The recovery of the Bay Area's real estate markets has muted the public outcry to change Proposition 13's restrictions on assessed value increases. Passed in 1978, Proposition 13 has come under fire for fostering unequal tax burdens.

The reasons that tax-reform fervor is weakening are twofold. First, as the recovery spurs real estate sales, properties will be reassessed at higher market values under Proposition 13's acquisition value system. Second, recent sales are also likely to increase real estate values generally, which will permit assessors to raise the assessments of other property owners. These trends have increased the values of property tax rolls and tax revenues.

Acquisition value system increases tax revenues

One under-appreciated aspect of Proposition 13 is its requirement that assessed values for property tax purposes be equated to acquisition values or sales prices. Critics of Proposition 13 contend that the law keeps values too low and reduces the amount of taxes going to government agencies. But in an active real estate market where properties are held for as little as five years, the opposite is true. In such markets, sales prices are usually climbing, assessed values increase, property tax collections rise, and local governments receive more revenues.

The recent up-tick in Bay Area real estate sales is proving the benefits of Proposition 13 because the values of tax assessment rolls have increased for all counties. For example, the 2013-2014 tax year assessment rolls increased over the previous year by 8.3 percent in Santa Clara County, by 6.0 percent in San Mateo County, by 5.0 percent in Alameda County, and by 4.5 percent in San Francisco. Statewide, assessed values increased by $191.5 billion or 4.3 percent over the prior year.

Recent sales affect assessments

The increase in real estate sales activity doesn't just impact the assessed values and taxes on properties that have sold. It can also affect the values and property taxes for real estate held by investors. Here's why.

Under Proposition 8, the bookend to Proposition 13, assessors can and have reduced real estate assessments in recent years to reflect across-the-board declines in market values. In some cases, the reductions have been considerable, well in excess of the 2 percent annual adjustments that are permitted under Proposition 13.

As real estate markets recover, the Proposition 8 reductions that assessors made in prior years to reflect market downturns usually are reversed. The Proposition 8 values of prior years can shoot up much faster than 2 percent per year for properties that are assessed below their trended Proposition 13 values, depending on where current sales show market values to be. As Proposition 8 values are reversed and values return to Proposition 13 levels, the property taxes on those assets also rise, thereby increasing tax revenues to local governments.

Split roll unnecessary

One of the changes currently advocated by opponents of Proposition 13 is to create a split tax roll which would tax commercial properties differently from residential ones, either by requiring commercial properties to be reassessed annually instead of upon acquisition, or by increasing the tax rates for commercial properties.

However, as described above, such changes are unneeded so long as there is an active market for commercial properties, and so long as sales prices generated by that market tend to increase over time, which is usually the case. When these conditions are present, assessed values will increase and property tax revenues will rise.

As markets continue to recover and assessed values rise, property owners should take stock of their assessed values. Local assessors will begin to set assessed values for the 2014-2015 tax year in January 2014. In some cases, values reduced under Proposition 8 in prior years will be restored to Proposition 13 levels. Taxpayers should ask whether those restored values represent market values, and if a value appears excessive, the property owner should file an appeal.

Cris K. O'Neall is a partner in the Los Angeles law firm of Cahill, Davis & O'Neall LLP, the California member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. O'Neall can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

"When Assessors Seek Business Income Information"

Is it appropriate for a tax assessor to use income information in determining taxable value?

That question comes up frequently in property tax cases when assessors seek income information from taxpayers. The answer is that whether a request is appropriate depends on the type of property at issue and the type of income information being sought. In several recent cases involving manufacturing operations, industrial enterprises and other types of businesses, assessors have sought information on income from the business or businesses operating on the property, rather than on income from the property itself.

Often, assessors have a legitimate reason to seek certain types of income information from taxpayers. For instance, if the property type at issue is typically rented in the marketplace, as is the case with an apartment complex or an office building, it will likely be entirely reasonable for the assessor to request, and for taxpayers to use, the property's rents when evaluating its market value. Indeed, investors regularly rely on rental information to determine the price for such property.

