Have you ever heard of a “mass appraisal?” If not, familiarize yourself with the term, because mass appraisals are a big reason so many businesses overpay their commercial property taxes.
Mass appraisals represent a common way to establish market value by using standardized calculations across a group of properties at a specific time. Large taxing jurisdictions typically use a standardized mass appraisal method for determining commercial property tax value.
By taking a blanket approach to assessing real estate tax value, as opposed to assessing buildings individually, taxing jurisdictions frequently over-assess commercial properties.
One county might assess every apartment complex at a flat dollar amount-per-unit amount. This mass appraisal treats all properties equally, not taking into account occupancy rates, building condition and other nuances that distinguish a property.
Property owners are entitled a fair tax assessment, and a one-size-fits-all appraisal method often doesn’t deliver.
While mass appraisals are common, every local taxing jurisdiction across America operates differently. Some states assess property tax value every four or five years. Others, like North Carolina, allow eight years to elapse between property tax rate evaluations. This means some counties potentially haven’t reassessed property tax rates since the Great Recession of 2008.
Location plays a role in tax valuation
Although mass appraisals and property tax evaluation schedules play a role in tax assessments, geographic location also impacts tax valuation.
The basic economics of supply and demand dictate that some regions command higher commercial property taxes. For instance, the overall education, cultural and employment opportunities available in the New York City borough of Manhattan exceed those in Manhattan, Kansas. As such, commercial property in New York City commands a higher tax value — it’s simply worth more.
From a U.S. commercial property tax perspective, some of the most expensive places to own property are (in alphabetical order):
- New Jersey
- New York
- Washington, D.C.
Commercial property taxes are generally higher in more populous states. Also, since waterfront property is desirable and therefore more expensive, states with extensive coastlines tend to have higher property taxes.
Many factors determine a building’s commercial property tax value. While it’s unreasonable to expect a manufacturing facility in southern California to be taxed at the same rate as a similar-sized facility in southern Mississippi, it’s still a legal mandate that both properties be assessed at fair market value.
Examine your commercial property portfolio and determine whether your assets are fairly assessed. If you don’t have the time or expertise to make this call on your own, look for a commercial property tax professional with the dedication and resources to get it done on your behalf.
Download RPTA’s free whitepaper, “7 Signs You Might Be Overpaying Your Commercial Property Taxes" for more insights into the commercial property market and to learn how to uncover hidden property tax savings.