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Our members actively educate themselves and others in the areas of property taxation and valuation. Many of APTC attorneys get published in the most prestigious publications nationwide, get interviewed as matter experts and participate in panel discussions with other real estate experts. The Article section is a compilation of all their work.

May
01

Understanding Intangible Assets and Real Estate: A Response to the IAAO Committee's Guide

This paper responds to the guide issued by the IAAO Special Committee on Intangibles relating to the handling of intangible assets and real estate in property tax valuation and assessment. The response supports use of appraisal methods which directly appraise and remove the full value of identified non-taxable intangible assets in the valuation and assessment of taxable real property. The response also addresses some of the methods discussed in the IAAO Committee's guide and identifies concerns with the legal authorities cited in the guide.

In early 2017 the International Association of Assessing Officers (IAAO) Special Committee on Intangibles issued a white paper addressing the scope of the intangible asset exemption: "Understanding Intangible Assets and Real Estate: A Guide for Real Property Valuation Professionals,"[2] hereafter the "IAAO Guide" or "Guide. "The  IAAO describes the purpose of the IAAO Guide as follows: "This guide is intended to assist assessors in understanding and addressing intangible assets in property tax valuation" and "to assist in identifying intangible assets and exclude them from real property assessments." [3]The Guide purports to describe the legal and appraisal requirements for removing the value of intangible assets and rights in the assessment of real estate for property tax purposes. However, the Guide advocates appraisal methods that do not remove the value of intangible assets from assessment, omits essential appraisal authority, mis-cites court decisions, and ignores controlling law. This paper exposes the unbalanced nature of and errors in the Guide, including techniques which purportedly minimize or eliminate the value of intangible assets from assessment and other omissions.

The Qualified Nature of the IAAO Guide

Not all IAAO publications have equal weight. The IAAO Guide expressly provides the following self-limiting disclosure immediately below the title of the paper: " This guide was developed by the IAAO Special Committee on Intangibles for informational purposes only and does not necessarily represent a policy position of IAAO. This guide is not a Technical Standard and was developed for the benefit of assessment professionals."[4]

An IAAO "technical standard" represents an official position of the IAAO: "International Association of Assessing Officers (IAAO) maintains technical standards that reflect the official position of IAAO on various topics related to property tax administration, property tax policy, and valuation of property including mass appraisal and related disciplines. These standards are adopted by the IAAO Executive Board. IAAO assessment standards represent a consensus in the assessing profession."[5] The IAAO Guide is not an IAAO technical standard, so it has not been approved by the IAAO Executive Board and cannot be described as endorsing a "consensus" in the assessing profession.

Excluding the Value of Intangible Assets: Issues Raised in the IAAO Guide

The IAAO Guide correctly acknowledges that in "the majority of jurisdictions, intangible assets are not taxable, at least not as part of the real estate assessment. As a result, assessors must ensure their real estate assessments are free of any intangible value" and that "the value of intangible assets is excluded. " The Guide also says "assessors seek methods that measure the value of the real property but exclude any intangible asset value" and "[assessors] must utilize methods to ensure the value of intangible assets is excluded from real estate assessments."[6]

The question is whether the IAAO Guide actually proposes methods that meet this standard.The bare assertion that all of the intangible assets have been removed from an assessment must be tested:if the appraisal methodology is recognized to encompass non-taxable intangible assets, then it must demonstrate exactly how intangibles are removed and what value was ascribed to each of those removed intangibles.The methods advocated by the Guide can be evaluated by asking whether a particular method of appraisal subsumes intangible assets and, if so, what those intangibles are, their values, and whether those values are actually excluded.

A fundamental question raised by any assessment or appraisal method is whether it is likely to include intangible assets.Capitalizing operating revenue very likely means that business enterprise, and/or business enterprise components such as assembled workforce, working capital, licensing rights or such, are included in the assessment.If the cost indicator includes a line item for operating permits or environmental emission credits, then an intangible asset is being assessed.If the sales price is paid for a rental property, and that price is based on an above market lease in place and/or fails to account for lease-up costs and delay, then intangible assets are implicated. Thus, an initial question is whether the nature of the property at issue and the appraisal method implicates intangible assets.

There are a number of issues addressed in the IAAO Guide which are accepted in the appraisal profession as being consistent with correct methods for handling the identification, segregation and removal of intangibles.For example, several paragraphs in the Guide point out that the Cost Approach, as applied to the tangible real and personal property, "inherently excludes" the value of non-taxable intangible assets and rights.[7]The Guide also states that when the Sales Comparison Approach or the Income Approach are used to value going-concern type properties, it is likely that non-taxable intangibles are subsumed in the going-concern value conclusion, and those intangibles that were captured need to be identified and their values excluded.[8]In addition, the Guide cautions that sales prices for real property sold along with a business may include intangibles' values.[9]Therefore, from an introductory perspective, the Guide satisfactorily identifies those situations in which intangibles may be implicated in an appraisal.

There are other issues addressed in the IAAO Guide which are not accurately or correctly discussed.The first is the "separability" criteria for identifying intangibles.The second is the role of ownership in the intangibles exclusion process. The third is the use of accounting and tax records to allocate value to intangible assets.And the fourth is the efficacy of the Rushmore "Management Fee" method for removing the value of non-taxable intangibles.Each of these issues is addressed below.

1.Separability Is Not Necessary for the Identification of Intangible Assets

The Issue

The IAAO Guide asserts that "separability" is necessary for identification of intangibles because some intangible assets are "intertwined" in that one intangible is dependent upon another and the intangibles "are not easily separated."The Guide also states "the question is whether the business . . . could be separated from the real estate" or, more broadly, "[i]f the real estate [could] be sold without the intangible."[10]

The Response

An intangible asset need not "be capable of being separate and divisible from real estate" as the IAAO Guide contends for the intangible to be recognized, and the "separability test" is unnecessary.No reason is given for separability in the IAAO's list of requirements for identifying intangibles.In fact, so long as there is adequate data available for placing a value on an intangible, even one that is not easily separated from real estate, the ability to divide the intangible from the real estate is irrelevant.

California's State Board of Equalization (SBE) addressed the issue of "separability" when it approved Assessors' Handbook Section 502 in December 1998.[11]In Issue Paper Number 98-031, which was released prior to approving Assessors' Handbook Section 502, the California SBE considered the question of separability.[12]On December 7, 1998, the California SBE's Property Tax Committee determined that separability was not necessary in order to recognize an intangible asset or right for purposes of removing the intangible's value in the property tax assessment of taxable real and personal property.[13]Based on this decision, the California SBE included language in Assessors' Handbook Section 502, Chapter 6 (entitled "Treatment of Intangible Assets and Rights") stating that while some intangible assets and rights may be identifiable but not capable of segregation, the inability to separate an intangible "does not prevent recognition of the value" of the intangible.[14]The California SBE's guidance is consistent with that of Reilly and Schweihs issued ten years later:"[T]here is absolutely no requirement that the intangible asset has to be transferable separately from other assets.In other words, the subject commercial intangible asset may be sold with other tangible assets and/or with other intangible assets."[15]

The IAAO Guide is unclear about what types of intangibles must be found separable.The example provided is the "historical significance" of the Waldorf Astoria Hotel in New York City.[16]The Guide then refers to other types of "real property attributes" that are intangible in nature and cannot be sold without the real property, such as view, proximity (location), prestige and appeal.[17]Later, the Guide refers to "real property intangibles" such as zoning and air rights.[18]All of these intangible attributes of real property are properly tied to the real property because they are integral to the property (just as a property's layout, design, or architectural style is integral to the property).These intangible real property attributes are taxable under California Revenue and Taxation Code section 110(f) and the California Supreme Court's guidance:"[I]ntangible attributes of real property" include location, proximity, zoning, view, architecture and other attributes that "are an integral part of" the real property, but "intangible attributes" do not include rights exercised in connection with the use of real property.[19]But aside from this limited set of intangible real property attributes, the value of all other intangible attributes, even those closely aligned with the real property, must be removed.

2.Ownership Is Not Relevant in the Intangibles Value Exclusion Process

The Issue

The IAAO Guide states that "the sale of a hotel with a franchise and management agreement in place does not include the value of those assets [the agreement]" because the value of the agreement inures to the hotel management company and not the hotel owner.The first sentence of the paragraph in which this statement appears provides the context:"a property sells and the intangible assets are included in the price."Another place in the Guide says that the "intangible assets owned by others, such as the franchisor or third-party management agreement [of a hotel]," need not be excluded even if they were included in the purchase price for the sale of a going-concern that includes real estate, personal property and an ongoing business.In the Income Approach context, the Guide also asserts that management and franchise are owned by the management or franchise company.[20]

The Response

In the circumstance where a purchase price is paid for a going-concern consisting of real property, personal property and intangible assets, that purchase price must be allocated to all of the assets that were included in the purchase.While the IAAO Guide generally concurs with this, the Guide also singles out hotel management and franchise agreements as not being subject to this standard.But when intangible assets are included in the purchase price paid for a hotel property, a portion of that price must be allocated to those assets, i.e., the management/franchise agreement.Likewise, when the management/franchise agreement generates revenues for a going-concern, a portion of that going-concern's value must be allocated to the intangible.That is so regardless of who owns the agreement because the benefits flowing from that intangible agreement accrue to both the hotel manager and the hotel owner.Those benefits accrue to the manager and the owner because they share the legal rights to use (a) the real property and (b) the intangible assets/rights under the management/franchise agreement.This issue is discussed in more detail in the "Management Fee" method section below.

Similar misdirection appears in the IAAO Guide's discussion of assembled workforce:"Typically, the management company of a hotel, not the owner, hires the managers and workers.Therefore any value of the assembled workforce belongs to the management company."[21]Again, the issue is not who "owns" the workforce, but who benefits from the presence of the workforce and who holds the legal right to use and benefit from that workforce.Both the hotel manager and the hotel owner benefit from a hotel's workforce – the manager earns a management fee, and the owner makes revenues.(Moreover, even if the manager hires the workforce, the hotel owner pays the salaries and wages of the managers and workers in that workforce.)

3.Accounting/Tax Records Should Not Be Used to Allocate Value to Intangibles

The Issue

In the context of analyzing property sales, particularly sales of going-concern properties which include intangibles, the IAAO Guide encourages assessors to consider sales price allocations appearing in financial reports and accounting documents as well as filings under Internal Revenue Code section 1060.[22]However, the Guide also counsels assessors not to rely on accounting valuations because "[t]he classification and method for estimating and allocating intangible value for accounting purposes are rarely the same [as those] for property tax purposes," and not to rely on financial reporting information because "the type of value required for financial reporting [accounting purposes] is typically fair value. . . .The definition of fair value is different from that for property tax purposes (typically market value)."[23]

The Response

The instructions on Page 47 of the IAAO Guide are proper.Reliance on valuations performed for accounting or tax reporting purposes are nearly always irrelevant and inappropriate for use in property tax assessment appraisals.This is demonstrated by the Guide's citation to the decision in Hilliard City Schools Board of Education v. Franklin County Board of Revision,[24] where the Ohio Supreme Court declined to use accounting information in favor of an appraisal.[25]Similarly, the use of value allocations made for federal tax purposes was rejected by the California Court of Appeal:

[T]he proposition that a sales price is prima facie evidence of fair market value . . . holds . . . true with respect to an arm's length, open market sale . . . with the proviso that the probative value of such sale may be displaced by a variety of factors, including the influence of tax and other business considerations.. . .[P]laintiffs' contractual allocation of the purchase price . . . minimized the value of the [real] property as compared with the business assets [intangibles].These allocations largely reflected plaintiffs' own construction of the values, and at least one of them was specifically made for federal tax purposes.[26]

The IAAO Guide's discussion of this topic concludes:"Valuation and allocation for accounting purposes may be different from, and possibly not applicable to, the value of real property in a property tax assessment scenario.. . .Although accounting documents may not prove or disprove the presence or value of intangible assets, they do represent another piece to the puzzle that could assist the appraiser or assessor in reaching a supportable estimate of value."[27]The equivocating nature of these statements casts doubt on accounting (or tax) reporting documents, and such information should not be used for purposes of allocating value to intangibles in the property tax assessment of real property.

4.The "Management Fee" Method Does Not Remove the Value of Intangibles

The Issue

The Rushmore "Management Fee" method asserts generally that deducting a management and/or franchise fee or other operating costs accounts for (removes) the value of intangible assets from assessment: "Rushmore's assertion is that, by deducting the costs associated with intangible value . . . from a property's operating expenses, the remaining NOI is for the real property only."[28] Put another way:

The management fee approach is based on the premise that any intangible value arising from a going-concern can be measured by capitalizing the management fee necessary to compensate a third part to run the business.. . .Theoretically, under this method, any value arising from the management of the business has been excluded.Under the theory of substitution, no one would pay more for a business or building than the presumed cost to replace it.[29]

The IAAO Guide contends that "hotels usually sell with the intangibles excluded from the transaction price through [management fee] deductions in the pricing decision that represent business-related intangible assets."[30]Finally, the Guide also asserts that when an income approach is used, the Rushmore "Management Fee" method is the "best method for excluding intangible value in an income approach" and "is the most valid approach for excluding intangible assets in an income approach."[31]

The Response

The Relationship between the Hotel Owner and Hotel Operator under the Management/Franchise Agreement

When an income capitalization approach is used to value a property and the income used in the approach is generated by all forms of property in use, including real property, personal property, and intangible property, the resulting value represents the value of all forms of property that generated the income, including the real property, personal property and intangible property.The general appraisal principle is set forth in a decision by the California Court of Appeal:"When the capitalization-of-income approach is used as a basis for an opinion of or considered in determining the market value of an operating enterprise, the result is a determination of the total value of all of the items of property which are a part of that enterprise."[32]

The Rushmore "Management Fee" method assumes that a hotel owner and a hotel manager have entered into a hotel management or franchise agreement under which the manager will operate a hotel on the hotel owner's behalf.Under this agreement, the hotel owner provides a hotel facility for the hotel manager to operate.In return, the hotel manager provides to the hotel owner the benefits of the hotel manager's management expertise as well as the benefits relating to the hotel manager's name or "brand."

The intangible contractual rights of the hotel owner and the hotel manager, and the interests created by those rights, are aligned under the management/franchise agreement because the owner and manager are both engaged in an ongoing hotel enterprise using the same tangible and intangible property, and their mutual success depends on how well the hotel performs financially.Success under the management/franchise agreement comes in two parts.First, the hotel manager succeeds if it receives a management fee as called for in the contract.Because the management fee is usually a percentage of revenues generated, the fee is tied to the hotel's performance.(The IAAO Guide asserts that any return to the business from a management/franchise agreement arises from this percentage of revenues element.[33]But because the entire percentage management fee is paid to the manager, and not the hotel owner, the percentage fee does not capture any of the value of the management/franchise agreement to the owner.)And second, the hotel owner succeeds if the hotel produces revenues sufficient to pay the hotel manager's fee and the hotel produces incremental additional revenue over and above the fee paid to the hotel manager, which revenue goes to the hotel owner.

"Return of" and Return on" the Management/Franchise Agreement

The Management Fee method deducts the management or franchise fee as a regular operating expense in a standard income capitalization analysis:"the management fee approach can be applied by including a going-concern management fee as an operating expense."[34]The deduction of the management/franchise fee in the Management Fee method amounts to the hotel owner's repayment of the fee to the hotel manager.It is, in the strictest sense, the cost to the hotel owner for having a management company or franchisee operate the owner's hotel.As such, it literally represents the "return of" the management fee to the hotel manager.Referring back to a portion of the IAAO Guide cited above, it represents the "cost to replace" the management agreement under the "theory of substitution."[35]

The Management Fee method's contention that the deduction of the management fee represents the full value of the intangible non-taxable hotel management/franchise agreement is short-sighted and misleading.First, no hotel owner would hire a hotel manager if doing so did not produce additional revenue to the hotel owner.Why would a hotel owner pay a hotel manager a management/franchise fee if, at the end of the year, the revenue brought in by the hotel manager's efforts was only enough to pay the management/franchise fee to the manager?All of the revenue attributable to hiring the hotel manager would be paid to the manager, and the hotel owner would be no better off than if he had not hired the manager in the first place.

Clearly, the hotel owner will only hire a hotel manager if the manager will increase the hotel's revenue by more than the amount of the management/franchise fee paid to the manager.In other words, the hotel owner will not hire a hotel manager if there is only a "return of" the management/franchise agreement through payment of the management/franchise fee.There also has to be a "return on" the management/franchise agreement to the hotel owner, meaning that as a result of hiring the hotel manager and entering into the management/franchise agreement, the hotel owner receives additional revenue over and above the fee paid to the hotel manager.

An example is in order.Assume a hotel owner can make $10 million per year operating a hotel by himself.Alternatively, the owner can engage a hotel manager to operate the hotel under a management agreement which requires payment of a four percent (4%) management fee (or $400,000).For the owner to pay the manager the management fee and make the same $10 million as before, the manager's efforts have to increase the hotel's revenues by the amount of the management fee (4% or about $400,000) to $10.4 million.However, at this level of operating revenue the hotel owner only nets $10 million after paying the management fee to the manager (the "return of" the management fee), and so the owner will be ambivalent about whether or not to retain the manager.The hotel owner will only hire a manager (enter into a management agreement) if the manager's efforts increase the hotel's revenues by more than 4% (more than $400,000) so that the hotel owner receives a "return on" his investment in the hotel management agreement over and above the "return of" the management fee to the manager.

This is where the second fallacy in the Management Fee method arises.The Management Fee method asserts that the hotel management company holds all of the rights to the management/franchise agreement or, stated another way, that all of the benefits and value of that agreement resides with the manager.But such is not the case for two reasons:(a) the hotel owner has obtained access to the rights held by the manager/franchisor by virtue of the management/franchise agreement (as described above, the hotel owner and manager are essentially partners or joint venturers in the hotel enterprise by virtue of the management/franchise agreement); and (b) although the management fee ("return of") may be paid to the manager/franchisor, the additional revenue earned by the hotel as a result of the management/franchise agreement over and above the management fee, the "return on," belongs to the hotel owner based on the allocation of intangible contractual rights under the management/franchise agreement.The manager does not receive the additional revenue generated by the management/franchise agreement over and above the management fee, only the hotel owner does.It is this "return on" which arises from the manager's and owner's shared rights in the management/franchise agreement which the Management Fee method fails to take into consideration.

Note that this analysis is not dependent on who "owns" the rights under the management/franchise agreement (in fact, there is an allocation of rights under that agreement).If the total revenues generated by the hotel are being used in an Income Approach to value the hotel, the resultant business enterprise value includes return to both the hotel owner and the hotel manager.In this circumstance, the full value of the management/franchise agreement must be removed, i.e., return of and return on, and the ownership of the agreement is irrelevant.

Investors demand both a return of their investment (a recapture of the investment) and return on their investment (a yield on the investment).Thus, "return of" and "return on" are always required if an investor is to undertake any form of investment.This is true both for investments in real property as well as investment in a hotel management/franchise agreement.The California SBE has recognized the "return on" requirement in its Assessors' Handbook Section 502:"An investor's expected return must include both an economic reward and a recovery of invested capital.The economic reward is the return on capital, … ."[36]The "return on" concept was explicitly applied to the Management Fee method by the California SBE:

The value of intangible assets and rights cannot be removed by merely deducting the related expenses from the income stream to be capitalized.Allowing a deduction for the associated expense does not allow for a return on the capital expenditure.. . . Similarly, the deduction of a management fee from the income stream of a hotel does not recognize or remove the value attributable to the business enterprise that operates the hotel.[37]

This is consistent with California Property Tax Rule 8(e) relating to the Income Approach which states:"When income from operating a property is used, sufficient income shall be excluded to provide a return on working capital and other nontaxable operating assets [i.e., intangible assets and rights] and to compensate unpaid or underpaid management."[38]Rule 8(e) has the force of law in California.

The IAAO Guide asserts:"whether a deduction of a management fee and related brand expenses adequately removes business or other intangible asset values in a hotel valuation by a real property appraiser should be based on verified market behavior."[39]Quoting Elgonemy:"Appraisers should value hotels the same way that investors analyze deals."[40]If investors demand a return of and a return on their investment in a hotel management/franchise agreement, then the "Management Fee" method, which only provides a return of, is not "consistent with the observed market behavior" of hotel investors in the "transaction market [which] is the primary source of appropriate valuation methodology to replicate in any appraisal."[41]It is noteworthy that the Guide provides no statements from hotel investors as to how they treat intangibles in hotel investment decisions.

California's Court of Appeal Has Disapproved the "Management Fee" Method

The application of the Rushmore "Management Fee" method to a major resort hotel was expressly disapproved by the California Court of Appeal in 2014:

We disagree with the County's claim that "the intangible value was removed by deducting the management and franchise fee."The Assessor . . . did not explain how that deduction captured the "majority" of intangible property. . . . The Assessor's reliance on the deduction of the management and franchise fee – and its refusal to identify and value certain intangible assets – is akin to paying "lip service to the concept of exempting intangible assets from taxation," a practice condemned in GTE Sprint [Communications Corp. v. County of Alameda (1994)] 26 Cal.App.4th at p. 1005.[42]

In the final analysis, the Rushmore "Management Fee" method capitalizes operating revenues into a going concern value.The fact that the management/franchise fee is deducted does not prevent that result.That being the case, there is no difference between the Management Fee method and a standard income capitalization approach that arrives at a business enterprise value.Furthermore, if the operating revenue being capitalized is generated in part from the presence of intangible assets, but nothing is removed from the resulting indication of value by the income approach for those intangibles, the resulting value will necessarily subsume the value of intangible assets.