However, some types of income data should be excluded from a property assessment. In a number of recent instances, for example, assessors attempting to value manufacturing or industrial properties have sought income and production information relating to the manufacturing process, which is unrelated to the property's income-producing capacity. Where the business is something different from the rental of property and the business income derives principally from assets other than the real estate, reliance on income information will produce misleading conclusions about the value of the real property (whether for taxation or any other purpose).

To better understand the problem, consider a hypothetical downtown office building that houses law firms, accounting firms, travel agencies, dental offices and any number of other tenants. No reasonable assessor would consider the revenues of the tenants in determining the value of the office building.

Why not? Because that business revenue would indicate only the value of the business taking place in the building. Tenant revenues do not determine the building's rent, and no reaonable investor would value the building on the basis of such income information. In short, it is irrelevant.

The same generally goes for production and income information when it comes to manufacturing proeprties. A typical manufacturing process requires personnel, machinery and equpment, managerial expertise and real property. Add to that goodwill and other intangibles that allow the manufacturer to capture market share and sell its products, and it is clear the income from product sales incorpoates value from a number of assets unrelated to the value contribution of the real property.

Special Purposes, Special Properties

Why, then, might assessors seek business income information, and how should taxpayers respond to such requests?

In many markets, manufacturing properties are more lilely to be in owner-occupied rather than leased space, so determining the equivalent of market rents for such properties is difficult. Assessors seeking production or business income information occassionally argue that they cannot use sales data because the property is a special-purpose asset. But even if the property is special purpose, the assessor should not seek and use income information unrelated to the property and its market value.

Attorneys also hear assessors argue that the property represents a special component of, or provides a particular "synergy" to, the taxpayer's business. These assessors contend they need business income information to accurantely reflect the property's true value. But such efforts to capture special value apart from the real estate itself are efforts to tax an intangible, not the property.

In some cases, it may be appropriate to consider income information to determine whether a property suffers obsolescence and is, therefore, over-assessed. For example, if the total income from all operations is insufficient even to support the real property at its current assessed value, an argumnent exists that the real property suffers obsolescence (relative to its assessed value). However, the fact that income shortfalls might indicate obsolescence does not make business income generally indicative of real estate value.

When assessors request business income unrelated to the property or its rent, taxpayers should consider objecting on several grounds: First, if the information is truly unrelated to the property or its rent, the taxpayer should explain that to the assessor \and try to provide only the property's rental information, if available.

Second, taxpayers should guard against the disclosure of proprietary business information. Many states have laws that protect confidential taxpayer data such as information relating to earnings, income, profits, losses and expenses; taxpayers are wll advised to mark that information as confidential and take other steps to avoid public disclosure of any income information they provide to the assessor.

David Suess is a Partner in the Indianapolis law firm of Faegre Baker Daniels LLP, the Indiana member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.. Suess's partner, Brent A. Auberry, contributed insights and edits to the column.

"Once vacated by the original user, build-to-suit properties require a different valuation process."

Build-to-suit properties, like custom suits, are wonderful for the original purchaser. A made-to-order suit matches the specific user's size and build and looks just right on him. But try giving that suit to a friend, and the suit that looked great on you may not look as good or fit as well on him.

Similarly, build-to-suit properties may offer limited or no functionality to the next user. The following case study of a freestanding restaurant illustrates the challenges of determining the taxable value of a build-to-suit property.

The property was built in Austin in 2006 for a dine-in hamburger chain with restaurants in the U.S. and Canada. Located at a high-traffic intersection in front of a large shopping center, the restaurant measured 6,780 square feet, according to Travis Central Appraisal District records.

When the restaurant closed its doors in 2011, the restaurant appeared to the casual viewer to be in excellent condition, but the property owner demolished the building. From there, one might have assumed that a different property type would replace it.

As such, it was surprising to see another restaurant replace the demolished property in 2012. When completed, the new structure measured 6,350 square feet, tax records showed — nearly the same size as the previous building's 6,780 square feet. And the new building, like the old, was home to a national chain, in this case a steakhouse.

In this example, the value to the original user was an investment value and most likely equated to the original cost less physical depreciation. The investment value to the new owner was land value less the cost of demolition.

So how did a relatively new building suffer 100 percent depreciation after only a few years of physical depreciation? In this case, the custom suit was given to a friend, and it just didn't fit. The exterior of the first building matched the branded design of a specific chain restaurant, and on the inside, the builder had tailored the kitchen and dining areas to this particular chain. But the new user also wanted a specific exterior design, kitchen and dining area layout to match a different restaurant chain.

