believe to be the market value, resulting in lower taxes for your company. Or, your property could be overassessed, thereby increasing the amount you owe in taxes.
Keep in mind that property taxes are not based on corporate revenue. The property tax for a building should never be determined by who owns the building. Whether you’re AT&T or a small, independently owned business, the law guarantees that your property tax is based on the fair market value, or what someone would pay to own or lease your building if you were to put it on the market.
Combatting Property Tax Increases: Why Outsource?
Property tax spikes occur as a result of complex assessment processes and are difficult to prepare for. Your assessment may not increase today or even this year, but eventually, you’re likely to face the challenge of a spike in commercial property taxes.
To predict and combat these increases, you must have extensive experience in the real estate world. That’s why you should consider outsourcing your property tax management to experts.
Every single jurisdiction has unique resources, and no two jurisdictions are alike. Plus, when a notice comes out, the burden of proof is on you, the taxpayer. Because your expertise is not in property taxes, this makes it difficult to address an increase. To successfully manage your property taxes, partner with an expert who already has a system in place to evaluate and handle assessments when they arrive, determine whether you should appeal and ultimately walk your appeal through the process to secure potential tax savings for your company.
Property tax experts have the knowledge and resources to navigate the intricacies of each jurisdiction. You may not be able to control spikes in your property taxes, but you can control how you address them. With help from property tax experts, you’re able to prepare your business and protect it from unexpected spikes in commercial property taxes.
Learn more about how partnering with a team of experts takes the burden of tax management off your shoulders. Download our free whitepaper now.