To sum up, the IAAO Guide states:"Rushmore's assertion is that, by deducting the costs associated with intangible value . . . from a property's operating expenses, the remaining NOI is for the real property only."[43]Thus, a standard income approach, without any other adjustment, does not include the value of intangible assets.But, as the appellate court said in SHC Half Moon Bay, there is no explanation provided as to how the deduction of a management or franchise fee removes the value of the intangible rights embodied in the management/franchise agreement.The Guide afforded the IAAO an opportunity to address this and related questions in a non-litigation context.While IAAO Committee documented their awareness of these issues in the Guide, they did not address them in any meaningful way.

The Rushmore "Management Fee" Method Is Not Widely Embraced by Courts

The IAAO Guide asserts that the Rushmore Management Fee method is "widely embraced by the courts" and lists judicial decisions in support of this view.[44]

Careful review of those decisions reveals the following.The Guide cites thirteen cases in support of the Rushmore Management Fee method (fourteen cases are discussed, but the Maryland decision, RRI Acquisition Company, Inc. v. Supervisor of Assessments of Howard County,[45] is cited twice).Of those thirteen cases, six were issued by the New Jersey Tax Court.The two Michigan decisions were issued by the Michigan Tax Tribunal, which is not a court (although the Guide refers to the Michigan Tax Tribunal as court), and one of those decisions contains some criticism of the Rushmore method.The Guide cites two decisions from the District of Columbia, both relating to the same hotel property.The 2015 decision was issued by a trial court (Superior Court).The 2009 District of Columbia decision is not reported, so the specific tribunal and the content of the decision cannot be confirmed.Finally, the Guide cites to the 2013 California Court of Appeal decision in EHP Glendale, LLC v. County of Los Angeles (EHP II),[46] even though that decision was subsequently decertified and depublished by the California Supreme Court.

Regarding New Jersey, two of the cited decisions contain the following language:

This decision is based upon the consideration of the reasoning and supporting data addressed in the record of this case for the particular adjustments proposed.It should not be understood as a definitive pronouncement on appraisal practices designed to extract real estate value from the assets of a business or as binding precedent with respect to adjustments of the kind proposed here, should they be offered in other cases with different records.[47]

The second case, BRE Prime Properties, LLC v. Borough of Hasbrouck Heights,[48] has not been certified for publication by the New Jersey Tax Court Committee on Opinions.And in a third case, the New Jersey Superior Court Appellate Division found that the taxing jurisdiction's opinion of value under the income approach did not account adequately for the value of the intangible business assets in the valuation of a casino-hotel.[49]

To summarize, the IAAO Guide reports that the Rushmore Management Fee method has been embraced by courts in only six states.Six of the thirteen decisions cited are from New Jersey, but three of those decisions do not unequivocally approve the Rushmore method.Two of the thirteen decisions were not issued by a court but by the Michigan Tax Tribunal and so have limited precedential value.The two decisions from the District of Columbia pertain to the same property, although the citation to one of those decisions cannot be located, and the other decision is by a lower court.And the California decision cited by the Guide has been decertified and depublished by the California Supreme Court.In light of the above, it is difficult to support the Guide's assertion that the Rushmore method "has been widely embraced by the courts."Moreover, there is at least one case disapproving the Management Fee Method:SHC Half Moon Bay LLC v. County of San Mateo.

The IAAO Guide Mis-Cites Pertinent Law and Ignores Key Authorities

The IAAO Guide reads like a legal brief, citing 52 cases or administrative decisions.But this legalistic patina is thin.The main problem is that the Guide does not acknowledge the basic hierarchy of authority:a tax tribunal or trial court decision is not binding authority as a general rule, and is not equivalent to a published appellate court decision.The Guide cites many authorities, but the citation-heavy format should not be construed to add credibility.Careful review reveals undisciplined and indiscriminate references to authorities, most of which are not binding, and the omission of authorities which are in fact precedential.Moreover, many of the authorities cited are difficult to obtain because they are opinions by state or provincial boards of review or equalization which have no binding or precedential effect.In some cases, the decisions are not readily accessed, which makes vetting such references impossible without significant additional effort.

1.Skilled and Assembled Workforce

The IAAO Guide's reliance on questionable citations is illustrated by focusing on its discussion of skilled and assembled workforce.[50]The Guide offers five legal citations in support of its advice that the assembled workforce intangible need not be recognized or deducted in valuing real property:

(1)Boise Cascade Corporation v. Department of Revenue[51]:"The Oregon Tax Court rejected the workforce argument in a case involving the assessment of a veneer mill.In that case, the court said, 'management or work force in place [value] . . . should not be deducted from any estimate of market value'."

(2) EHP Glendale, LLC v. County of Los Angeles (EHP I)[52]:"The court rejected the workforce argument, stating 'Absent superior management of an exceptional workforce, though, the presence of prudent management and a reasonably skilled workforce are required to put a property to its beneficial and productive use, and no additional value needs to be deducted from the income stream'."

(3) SHC Half Moon Bay, LLC v. County of San Mateo[53]:"[T]he court determined that the assessor failed to remove the value of the hotel's assembled workforce, stating, '. . . the deduction of the management fee from the hotel's projected revenue stream did not – as required by California law – identify and exclude intangible assets such as the hotel's assembled workforce'."

(4) Fairmont Hotels & Resorts v. Capital Assessor, Area No. 01[54]:"The court recognized that a trained workforce is intertwined with the real estate, and its frequent turnover negates its value, stating, 'With respect to an assembled workforce, while we accept that there must have been an initial investment in hiring and training a workforce, we do not accept that the initial investment necessarily continues to have discreet market value. . . . We find that such value is inextricably intertwined with the realty'."

(5) CP Hotels Real Estate Corp. v. Municipality of Jasper[55]: "[T]he court recognized an assembled workforce might not be desired by a potential buyer, saying, 'the assembled workforce may actually be a liability, instead of an asset'."

Each of these five citations is problematic for the reasons set forth below.

Boise Cascade Corporation.The Oregon Legislature amended Oregon Revised Statutes section 307.020 in 1993 to expressly include assembled workforce within the statutory definition of intangible assets.The IAAO Guide cites as authority a case that was superseded by subsequent legislation.

EHP Glendale, LLC.The language in the IAAO Guide attributed to EHP I is not found in that case.The quoted language is actually found in a later 2013 decision by the California Court of Appeal in the same case.[56].EHP II was wrongly decided and inconsistent with California law, and the California Supreme Court decertified EHP II and ordered it be depublished on December 18, 2013.Depublished cases are not citable authority under California law.The Guide also includes the following statement relating to EHP II:"The court approved the Rushmore approach, despite the California State Board of Equalization Assessors' Handbook, Section 502, disallowing the use of the management fee approach alone."[57]Plainly, this reference is also invalid.In sum, the Guide cites as authority language from a case that is not citable and not deemed reliable by the California Supreme Court.

SHC Half Moon Bay.The IAAO Guide correctly cites this case, which contradicts the Guide's support for the Rushmore Management Fee method.Contrary to the Guide, there are no "conflicting rulings" relating to workforce in the California Court of Appeal[58] because the EHP II decision is not good law.In fact, the Guide fails to cite three other California Court of Appeal cases in accord with SHC Half Moon Bay, all holding that assembled workforce is an intangible asset that must be removed from assessment.[59]Neither does the Guide disclose the California SBE's recognition of assembled workforce as an intangible asset (workforce is a component "of enterprise value that create[s] value separate and apart from any value inherent in the tangible assets") and requiring that such value be removed from the assessment.[60]So the Guide misleads the reader into thinking that California courts have ruled that assembled workforce is not a recognized non-taxable intangible when the opposite is the case.

Fairmont Hotels & Resorts / CP Hotels Real Estate Corp.These are Canadian assessment review board decisions and are not precedential authority.Moreover, the Guide ignores legal authority that is contrary to the remarks contained in Fairmont Hotels & Resorts to the effect that if the intangible and tangible assets are "intertwined," then the intangible assets need not be removed from the assessment.The California Supreme Court has expressly explained that even if an intangible asset is "intertwined" so that it is necessary for the "beneficial and productive use" of the real property, the value of such intangible components must still be removed from the assessment:

[I]f the intangible assets are necessary to the beneficial and productive use of the taxable property, the court must determine whether the plaintiff has put forth credible evidence that the fair market value of those assets has been improperly subsumed in the valuation.If so, then the valuation violates [Revenue and Taxation Code] section 110(d)(1), which prohibits an assessor from using the value of intangible rights and assets to enhance the value of taxable property, and the fair market value of those assets must be removed.[61]

Courts in other states have similarly found that the "inextricably intertwined" argument does not overcome the principle that real property assessments should not be based on business value.[62]

Thus, the Guide identifies no citable authority with precedential effect in support of its position on assembled workforce, and the sole valid authority it does cite, SHC Half Moon Bay, rejects the premise underlying the Rushmore Management Fee method (deduction of employee salaries and wages as an operating expense removes the value of workforce) and actually requires that the value of an assembled workforce be removed from assessment.This is an example of selective citation intended to advance a particular viewpoint, instead of a balanced consideration of actual authority which is inconsistent with the advocated policy.The important conclusion is the Guide's citation of authority cannot be taken at face value:each assertion must be examined for validity and accuracy before it may be relied upon.

2.Start-up Costs and the Business Enterprise Value Approach

The IAAO Guide contends that business start-up costs are not an intangible that should be recognized in the assessment of properties.The Guide reasons that start-up costs, such as pre-opening marketing and workforce training for a hotel property, only occur at the initial opening of a property.The Guide concludes that because marketing and workforce costs are deducted as operating expenses when existing hotels are appraised, the deduction of start-up expenses as an intangible asset is unnecessary and improper.[63]The start-up costs issue is a subset of the business enterprise value (BEV) approach.The IAAO Guide dismisses the BEV approach because the approach is not broadly accepted in the appraisal community or the market.[64]

The purpose of this response is not to side with those favoring deduction of start-up expenses or those opposed to doing so, or to become involved in the broader dispute between those who support and those who do not support the BEV approach.However, the lack of depth to the legal authorities cited in the IAAO Guide as support for the views opposing deduction of start-up costs and the BEV approach is noteworthy.The IAAO Guide cites eight cases in all relating to start-up costs and the BEV approach.Four of those cases are cited as supporting the Guide's views on both topics.

Five of the cases cited in the IAAO Guide support the "no start-up cost" viewpoint, and one does not.One of those five cases was issued by a trial court.[65]Three other decisions were issued by tax tribunals.[66]These decisions, from the District of Columbia, Maryland, Canada and Maine, are trial court or assessment review board decisions, and some of them have limited precedential impact.The Guide only references one published court decision from New Jersey as opposing the start-up costs position.[67]

The IAAO Guide also cites five decisions that oppose the BEV approach, and one that supports its.The Guide says there are other cases which have "embraced the BEV approach," but does not cite to any of those cases.[68]One such case is a decision by the Appeals Court of Massachusetts which held that the assessor and tax appeal board were required to make deductions for hotel business enterprise value elements.[69]Of the five opposition decisions cited in the Guide, three are from assessment review boards and may have limited precedential effect.[70]One decision was issued by the Iowa Supreme Court twenty years ago; the Guide reports that an Iowa statute required that the court reject the BEV approach in that case because it was not widely accepted by the appraisal community at that time.[71] The only other opposing decision cited by the Guide is once again the New Jersey decision in the Saddle Brook Marriott Hotel case.[72]The IAAO Guide puts considerable reliance on this one decision by the New Jersey Tax Court, also citing the case three other times.[73]

3.Leases-in-Place and Above- and Below-Market Leases

The IAAO Guide states that fee-simple value for leased properties is found by using market rents, and goes on to say that above-market leases are part of real property and are not intangible.[74]The Guide cites no authority for the latter assertion other than USPAP FAQ 193.[75]The Guide does not cite a conflicting Wisconsin Supreme Court decision which found that above-market leases are not real property or part of fee simple estate property rights.[76]The Guide also does not reference Indiana Tax Court and Kansas Court of Appeals decisions that reached the same conclusion.[77]

4.Goodwill

The IAAO Guide says "Because . . . courts have ruled the value of goodwill is reflected in a management fee, it is safe to say that applying the management fee technique in an income approach effectively removes any goodwill value in the estimate of real property."[78]This conclusion is based solely on the IAAO's incorrect reading of the California Court of Appeal's decision in the SHC Half Moon Bay case.

In SHC Half Moon Bay the taxpayer identified goodwill as the residual value in a cost segregation appraisal.Because of that, the Court of Appeal found that the taxpayer had failed to present sufficient evidence showing that the deduction of the management fee did not remove goodwill.But this finding must be understood in the context of the review standards used by California appellate courts.In this case, the appellate court determined that the taxpayer had not presented substantial evidence (i.e., facts) showing that the management fee did not remove the value of the hotel's goodwill.However, the court also said that other evidence might have been presented that would show how the management fee failed to remove the value of goodwill: "[t]here may be situations where the taxpayer can establish the deduction of a management and franchise fee from a hotel's income stream does not capture the intangible asset of goodwill, but SHC, the taxpayer, has failed to do so here."[79]

The SHC Half Moon Bay decision left open the possibility that another taxpayer could demonstrate that goodwill is not removed by the deduction of a management fee.Stated another way, the Court of Appeal did not rule as a matter of law, and therefore did not foreclose the possibility that another taxpayer might show, based on different facts, that deduction of a management fee does not in and of itself remove the value of goodwill.Thus, the IAAO's conclusory statement that the management fee technique removes goodwill value was not established as a matter of law in SHC Half Moon Bay, but only under the facts of that particular case.

The deduction of goodwill as an intangible asset has been approved by courts in other states.[80]Also, the California SBE says that goodwill is an intangible and that its value should be deducted.[81]

5.Go-Dark Valuation

The IAAO Guide contains a brief discussion of the go-dark valuation issue.[82]Go-dark valuation has engendered significant controversy, and the IAAO has recently issued a "Draft Big Box Position Paper" relating to the "dark store" or go-dark valuation topic.[83]Discussion of go-dark valuation is beyond the scope of this response.

Conclusion:Direct Valuation and Removal of Identified Intangibles

The primary purpose of the IAAO Guide is to identify and explain appraisal methods which assessors can use to "effectively exclude" intangibles from property tax assessment without "valuing intangible assets directly."[84]To that end, the Guide asserts that the Rushmore Management Fee method under an income approach is one of the primary ways to remove the value of intangibles when assessing real property.[85] However, as discussed in this response, the Management Fee method is problematic, and the Guide's explanation as to how the method removes intangibles is inadequate.This inadequacy was highlighted by the California Court of Appeal in SHC Half Moon Bay LLC v. County of San Mateo.Furthermore, the weaknesses that plague the Guide's explanation of the Management Fee method, including the inaccurate and unbalanced citation to legal authority, also extend to the Guide's discussion of assembled workforce, start-up costs, leases-in-place and goodwill.

Instead of using methods which claim to "effectively exclude" non-taxable intangibles, such as the Management Fee method, appraisers should value identified intangibles directly and deduct the full value of those intangibles – similar to the "parsing income" technique described in the IAAO Guide.[86]Although the Guide says "[t]he courts have generally rejected the parsing income method for property tax purposes," it only cites Saddle Brook and Fairmont Hotels v. Area 01 to support this assertion.[87]In fact, for over two decades the California Court of Appeal, the California Supreme Court, and the California SBE (in its Assessors' Handbook and Property Tax Rule 8(e)) have accepted the method of directly identifying and valuing the separate stream of income associated with an identified intangible asset as a valid method for removing the full value of intangible assets in property tax assessment.[88]

The IAAO Guide says that "the real estate market determines whether intangibles are included or excluded," and that the Management Fee method mimics the market.[89]However, the Guide provides no specific proof that the Management Fee method comports with how market participants evaluate properties.Regardless, most state laws require that the value of intangible assets be excluded from ad valorem property tax assessments.[90]The Guide does not explain how the Management Fee method, an indirect method for removing intangibles, "effectively excludes" the full value of non-taxable intangibles.Directly identifying, valuing and deducting the full value of intangible assets, the method California's appellate courts and the California SBE have followed since the GTE Sprint Communications Corp. decision was issued in 1994, is a more effective approach.


[1] Cris K. O'Neall, Greenberg Traurig, LLP, (949) 732-6610, This email address is being protected from spambots. You need JavaScript enabled to view it.; C. Stephen Davis, Greenberg Traurig, LLP, (949) 732-6527, This email address is being protected from spambots. You need JavaScript enabled to view it..The authors thank attorney Sharon F. DiPaolo of Siegel Jennings Co., LPA in Pittsburgh, PA and attorney Lisa F. Stuckey of Ragsdale, Beals, Seigler, Patterson & Gray, LLP in Atlanta, GA for their assistance in researching some of the legal authorities cited in this article.The authors also thank attorney Jennifer Kim of Greenberg Traurig, LLP for her assistance in preparing this article for publication.

[2] International Association of Assessing Officers (IAAO), Understanding Intangible Assets and Real Estate: A Guide for Real Property Valuation Professionals (Special Committee on Intangibles, 2017) 14 Journal of Property Tax Assessment & Administration pp. 41-91 <http://www.iaao.org/library/2017_Intangibles_web.pdf> (as of June 18, 2017) (hereafter IAAO Special Committee 2017).

[3] Id. at pp. 41, 68.

[4] Id. at p. 41.

[5] International Association of Assessing Officers, Technical Standards, <http://www.iaao.org/wcm/Resources/Publications_access/Technical_Standards/wcm/Resources_Content/Pubs/Technical_Standards.aspx.> (as of June 18, 2017, italics added).

[6] IAAO Special Committee 2017, supra, pp. 41, 48, 65.

[7] Id. at pp. 49-50.

[8] Id. at pp. 50, 51, 60, 65, 66.

[9] Id. at pp. 45, 48, 65, 66.

[10] Id. at pp. 42-45, 66.

[11]State Board of Equalization (SBE), Assessor's Handbook Section 502: Advanced Appraisal (Dec. 1998)<http://boe.ca.gov/proptaxes/pdf/ah502.pdf> (as of June 18, 2017) (hereafter SBE AH 502).

[12]State Board of Equalization, Issue Paper Number 98-031 (Nov. 5, 1998) <https://www.boe.ca.gov/proptaxes/pdf/1998.pdf> (as of June 18, 2017).

[13] State Board of Equalization, Property Tax Committee Meeting Minutes (Dec. 7, 1998) <http://www.boe.ca.gov/proptaxes/pdf/PTC_Minutes_120798.pdf> (as of June 18, 2017).

[14] SBE AH 502, supra, p.153.

[15] Reilly and Schweihs, Guide to Property Tax Valuation (Willamette Management Associates Partners 2008) p. 326.

[16] IAAO Special Committee 2017, supra, p. 43.

[17] Ibid.

[18] Id. at 59.

[19] Elk Hills Power, LLC v. Bd. of Equalization (2013) 57 Cal.4th 593, 620-21 (hereafter Elk Hills Power).

[20] IAAO Special Committee 2017, supra, pp. 44-45, 50, 53.

[21] IAAO Special Committee 2017, supra, p. 56.

[22] Id. at 50.

[23] Id. at pp. 47, 66.

[24] (Ohio B.T.A. 2007) Nos. 2007-M-277, 2007-M-278, affd. per curiam (2011) 128 Ohio St.3d 565.

[25] Id. at p. 51.

[26] American Sheds, Inc. v. County of Los Angeles (1998) 66 Cal. App. 4th 384, 394, fn.6. italics added; see also In re Ames Shopping Plaza Wellsboro Borough (Pa. Commw. Ct. 1984) 476 A.2d 1001, 1004.

[27] IAAO Special Committee 2017, supra, p. 51, italics added.

[28] Id. at p. 52.

[29] Id. at pp.51-52.

[30] Id. at p. 55.

[31] Id. at pp.51, 54.

[32]Los Angeles SMSA Ltd. Partnership v. State Bd. of Equalization (1992) 11 Cal.App.4th 768, 776, fn.6; Hershey Entertainment and Resorts Co. v. Dauphin County Bd. of Assessment Appeals (Pa. Comm. Ct. 2005) 874 A.2d 702.

[33] IAAO Special Committee 2017, supra, p. 52.

[34] Id. at p. 51.

[35] Ibid.

[36]SBE AH 502, supra, p. 62.

[37] Id. at p. 162, italics added.

[38] Italics added.

[39] IAAO Special Committee 2017, supra, p. 55.

[40] Id. at p. 53.

[41] Id. at p. 55.

[42]SHC Half Moon Bay LLC v. County of San Mateo (2014) 226 Cal.App.4th 417, 492 (hereafter SHC Half Moon Bay).

[43] IAAO Special Committee 2017, supra, p. 52.

[44] IAAO Special Committee 2017, supra, pp. 53-54.

[45] (Md. T.C.M. 2006) No. 03-RP-HO-0055.

[46] (2013), 219 Cal.App.4th 1015 (hereafter EHP II).

[47] Chesapeake Hotel LP v. Saddle Brook Township (N.J. T.C. 2005) 22 N.J.Tax 525, 536-37 (hereafter Saddle Brooke); BRE Prime Properties, LLC v. Borough of Hasbrouck Heights (N.J. T.C. 2013) Nos. 005271-2010, 005644-2011, unpub. (hereafter BRE Prime Properties).

[48] BRE Prime Properties, supra, Nos. 005271-2010, 005644-2011, unpub.

[49] Marina District Development Co., LLC v. City of Atlantic City (N.J. 2013) 27 N.J. Supp. 469.

[50] IAAO Special Committee 2017, supra, pp. 55-57.

[51] Boise Cascade Corporation v. Dept. of Revenue (Or. T.C. 1991) 12 OTR 263.

[52] EHP Glendale, LLC v. County of Los Angeles (2011) 193 Cal.App.4th 262 (hereafter EHP I).

[53]SHC Half Moon Bay LLC, supra, 226 Cal.App.4th 417.

[54] Fairmont Hotels & Resorts v. Capital Assessor, Area No. 01, [2005] CarswellBC 3760 (Can. Tax. A.B.C.).

[55] CP Hotels Real Estate Corp. v. Municipality of Jasper, [2005] CarswellAlta 2573 (Can. Tax. A.B.C.).

[56]EHP II, supra, 219 Cal.App.4th 1015.

[57] IAAO Special Committee 2017, supra, p. 54.

[58] IAAO Special Committee 2017, supra, p. 57.

[59] GTE Sprint Communications Corp. v. County of Alameda (1994) 26 Cal.App.4th 992, 1007 (hereafter GTE Sprint Communications Corp.); County of Orange v. Orange County Assessment Appeals Bd. (1993) 13 Cal.App.4th 524, 533; Shubat v. Sutter County Assessment Appeals Bd. (1993) 13 Cal.App.4th 795, 798.

[60] SBE AH 502, supra, pp.154, 156, 160, fn. 130.

[61] Elk Hills Power,supra, 57 Cal.4th at p. 615.

[62] Walgreen Co. v. City of Madison (Wis. 2008) 752 N.W.2d 687, 705; Gregg County Appraisal District v. Laidlaw Waste Systems, Inc. (Tex.Ct.App.1995) 907 S.W.2d 12, 19-20.

[63] IAAO Special Committee 2017, supra, pp. 57-58.

[64] Id. at pp. 62-63.

[65] CHH Capital Hotel Partners LP v. Dist. of Columbia (2015 D.C. Super. Ct.) No. 2009 CVT 9455.

[66] RRI Acquisition Co., Inc. v. Supervisor of Assessments of Howard County (Md. T.C.M. 2006) No. 03-RP-HO-0055 (hereafter RRI Acquisition); CP Hotels Real Estate Corp. v. Municipality of Jasper, [2005] CarswellAlta 2573 (Can. Tax. A.B.C.); GGP-Maine Mall, LLC v. City of South Portland (Me. B.A.R. 2008) No. 2008-1 (hereafter GGP-Maine Mall).

[67] Saddle Brook, supra, 22 N.J.Tax 525.

[68] IAAO Special Committee 2017, supra, p. 63.

[69] Analogic Corporation v. Bd.of Assessors of Peabody (Mass.Ct.App. 1998) 700 N.E.2d 548, 552-554.

[70]RRI Acquisition, supra, No. 03-RP-HO-0055; Wolfchase Galleria Ltd. Partnership, Shelby County (Tenn. S.B.E. Mar. 16, 2005); GGP-Maine Mall, supra, No. 2008-1.

[71] Merle Hay Mall v. Bd. of Review (Iowa 1997) 564 N.W.2d 419.

[72] Saddle Brook, supra, 22 N.J.Tax 525.

[73] IAAO Special Committee 2017, supra, pp. 53, 58, 65.

[74] IAAO Special Committee 2017, supra, p. 59.

[75] The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice (2016-2017 ed. 2016) p. 299.

[76] Walgreen Co. v. City of Madison, supra, 752 N.W.2d 687, 700-01.

[77] Grant County Assessor v. Kerasotes Showplace Theatres, LLC (Ind. T.C. 2011) 955 N.E.2d 876, 882-83; Shelby County Assessor v. CVS Pharmacy, Inc.(Ind. T.C. 2013) 994 N.E.2d 350, 354; In Re Equalization Appeal of Prieb Properties, LLC (Kan.Ct.App. 2012) 275 P.3d 56, 134-36.

[78] IAAO Special Committee 2017, supra, pp. 60-61.

[79] SHC Half Moon Bay LLC, supra, 226 Cal.App.4th at p. 493, italics added.

[80] T-Mobile USA, Inc. v. Utah State Tax Comm'n (Utah 2011) 254 P.3d 752; GTE Sprint Communications Corp, supra, 26 Cal.App.4th 992; County of Orange v. Orange County Assessment Appeals Bd., supra, 13 Cal.App.4th 524.

[81] SBE AH 502, supra, pp. 154, 157, fn. 118, 157-158, 159, 160, fn. 130.

[82] IAAO Special Committee 2017, supra, pp. 61-62.

[83] International Association of Assessing Officers, Draft Big Bix Position Paper (2017) <http://www.iaao.org/media/Exposure/Big_Box_6-1-17.pdf >.

[84] IAAO Special Committee 2017, supra, pp. 48, 50, 66.

[85] Id. at pp. 51, 54, 66.

[86] IAAO Special Committee 2017, supra, pp. 64-65.

[87] Id. at p. 65.

[88] GTE Sprint Communications Corp., supra, 26 Cal.App.4th 992; Elk Hills Power LLC v. Bd. of Equalization, supra, 57 Cal.4th at pp. 617-19; SBE AH 502, supra, pp. 161-62.

[89] IAAO Special Committee 2017, supra, pp. 54, 55, 63, 67.

[90] Id. at p. 41, 48.

Cris K. O'Neall is a Member in the law firm of GreenbergTraurig, the California member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
Apr
27

How Cook County Takes the Benefit Out of Taxpayer Incentives

The Cook County Board of Commissioners may have dealt manufacturing districts in South and Southwest Cook County, Illinois, their final blow.

The use of property tax incentives has increased over the past several decades and has been a vital economic development tool in this manufacturing belt. The industrial corridor suffered a one-two punch during the Great Recession and is still hanging onto the ropes, trying to recover while the rest of Cook County thrives.

Cook County property tax incentives reduce assessed values used to determine a property's tax bill. Assessors normally set taxable value at 25 percent of a property's market value, while assessing real estate qualifying for the incentive at 10 percent of market value. This yields a taxable value 60 percent lower than the asset would carry under the standard calculation.

The recession gutted Cook County's manufacturing belt. Numerous manufacturing companies either closed their doors for good or relocated to nearby Indiana, recruited with the promise of a feather-weight tax burden. The migration left a glut of vacant facilities in its wake, driving market values and the assessment base into a downward spiral.

As the market and occupancy rates plummeted, local tax rates spiked, exceeding 35 percent in some suburban municipalities. Without reinvestment in their communities, these municipalities could never recover, and the tax rate would not recede. The most valuable economic development tool available to these municipalities was the property tax incentive.

Crossed purposes

Over the past several years, the Cook County Board of Commissioners has suffocated the utility of the incentive program by imposing wage and other labor requirements on owners and operators of incentivized real estate. Most recently in March, the Commissioners imposed a "prevailing wage requirement," which mandates that any property that receives an incentive after September of this year must" pay all laborers ,workers and mechanics engaged in construction work not less than the prevailing wage paid for public works."

The new rule is expected to increase construction costs by 30 percent. Additionally, the new ordinance mandates participation in federally approved apprenticeship programs. Moreover, the change adds burdensome administrative costs to the incentive holder, which must keep detailed records of employee wages, contractor wages and other minutia. They must make quarterly reports to municipal agencies, or else live under the threat of having the incentive taken away.

But why would the Cook County Board of Commissioners impose mandates that effectively eliminate any incentive benefit? The decision is even more remarkable given the strong opposition it drew from the affected communities. Thirty mayors from the south and south western suburban municipalities testified in front of the county commissioners against the most recent ordinance. Local news media, which typically refrains from dive deeps into nuanced economic development issues, came out against the proposed ordinance.

Cook County elections were March 20. Commissioners in thriving districts were not going to risk their re-election prospects on an issue that didn't affect their constituents. So, the ordinance passed.

Act now

For entities looking to take advantage of the incentive program in Cook County, the most important task is to file the incentive application with the municipality and/or Cook County Assessor's Office prior to Sept.1. Any taxpayer who is attempting to sell or lease their property should apply for an incentive now instead of waiting for a prospective tenant or buyer. If the application is filed prior to Sept. 1, the prevailing wage mandate will not apply to any construction.

It is critical to note that the expansion of a facility will also trigger the prevailing-wage mandate for the additional square footage, even if the property already has an incentive. The property owner must apply for an additional incentive for the new space. Thus, any property owner considering such an expansion should make the required filing before Sept.1.

Most property owners in manufacturing districts that rely heavily on incentives for economic development only protest tax assessments when the property is reassessed. They would be wise to appeal their taxes every year, however.

The unpredictability of the incentive program itself is enough to drive up cap rates by two basis points, which will lower market values across the board. That creates the opportunity to achieve a lower assessment on appeal. The ability to quantify these issues is critical in an appeal, and failure to do so further diminishes the value of the real estate.

Most likely, due to the unnecessary restrictions imposed on the current incentive programs, the entire existing incentive program for Cook County may be scrapped. It is unfair that certain municipalities struggling with economic development are now political carnage. Any new incentive program should put the authority in the local municipalities' hands, rather than leave it under the political machinations of the rest of Cook County.

Deck - Summary for use on blog & category landing pages

  • The Cook County Board of Commissioners may have dealt manufacturing districts in South and Southwest Cook County, Illinois, their final blow.
Apr
11

Look Beyond Price to Cut Property Taxes

The Purchase amount isn't necessarily a valid proxy for taxable value.

Multifamily Property owners and Appraisers are often creatures of habit. They generally calculate a property's value for tax purposes the same way they do for an investment. If an apartment complex recently traded for 10 million, the buyer's appraiser may reason that the property would be assessed at $10 million for taxation purposes.

This line of thinking is particularly common in states that use market value as the standard and where the purchase price was based on an appraisal. While this approach might be reasonable for budgeting worst-case tax accruals, such thinking could result in missed opportunities to reduce the actual tax burden on the property.

PERMISSIBLE APPROACHES TO VALUATION VARY

There are several reasons a property's investment value, or even its market value, might differ from its value for tax purposes. Such considerations include whether the acquisition or investment value includes non-real estate items such as personal property, or intangibles such as long-term leases. Taxpayers should closely examine all of those issues to ensure that only taxable property is being assessed (and, then, at the correct value).

There's another,often-overlooked dimension of savings available to many taxpayers, in the form of seemingly hidden tax benefits conferred by statute. Indiana, for example, has a number of assessment statutes that dictate specific approaches to determining taxable value, depending on the type of property at issue. One property type receiving this unusual valuation treatment is apartment or multifamily rental properties.

Even as investors continue to bid up asking prices in the marketplace, Indiana law requires apartments to be assessed at the lowest valuation determined by applying the three standard approaches to valuation: cost, sales comparison, and income. This means owners and appraisers would miss the mark in estimating the taxable value of apartments or multifamily rental proper­ties if they applied only the typical approaches used to evaluate a property's investment value or market value.

The Indiana Board of Tax Review has issued several decisions confirming this mandate. One such case, Merrillville Lakes DE LLC v. Lake County Assessor, involved a taxpayer challenging his 2010-2014 assessments for an apartment complex in Merrillville, Ind. Both the assessor and the taxpayer presented appraisals at the administrative hearing, but only the taxpayer relied on the specific apartment-valuation statute to develop his opinion of taxable value. The board rejected the assessor's appraisal.

Based on the statutory code and the appraisal in the Merrillville Lakes case, the Indiana Board of Tax Review ultimately lowered the assessed value of the apartment complex for each contested year based on the taxpayer's cost analyses. Because the statute dictates that the lowest of three approaches determines the tax value, even if the owner had purchased the property for far more than the cost-approach indication of value, the board couldn't have increased the value to the higher sales price.

DUE DILIGENCE CAN YIELD SAVINGS

While it may seem like common sense to assume that a property's purchase price is a valid proxy for its taxable value, as the Indiana ruling shows, that's not always the case. A little due diligence could result in a lower valuation and, with that, significant savings.

David A. Suess is a partner in the Indianapolis office of the law firm Faegre Baker Daniels, the Indiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Deck - Summary for use on blog & category landing pages

  • Owners of such damaged property need to explore a number of issues to ensure that their assessments reflect their losses.
Apr
10

Assessment Shock and Awe in NYC, and your Properties are the Target

The newly released New York City Tax Assessment Roll had a total market value of$1.258 trillion. These results are shockingly bad news for the real estate industry. On average, tax assessments increased by about 9.4 percent.

The breakdown of increases in the assessments are also very surprising, with residential apartments growing by 11.51 percent, while taxable values on commercial properties climbed 7.85 percent. By borough, Brooklyn leads the way in increases, followed by the Bronx, Queens and Manhattan. Staten Island had the lowest percentage of increase at 6.36 percent.

Residential apartment buildings, rentals, cooperatives and condominiums showed strong valuation increases, which appear to be at odds with recent market weakness noted in all these property types. It is well documented that residential rents are slipping or flat, concessions are on the rise, and sales of co-ops and condos have stalled and are showing further signs of decline.

Furthermore , the loss of state and local tax deductions under the new federal tax law increases the burden on taxpayers. All of these factors exert a negative influence on market values.

What we will see in this assessment roll, and in statistics compiled by the New York City Department of Finance, is a strong emphasis on increasing tax burdens across all property types. This effort disregards the current pressures the market's real estate owners are already facing.

It is significant that the mayor has the sole discretionary authority to increase this specific tax. Virtually every other tax collected in the city needs approval from the state legislature, which may be why property taxes are continuing to go up. Just over 45 percent of all revenues for the City of NewYork now come from real estate taxes.

Even hotels, which are experiencing lower revenue per available room and competition that has intensified in recent years with the addition of thousands of new rooms, face an increase of 4 to 5 percent. This rubs more salt in to the wound for this property class.

What the city is doing in this new tax roll is killing the goose that gave us the golden eggs. We see more vacancies and empty store fronts, traffic at a standstill, mass transit in failure and mounting subway line closures. How tough are they making it for the real estate industry to survive?

There is a great need for property tax reform in this city. The percentage of taxes levied on real estate is out stripping taxpayers' ability to pay for it. In effect, the government is almost a 40 percent partner of all the real estate properties without sharing in the risk or having skin in the game. This ever­ growing push to squeeze the last dollar out of our industry will only hasten its fall.

We should call on our government to be more reasonable and limit property taxes to an affordable level. This would be a better strategy, priming the pump of the local economy and permitting future growth. When owners find that their property's largest single expense is its tax burden, which is out of control, they must do something about it-and do it now.


​​​​​​​Joel R. Marcus is a partner in the New York City law firm of Marcus & Pollack LLP, the New York member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Apr
04

Value the Dirt or the Dollars?

Property taxes should reflect the value of the real estate being taxed, not the needs of governmental entities that share in the tax. However, assessors are under increasing pressure to maintain or enhance property tax revenue. The result is a growing and improper tendency by assessors to use the success of the enterprise occurring in the real estate as an indicator of taxable property value.

Value is the amount a willing and knowledgeable buyer would pay a willing and knowledgeable seller to acquire a property as of a certain date. This simple concept has engendered volumes of appraisal books, hours of testimony and endless discussion of how to segregate the real estate component from the whole of an enterprise.

The willing buyer, willing seller standard mandates the property is available for a buyer's use on the date of sale. For value purposes, any enterprise carried on within the property is absent on the date of sale. The buyer is not buying the business or any part of the business, only the place where the business operates.

The success of the business is independent from the property in which it operates; to approach valuation otherwise leads to invalid and inequitable results. An example would be a building designed and used as a single-screen cinema. One week it features a popular and highly promoted movie, and during that week the ticket sales are great. The theater is full and ticket lines extend outside for each showing. The following week the movie house runs a bad film, and ticket sales are low or non-existent.

To include enterprise value as a component of the value of the real property is to say the theater building is worth more the week it shows a popular movie than when it screens a flop. Meanwhile, a retail building is no more than a structure in which goods enter from the loading dock and exit the front in customers' hands, leaving money or credit behind. Effectively, the building is a conduit for an activity which could occur anywhere in that submarket.

There is little doubt that successful operations will garner higher property taxes than weaker businesses, which is unfair. To some extent, the assessor punishes the taxpayer for a successful enterprise, all too frequently raising the concept of sales per square foot as justification. This rationale also applies to big box national retailers as well as your local mom-and-pop barbeque joint.

Some businesses require government licenses, which may be site-specific and limited to certain people or entities. They do business in properties of specific design that are not easily modified to other uses. Bank charters and licenses for liquor sales or casino gambling are limited to specific facilities at a specific location. What value do these properties hold after the business leaves? Pull the license off the walls, now determine the value of a building that once was one of these enterprises. So, when the old home-town bank building no longer houses a bank, what is it worth?

By law, the former bank building is worth no more or no less than when a bank operated there.

To value it in use is to value the banking activity that occurred there. Taxing business activity isn't an element of property tax at all; it is an enterprise tax, impermissible and unauthorized by law.

Brick-and- mortar retailers are under attack from ecommerce, and the public is subjected daily to photos of dying malls and struggling shopping centers. It is widely accepted that the value of a shopping center drops when the anchor tenant vacates. But the taxable value should be unchanged, because the hypothetical buyer is purchasing a property ready for occupancy.

The prosperous business should not be punished for its success by the improper valuation of the place where the success happens. Dealing with the assessor, the owner must argue that taxable valuation is based on the property being vacant. That means the current occupant is presumed gone on the date of sale.

Any other approach values the enterprise occurring there.

Jerome Wallach is a partner at the Wallach Law Firm, the Missouri member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
Apr
03

Consider Appealing Assessments to Hurricane-Damaged Property

Owners of such damaged property need to explore a number of issues to ensure that their assessments reflect their losses.

Severe flooding and wind dam­age from Hurricane Harvey wrought widespread property damage across Southeast and Central Texas in August 2017. Several large counties, including Harris and Mont­gomery, sustained severe losses. As the deadline for property tax appeals approaches, there are several things to keep in mind, particularly if you own property that was damaged by the storm.

Texas law allows for reassessment of property damaged in a disaster area. A city, county, school district or other taxing jurisdiction may request a reappraisal, and the cost of the reappraisal must be covered by the requesting jurisdiction. The benefit for reappraised properties would be a proration of taxes based on the pre- and post-disaster values.

Only a handful of jurisdictions have approved a reappraisal at this time,but if your property was damaged during Hurricane Harvey, it would be wise to contact the appraisal dis­trict to see if any of the jurisdictions that tax the property have approved a reappraisal. That would take care of any relief that is available for tax year 2017. For 2018, assessed values are based on the condition of the property as of Jan. 1, 2018.

This time of year, appraisal districts across the state are working on their mass appraisal models and conduct­ing field inspections. The 2018 prop­erty tax values may reflect recent flood or wind damage that was not repaired. However, since the dam­age from Hurricane Harvey was vast and widespread, it remains uncertain whether affected counties will be able to adequately capture and reflect the effect of the storm damage in valua­tions. For that reason, it is important for property owners to be on the lookout for the Notice of Appraised Value and appeal that value during the appeal window if the valuation seems exces­sive or unfair.

Deadline Shortened

The property tax appeal deadline has changed from May 31 to May 15. Given the deadline has been moved up two weeks, now is the time to pre­pare for your 2018 property tax ap­peal by gathering the pertinent infor­mation that will be useful in fighting your assessed taxable value. It will be important to assemble documentation that shows the ex­tent of damage sustained due to the natural disaster. Taxpayers will find it beneficial to keep the appraisal dis­trict informed of any changes to the property.

Appraisal district websites have added features to allow property owners to submit information regard­ing damage to their property due to the storm. Keep detailed records of the extent of the damage, along with the cost of repair.

Demonstrating the condition of the property after the storm will go a long way toward ob­taining tax relief, so photographs of the damage are critical. If you hold any inventory or other personal property and typically elect a Sept. 1 inventory appraisal date, you may have suffered significant losses as of that date. If so, it will be especially important to provide records of the goods lost, and docu­ment whether any of the inventory was salvageable as of Sept.1.

If you are a commercial real estate owner and have tenants that were affected by the hurricane, keep track of any concessions in the way of free rent or tenant improvements that you may have given as relief. For owners of hotels or apartments, keep in mind two main consider­ations:

First, if there was damage, the loss in revenue and ability to produce future income may be significant fac­tors that the appraisal districts would be willing to consider and account for.

Second, if your property is undam­aged and in or near an affected area, you may have seen an uptick in rev­enue at the end of the year due to in­ creased demand for temporary hous­ing. The increase in revenue is not realistic stabilized income, however, and shouldnot be used to derive your 2018 taxable property value.

Further even if your property did not sustain physical storm damage, appraisal districts will be consider­ing the effect of flooding and damage to neighborhoods and surrounding properties when making market ad­justments to your property. It is im­portant to consider this when determining whether or not to appeal the value for tax year 2018.

The amount of property tax relief provided in the wake of Hurricane Harvey will largely depend on the amount of damage and where prop­erty owners were in the rebuilding process on Jan. 1. However, to obtain the best result, protest your appraised value on time, keep detailed records of both the damage sustained and the repair cost, and track concessions to tenants and lost income. And remember that, as a general rule, the more detailed and specific your records are, the better they will support a request for a lower prop­erty tax value.

Deck - Summary for use on blog & category landing pages

  • Owners of such damaged property need to explore a number of issues to ensure that their assessments reflect their losses.
Feb
22

Snakes In The Property Tax Woodpile

Real estate acquisitions and improvements harbor traps for the unwary taxpayer.

Estimating the costs of purchasing or improving real proper ties may seem a simple exercise. However, tax traps await owners who are unaware of the dangers to avoid or otherwise veer off the trail. Prudent investors will be alert to the hidden tax snakes inherent in real estate decisions. Missteps taken at the time of purchase can lead to substantially higher property taxes later. To avoid these snakebites, the prudent investor will carefully research a property's existing tax treatment before closing, consider whether to execute an allocation engagement and ensure that the transaction is properly documented.


In some states, statutory caps limit valuation increases that would oth­erwise rise to reflect the market. For example, California's Proposition 13 limits increases in assessed value to 2 percent per year even if the property's market value is increasing at a faster rate, so long as ownership remains unchanged. Property owners should know that acquisitions and improve­ments can dramatically impact tax values that were previously limited by statutory caps.

In most states, acquisitions trigger reassessments at the next applicable valuation date. In researching existing tax values prior to purchase, prospec­tive buyers often research the taxing authority's online tax records. Online research may fail to distinguish be­tween capped or taxable value versus fair market value, however. If the ac­quisition removes the prior cap and the buyer estimates taxes based on the capped value rather than the fair market value, the new property owner could be in for a very rude awakening come tax time.  

Acquisitions can also change dead­lines for filing tax appeals in some ju­risdictions. For example, the normal filing deadline for appeals in South Carolina is January 15, but most coun­ty assessors will mail new assessment notices during the year following an acquisition. In those circumstances, the filing deadline is 90 days after the date of the reassessment notice.

Failure to take simple but essential steps in documenting a purchase can have substantial tax ramifications. For example, South Carolina law poten­tially exempts as much as 25 percent of a commercial property's purchase price from later ad valorem taxation, but only if the purchaser files for the exemption on or before January 30 fol­lowing the closing. Failure to file can cost purchasers tens of thousands of tax dollars or more. Yet many purchas­ers are unaware of this exemption un­til after they receive the new tax bill, when it is generally too late to file for the exemption.

Closing documents can increase future property tax bills. Many asses­sors calculate taxable value based on the consideration recited in a deed. Purchasers typically acquire income­ producing properties based on existing or potential cash flow.It is the com­bination of the real property, tangible personal property and intangible per­sonal property which generates that cash flow.

The deed consideration should re­flect only the value of the real property and improvements, not the total trans­action value. Similarly, title insurance should reflect the real property's value and exclude value attributable to tan­gible or intangible personal property. A well-thought-out allocation agreement potentially simplifies later record keep­ing and yields significant savings on income, property and transfer taxes, sometimes worth millions of dollars.

For example, operating hotels are generally sold as going concerns. That distinct from the underlying real es­tate. The hotel's intangible personal property, such as its brand, reserva­tion system or on-line presence, may substantially increase cash flow but is generally exempt from ad valorem tax­ation.Using the transaction's value, rather than the value of the real estate and improvements, in the deed not only increases documentary stamps but could lead to unwarranted higher ad valorem taxes.

Pre-purchase cost segregation stud­ies are often useful in documenting these separate values, but many pur­chasers and their lenders are reluctant to engage in this component analysis. For example, large hotel loans typical­ly proceed from a lender 's corporate loan department,not the real estate de­partment, and with good reason. Loan officers can be reluctant to explain to their superiors or to regulators why title insurance values might be lower than the face amount of the note, when the loan is really underwritten on the value of the cash flow and not the in­dividual components contributing to that cash flow. That reluctance could manifest itself in reduced loans being made available for borrowers.

Similarly, loans secured by retail real estate occupied by national credit ten­ants previously garnered less scrutiny from lenders and regulators in assessing loan risk. That laissez faire attitude may be changing as e-commerce erodes sales at brick-and-mortar stores, which continue to close in large numbers.

In some jurisdictions, changes in the property's condition such as a vacancy by a major retail tenant do not trigger a reassessment, and may not be factored into tax bills. The key inquiry in those situations is whether the change in condition occurred after the applicable valuation date.

Property improvements also cre­ate taxation pitfalls. In states that cap taxable property values, the caps may come off when improvements are made. In other words, the cost of im­provements could include not only construction expenses but also a substantially greater tax burden.

The effect of improvements on prop­erty taxes varies by jurisdiction. Flor­ida has adopted a bright-line test that examines whether the completed improvement increases value by at least 25 percent. California law protects properties from reassessment so long as any work is normal maintenance or repair, or the improvement does not convert the property to a state "substantially equivalent to new." Whether new construction or improvements fall into this category is "a factual deter­mination that must be made on a case­ by-case basis," the California statute states. South Carolina law contains no such guidance.

Timing also matters. Most jurisdic­tions prohibit taxing improvements until after the improvements are com­pleted, as defined by applicable stat­ute. If the applicable valuation date is Dec. 31, 2018, an owner might consider delaying completion until after Jan. 1,2019, to delay a major tax increase. Re­gardless, careful analysis and plannirig can help property owners address the hidden cost of increased taxes.With careful planning, the prudent property owner can avoid being bit­ten by the lurking snake of increased property taxes and walk the property tax trail with confidence.

­


Morris Ellison is a partner in the Charleston, S.C., office of the law firm Womble Bond Dickinson LLP. The firm is the South Carolina member of the American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Deck - Summary for use on blog & category landing pages

  • Real estate acquisitions and improvements harbor traps for the unwary taxpayer.
Feb
01

Missing Property Tax Deadlines Costs Money

Put filing deadlines and other key tax dates on the calendar to preserve your rights to appeal and protect incentives.

Timing can be everything when it comes to property tax appeals. Failure to file an appeal on time will almost certainly lead to its dis­missal, and paying taxes too late can lead to the same fate. Those aren't the only important dates to keep in mind when it comes to property taxes, however. Knowing the correct assessment dates, exemp­tion filing periods and other relevant time elements can be critical for a taxpayer looking to minimize its property tax liability.

At a basic level, all taxpayers should know when to file returns, when assessors determine values, when protests and appeals must be filed, when taxing entities issue tax bills and when payment is due. This may seem simple enough, but there is often more than meets the eye. These dates vary from state to state, county to county and even municipality to municipality. Many jurisdictions revalue real property annually, while others do so on a less frequent cycle. In some jurisdictions, such as Florida, a taxpayer may re­ceive a discount for paying property taxes early. The following are some examples of timing issues that a taxpayer should keep in mind.

Assessment, Valuation Dates

Each jurisdiction assesses real and personal property as of a certain date each year. Many states, including Florida, Georgia and Tennessee, use a valuation date of Jan.1. In Alabama, the valuation date is Oct. 1 of the year proceeding the tax year, such as a valuation date of Oct. 1 2017, for the 2018 tax year, with a tax bill due Oct. 1,2018, and tax payments deemed delinquent if not paid by Dec.31,2018. Events occurring at or to the property after the assessment/valuation date are typically excluded from consideration when determining the taxability or value of the property for the relevant tax year.

The assessment or valuation date can have significant implications for the owner's property tax liability. For instance, a casualty event could result in vastly different assessments depending on whether the property damage occurred a few days before or a few days after the applicable valuation date.If a purchaser's new use will result in the property losing an exemption or being assessed at a higher assessment ratio, there might be an opportunity for substantial first-year tax savings if the closing occurs after the relevant assessment or valuation date.

The assessment date will also determine which sales and rent comparable examples the assessor can consider, and which years of income information are relevant. In the case of construction in progress, knowing the valuation date and properly documenting the status of construction as of that date can greatly affect the assessed value.

The assessment date may also dictate who is entitled to receive notices, file property tax protests or claim exemptions, so it is important for a purchaser to consider these issues at closing to ensure that its rights are protected. A prudent purchaser should promptly ensure that the property is assessed in its name and request that the seller immediately forward any tax notices it receives. Tax appeals are often required to be filed in the owner's name as of the assessment date, and in such cases, a purchaser should obtain the right to appeal in the name of the previous owner.

Some jurisdictions reappraise property on an annual basis, with values subject to increase or decrease each year, while others are on longer reappraisal cycles of up to six years. In jurisdictions with multiyear reappraisal cycles,there still may be instances where a value is adjusted before the next appraisal cycle, including new construction, casualty, sale of the property or other conditions.

Assessment, Claim Deadlines

Most states have various exemptions, property tax incentives and favorable assessment classifications that, when applicable, must be claimed with the local assessor. These may include charitable exemptions, current-use valuation for timber or agricultural properties, statutory abatements and the like. In many jurisdictions, properties are broken down into classifications such as commercial or residential, which may be assessed at a higher or lower rate.

In order to receive the benefit of these exemptions or lower assessment rates, it is of utmost importance to comply with all filing deadlines. In certain instances, exemptions and other favorable assessments can be waived if the taxpayer fails to claim them within the prescribed time periods.

Taxpayers must also remember to file personal property returns on time, where applicable. Missing a deadline can result in penalties, incorrect assessments and the waiver of exemptions. The person preparing the return should confirm the correct assessment date to ensure that only those items owned on the applicable assessment date are included on the return.

Protest, Appeal Deadlines

A taxpayer must be diligent in determining when valuation notices are issued (if at all) and the correct deadlines for filing protests to dispute high valuations. The failure to do so may result in missed deadlines, waiver of appeal rights and the payment of excessive taxes. Protest deadlines can vary widely, even within the same state, and are often 30 days or less from the date of the valuation notice. In some instances such as in Alabama when the value has not increased from the previous year, no notice is even required to be sent. Therefore, it is incumbent on the taxpayer to determine when the values were issued and what date protests must be received.

Appeals beyond the initial administrative level typically have specific filing deadlines and other procedural and jurisdictional requirements that must be strictly met in order to maintain an appeal. These requirements may include paying the taxes before they become delinquent, filing of a bond and other procedural requirements that are not always intuitive, so it is important to consult with local professionals who are well acquainted with the requirements in any particular jurisdiction.

Deck - Summary for use on blog & category landing pages

  • Put filing deadlines and other key tax dates on the calendar to preserve your rights to appeal and protect incentives.
Jan
30

Attorney: Owners Need to Investigate Whether Possible Tax Increases from New Tax Law can be Abated

''While Republicans and Democrats remain divided on the overhaul's benefits, there is a single undeniable fact: The sharp reduction of the corporate tax rates from 35 percent to 21 percent will be a boon for most businesses"

President Trump's Tax Cuts and Jobs Act is the first sweeping reform of the tax code in more than 30 years. Signed into law on Dec. 22, 2017, the plan drops top individual rates to 37 percent and doubles the child tax credit; it cuts income taxes, doubles the standard deduction, lessens the alternative minimum tax for individuals, and eliminates many personal exemptions, such as the state and local tax deduction, colloquially known as SALT.

While Republicans and Democrats remain divided on the overhaul's benefits, there is a single undeniable fact: The sharp reduction of the corporate tax rates from 35 percent to 21 percent will be a boon for most businesses. At the same time, employees seem to be benefiting too, with AT&T handing out $1,000 bonuses to some 200,000 workers, Fifth Third Bancorp awarding $1,000 bonuses to 75 percent of its workers, Wells Fargo raising its minimum wage by 11 percent and other companies sharing some of the increased profits with employees. Companies are showing understandable exuberance at the prospect of lower tax liability, but investments many firms are making in response to the changes may trigger increases in their property tax bills.

Some companies already are reinvesting in their own infrastructure by improving and upgrading inefficient machinery or renovating aging structures. Renovations to address functional or economic obsolescence can help to attract new tenants and, most significantly,command higher rental rates for the same space.

The real property tax systems in place for most states are based on an ad valorem (latin for "according to value") taxation method. Thus, the real estate taxes are based upon the market value of the underlying real estate. Since the amounts on tax bills are based on a property's market value, changes or additions to the real estate can affect the taxes collected by the municipality.

Generally speaking, most renovations such as new facades, windows, heating or air conditioning will not change the value or assessment on a property. The general rule is that improvements that do not change the property's footprint or use, such as a shift from industrial to retail, shouldn't affect the property tax assessment. However, an expans1on or construction that alters the layout of a property can -and usually does -result in an increased property assessment. Since realestate taxes are computed by multiplying the subject assessment by the tax rate, these changes or renovations can significantly increase the tax burden.

Tax Exemptions Available for Property Improvements

Recognizing that this dynamic could chill business expansions, many states offer a mechanism to phase-in or exempt any assessment increases. This can ease the sticker shock of a markedly higher property tax bill once construction is complete.

New York offers recourse in the form of the Business Investment Exemption described in Section 485-b of the Real Property Tax Law. If the cost of the business improvements exceeds $10,000 and the construction is complete with a certificate of occupancy issued, the Section 485-b exemption will phase-in any increase in assessment over a 10-year period. The taxpayer will see a 50 percent exemption on the increase in the first year, followed by 5 percent less of the exemption in each year thereafter. Thus, in year two there will be a 45 percent exemption, 40 percent in year three and so on.

Most other states have similar programs to encourage busmess investments and new commercialconstruction or renovations. The State of Texas has established state and local economic development programs that provide incentives for companies to invest and expand in local communities.For example, the Tax Abatement Act, codified in Chapter 312 of the tax code, exempts from realproperty taxation all or part of an increase in value due to recent construction, not to exceed 10 years. The act's stated purpose is to help cities, counties and special­ purpose districts to attract new industries, encourage the development and improvement of existing businesses and promote capital investment by easing the increased property tax burden on certain projects for a fixed period.

Not long ago, the City of Philadelphia enacted a 10-year tax abatement from realestate taxes resulting from new construction or improvements to commercial properties. Similarly,the State of Oregon offers numerous property tax abatement programs, with titles such as the Strategic Investment Program and Enterprise Zones.

Minnesota goes a step further and automatically applies some exemptions to real property via the Plat Law. The Plat Law phases-in assessment increases of bare land when it is platted for development. As long as the land is not transferred and not yet improved with a permanent structure, any increase in assessment will be exempt. Platted vacant land is subject to different phase-in provisions depending on whether it is in a metropolitan or non-metropolitan county.

Clearly, no matter where commercial real estate is located, it is prudent for a property owner to investigate whether any recent improvements, construction or renovations can qualify for property tax relief.



Jason M. Penighetti is an attorney at the Mineola, N.Y., law firm of Koeppel Martone & Leistman LLP, the New York State member of AmericanProperty Tax Counsel, the national affiliation of property tax attorneys. Contact him at JPenighetti@taxcert. com.
Jan
05

RETAIL SUFFERS FROM EXCESSIVE TAX ASSESSMENTS Assessors attempt to ignore market realities when valuing retail property.

Retail property owners' pursuit of fair treatment in real estate taxation seems to generate a river of appeals and counter-appeals each year. What makes this ongoing melee especially perplexing and frus­trating for property owners is a sense that taxing entities will often ignore market realities and established valu­ation practices to insist upon inequi­table, inflated assessments. This tendency to forsake indus­try norms is rampant, and calls for a dose of reality. This article uses the term "real value" to describe that of­ten ignored element of true property value or genuine value of the real es­tate only, meaning the market value that buyers and sellers recognize as a product of an asset's attributes and the real-world conditions affecting it. Real value in this usage is not a legal term, but encompasses issues that real estate brokers, property owners, appraisers, lawyers and tax managers regularly discuss in retail valuation. The array of issues that affect real value or market value range from the influence of ecommerce on in-store sales to build-to-suit leases, sales of vacant space, capi­talization rates for malls of varying quality, proper ac­counting for eco­nomic or functional obsolesce and more.

All of these important and timely issues find their way into an age-old discussion of how to properly value the real estate, and only the real estate, in retail properties for property tax purposes. Although these topics may involve complex calcula­tions or judgments, buyers and sell­ers regularly use these concepts to ar­rive at mutually agreeable transaction prices, which is exactly the sort of real value that assessors should recognize for taxation. Some taxpayers may be surprised to learn that the arms-length sale of a property on the open market isn't universally accepted among taxing entities as representing that property's real or taxable value. The path to rem­edying assessors' tendency to avoid finding the real value of the real estate only is to educate tax authorities and their assessors by appealing unjust as­sessments, and by sharing the details of beneficial case law that continues to shape tax practices across the country.

Cases in Point
Tax laws vary from state to state so that the applicable principle that comes from the case decision in one region may not fit neatly in another region. Nevertheless, trends and con­cepts are always important guideposts that need to be recognized. Taxpayers who present case law from other re­gions to their local courts can begin the process of introducing the truth of real value in their market. A number of new retail property tax cases have come from the Midwest. These cases deal with issues that tax­ payers coast to coast have argued and continue to argue in the struggle to establish real value in court for retail property. ln 2016, the Indiana Tax Court heard an appeal from the Marion County tax assessor, who was unhappy with an Indiana Board of Tax Review decision that granted lowered assessments on Lafayette Square Mall for the 2006 and 2007 tax years. The assessor had origi­nally valued the property at $56.3 mil­lion for 2006, but the county's Property Tax Assessment Board of Appeal re­duced that amount by more than half. Simon Property Group, which owned the mall during the years in question, appealed to the Board of Tax Review, which further reduced the property's taxable value to $15.3 million for 2006 and $18.6 million for 2007. During the appeal, taxpayer, Simon Property Group, presented evidence of the mall's $18 million sale in late 2007. It stated it had begun to market the property for sale because it was suffering from vacancy and leasing is­sues and the property no longer fit its investment mission. The taxpayer's appraiser indepen­dently verified the sale and concluded it to be arms-length, having been ad­equately marketed and there being no relationship between buyer and seller and no special concessions for financ­ing.This scenario seems like what most of us in the tax assessment community would consider a textbook example of market-defined value. Yet the county assessor appealed the review board's conclusion to the tax court.

What is noteworthy here is that the court affirmed the tax board's conclu­sions, which were also in line with the taxpayer's evidence from a real-world transaction. The sad part about this event is that it required years of review and expense to prove that a sale in the open market reflected value. In Michigan in 2014, the Court of Appeals heard a case presented at the Michigan Tax Tribunal which con­cluded in favor of the taxpayer, Lowe's Home Centers. The case is significant because the court accepted a market­ based value as true taxable value. The taxpayer's expert testified re­garding its appraisals and indicated that they were appraising fee simple interest or the value of the property to an owner, and at the highest and best use as a retail store, valued as vacant. They distinguished between existing facilities and build-to-suit facilities, ex­plaining that the subject property is an existing facility and that the build-to­ suit market rent or sale price is based upon cost of construction, whereas the existing market sale price or rent is a function of supply and demand in the marketplace. Basing his analysis on the above fun­damental premise, the taxpayer's ap­praiser valued the property in detail. Again, what makes this case signifi­cant is that the tribunal accepted the taxpayer's argument, and the court af­firmed that decision.

Incremental Acceptance
While these principles seem univer­sal, they have been rejected in many regions of our country. Tax-assessing communities wage battles to impose excessive values based on a rejection of the actual market. As most tax systems are based in the market value concept, the only resource for these taxing juris­dictions is to distort the concept. These issues are as old as dirt, but resolution remains elusive. The lesson here for the retail prop­erty owner appealing an assessment is to advance arguments that reflect real-world conditions supported by evi­dence. The decisions in these cases and others tell us that someone is listening to those arguments, and taking heed.

​Philip Giannuario is a partner at the Montclair New Jersey, law firm Garippa, Lotz & Giannuario. the New Jersey and Eastern Pennsylvania member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Philip Giannuario can be reached at  This email address is being protected from spambots. You need JavaScript enabled to view it.

Jan
05

Struggling with Vacancy? You May Get a Break on Property Taxes

To determine whether your property may qualify for relief, identify the market occupancy rate for that property type and submarket.

In many states, abnormally high vacancy at commercial properties should mean a lower tax bill. Market transaction evidence essentially dictates this result: States that assess taxable value on commercial properties based on market value, as though leased at market rents, should allow a deduction from that value when the property incurs above-market vacancy and collection losses.

Would buyers pay as much for a vacant income-producing property as they would for an identical property that is fully leased at market rates? Of course not. For the same reason, in states that value the property as though leased at market rents, below-market occupancy should result in a lower property tax assessment.

To determine whether your property may qualify for relief, identify the market occupancy rate for that property type and submarket. Loan underwriting is a good source of this information because lenders underwrite property loans based on the normal, stabilized occupancy rate.

For example, in many areas lenders assume 95 percent stabilized occupancy for shopping centers. In those areas, a shopping center that is only 80 percent occupied has below-market occupancy and, therefore, is worth less than otherwise similar properties with the higher market occupancy rates.

Similarly, the prospect of the imminent departure of a major tenant reduces the price a buyer would pay, even if the property currently enjoys market occupancy. And a vacant anchor space diminishes value even when the owner continues to receive rent on the dark space. All these circumstances signal an opportunity for property tax relief.

Start the process

If any of these circumstances apply, the best first step is usually to contact the tax assessor's office and inform the appraiser responsible for valuing the subject property. Providing data about the vacancy problem may be all it takes to reduce taxable value in the next assessment.

If this fails to achieve a reduced value, consider a property tax appeal. Engaging counsel experienced with property tax matters will help the owner evaluate the merits of appeal opportunities. Counsel may also be able to give the conversation with the assessor's office a fresh try.

An appraisal may be necessary to support a property tax appeal. The property owner's counsel should help select a good appraiser who can testify, if necessary. Counsel will also instruct the appraiser on what will be needed for property tax purposes.

Deduct a vacancy shortfall

In states where below-market occupancy affects property tax valuation, the appraiser should engage in a two-step analysis. First, determine the property's stabilized value. Then estimate the amount of vacancy shortfall to deduct from the stabilized value to account for the costs, risk, effort and skill that a buyer of the property would require to bring it to stabilized occupancy.

The three components of a vacancy shortfall deduction are direct costs, indirect or opportunity costs and entrepreneurial incentive. Direct costs include tenant improvements and leasing commissions that would be required to lease up the vacant space. Indirect costs include lost rent until the space is leased, lost expense recoveries and any free rent or other concessions the new tenants would require, based on market lease terms.

Finally, the entrepreneurial incentive profit margin represents the additional deduction from the stabilized value that value-add investors require for the extra risk, skill and effort required to bring the property to stabilized occupancy. The entrepreneurial incentive profit margin can range from as little as 20 percent to over 100 percent of the vacancy shortfall costs.

Another approach to account for entrepreneurial incentive is to increase the capitalization rate used in the income approach to calculating stabilized value during the first step. That does not show the effect of the abnormal vacancy as clearly. Ideally, step one includes several valuation approaches rather than relying on the income approach alone and concludes a reconciled value as if stabilized. Then the full effect of the abnormal vacancy can be isolated in the second step of the appraisal (i.e., in the vacancy shortfall analysis).

To value property with below-market occupancy, the appraiser must understand how buyers and sellers treat such properties in actual transactions. The appraiser will need to verify comparable sales prices directly with buyers and sellers or their brokers to determine how they determined the selling price for properties that sold subject to below-market occupancy. Though each party to the transaction may differ in its analysis, both will likely have performed this two-part examination to determine the as-is selling price of the struggling property. This market evidence will bolster the subject property's tax appraisal.

Just as a buyer typically would negotiate a lower price for deferred maintenance such as a leaky roof, buyers pay less for properties struggling with vacancy issues. Typically value-add investors expect a significantly higher return to compensate them for the elevated risks of trying to create additional value. Many states appropriately recognize this in lower property tax assessments.

Michelle DeLappe and Norman J. Bruns are attorneys in the Seattle office of Garvey Schubert Barer, where they specialize in state and local taxes. Bruns is the Idaho and Washington representative of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.  DeLappe can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..​
Dec
30

Time for your Annual Property Tax Check

Question: What do the following have in common? A developer of a new mixed-use power center. The owner-operator of nursing homes or assisted living facilities. A national retailer with a large distribution center. A 100+ unit multifamily owner or manager. The owner of hotel chain. A high-tech manufacturer with a research and development facility. Answer: They all pay property taxes.

Whether you are a real estate investor or need real estate to house and facilitate your business operation, your real estate taxes will be one of your highest expenses, and one that you must pay even if your property is vacant or underperforming. Now is the time for your yearly check-up on your Ohio properties to determine whether the values that form the basis of your property taxes are fair.

Review your assessment

Start by reviewing the assessment on your tax bills. In Ohio, your tax valuation should reflect a reasonable sale price under typical market circumstances for the land and improvements as of the tax lien date of January 1, 2017. Verify that the information in the county records is accurate. For many Ohio counties, including Cuyahoga, much of this information will be online. Double-check building size, land size, year built, number of stories, etc.

Grounds for a change in value

The following are the most common types of evidence considered by boards of revision, which is the initial reviewing body:

Sale

One way to demonstrate value is with a recent, arm's length sale price. Generally, if a sale occurred within two years of tax lien date, did not include any non-real estate items, and was typically motivated, the price will be good evidence of the real estate value for tax purposes.

Appraisal

An appraisal can also be used to justify a change in value. Appraisal done for tax appeals must value the property as of the tax lien date. The appraiser should also be ready to testify at the hearing. Appraisals for tax appeals may have requirements that are not necessarily present for appraisals for other purposes, such as financing, so it is helpful to talk to someone familiar with the process.

Property Conditions

If there are unusual conditions, severe deferred maintenance, sudden changes in occupancy, or ongoing vacancy issues that affect the value of your real estate, that information should be brought to the attention of the board. Recent sales of properties similar to yours that support a lower value for your property may also help demonstrate that your valuation is incorrect.

Filing Deadline

The deadline to contest your assessment for properties in all Ohio counties is March 31. Because it falls on a Saturday in 2018, the deadline will be extended to April 2. The complaint form can be obtained from the county in which the property is located. The form is only one page; however, there are restrictions on who can file a complaint (i.e. what relationship they have to the property) as well as some technical requirements that may be missed by those unfamiliar with them. Generally, only one complaint can be filed per triennial period, although there are some exceptions.Once the deadline has passed for a particular tax year, the chance to contest that assessment is lost.

Procedure

After your complaint is filed, the local school district where the property is located has the opportunity to file a counter-complaint. After the period to file both complaints and counter-complaints has expired, the county board of revision will schedule a hearing. Each county board has its own rules regarding the submittal of evidence, requests for continuances, etc. At the board of revision hearing you will have the opportunity to explain why the assessment of your property is inaccurate. Boards of revision are not generally bound by the Ohio Rules of Evidence; boards are also empowered to conduct their own research. The board of revision may adopt the value you are seeking; it may make no change, or grant you are partial decrease. It may even increase the value, so it is important to consider carefully before filing a complaint.

Appealing the BOR decision

If you do not agree with the decision of the board of revision (BOR), you can appeal it to the county court of common pleas, or the Board of Tax Appeals (BTA) in Columbus. The BTA is an administrative tribunal that only hears tax related cases. Proceedings at this level are more formal than at the board of revision. Prior to September 29 of this year, a decision of the BTA could be directly appealed to the Ohio Supreme Court. Now any appeals from the Board of Tax Appeals and courts of appeals to the Ohio Supreme Court are discretionary and not as of right. The Supreme Court can decide not to hear your case. It is unclear yet the consequences of this recent legislative change, but there may be an increase in disparate treatment across the state as a result.

School district increase complaints

All Ohio taxpayers should be aware that Ohio is one of the few states (Pennsylvania is another) where school districts are enabled to file an action to get your tax valuation increased. Usually, this occurs when a recent purchase price is higher than the most recent tax assessment. Be aware of how the taxes will be prorated when you are working on a sale transaction. Depending on the timing of the sale, you may end up owing additional taxes for a period during which you did not actually own the property.

No one enjoys paying taxes, but with some research and preparation, you can make sure that your share of the real estate tax burden is fair.

Nov
14

Oregon Law Offers Potential For Property Tax Reductions

Properties under construction and projects subject to governmental restriction can take advantage of legislative provisions the state provides.

The Portland metropolitan area is undergoing an unprecedented boom in commercial construction that extends from downtown to the suburbs and into just about every product type.Many taxpayers are preparing to pay larger tax bills, either because they are developing one of those new projects, or because they own properties that are becoming more valuable in response to growing demand for redevelopment sites. This is particularly common in developed areas where infill construction is hot.

Taxpayers in either of those positions may be missing out on significant tax savings if they are unaware of two provisions of Oregon law that could offer some respite. The Oregon legislative has carved out property tax provisions for a property under construction and for a property subject to a governmental restriction. The savvy property owner needs to know about these opportunities and comply with the statutory requirements to achieve the tax benefit.

The provisions are especially relevant to Portland's latest round of development, much of which is concentrated around infill in neighborhoods and on properties that were once used for industrial activities.

It is important to remember that Oregon law bases property taxes on the real market value of the property or the maximum assessed value under the Oregon Limits on Property Tax Rates Amendment of 1997. Also known as Measure 50, this amendment imposed restrictions on future increases in assessed values and on tax rates. Taxing entities multiply the assessed value by the tax rate to calculate the taxes owed.

The state defines "real market value" as the price an informed buyer would pay to an informed seller in an arms-length transaction. The statute goes on to state that if the property is subject to a governmental restriction as to use, "the property's real market value must reflect the effect of those restrictions."

That brings us to the tax-saving opportunities associated with usage restrictions and construction. Taxpayers typically think of government restrictions only as zoning law or a conditional land-use limitation. Often overlooked are environmental restrictions on a property's use, such as when the federal Environmental Protection Agency or the Department of Environmental Quality has identified the land as a contaminated site.

When a property is governed by a qualified environmental remediation plan, it is subject to a governmental restriction on the property's use. Obviously, the contamination and the future costs of remediation or containment significantly reduce the property's real market value.

One way to measure the reduction in market value caused by the government's environmental restrictions is to calculate the present value of the future clean-up costs. The assessing authority will consider the responsibility and costs of remediation or containment, and will usually reduce the real market value of the property significantly.

Another common governmental usage restriction occurs when a governmental agency provides low-interest loans or tax incentives as a means of encouraging development of certain types of public interest projects, such as low-income housing. The government loan will typically require that the property reserve a number of units for lease at a below-market rent.

In Oregon, the statute allows the property owner to choose whether it wants to enter into the special assessment program for low-income housing. A caution to the property owner that enters into the special assessment program for low-income housing is that the property could become subject to back taxes if it later fails to meet the requirements of the county, or of the loan.

Importantly, the statute does not require the property owner to enter the special assessment program to achieve the tax benefit of certain low-income housing units, as long as the loan meets certain statutory requirements and is properly recorded.

Not to be missed is the construction-in-progress exemption, which is available for income-producing properties. Most states encourage the development of commercial and industrial facilities by sheltering construction projects from the payment of taxation until the property is in use or occupied, and therefore generating rental income or enabling an owner-occupier to pursue business activities there.

The construction exemption requires strict compliance with the statute, and inadvertently failing to meet one of the criteria could cost the property owner a year of tax savings. The exemption isn't limited to manufacturing facilities; the Oregon Tax Court has held that this tax exemption is also available to a condominium under construction, provided that the units were held for sale until its completion.

While taxpayers in Portland's hot construction market enjoy many opportunities to take advantage of tax reductions, owners all across the state should be on the alert for these potential reductions.

Cynthia M. Fraser is a partner at the law firm Garvey Schubert Barer where she specializes in property tax and condemnation litigation. Ms. Fraser is the Oregon representative of American Property Tax Counsel, the national affiliation of property tax attorneys. Ms. Fraser can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
Nov
14

Property Taxes Should Reflect Retail’s Apocalyptic Times

Instead, assessors continue to ignore the clear fact that brick-and-mortar retail is in massive decline.

The retail sector is experiencing its darkest period ever, and taxing entities must come to grips with declining shopping center values.

News reports confirm that national retailers are closing stores at a record pace. In 2017 alone, retail mainstays such as JC Penney, Sears and Macy's have shuttered hundreds of stores. Leading market analysts including Credit Suisse and Cushman & Wakefield have predicted the closing of some 10,000 brick-and-mortar stores.

Even worse, many national retailers are filing for bankruptcy protection, with several others on analysts' watch lists. The more than 300 retailers reported to have filed for bankruptcy protection in 2017 include several major brands, from Payless ShoeSource to Gymboree and Wet Seal. These dire conditions have spurred some economists to describe the ongoing blood-bath as a retail apocalypse.

Double Trouble

There are two main reasons for the retail sector's decline:

First, consumer preferences are migrating from shopping at brick-and-mortar stores to more online shopping. Online sales increased by about $40 billion in 2016 and accounted for nearly 42 percent of all retail sales growth that year. Amazon alone accounted for 53 percent of that growth, reportedly quintupling its North American sales to $80 billion in 2016 from $16 billion in 2010.

Second, today's consumers would rather spend their money on experiences than on material goods. They prefer dining out, going to movies and travel over buying more shoes, jeans, and electronics. And when they buy goods, they are increasingly likely to buy them online.

These ongoing changes in consumer behavior have resulted in a disturbingly high inventory of vacant retail space, made worse by years of over-building in the sector. The United States reportedly has 40 percent more retail space per person than Canada, five times more than the United Kingdom and 10 times more than Europe.

Shopping malls have been particularly affected. Once popular destinations, many regional malls now scramble to find quality tenants and to attract shoppers. To survive, some malls have taken desperate measures to steer customers to their stores, such as hosting amusement parks and concerts. Sadly, analysts predict 20 to 25 percent of U.S. shopping malls will close within the next five years. The market is simply oversaturated.

Value Questions

Consequently, retail property value has plummeted. What once was seen as a safe investment is now fraught with risk. Suffering national retailers have made retail real estate riskier as the chances of store closures and tenant bankruptcies have increased. Investors only value retail properties highly when those assets are generating a reliable stream of rental payments from high-quality tenants. But with department stores, electronics retailers and apparel shops boarding up, there is insufficient demand to sustain the rental rates and occupancy levels necessary for many properties to support historical values.

Unfortunately, tax assessors are turning a blind eye to this new reality, continuing to assume that there is a viable market with robust buyer demand for this property type.

In many jurisdictions, tax assessors have even raised taxable values on retail properties. This has obviously created confusion among property owners, as the values assessed by taxing jurisdictions conflict with selling prices that owners can garner on the open market.

When vacant properties go up for sale, they may linger on the market for years. And when they do sell, they are often sold to unconventional users, such as hospitals, trampoline parks, call centers, churches and schools. These buyers know that they can leverage the market oversupply to achieve low acquisition prices.

When owners point to sales of comparable — and often vacant — retail properties as evidence of market value, tax assessors accuse them of applying the "Dark Store Theory," which many assessors have mischaracterized as a tax loophole. Assessors have even convinced news media organizations of this misconception, evidenced by headlines such as "Sinister-Sounding Dark Store Theory Is Corporate Welfare and "How Big-Box Retailers Weaponize Old Stores."

This has fueled an ongoing debate concerning how to properly value the fee-simple interest in income-producing property, which in most jurisdictions is the taxable value.

In essence, tax assessors claim that retail property owners are trying to escape taxation by calculating taxable value based on the asking rents and sales of vacant retail locations, rather than on actual rents and sales of occupied properties. Tax assessors contend that property owners are comparing apples to oranges.

Property owners counter that assessors are overstating real estate value by capturing the additional value of non-taxable assets, such as long-term leases with brand-name retailers.

Despite this debate, there is no hiding the fact that retail is going dark. Shopping malls and oversized big box stores have become largely obsolete, bankruptcies and store closures plague the industry, and the glut of retail space grows. Preferences for on-line shopping and consumer purchasing patterns are here to stay.

We are reaching a point where the "dark store is the norm. The market has turned previous assumptions about variables such as market exposure, vacancy, capitalization rates and market rents on their heads, resulting in a retail meltdown.

Daniel R. Smith is a principal with and general counsel for Austin, Texas law firm Popp Hutcheson PLLC, the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys. James Johnson is a graduate student at Texas A&M University's Real Estate Center and tax analyst for Popp Hutcheson. They may be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
Sep
28

Where Has All The Value Gone In Retail?

Telltale signs can signal opportunities for tax reductions in declining retail properties.

For a number of years the mantra in the retail industry has been that retail property values and shopping center values, in particular, will continue to decline because consumers make purchases online rather than in brick-and-mortar stores. While this may be true, simply reciting the words to property tax authorities rarely succeeds in arguing for a reduced assessment.

The best strategy to obtain significant tax reductions for declining retail properties is an analysis of indicators that measure the mall's or shopping center's health. These factors come in four categories: anchor tenants, in-line tenants, tenant occupancy costs and prevailing lease agreements. While these dynamics may not be readily apparent, their analysis is the key to obtaining property tax relief.

Anchor Tenants

Mall anchor tenants have a significant say in how the property is configured, and in the mix of inline tenants. Consequently, when a national chain department store or other anchor tenant starts to experience a decline in sales per square foot, it can send tremors through the entire shopping center. Declining anchor tenant sales grow more serious when the anchor tenant's sales per square foot fall below the national chain-wide average. If the anchor consistently underper­forms the chain-wide average, the store is often deemed a candidate for closure.

Inline Tenants

Inline tenants are the bread and butter of most shopping centers. No other group receives more scrutiny than tenants occupying 10,000 square feet or less. The first thing mall evaluators look for is the types of inline tenants, as well as the trends in those tenant types. Landlords and investors prefer permanent inline tenants over temporary tenants. It is also better to have retail inline tenants than non-retail users, such as offices, government agencies and the like. Of course, the level of inline vacancy is also important because higher vacancy levels may trigger co-tenancy clauses in leases, thereby permitting tenants to vacate before their leases expire.

Tenant Occupancy Costs

The trend in tenants' cost of occu­pancy (COO) may be the best predictor of inline tenants' future performance. By extrapolating COO trends, it is also possible to project a mall's performance several years into the future.

The COO measures the ratio between gross sales and real estate ex­penses, including rent, maintenance charges and other costs that a tenant bears. The COO ratio for Class B and higher malls is usually in the 13 per­cent to 17 percent range, depending on the strength of the tenants, and between 10 percent and 12 percent for lower-end Class C malls.

COO ratios that are higher than these ranges indicate tenants are spending more of their gross revenues to pay property occupancy costs. This reduces the available revenues to pay other operating expenses and, obviously, limits the tenant's profits. Year-over­year increases in COO ratios means tenants are experiencing increasing financial pressure. Eventually, COO ratios become so high tenants will either ask for rent relief or other lease conces­sions, or just walk away.

Prevailing Lease Agreements

Most inline tenants enter into triple­net lease arrangements with the prop­erty owner when a shopping center first opens. Triple-net leases require tenants to pay for maintenance, insur­ance, real estate taxes and other property operating expenses, including the cost for operating common areas within the mall. As a mall declines, inline tenant sales per square foot dwindle, rental rates for new tenants decline and COO ratios increase. At some point, tenants will be unable to pay their rent and still make a profit. At this point, they are likely to ask the mall owner for some type of rent relief.

Rent relief for inline tenants takes different forms, but usually consists of converting triple-net leases to leases paying a percentage of sales, or some­times to gross leases, both of which make the mall owner bear more operating costs. An increase in the number of percentage and gross leases shows that inline tenants are unable to generate enough sales to pay rent and other occupancy expenses.

As more and more leases become percentage or gross leases, the expense burden on the mall owner increases, and the likelihood grows that the mall will close. During this time, the mall owner may replace departing inline tenants with new tenants that demand gross lease arrangements, which further contribute to the mall's decline.

Seek Early Property Tax Relief

The four factors discussed above are interrelated. The progression of falling dominoes starts when the anchor tenant's sales begin to decline. This then leads to a fall in the number of permanent inline retailers, a rise in COO ratios, and the replacement of preferred triple-net leases with percentage or gross leases. All these factors put downward pressure on a retail property's value, which typically reduces the property's tax assessment.

Most of this sequence cannot be observed because it happens below the surface, but it may be the precursor to a mall's failure. Thus, the local property tax authority may not realize a mall is in decline until it falls off the cliff, as when an anchor tenant closes its doors or high-end retailers fail to renew their leases and move to other malls.

Astute retail property owners and operators will identify the underlying problems in a mall or shopping center early on, and bring those difficulties to the attention of the local tax assessor. Doing so may reduce taxes - and mall operating expenses - well before a property is in free-fall mode. If the tax relief is significant and obtained early in the process, it may even extend the life of the mall.

Cris K. O'Neall is a shareholder at the law firm Greenberg Traurig, LLP and focuses his practice on ad valorem property tax assessment counseling and litigation. The firm is the California member of the American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
Sep
25

Louisiana: Tax Exemption For Partially Completed Construction?

Passage of a new ballot initiative will confirm exemption of partially completed property from taxation."

Any taxpayer planning to develop a new property must consider how local taxing entities will treat the project during construction, but the question is especially important in evaluating and comparing overall costs of potential development locations during an industrial site search.

States generally recognize Construction Work in Progress (CWIP) as property that is in the process of changing from one state to another, such as the conversion of machinery, construction materials and other personal property from inventory into an asset or fixture by installation, assembly or construction. There is no clear consensus among taxing jurisdictions as to whether (or how) a tax assessor should value such par­tially completed construction on the applicable assessment date.

Many states including Alabama, Missouri and North Carolina value CWIP based on the value or percentage of completion on the assessment date. Kansas values incomplete construction based on the cost incurred as of the assessment date. Florida, Maryland, Virginia and West Virginia assess CWIP when the work has progressed to a degree that it is useful for its eventual purpose. And in South Carolina, improvements are only assessed upon completion.

With the exception of a few errant assessments in the early 1930s, Louisiana has never assessed partially completed construction for property tax purposes. Rather, taxing jurisdictions assess and add the completed property to tax rolls as of January 1 of the year immediately following completion of construction. This complements Louisiana's industrial tax exemption program, which exempts certain manufacturing property from ad valorem taxation for a specified number of years.

Unfortunately, properties on which ad valorem taxes have been paid are ineligible for participation in the exemption program. Thus, if a taxpayer has paid taxes on a project as partially completed construction, the property is no longer eligible for the industrial tax exemption and remains on the taxable rolls, subject to assessment each year. Obviously, assessing projects with partially finished construction in this manner would significantly diminish the value of the exemption pro­gram to taxpayers and undermine its usefulness to economic develop­ment agencies as an incentive tool.

In 2016, a local assessor broke with established practice and initiated an audit that included construction work in progress on a major industrial taxpayer. This audit raised statewide and local uniformity concerns over the assessment of a single taxpayer's partially completed construction in a single parish, and jeopardized the taxpayer's existing industrial tax exemption.

The taxpayer immediately filed an injunction action in district court, and the Louisiana Legislature took up the situation during its regular 2017 legislative session. Recognizing the need to formalize the exemption, the Legislature referred to voters a constitutional amendment that would codify the exemption of construction work in progress from assessment. Louisiana is one of 16 states that require a two-thirds supermajority in each chamber of the Legislature to refer a constitutional amendment to the ballot, so their vote underscores the strong support among lawmakers to codify the exemption.

Act 428 would add a subsection to Article VII, Section 21 of the Louisiana Constitution, which lists property that is exempt from ad valorem tax assessment. The new provision would exempt from ad valorem tax all property delivered to a construction project site for the purpose of incorporating the property into any tract of land, building or other construction as a component part. This exemption would apply until the construction project is completed (i.e. occupied and used for its in­tended purpose).

The exemption would not apply to (1) any portion of a construction project that is complete, available for its intended use, or operational on the date that property is assessed; (2) for projects constructed in two or more distinct phases, any phase of the construction project that is complete, available for its intended use or operational on the date the property is assessed; (3) certain public service property.

If voters approve the ballot item, CWIP will be exempt from property taxes until construction is "completed." The proposed amendment defines a completed construction as occurring when the property "can be used or occupied for its intended purpose." The exemption would thus remain effective until the construction project or given construc­tion phases of the project are ready to be used or occupied.

A constitutional amendment does not require action by the Governor. This constitutional amendment will be placed on the ballot at the state­wide election to be held on Oct. 14, 2017.

Angela Adolph is a partner in the law firm of Kean Miller LLP, the Louisiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
Sep
11

Misnaming, Misusing The Dark Store Theory

What's in a name? Discussing valuation principles with concise language avoids misunderstanding.

Dark store theory is being used incorrectly to name what is standard, accepted, and proper appraisal practice. It is most often employed by news media to mistakenly suggest that big-box storeowners are taking advantage of a property tax loophole and arguing that a property should be valued as if it were vacant even when the store is open and operating.

While the words "dark store" evoke images of villainous or nefarious activity, assessors and taxpayers should see through this provocative language.

The phrase often confuses the fee simple (absolute ownership of the real estate subject only to governmental powers) market value of the real es­tate with other types of quantifiable value, such as investment or insurable value.

Investment value reflects value to a specific investor based on his own in­vestment requirements, while insur­able value reflects improvements or the portion of the property that may be destroyed.

Typically, property taxes should only be assessed on the real estate value. That's why it's important to differentiate property value for real estate tax assessment from other types of value.

What local law deems real estate value often is different from the property's value to a lender or investor. For example, an owner may include large manufacturing equipment as part of collateral for a mortgage.

This equipment may be valued along with the real estate in determin­ing a loan amount, and may even be included in a financing appraisal; yet the value of that equipment should not be taxed as real estate.

Although this careless and unsys­tematic misapplication of dark store theory concerns commercial real es­tate, we will use examples of single­family homes to illustrate its con­cepts.

Comparable sales valuation

In many jurisdictions, assessors value the land, building and improve­ments for real estate tax purposes. If using sales of comparable proper­ties to determine value, the assessor should examine exactly how much was paid, by whom, for what.

If the sale price of the compara­ble property includes value for an above-market lease, for unusually favorable financing terms, or for an above-average credit rated tenant, the assessor must adjust the sale price to reflect market conditions. The flip side is also true: a sales price based on below-market rent should also be adjusted.

Users of the "dark store theory" label often argue that a busy store deserves a higher real estate tax as­sessment because a large and sophis­ticated company is running a suc­cessful business there. But excluding business value from the real estate as­sessment doesn't mean that the prop­erty owner made ill-advised business decisions.

The adjustments recognize that the sale included additional sources of value or achieved valuable business objectives in addition to the exchange of real estate. The value of these items is separate, and must be excluded from the real estate value for tax pur­poses.

Consider this residential example: a buyer pays 20 percent more than the high end of the market range to buy the house next door to the buyer's brother. The two families have chil­dren of similar ages and expect to save money by carpooling and shar­ing child care and other expenses.

The buyer is acting in his own self­interest and values the proximity to the brother's household, and the ob­jectives the buyer will meet by living next door. That does not mean that the additional money the buyer paid for those considerations increases the value of the house itself to the typical buyer.

lf an appraiser uses this purchase price as a comparable sale to value a similar house across the street, the purchase price should be adjusted to reflect a more typical market partici­pant.

Similarly, any sales of comparable properties used to value big-box retail stores must be adjusted to exclude any value paid for items that are not real estate, whether they are an above­market-quality tenant, atypically long lease duration or other intangible property.

Income approach valuation

Two distinct and important issues get muddied by dark store adherents in valuations based on potential in­come generation.

The first is whether the properties are valued as if vacant, or as if occu­pied at market terms. Valuation as if occupied at market terms by a typi­cal market tenant does not include a landlord's lease-up time and costs, which are factors in the value of a va­cant property.

Secondly, there will generally be a correlation between better retail properties in better locations and the financial strength of the tenants in those properties and areas. Howev­er, the business success or failure of a specific tenant cannot be the basis of a real estate tax assessment if that tenant is not representative of the market.

Returning to the single-family world, houses in desirable areas with good schools, municipal servic­es and low crime rates are generally occupied by people with higher in­comes than homes in less-desirable areas.

However, that does not mean that the income of a specific resident deter­mines the value of the house that he or she occupies. If a brain surgeon and a retail cashier are next-door neighbors in similar houses, the values of the homes do not change.

If two similar retail stores are located in a similar area, but one is gener­ating extremely high store sales while the other is vacant because of a business decision to exit the local market, the value of the properties for real es­tate tax purposes should be the same.

Valuing property is always fact intensive, and the array of specifics dif­fers from situation to situation. There are no shortcuts to an accurate and fair tax assessment value. If the data used is bad and valuation process sloppy, the value conclusion will also be wrong. Consistent and rigorous analysis is vital.

Don't be fooled by labels

Proper appraisal methodology does not become nefarious just because it is erroneously called a "dark store loop­hole." A rose by another name would smell as sweet. Taxpayers need to pay attention when the term "dark store" is bandied about - it is often used to confuse important appraisal concepts and practices.

To be fair and uniform, property taxes must be assessed only against the real estate, and be based on accurate data reflecting typical market participants. Value related to the success of the retailer's business is captured by other taxes levied on income, sales or commercial activity.

To include those items as part of the property tax assessment is not closing a tax loophole; it amounts to double taxation.

Ignore incendiary language and apply appraisal methodology consistently and diligently to arrive at a fair value for real estate taxes.

Cecilia Hyun is an attorney at the law firm Siegel Jennings Co, L.P.A., which has offices in Cleveland and Pittsburgh. The firm is the Ohio and Western Pennsylvania member of American Property Tax Counsel. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
Sep
01

Don't Let Taxing Authorities Kill Your Deal

Tips from a veteran attorney on handling the assessments that can spell the difference between a successful closing and coming up short.

Almost every week, I get calls from brokers or investors who want to know how property taxes could impact a potential purchase. With property taxes forming the largest variable expense in most real estate acquisitions, investors should question the tax implications of every deal.

In some jurisdictions, the effective property tax can reach 5 percent of market value, so an unexpected increase can cause a deal to go under. With planning and an understanding of the local environment, however, investors can fully appreciate the risks and expenses, and may be able to come in with a winning bid in a tight market.

Most of the inquiries I receive relate to properties in Ohio or Pennsylvania, where school districts can, and do, file appeals to raise taxes on real estate. In those states, the aggressor is often a school board that seeks to value an asset based on its recent sale price. In other states, it may be the county assessor. Some states have deemed it unconstitutional to "chase" sales in setting taxable value.

Know your district

Knowing which states have aggressive taxing authorities can reveal potential problems, but familiarity with those agencies and their personnel is the key to deciding whether to walk away from a deal or to stay and find a creative solution, resulting in a deal that is favorable to everyone.

An examination of any real estate purchase, whether office, retail, hotel, etc., in the context of various taxing districts' behavior illustrates the importance of thoroughly knowing your taxing authority. In all the following examples, assume that the property is uniformly assessed and that the current assessment is consistent with the value of competing properties.

Also assume that the property is assessed for less than the proposed sale price, and that increasing taxable value to the amount of the purchase price would ruin the deal.The first example takes the case of a taxing district with an aggressive, unyielding district attorney. The tax district's counsel is unwilling or unable to see that the tax increase will end up lowering the property's value below the purchase price.

In this scenario, the assessment is raised to the purchase price, which becomes part of the tax budget. Since taxing entities typically establish tax rates based on the overall assessment of the community, the tax district only gets a single year's increase in tax revenue. In subsequent years, the newly increased tax burden weighs down the property's market value, ending in an eventual refund of taxes. The net effect is a loss for the district and a loss for the taxpayer, though the taxpayer eventually recovers some of those losses. It is altogether a lose-lose situation.

Big gambles

The relatively passive school district occasionally files an increase appeal and generally isn't driven to get the last penny from the taxpayer. At first this seems like a good situation. Although a passive district may be less difficult to deal with than a more aggressive counterpart, it still leaves the buyer with a great deal of uncertainty. Risking large sums of money on chance is gambling, not investing.

The advice to the investor in a passive district rests greatly upon the taxpayer's risk tolerance, and upon local counsel's experience with how cases are typically settled. In some instances, the investor could assume that the case would be settled similarly to past cases. This requires counsel that has enough experience with the district to gauge the risk as well as the possible outcome. It also requires that the buyer fully understand the nature of the risk.

Finally, there are districts with counsel that is both reasonable and creative. In that situation, attorneys have been able to resolve tax questions with the district in advance of closing. This allows for the obvious decrease in risk. As in the previous example, it takes a great deal of experience with the opposing attorney.

Of note, approaching a district early can produce a better result. Taxing authorities have become more likely to pursue appeals of assessments, and the chances that a sale will go unnoticed—and that an assessment will go unchanged—are becoming slimmer.

Due diligence means more than determining what might happen; it requires arranging the deal to whatever extent is possible to bring about the desired outcome. Paper the file with an appraisal that satisfies any allocations, and make notations in the purchase agreement that support the tax strategy.

Being able to explain the nature of the purchase later in a tax hearing is important, but having facts and documents that support those assertions is much more valuable. With the right opportunity and preparation, an investor may be able to enter into an acquisition while eliminating risk that has driven away the competition.

J. Kieran Jennings is a Partner at the law firm Siegel Jennings Co, L.P.A., which has offices in Cleveland and Pittsburgh. The firm is the Ohio and Western Pennsylvania member of American Property Tax Counsel. Kieran can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
Aug
22

Delaware Court Unlocks Opportunities to Reduce Property Tax Burden

Reducing property tax assessments can be challenging under the best of circumstances, and distinctions between state tax systems make minimizing that burden across an office or industrial portfolio especially daunting. But a recent Delaware Supreme Court decision provides taxpayers with a new, yet surprisingly familiar, opportunity to ease the tax burden on properties in The First State.

Delaware's Tax Assessment System Shows its Age

Under Delaware law, property must be valued at its "true value in money," a term interpreted to mean the property's "present actual market value." However, in order to implement the Delaware Constitution's mandate of tax uniformity, the state applies a base­year method of assessing property. That means that all property in a jurisdiction is assessed in terms of its value as of a certain date, and that value remains on the books indefinitely until the jurisdiction performs a general reassessment. For Delaware's northernmost county, New Castle County, the last reassessment occurred in 1983, so all property therein is valued as of July 1, 1983.

A major challenge to contesting assessments in Delaware is that a taxpayer must determine the property's 1983 market value. Determining what a property is worth today is not always easy, but proving a property's value as of three decades ago has proven increasingly difficult. Furthermore, in the absence of regular adjustments to a property's assessed value, the county asserts that a property should be valued either as it existed in 1983 or, if it was built after 1983, as if it is new and undepreciated.

Delaware's courts have explained that taxpayers have two options in assessment appeals. The first option is to use data from the base year. The property owner could, for example, find sales of comparable properties in or around 1983, or using prevailing market rents and capitalization rates from 1983. The alternative route is to calculate the current market value of the property and "trend back" that amount to 1983. The County Board of Assessment Review has expressed a near-absolute preference for 1983 data, and rarely finds a taxpayer's trending formula acceptable.

The inequities of this practice are blatant. Under the county's interpretation of the base year system, a building constructed in 1983 and located next door to a similar new building should be assessed and taxed at the same level, even though buyers, sellers and tenants are likely to value the buildings quite differently. If the owner of the 34-year-old building wanted to contest its assessment, the owner would have to identify data for new buildings in 1983. Of course, as time marches on and years turn to decades, relevant data from the base year becomes increasingly difficult to find.

Taxpayers Highlight the System's Obsolescence

Taxpayers have raised many challenges to Delaware's assessment system, but most successful challenges have been fact-specific, and no recent court has gone so far as to order Delaware's counties to complete a reassessment. But after several attempts, the taxpayers in Commerce Associates LP v. New Castle County Office of Assessment successfully underscored the largest flaw in the system.

One Commerce Center is an office condominium building in Wilmington, Delaware. The county originally assessed each office condominium upon construction in 1983. After keeping the same tax assessment for decades, the owners of several of the condominiums challenged their assessments in 2015.

Before the County Board of Assessment Review, the owners presented five different analyses. Two analyses relied on comparable sales transactions, one using 1983 sales of buildings that were about 32 years old, and one using modern asking prices trended back to 1983 using the Consumer Price Index (CPI). Two analyses relied on income, one using 1983 data and one using 2015 data trended back to 1983 using the GPI. The fifth analysis employed a cost approach using the original construction expense and reflecting depreciation. These approaches showed that the properties were over-assessed by more than 40 percent.

The county presented evidence of the condominiums' sale prices in 1985, when each unit was relatively new. The county also presented an income approach using 1983 data and a cost approach reflecting no depreciation. The county's approaches all supported the original assessed values, and the board ultimately denied the taxpayers' appeals.

State Supreme Court Approves a Decrease

After having their appeals denied by the Superior Court, the taxpayers brought their challenge to the Delaware Supreme Court. In a tersely worded decision, the Supreme Court reiterated that assessors must consider all relevant factors bearing on the value of a property in its current condition. While the County argued that no depreciation was needed because the properties were brand new in 1983, the court noted that the properties were, in reality, more than 34 years old. Failing to account for their age and any resulting depreciation or appreciation resulted in a flawed value.

Although the county has yet to implement the court's decision, the effects of the decision will likely be widespread. Most properties in New Castle County built after 1983 are assessed without any depreciation. Because each tax year brings with it a new opportunity to challenge an assessment, property owners can bring a new appeal reflecting the property's current depreciation to the Board of Assessment Review every year. Ultimately, this could result in the downfall of the decades-old base-year assessment, as the county finds it necessary to update assessments for a larger number of properties.

A number of questions remain unanswered by the court's ruling. How should assessors value properties in areas that were rural in 1983 but are now highly developed? How can taxpayers quantify and reconcile appreciation and depreciation?

Future cases will need to resolve these questions, but for now, owners of Delaware property should evaluate their portfolios and determine whether opportunities exist to improve profitability by reducing property taxes.

Benjamin Blair is an attorney in the Indianapolis office of the international law firm of Faegre Baker Daniels, LLP, the Indiana and Iowa member of American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
Aug
03

Property Owners Celebrate Fair Taxation Ruling by Pennsylvania Supreme Court

"Nearly every state constitution requires uniformity in taxation, meaning that two like properties should receive the same assessment, no matter how they are owned, occupied, built or financed."

Commercial property owners around the country are cheering a recent Pennsylvania Supreme Court decision that breathes new life into constitutional guarantees of uniformity in taxation.  Overruling a decade of lower court decisions, the ruling reestablishes the primacy of constitutional uniformity protections to taxpayers in the strongest possible language, fittingly issued just one day after the July 4 holiday.

Nearly every state constitution requires uniformity in taxation, meaning that two like properties should receive the same assessment, no matter how they are owned, occupied, built or financed.  Yet commercial property owners across the nation have been under attack by assessors attempting to alter appraisal theory in order to pin higher assessments and higher real estate taxes on specific owners.

These assessors have been singling out occupied commercial properties by setting assessments based on financing mechanisms that fail to meet standard appraisal definitions of market sales, incorrectly basing taxable value on data relating to sale-leasebacks, turnkey leases and contract rights arid duties associated with tenant financing.

In Pennsylvania and Ohio, the only states that provide school districts a statutory right to file increase appeals, the school districts have been targeting specific commercial owners for higher assessments using this same flawed methodology.  These selective or “spot” appeals disrupt constitutionally required uniformity in assessment.  Many Pennsylvania school districts have been paying contingency fees to behind-the-scenes consultants to select properties for appeal.

Commercial Portfolio Owners Beware

The consultants’ favorite repeat targets are national real estate portfolio owners that cannot vote in local school board elections.  The practice has gained traction over the past five years, with national companies being forced to defend against an ever-increasing number of increase appeals in which school districts seek discovery of the property owner’s confidential real estate information and then use it against the owner to justify an increase in assessment.

This practice violates fundamental fairness and puts targeted commercial owners at a competitive disadvantage with commercial owners whose assessments are not increased.  It also shifts more of the tax burden from residential to commercial owners, since most school districts are loathe to sue voting residential owners to increase their assessments.

In Valley Forge Towers Apartments LP vs. Upper Merion Area School District, the school district filed increase appeals only against commercial property owners and not against residential owners.  The district selected properties for appeal after consultation with Keystone Realty Advisors, a New Jersey tax consultant that employs trained appraisers and takes a 25 percent contingent fee on any increase in taxes resulting from its recommended appeals.

Four apartment building owners that had been targeted for these appeals challenged the school district’s selection of only commercial owners for appeals as violating the Pennsylvania Constitution’s uniformity in taxation requirement.  Both the trial court and the first-level appellate court denied the taxpayers’ challenge, holding that the school districts goal of increasing revenue justified the selective nature of the appeals.

The Pennsylvania Supreme Court reversed those rulings.  The court stated that all taxpayers must be uniformly treated, whether they are residential or commercial owners, and that no assessment scheme can systematically treat residential and commercial taxpayers differently.

The court stated no less than 13 times that all real estate is a single class.  The court observed that this constitutional tenet has been in place since 1909 and was reaffirmed by the court on multiple occasions, and that the court had no intention of discarding it.  The court then stated that the government may not create sub-classifications of property for different tax treatment, a point it repeated nine more times in its decision.

What the Ruling Means Going Forward

The ruling makes it abundantly clear that all real estate must be taxed uniformly, and that this constitutional protection is for the benefit of the taxpayer:

“First, all property in a taxing district is a single class, and as a consequence, the uniformity clause does not permit the government, including taxing authorities, to treat different property sub-classifications in a disparate manner,” the court stated.  “Second, this prohibition applies to any intentional or systematic enforcement of the tax laws and is not limited solely to wrongful conduct.”

The court then remanded the case to determine if there was a systematic disparate treatment of the Valley Forge taxpayers.  It will be unnecessary to show that the school intended to treat the taxpayers differently from other taxpayers.

The principal takeaway from the case is that all taxes must be uniformly assessed, and that any purposeful or unintentional systematic assessment that treats taxpayers in a disparate manner is unconstitutional.

The Pennsylvania Supreme Court’s decision underscores the need for a real estate taxation standard that treats residential and commercial properties uniformly.  In current practice, assessors around the country assess commercial and residential properties using different standards.  Residential property is taxed on a fee-simple, unencumbered basis: that is, the property is assumed to be vacant and available for purchase as of the assessment date.

Commercial property, on the other hand, increasingly has been assessed on the assumption that it is occupied by a successful business.  In those instances, the assessment reflects the way that the business finances its occupancy, whether it chooses to lease the building or own it outright.  Commercial property frequently trades as part of an ongoing business or with long-term leases, deed restrictions or other use restrictions in place.  But to be uniform, property taxes must rely upon a single interest valued for tax purposes.

The only interest that is uniform across all categories is the fee-simple, unencumbered value.  As the Valley Forge decision makes clear, there can only be one standard because all real estate is a single class.

Now, across the country, tax professionals can use the Valley Forge decision to bring fairness to commercial property owners.

Sharon DiPaolo

Sharon DiPaolo is a Partner in the law firm Siegel Jennings Co, L.P.A., which has offices in Cleveland and Pittsburgh.  The firm is the Ohio and Western Pennsylvania member of American Property Tax Counsel. Sharon can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Jul
10

Tax Rules Clarified For Section 42 Housing

"Wisconsin Supreme Court reaffirms subsidized housing valuation methods."

In a major victory for subsidized housing developers and investors, the Wisconsin Supreme Court has reaffirmed longstanding principles governing the assessment of these properties.

The Dec. 22, 2016 decision in Regency West Apartments LLC v. City of Racine confirms that the assessment of a subsidized housing project is a property-specific exercise that must take into account the type of federal program involved, specific restrictions on the property and actual property income and expenses.

The decision also affirms that the value of a subsidized property cannot be determined by comparison to conventional apartment properties that have no restrictions and can charge full market rents.

Historical context

The Wisconsin Supreme Court first upheld these principles in a 1993 case involving a Milwaukee apartment project subject to rental and other restrictions imposed by the U. S. Department of Housing and Urban Development (HUD).

The assessor had valued the property based on market rents at conventional apartments, ignoring the property owner’s inability to legally charge market rents. The Supreme Court nullified the assessment, stating that the assessor had illegally assessed the property by “pretend[ing]” that the HUD restrictions did not apply.

The new decision

In the December 2016 decision, the Supreme Court reaffirmed the 1993 decision and announced additional rules governing what assessors cannot do in assessing subsidized housing.

That case involved 72 rental units regulated under Section 42 of the Internal Revenue Code, which provides federal income tax credits for investors in affordable housing. Regulations governing the property restricted both rent and tenant income levels, and required the owner to enter into a 30-year land use restriction agreement.

For the first of the two tax years in issue, the assessor valued the project under an income approach but failed to consider the owner’s actual income and expense projections. Instead, the assessor estimated vacancy and expenses using a mass-appraisal model comprised of market vacancy rates and market expenses for unrestricted properties.

The assessor also used a low 6 percent base capitalization rate, likewise derived from a mass appraisal model consisting of market-rate properties.

For the second year in issue, the assessor used a comparable sales approach based on sales of three properties that the assessor claimed were comparable to the subject property. However, none of those properties was a Section 42 project: Two were rent-subsidized HUD Section 8 properties, and the other was a mixed-use property consisting primarily of market-rate apartments with a few Section 42 units.

The Supreme Court nullified the assessments for both years, concluding that neither approach the assessor used complied with the rule that an assessor cannot value subsidized housing by “pretend[ing]” that the restrictions on the property do not exist.

For the income-based assessment, the Supreme Court found two fatal flaws in the assessor’s methodology.

First, the court found that the assessor violated Wisconsin law by using estimated market-based vacancy and expenses instead of the property’s projected actual vacancy and expenses. The court reaffirmed that its 1993 decision “unambiguously” requires assessors to use actual income and expenses when valuing subsidized housing under an income approach.

The court further held that by using mass appraisal estimation techniques instead of income and expense information specific to the subject property, the assessor violated the statutory requirement that assessors must use the “best available” information.

Second, the court found that the assessor violated Wisconsin law by deriving a capitalization rate from market-rate properties instead of from the specific market for Section 42 properties. The court explicitly held that Wisconsin assessors valuing federally regulated properties “may not” derive a capitalization rate from market-rate properties.

For the comparable sales-based assessment, the court likewise concluded that the three sales the assessor relied on were not “reasonably comparable” to the subject property, as Wisconsin law requires. The court definitively rejected the assessor’s claim that Section 42 properties and Section 8 properties have similar restrictions and similar rates of rent and are there-fore comparable.

In rejecting the assessor’s claim that those two programs have similar restrictions, the court engaged in a lengthy analysis of the fundamental differences between them.

The court emphasized that the two “are vastly different” programs with “different risks for the owners,” since Section 42 is an income tax credit pro-gram while Section 8 is a rent subsidy program; thus, Section 42 properties are “riskier investment[s]” because the government does not insure against nonpayment of rents.

The court likewise rejected the assessor’s claim that the two programs have similar rents, holding that the comparison was invalid because the assessor failed to recognize that Section 8 rents are subsidized by the government while Section 42 rents are not. The Court thus concluded that as a matter of law, Section 8 and Section 42 properties are not reasonably comparable because they do not have the same restrictions.

Key takeaways

The decision is a major victory for subsidized housing developers and investors for several reasons. First, it reaffirmed the 1993 decision that subsidized housing cannot be valued under an income approach based on the income and expenses of conventional apartments. It also provided additional guidance as to what assessors cannot do, including developing a capitalization rate from sales of non-subsidized properties.

Second, the decision addressed for the first time what assessors cannot do in assessing subsidized housing under a comparable sales approach, since the 1993 case only addressed assessment under an income approach.

Finally, and perhaps most significant for investors in these properties, the decision specifically held that different types of subsidized housing programs – Section 42 and HUD Section 8 in particular – are vastly different, and that assessors cannot consider a property under one program to be reasonably comparable to a property in a different program just because they both involve a form of subsidized housing.

Gordon Robert 150Robert Gordon is a partner in the Milwaukee office of Michael Best & Friedrich LLP.  He is also the designated Wisconsin member of Amercican Property Tax Counsel.  Robert can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Jul
07

Lifting the Veil on Chicago and Cook County Real Estate Taxes

It seems like politics watchers and the news media like to establish a veil of mystery around Cook County tax assessments. And although it sells papers and conjures an atmosphere of the unknown, the most important thing to know about tax relief in Cook County is the role of market value in assessments and how taxes are  calculated.

On June 13, taxing entities announced that tax rates in the City of Chicago would be going up approximately 10 percent. The second installment 2016 tax bills were scheduled to be published around July 1 with a very short payment deadline of Aug. 1, 2017. Those bills will reflect all changes to assessments, as well as the new tax  rates.

Tax increases make good headlines, but the increases were not a real surprise. The large anticipated property tax increases arise from a local ordinance designed to recapture a portion of the City of Chicago's and Chicago Public Schools' large budget deficits and pension plan deficits. This local real estate tax increase resulted from the absence any current resolution of the continuing budgetary stalemate between the general assembly and the governor's office in Springfield, Illinois.

The table below illustrates the potential real estate tax increase that could result from the projected 9.3 percent 2016 tax increase from the previous year's tax bills. It addresses a commercial property in Chicago which had a $10 million assessor's fair market value in 2015, considering the projected 2016 property tax increase of about 10  percent.

Projected Tax Bill
$10 million commercial property

 

2015

2016

Market value

10 million

10 million

x 25 percent assessment ratio

  

Assessed value

2.5 million

2.5 million

Equalization factor

2.6685

2.8032

Equalized assessment

$6,671,250

$7,008,000

Tax rate

6.867 percent

7.145 percent

Tax bill (increase 9.3 percent)

$458,114.74

$500,721.60

News outlets made a splash over the approximate 10 percent increase in the tax rate. However, to satisfy the needs associated with funding police, fire and schools, it is likely that there will be future tax increases over and above that initial 10 percent.

What to do? First, understand that a tax challenge is not surrounded by intrigue. Individuals can very easily appeal their assessments to the assessor. Taxpayers that present good facts and arguments following sound appraisal theory will often find some tax relief. Property owners can take a further appeal to the board of review and beyond. However, at the board level, corporate taxpayers require an attorney.

There are a number of practical arguments to consider. One is to pursue an argument based solely on the assessment as compared to the actual market value of the property, considering the contract rents in  place.

Another is taking what appears to be the opposite approach. When arguing about uniformity, taxpayers look toward the general market. In short, assessments should reflect current market rents and not necessarily the actual contract rent at the subject property.

Taxpayers should also consider market occupancy with an eye toward the limitations of the subject property. These arguments  work best when submitted to the board along with reliable appraisal evidence as supporting material.

From a practical standpoint, a uniformity argument hits close to the response that most taxpayers want, which is to be taxed in a similar manner as their neighbors or competitors in similarly situated  properties.

Most assessments are sub-arguments to the income, sales and cost approaches to determining value. The assessors and boards heavily favor the income approach for commercial properties.

Thus by understanding the limitations of the subject property, the taxpayer can argue his own case or be better able to assist tax professionals in establishing the most accurate assessment for the property. There are no smoke and mirrors required, just sound judgment.

 

jbrown kieran jennings

J. Kieran Jennings is a Partner at the law firm Siegel Jennings Co, L.P.A., which has offices in Cleveland and Pittsburgh.  The firm is the Ohio and Western Pennsylvania member of American Property Tax Counsel. Kieran can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..   Jeffrey Brown is an attorney at the law firm of Fisk Kart Katz and Regan LTD.  The firm is the Illinois member of American Property Tax Counsel.  Jeffrey can be reached at jbrown@proptax.

Jul
01

Are You Leaving Property Tax Savings On The Table

" In Texas, don't fail to appeal your assessment because the state gives taxpayers unusual advantages as a tax protest. "

Texas enjoys one of the most fair property tax protest systems in the country.

Suing to appeal an unsatisfactory appraisal review board decision is straightforward in Texas. The state property tax system provides taxpayers with a pragmatic approach to air their valuation disputes before the courts, without the delay and headache frequently experienced in other types of litigation. Yet many taxpayers choose not to appeal, relinquishing the opportunity to achieve significant tax savings. Do not be so shortsighted.

Texans enjoy one of the most fair property tax protest systems in the country, beginning with the right to  contest their appraised values through an administrative process. If they do not like the result, they can file a law-suit that provides a fresh start, turning the valuation issue over to a judge or jury, whichever the parties prefer. And if the taxpayer is unsatisfied with the court's decision, he or she can seek review from a state appellate court and even the State Supreme Court.

Not all states provide such a favorable review process. Texas is special.

Built into the Texas Tax Code are processes and requirements that make litigating property tax appeals more efficient and less procedurally burdensome for taxpayers, even if an appeal advances to the state's highest court. Here are a few of Texas' answers to common taxpayer worries.

Are you concerned that your property tax appeal will be a years-long slog?

Property owners who have been involved in lawsuits before may fear that a property tax appeal means protracted litigation, mired in delay and gamesmanship. Fortunately, the Texas Tax Code limits such behavior by providing numerous tools that can help bring the litigation to a quick resolution, like the ones mentioned below. These features do not apply in the initial filing to appeal an assessment, and are peculiar to property tax lawsuits.

Was your lawsuit filed in the wrong property owner's name?

In most types of litigation, a defect in parties could be fatal to a claim, especially if there is a tight window of time in which to file the lawsuit. In Texas, however, a property tax appeal continues despite having the wrong plaintiff so Tong as the property itself was the subject of an administrative order, the lawsuit was filed on time and the lawsuit sufficiently describes the property at issue. There is no jurisdictional problem.

Did you miss the deadline to protest the appraised value?

There are deadline-driven, jurisdictional prerequisites to pursuing a property tax protest, but Texas law provides some limited "back stop" protection in the event these deadlines are missed. For instance, at any time before Feb. 1, when the taxes become delinquent, a property owner may file a motion with the appraisal district to change an incorrectly appraised value that exceeds the correct appraised value by one-third. This is consistent with other statutes designed to be fair, so that property owners can efficiently challenge excessive appraised values.

Would you like to have something akin to a trial, but not necessarily be bound by the result?

The Texas Tax Code allows a property owner to take the dispute to non-binding arbitration. This is particularly helpful when the parties would like to get a sense of what might happen if the matter goes to trial. An independent, third-party arbiter decides who is right and issues a ruling on the valuation question. This procedure can drive more serious settlement discussions. Although the result is non-binding, it may nonetheless be admitted into evidence at trial for the judge and jury to see.

Would you like the appraisal district to meet with you early in the case to discuss settlement?

Upon written request by either side, the parties or their attorneys must meet and make a good-faith effort to resolve the matter. The meeting must take place within 120 days after the written request is delivered. If the appraisal district cannot meet this deadline, the deadline for property owners and the appraisal district to meet will be moved closer to the trial date — 60 days before trial for parties seeking affirmative relief to their complaint, 30 days before trial for all other experts. This allows more time for the parties to discuss settlement with a temporary reprieve from the pressure of having to engage experts and pay for costly appraisals.

Would you like to ensure that both sides produce their expert reports at the same time?

Property owners can do this by, within 120 days of filing suit, making a written settlement offer and identifying which cause of action is the basis for its appeal, meaning a claim for either excessive appraisal or unequal appraisal. At this time, the taxpayer must request alternative dispute resolution, such as mediation.

By triggering this process, property owners may protect their expert's valuation work from being used against them by the appraisal district's expert appraiser when preparing an opposing report. If property owners had to produce their expert appraisal reports first, the appraisal district's expert would likely try to discredit them in its opposing analysis. This "simultaneous exchange" requirement removes the unfair advantage that the appraisal district would otherwise have.

Property owners should not hesitate to continue their property tax protests beyond the appraisal review board level. In Texas, litigation adds numerous tools to the taxpayer's toolbox that can help property owners achieve fair property tax assessments.

 

daniel smith active at popp hutcheson

Daniel R. Smith is a principal with and general counsel in the Austin law firm of Popp Hutcheson PLLC, which focuses its practice on property tax disputes and is the Texas member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. He represents commercial property owners in property tax appeals across the state, and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Jun
20

Taxation of New York City Real Property

Introduction

This article provides an overview of real estate taxation in New York City (the “City”) including (i) the process by which the City assesses real property, (ii) how property owners challenge the City’s assessments, (iii) benefit programs available to reduce property owners’ real estate tax burdens, and (iv) the importance of understanding real estate taxes in lease negotiations. In New York City, real estate taxes have become an increasingly greater expense for property owners and landlords in recent years. As such, they are an ever-growing factor that any potential purchaser or tenant must account for in its business decisions. Counsel on either side of any real estate transaction should possess at least a basic knowledge of the real estate taxation process to be able to appropriately account for such taxes in negotiations. The process is complex, involves interaction with many government agencies, and is often counter-intuitive. Therefore, a working knowledge of the process is also important in order to understand that, for more complex transactions, specialized real estate tax representation might be necessary and appropriate.

New York City’s Department of Finance (DOF) is the agency charged with assessing all real property in New York City. DOF reassesses all real estate (over one million parcels) each year. Income generated from real estate taxes is the top source of revenue for the City, currently comprising over 40% of the City’s revenue. As a result, real estate taxes are a major factor to account for in the sale / purchase, and leasing of real estate. Furthermore, the City offers numerous real estate tax benefit programs that builders, developers, purchasers, landlords, and tenants need to be aware of in considering any transaction.

Procedures for assessing real property, challenging real estate tax assessments, and qualifying for the various tax benefit programs are governed by the New York State Real Property Tax Law (RPTL) and the New York City Charter, Administrative Code, and Rules.

Arriving at a Tax Assessment

Unlike most jurisdictions around the country, New York City reassesses every property on an annual basis and adheres to a strict and consistent calendar for publication of its assessment roll. Below is a summary of the key dates in the assessment process.

  • Taxable Status Date. DOF assesses real property as of its status and condition each January 5, also known as the taxable status date. This date is particularly important when assessing properties that are experiencing large vacancies as of January 5 or are in various stages of construction and/or demolition. Since the status and condition of these types of properties are likely to change dramatically over the course of the year, their assessments the following year may experience similarly dramatic changes.
  • Tentative vs. Final Assessment Dates. Each parcel of real property subject to assessment is identified on the New York City Tax Maps by a specific block and lot number. An individual tax lot may range from multiple buildings to just one residential or commercial unit in a condominium. On January 15, the City publishes tentative assessments for each tax lot. Between January 15 and May 24 the City has the authority to increase or decrease any assessment for any reason. This is called the change by notice period. During this time period taxpayers can also request a review of assessments if they feel such assessments were made due to usage of erroneous factors (i.e., incorrect square footage). Any changes to the tentative assessment made during this time must be sent to the taxpayer, in writing. The assessment roll closes on May 25 of each year, at which time the final assessment roll is published. This final assessment is the one upon which a taxpayer’s property tax bill is based and the one from which any challenge to the assessment will arise.

It is important for counsel to note that the tentative assessment published on January 15 is not the final word on a property’s tax burden. This assessment should be reviewed for potential errors that should be brought to the City’s attention in advance of the final roll’s publication on May 25. While the City sometimes adjusts errors on its own, there is an opportunity to alert them to potential issues. It is also important to note that this change by notice period exists separately and apart from the administrative and legal challenges to an assessment that take place later and have different deadlines associated with them. That process is discussed in greater detail below.

The Property Tax Bill

When the tentative assessment roll is released each January, DOF provides taxpayers with a notice of value. The notice of value includes many numbers and terms which may cause confusion, but which are important to understand for purposes of what a taxpayer’s real estate tax obligation will ultimately be based upon. Below is a summary of the key terms to understand in the notice of value.

Equalization Rate: In assessing properties, DOF first derives a parcel’s market value which is the City’s determination as to what the property is worth. The City, other than the few exceptions discussed below, assesses properties at 45% of their market value. This is the City’s equalization rate.

Actual Assessment: The City applies the 45% equalization rate to a property’s market value to arrive at its actual assessment.

Transitional Assessment: To shield taxpayers from sudden and drastic annual fluctuations in assessed value, the City provides for a five-year “phase-in” of every property’s actual assessment. Other than an important exception discussed below, this number is generally an arithmetic average of the five most recent years’ actual assessments and is known as the transitional assessment for a property. A property’s real estate tax liability is based on the lower of the actual vs. transitional assessment. As a result, if a property’s actual assessed value increased by $1 million over the previous year’s assessment, the transitional assessment would really only be incorporating 20% of that increase into this year’s transitional assessment. The taxpayer will not bear the full brunt of that large increase immediately.

As an example, take a hypothetical apartment building in Manhattan with the following values and assessments:

Tax Year

Market Value

Actual Assessment

Transitional Assessment

17/18

$8,100,000

$3,645,000

$2,587,500

16/17

$6,400,000

$2,880,000

$2,173,500

15/16

$5,500,000

$2,475,000

 

14/15

$4,750,000

$2,137,500

 

13/14

$4,000,000

$1,800,000

 

12/13

$3,500,000

$1,575,000

 

As you can see, the actual assessment increased by almost $1 million from $2.88 million in tax year 16/17 to $3.645 million in tax year 17/18. However, because the transitional assessment incorporates the five most recent actual assessments, the transitional assessment only increased by about $400,000. The real estate taxes for the property will therefore be based on this lower ($2,587,500) amount. Note that tax years 12/13 – 15/16 would also have transitional assessments based on actual assessment of years not listed. For purposes of illustration only, the focus of this chart is on the two most recent tax years (15/16 and 16/17).

An important exception to note regarding transitional assessment phase-ins comes up when there is construction or demolition being done on a property. In those instances the City adds or subtracts what is called a “physical increase” or “physical decrease” to the property based on the value added or subtracted for the construction or demolition taking place. This physical increase or decrease is not subject to a five-year transitional phase-in and is taxable in the year in which it took place.

Tax Rate: After determining the appropriate billable assessment, a tax rate is applied to the billable assessed value to come up with the real estate tax liability for a particular property. The tax rates vary depending on the class of property being assessed (see below). The rates are set annually by the New York City Council and are not subject to challenge.

Assessment of Different Classes of Property

Real property in New York City is divided into four classes, each with distinct assessment rules as detailed below:

  • Class 1. Properties in tax class 1 consist of primarily residential properties with three or fewer residential units. Essentially these are one, two, and three family homes. Properties in class 1 enjoy highly favorable treatment from a real estate tax perspective. As discussed above, while the City assesses the vast majority of properties at 45% of their city-determined market values, properties in class 1 are assessed at only 6% of their market values. This generally makes their assessed value (and as a result, their real estate tax bill) much lower as compared to the other classes of property. Furthermore, state law places caps on the amount the assessed value for class 1 properties is permitted to increase each year. Specifically, properties in tax class 1 cannot see their assessment increase by more than 6% year over year and by more than 20% over any five year period. As with all other properties, any physical changes to the property are not subject to these statutory limitations on increases and can result in increases that are larger than 6%.
  • Class 2. Properties in class 2 are primarily residential properties with more than three units. Class 2 includes residential apartment buildings as well as cooperatives and condominiums. Within class 2 is a subset of properties (class 2a, 2b, and 2c) that enjoy limitations on assessment increases similar to those that properties in tax class 1 enjoy. Specifically, primarily residential properties in class 2 with fewer than 11 units cannot see their assessments increase by more than 8% per year and by more than 30% over any five year period. These properties include rental properties as well as cooperatives and condominiums. Class 2a properties contain 4-6 residential units; class 2b properties contain 7-10 residential units; class 2c properties are cooperative or condominium properties with 3-10 units. While they are still assessed at 45% of market value (as opposed to the 6% equalization rate for class 1), the statutory caps still provide a benefit to these smaller residential properties. Transitional assessments do not apply to this subclass.

Many of these smaller residential properties that may qualify for favorable tax treatment by being within class 2a, 2b, or 2c also contain a commercial component. Since commercial properties fall within tax class 4 (see below) and do not enjoy any statutory limitations on increase, it is important for an owner hoping to qualify for these statutory caps to make sure the property is considered primarily residential. There is no explicit definition of primarily residential and, over the years, the City has had various policies in determining whether something should be considered primarily residential or commercial. Previously, the City looked at which component generated greater rental income for the building and considered that to be its “primary” function. More recently, greater weight seems to be given to overall commercial vs. residential square footage as well as to the total number of commercial versus residential units within the building in determining whether it would be considered primarily residential for purposes of receiving class 2a, 2b or 2c status.

On April 25, 2017 a coalition seeking tax reform called Tax Equity Now filed suit against New York City and New York State in New York State Supreme Court seeking a declaratory judgment that the entire New York City real property tax system is unconstitutional on various grounds. Specifically, the lawsuit targets the inequity and alleged constitutional infirmities created by the beneficial treatment of class 1 properties and smaller class 2 properties (described above) at the expense of other real estate tax payers among the other tax classes. Furthermore, the suit goes on to claim that this unequal treatment among the tax classes has a disparate impact on minorities. Tax Equity Now claims that since minorities in the City are predominantly tenants in larger class 2 rental apartment buildings which are not subject to any favorable tax treatment, minorities pay a disproportionate share of the City’s tax burden. As a result, wealthier, predominantly non-minority homeowners pay a disproportionately lower real estate tax burden. While this lawsuit will likely take years to be resolved and is not of immediate concern to the accuracy of the information in this practice note, it something to be mindful of as it works its way through the courts.

  • Class 3. Properties in tax class 3 consist primarily of utility properties (i.e., power plants). These are also assessed at 45% of market value.
  • Class 4. Class 4 is all properties that do not fall within tax class 1, 2, or 3. These are essentially all commercial properties, including office buildings, retail spaces, hotels, parking garages, etc. Under New York State law, certain utility related equipment is also considered real property for the purposes of assessment and falls into tax class 4. This property is known as Real Estate Utility Company (REUC) property and is separately assessed by the City of New York. The most common type of property that is assessed as REUC property is emergency backup generators. The assessment of these generators has become increasingly important in the wake of Super Storm Sandy as the sheer number of generators in the City has increased exponentially. From an assessment policy perspective, the City actually differentiates between tenant-owned and building-owned generators. Specifically, generators that are owned by the building are not separately assessed, as they are considered part of the building and, therefore, their presence is deemed to have already been incorporated into the building’s assessment. Conversely, tenant-owned generators are separately assessed and given their own unique REUC Identification Number, which is basically the equivalent of an individual tax lot for assessment purposes. These generators are considered more portable, are more likely to travel with the tenant, and are, therefore, not reflected in the overall assessment of a building.

Particularly with respect to REUC properties, counsel should understand and be aware of the intentions of both sides with respect to backup generator equipment. Do tenants plan to install their own backup generating systems? Will they use some other backup system already in place in the building? These backup generators are not traditionally the type of item one would consider “real estate,” however, New York State Law defines them as such. Furthermore, City policies treat these generators differently based on their ownership status. As a result, they may be subject to additional real estate taxes not initially contemplated in any deal.

Three Methods of Real Property Valuation

Set forth below are the three methods of valuation typically used in assessing real property.

  1. Income Capitalization Approach. The City assesses the vast majority of properties using the income capitalization approach. By law, most owners of income-producing properties are required to provide annual real property income and expense statements to the City (referred to as RPIE). In the simplest cases, the City reviews and adjusts these numbers to arrive at a net operating income for the property. It then applies a capitalization rate to the property to arrive at a market value for the property. As discussed above, the City then generally takes 45% of that market value to arrive at an assessment. However, strictly and blindly applying RPIE numbers to arrive at an assessment becomes difficult when issues of vacancies, construction, and other factors result in the RPIE numbers not necessarily being a reflection of a property’s true value. In these cases, DOF will generally make various adjustments to a property’s net operating income based on annual guidelines and parameters DOF establishes for the various types of properties it is responsible for assessing.

Obviously residential co-ops and condos do not report rental income. Therefore, in order to arrive at a net operating income (and ultimate assessment) for these properties, New York State law requires that co-ops and condos are to be valued and assessed as if they were rental properties. This results in City assessors looking to the rental income market of what they deem to be comparable buildings and applying those rents to the co-ops and condos to arrive at their assessments. A successful challenge to the assessment of a residential co-op or condo would require finding other comparable rentals that more closely reflect and mirror the situations at the subject property being assessed. Since commercial condominium units typically do pay rent, the City assesses them as they would any other individual block and lot. The one caveat is that, since an individual commercial condominium unit is usually part of a larger building containing many condominium units, DOF will generally assess a specific unit based on its percent interest in the common elements of the building as a whole. This percentage figure is listed in the condominium’s declaration. As a result of this methodology, the percent interest of a particular condominium unit is an important factor in the unit’s ultimate tax bill and the ultimate allocation should be considered carefully when drafting and reviewing the condominium offering plan.

  1. Cost Approach. City assessors primarily use the cost approach in valuing specialty properties or equipment (power plants, generators, etc.). They arrive at the assessment by determining what the current cost would be to build a new identical specialty property and then deduct from such cost for depreciation.
  2. Sales Approach. The City has a policy to not reassess properties based on sales prices. Property sales may be used as evidence of value when challenging a property’s assessment; however, they are not the basis of an assessment. The City does review sales when valuing class 1 properties (1, 2, and 3-family homes) and to arrive at market values for those properties. However, as discussed above, since the permissible annual assessment increases for class 1 properties are capped, the market value the City applies based on comparable sales generally has no bearing on the assessment.

How to Challenge an Assessment

As discussed above, DOF publishes tentative assessments for all properties on January 15 of each year. A property owner (or other party with standing) who wishes to challenge that assessment must do so by filing an application with the New York City Tax Commission (the Tax Commission) by March 1 (note that for class 1 the deadline is March 15). Most properties also require the filing of an income and expense statement, which must be filed by March 24. Failure to timely meet these deadlines is a jurisdictional defect which precludes an owner from challenging that year’s assessment.

In order to challenge an assessment, a party must have standing to do so. Generally, any party claiming to be aggrieved by an assessment has the right to challenge that assessment. This has been defined as anyone whose pecuniary interest may be affected by an assessment. As a result, not just property owners, but tenants, partial tenants, and other parties responsible for the payment of real estate taxes may have standing to challenge the assessment upon which those taxes are based.

The Tax Commission is the administrative agency charged with reviewing the assessments issued by DOF. It schedules hearings to review the assessments of all properties that file timely challenges each year. These hearings are held from late spring to early fall each year. At the hearings, the Tax Commission generally reviews the two most recent years’ assessments. However, legally, the agency has jurisdiction to review any two of the five most recent assessments. The Tax Commission may decide to offer a reduction in an assessment or confirm DOF’s assessment. The Tax Commission is prohibited from raising a property tax assessment as a result of a hearing.

DOF publishes its final assessment roll on May 25 of each year.

By June 1 of each year property owners are required to file income and expense statements with DOF, reporting their numbers from the prior calendar year. This is the RPIE filing (discussed above), which must be completed online through DOF’s website.

If an owner is unable to resolve its assessment challenge with the Tax Commission in a particular year, the owner must file a petition in New York State Supreme Court by October 24 of each year in order to preserve its right to litigate over the assessment.

Grounds for Court Challenges/Trials

If an assessment challenge proceeds to trial there are four grounds under which that assessment may be challenged. The assessment must be alleged to be: (i) excessive, (ii) illegal, (iii) unequal, or (iv) misclassified. The vast majority of trials involve a claim of overvaluation.

Trials over an assessment are generally bench trials. The City agency responsible for handling assessment-related litigation is the New York City Law Department. At trial, generally, each side submits an expert appraisal report with conclusions of value and the expert real estate appraiser who prepared the report testifies at the trial. Testimony is usually limited to the four corners of the report.

City assessments are deemed presumptively valid so the burden is on the petitioner to show the assessment was incorrect. Much as in the case of administrative review of the assessment at the Tax Commission, a court is prohibited from raising an assessment as the result of a trial. The City’s assessment can only be confirmed or reduced at trial.

Recently, DOF has provided an additional administrative avenue to challenge an assessment on the grounds that it was based on a clerical error or error of description. New York State law has had a longstanding procedure by which to challenge assessments based on clerical error, however, those sections of the RPTL were inapplicable to New York City. As a result, the City recently amended its rules to codify and apply similar procedures. The types of errors DOF considers under these rules include, but are not limited to, errors in assessments due to: computation errors, incorrect square footage, incorrect number of units, incorrect building class, as well as all other clerical errors specified in Article 5 of the RPTL. DOF will specifically not consider clerical error challenges if the challenges have to do with valuation methodology, incorrect comparables and other valuation-related challenges that are more appropriately challenged in the standard ways described above. Much like New York State law, the new City rules allow DOF to look back up to six years prior to the time a clerical error challenge was filed when considering changing an assessment on these grounds.

Benefit, Abatement, and Exemption Programs

The City offers a wide variety of real estate tax exemption/abatement programs to encourage development of new buildings and renovation of existing buildings, among other things. Below is a summary of the most commonly utilized programs.

  • Industrial Commercial Abatement Program (ICAP). ICAP provides tax abatements for renovating commercial buildings and, in some parts of the City, for building brand new industrial/commercial buildings. In some instances even renovated or newly built retail space can qualify for ICAP benefits. Abatements can last as long as 25 years in some cases and protect a developer from the large increases in value (and consequently, real estate tax assessments) that normally results from these large development projects. There are complex filing procedures and requirements to be met and maintained during the duration of the project in order to qualify for the benefit, including minimum required expenditure amounts and requirements for soliciting Minority and Women-Owned Businesses (MWBE) for the work being done.
  • 420 Benefits. This program provides various tax abatements/exemptions for properties owned by charitable and not-for-profit entities. There are initial requirements that must be met and substantiated in order to qualify as well as certification of continuing charitable or non-profit use in order to ensure the benefits remain in place each year.
  • J-51Program. This program provides a property tax exemption and abatement for renovating and upgrading residential apartment buildings. The benefit varies depending on the building’s location and the type of improvements.
  • 421-a Program. In April, 2017 legislation was signed amending and replacing the previous 421-a program to create the new Affordable New York Housing Program. This program applies to new construction of multi¬family residential buildings and eligible conversions and provides eligible projects with substantial tax savings, in some cases up to 35 years of real estate tax abatements (in addition to a three year abatement during construction).       To benefit from the tax savings, some significant requirements must be met - for example, all projects must be comprised of at least 25% affordable units. For projects located in specific areas and comprised of more than 300 units, certain wage requirements for construction workers also apply. The program applies to both rental and condominium/co-op projects though the eligibility for condo/co-op projects has more restrictions. (3) This new version of the 421-a program applies to eligible projects that commence between January 1, 2016 and June 15, 2022. As of May, 2017, the law is brand new and there are nuances that will likely need to be resolved by the City in its rule making process, however, the key point is that this benefit for new residential projects will once again be available to developers.
  • Exemptions for Individual Homeowners. Many individual home and apartment unit owners may qualify for certain property tax reductions pursuant to programs such as the cooperative/condominium abatement, School Tax Relief Program (STAR), Senior Citizen Exemption, Disabled Homeowners Exemption, Veterans Exemption, and Clergy Exemption. Applications for benefits must be made annually as changes in circumstances (i.e., transfers) each year may take a unit out of eligibility for the various programs.
  • Progress Assessments. While not part of any formal exemption or abatement program, New York City law does allow for some tax relief for the construction of new commercial and residential buildings. It is a general rule of assessment in the City that a building in the course of construction, commenced since the preceding fifth day of January and not ready for occupancy on the fifth day of January following, shall not be assessed unless it shall be ready for occupancy or a part thereof shall be occupied prior to the fifteenth day of April. All newly constructed commercial and residential buildings are entitled to at least one year of this so-called “progress assessment” whereby any building assessment placed on the property would be removed. With the exception of hotels, new commercial buildings can actually get up three years of progress assessments while in the course of construction if the building is not ready for occupancy each April 15. This essentially allows for up to three years of no building assessments while in the course of construction.

The programs noted above are important for counsel to be aware of. When representing an owner, any discussion regarding major construction projects and changes to a building should be considered in the context of potential availability of some of these benefit programs. They can play a huge role in reducing an owner’s tax burden and making contemplated projects more economically feasible. Similarly, counsel representing a purchaser should be aware of any plans the purchaser may have as far as construction and/or converting the nature of the building (i.e., from commercial to residential) as these types of changes have substantial property tax ramifications as well as potentially substantial benefit programs that may help mitigate potential increased liability.

Tax Certiorari Lease Provisions/Exemption Lease ICAP Provisions

Real estate taxes in New York City are becoming an increasingly large portion of landlords’ and tenants’ investment calculations and it is vital to account for real estate tax issues in commercial leasing. Determining whether a landlord or a tenant is responsible for payment of the taxes and who has the right to challenge the taxes is just one issue. Tax escalation clauses and how payments are spread among the tenant and the landlord, as well as choosing an appropriate base year from which said real estate tax escalations begin, are essential components to any commercial leasing negotiation and often make or break deals.

Knowledge of assessment procedures and DOF calendars for when rental figures will be used in assessments is vital in determining base year real estate tax payments and how increases in tax payments are to be determined on a going-forward basis. These issues must also be accounted for in commercial leases. Finally, provisions regarding which party benefits from any abatement programs (if applicable) need to be negotiated in any lease.

This will certainly affect overall rental and tax payments. Many negotiated real estate transactions hinge on real estate tax projections going forward. Projecting future real estate taxes is fraught with uncertainty. However, with comprehensive knowledge of how the system works, one can make reasonable estimates. It is these estimates and projections that are frequently the basis for lease negotiations. Specialized real estate tax counsel may be retained to assist in these projections and to review drafts of leasing documents.

Conclusion

At the very least, when entering into a real estate transaction involving property in New York City, counsel should be aware of New York City’s complex real property tax process and how the issues surrounding that process may affect his or her clients. The process of challenging property taxes involves a complicated assessment procedure system on the part of the City as well as multiple required filings throughout the course of the year, which must be complied with in order to even have the opportunity to challenge one’s assessment.

An understanding of the assessment process, how real estate taxes are calculated, and the benefit programs the City makes available to property owners will allow counsel to better negotiate on behalf of clients. Failure to accurately and meticulously account for the increasingly important role that real estate taxes play will put counsel at a major disadvantage.

Tishco image

Steven Tishco is an associate at Marcus & Pollack, LLP. Mr. Tishco concentrates his practice on real estate tax assessment and exemption matters (tax certiorari). He handles all types of real estate tax disputes and appears regularly before the Courts of the State of New York and various New York City agencies. His experience includes litigation and trial work involving the valuation of residential and commercial properties.  The law firm of Marcus & Pollack LLP, is the New York City member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Jun
10

Presentation at Appraisal Institute and Appraisal Institute of Canada Annual Conference

Summary

The logical and proper valuation of big box stores for assessment purposes is not based on the income stream. We believe the cost approach with adjustments for obsolescence is the most satisfactory methodology. This conclusion was arrived at after lengthy discussions and negotiations amongst appraisers that took place outside the usual litigation environment, subject to the supervision of legal counsel and overriding purview of the Assessment Review Board in Ontario.

We examined the current value assessments of 162 big box freestanding stores in the Province of Ontario owned by a single operator. There were outstanding assessment appeals by the taxpayer for the 2008 base year (2009-2012 taxation), and the 2012 base year (2013-2016 tax years). Most significantly, we settled those appeals on the basis of the cost approach, including going forward to the 2016 base year (2017-2020 tax years).  The settlement process began in 2013 and resolution was achieved in 2016.

Background

Big box stores are large discount stores, including WalMart, Home Depot and our own Canadian Tire. These stores generally exceed at least 40,000 square feet in area. Unlike most property types, the buildings are built to suit or custom built for a specific retailer’s business. The boxes are not built on a speculative basis to be sold or leased in the marketplace after development.

Upon sale of the fee simple interest in the big box store, the original use may be modified for the new user, or the building may be demolished. Such stores are rarely purchased to be leased by a single tenant after the purchase (for retail purposes or otherwise).

There has been much litigation in the United States relating to the big box store valuation conundrum.  Kennard and Fisher asked:

“. . . if it cost $70.00 per square foot to build an anchor department store, then why is it they sell for about half of their replacement cost new?”

This question led, in part, to the so-called “dark store” theory of valuation which resulted in numerous decisions of courts and tribunals concluding that the sales comparison approach, based on market sales of the big box store resulted in an objective determination of market value. Invariably these sale prices were substantially less than the cost to construct. Application of the “dark store” theory has devastated assessments of big box stores in many American jurisdictions.

In Ontario, the assessment standard is “current value”. Current value in essence means the same as what you might know as fair market value, or appraised value, or actual value.  Current value is defined in the Assessment Act as follows:

“Current Value means in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer.”

There has been much litigation in the Province of Ontario as to the meaning of current value. It is clear that this valuation standard is an objective, market based concept.

The value to the owner, or the subjective value of the real estate, is irrelevant for assessment purposes. The statutory standard of value is based on objective analysis of data from the marketplace. The identity of the occupant is not relevant.

Historical Reliance on Income Approach

“An appraisal is the logical application of available data to reach a value conclusion.” (borrowed from William Kennard)

The data showed that these big box properties are never built speculatively and then put on the market for rent or sale. Once the property is rented by the developer to a retailer, the real property may be sold from investor to investor. Generally the developer and the retailer are either related or the same person. The attractiveness of the purchase to investors is a function of the lease amount – rent amount, terms and quality of tenant – rather than the fee simple interest in the real estate.

Frequently the developers/retailers sell the real estate for financing purposes, and lease it back.

Sales-leasebacks are financing arrangements rather than pure fee simple real estate transactions. Sales of real estate occupied by a long-term tenant reflect the value of the leased fee of the real estate and, implicitly, the quality of the tenant. However, for assessment purposes we are searching for the fee simple value – not the leased fee interest.

Municipal assessments in Ontario are undertaken by a single corporation collectively owned by all the municipalities – MPAC. The three statutory parties to the appeals are the property owner (ie. the taxpayer), MPAC and the municipality in which the property is located.

Notwithstanding the above concerns regarding the income approach, Ontario big box stores had been valued by assessors using an income approach with rents derived from available financing transactions. The basis for determining market rent was a mystery. The capitalization rates relied upon by the assessor seem to have been drawn from sales of shopping centre regional malls. Frequently, the rents applied by MPAC were nothing more than the previous base year’s economic rent indexed to the next base year. The number of open- market lease transactions available was extremely limited and, therefore, data extracted to support the appraised value came from a very shallow pool. The assessed values were based more on hokum-pokum than objective data reflective of a true market.

To a great extent, historically the resolution of assessment appeal litigation with MPAC regarding big box stores in Ontario was based upon comparability and equity as between similar properties. Eg. Is a WalMart store worth $1 per square foot less than Home Depot? Is the Toronto market for big box stores worth $2 per square foot more than in Ottawa?

2008 Base Year

In order to prepare for the 2008 CVA reassessment, the Municipal Property Assessment Corporation (“MPAC”) determined a scale of fair market rents applicable to big box retailers based on the name of the occupant and “bench marking” of rents according to market area (ie. land values) and notional base rents for WalMart stores. An extract from that analysis produced by MPAC is set out below:

Market Area (b) 500,000 – 750,000 per acre – Regions 3, 13, 16, 19, 21, 22

Tenant

Base Rent

Adjustment

Final Rent

Comments1

WalMart

$11.00

0

11.00

Base benchmark rent

CTC

$11.00

+0.50

11.50

Base + 0.50 – higher building cost2

Lowes

$11.00

+1.00

12.00

Base + 1.00 – higher building cost2

Home Depot

$11.00

+1.00

12.00

Base + 1.00 – higher building cost2

Rona

$11.00

+1.00

12.00

Base + 1.00 – higher building cost2

Costco/Sams

$11.00

+1.25

12.25

Base + 1.25 – higher building cost3

1 Adjusted rate may be further adjusted if effective age greater than 20 years.

2 Higher buildings = higher building costs

3 Plus 0.24 for coolers and freezers

We commenced the appeals litigation with the assertion that the income approach utilized by MPAC was invalid because there was insufficient data regarding fair market rents available to support it. The taxpayer relied upon the cost approach as the most appropriate measure, conditional upon a full measure of obsolescences being accounted for in the valuation process.

Although we left open the option of referring to the “dark store theory”, that path was not pursued. The expectation was that a settlement could be negotiated using the cost approach with appropriate adjustments for obsolescence. It was also our view that the scorched earth results of the dark store theory were based on a faulty assumption regarding non-compete clauses registered on title for the big box stores.

The Settlement Process

In 2013, negotiations began between MPAC and the big box property owners.

The big box operators had retained the services of appraisers familiar with assessment practices. MPAC similarly directed experienced appraisers within its organization to grapple with the appeals. Counsel for both the taxpayers and MPAC agreed to suspend ordinary litigation proceedings and litigation tactics to permit an open and frank exchange of views between the parties, in particular amongst appraisers without counsel present. Counsel for both the property owner and MPAC agreed from the outset that full disclosure of information and candid, without prejudice exchanges of opinions amongst the appraisers would be the hallmarks of the negotiations. Furthermore, counsel agreed that the consensual results of the appraisal discussions would guide the terms of settlement of outstanding appeals and future assessments.

As part of our negotiations, and after an initial state of discussions, MPAC and the property owner invited municipal representatives to form a Municipal Working Group (“MWG”) and participate in the negotiations.  The MWG included seven (7) representatives from some of the affected municipalities. Each representative signed an undertaking of confidentiality and non- disclosure.

As a prelude to those negotiations, MPAC and the property owner issued a Joint Communique to the MWG, which became the starting point for negotiations. The Joint Communique provided a current status report of the initial negotiations, which included the following statements:

  1. MPAC and the taxpayer have agreed that the cost approach is the most reliable determinant of current value for these properties.
  2. MPAC and the taxpayer have agreed that the appropriate approach to determine economic life of the buildings is the market extraction method.
  3. MPAC and the taxpayer have agreed that the MPAC automated cost approach to determine RCN of the buildings overstates actual construction costs.
  4. MPAC and the taxpayer are reviewing 300 land sales and the assessments of approximately 600 comparable land parcels to respond to municipal concerns that land values may have been understated in the comparative sales analysis.

The property owner and MPAC invited the MWG to review and challenge the various data files and analyses undertaken jointly by the property owner and MPAC.  In 2016, the property owner and MPAC entered into a Memorandum of Understanding as to principles for resolution of outstanding appeals for 2008 and 2012 base years, and the principles for assessment going forward with the 2016 CVA reassessment. The Memorandum of Understanding was endorsed by the MWG.

The Memorandum of Understanding was widely distributed to the municipalities, and published in the Canadian Property Tax Association’s monthly newsletter as an article authored by an MPAC officer. A copy of that article is attached.

The result of this process has been to resolve two cycles of assessment appeals (2008 and 2012), and to set in place assessment principles for the 2016 cycle.  The process was based on three elements not commonly found in assessment appeals:

  1. Candid and transparent disclosure of information, on a multi-party basis.
  2. Involvement of municipalities relatively early in the appeal process to provide a forum for their concerns and understanding.
  3. Most importantly, establishing a protective zone where appraisers could meet, share data, exchange views and analysis, all without tactical advocacy of their respective client’s interests.

In summary, the participants in the process found success when:

  1. Legal counsel provided interest based general counsel to their respective clients and facilitated the process, rather than simply litigating conventionally.
  2. Appraisers appraised with open minds, rather than advocating for or against the status quo.
  3. Trust and patience was maintained, even when unexpected developments created log-jams, hurdles or delays.

In other words, the appraisers were not advocates, and legal counsel were not experts.  The result was a happy resolution to a thorny assessment problem.

J. Bradford Nixon

Brad Nixon is a Member of the law firm Nixon Fleet & Poole LLP which has an office in Toronto, Canada.  The firm is the Canadian member of American Property Tax Counsel. Brad can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.                                       

 

 

American Property Tax Counsel

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