So, how then can an appraiser or assessor value a build-to-suit property without putting a nominal or "zero" value on the improvements?

In Texas, the property tax code requires assessors to value properties at market value, not the investment value to any one specific user. "The Appraisal of Real Estate, 14th Edition" states that, "it is generally agreed that market value results from the collective value judgments of market participants...In contrast to market value, investment value is value to an individual, not necessarily value in the marketplace."

In the case of a build-to-suit restaurant, it can be assumed that the pool of potential second-generation users who find functional utility in the property is limited to local restaurateurs or small local chains that do not require a specific look or layout for brand recognition. The market value to these users is likely somewhere in between the physically depreciated cost and the
land-less-demolition cost.

This implies that functional obsolescence is inherently built into a build-to-suit property. While measuring the amount of obsolescence is beyond the scope of this article, one strategy is to inventory the number of comparably sized restaurants in the subject's market area and determine the percent of those restaurants that are regional or national chains.

A larger percentage of such chains in the market area indicates a greater degree of functional obsolescence. Using the income approach to value, a larger percentage of regional or national chains implies fewer potential users of the property and, therefore, a greater risk, which can be reflected in the cap rate.

An assessor must consider these factors when determining the market value of a build-to-suit property for property tax purposes. Significant value swings can occur when looking at the investment value for one specific user rather than the market value for a collective of market participants.

Once the market participants who find utility with the property have been determined and weighed against the market participants for which the" suit just doesn't fit," the assessor can determine a proper market value.

Kevin Sullivan is an Appraiser and Tax Consultant with the Austin, Texas, law firm Popp, Gray & Hutcheson. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Sullivan can be reached atThis email address is being protected from spambots. You need JavaScript enabled to view it.

Inconsistencies and confusion reign in determining effective date for valuing commercial properties.

"The practical implementation of the mandated five-year county-wide reassessment program further compounds the dating confusion. Many counties delay county-wide reassessment for one year, as authorized by statute, and in some cases, two years..."

Commercial property owners in South Carolina already faced an unsettled and confusing issue in trying to determine he valuation date for ad valorem taxes. Now, the South Carolina Court of Appeals has further complicated the issue.

Determining the valuation date should be simple: South Carolina law states the pertinent date of value for a given tax year is Dec. 31 of the preceding year. For example, logic suggests the valuation date for 2013 property taxes hould be Dec. 31, 2012. But that logic is often mistaken. South Carolina statutes require local assessors to engage in a countywide reassessment every five years. The process is referred to as an "equalization and reassessment program," and is intended to equalize the tax burden on property owners. Logic suggests the equalization program will equalize values, but that logic is also mistaken.

Act No. 388 and its Wake

Approximately seven years ago, the South Carolina General Assembly passed Act No. 388 which, among other things, capped value increases resulting from a county-wide equalization and reassessment to 15 percent of the property's prior assessed value, so long as the property had not changed hands in the past five years. However well-intentioned, the effort to lower property tax burdens wrought havoc with the concept of equalization.

The legislature also created the concept of an assessable transfer of interest, which eliminated the cap in some situations, such as in certain transfers of interest within the ownership entity, or following construction of improvements. In a sense, the legislation penalizes a landowner from a tax standpoint for improving a property's economic performance with new construction.

By their nature, caps erode the principal of uniformity since taxes for some properties go uncapped. Competing properties may have identical uses and financial performance, but taxes may be capped on one property, but not on the other. Under Act No. 388, two economically identical properties could be taxed using different valuation dates.
In fact, Act No. 388 promulgates a potential for four alternative valuation dates.

In an effort to address some of the outcry over the inequality engendered by Act No. 388, the legislature in 2012 provided an exemption of up to 25 percent of the purchase price of commercial properties. Unfortunately, this provision adds yet another little-known filing deadline, since the application for the exemption is due on or before Jan. 31 of the applicable tax year. In other words, a property purchaser must file for this exemption prior to the first Jan. 31 after acquisition. Failure to do so likely invalidates the exemption.

The practical implementation of the mandated five-year county-wide reassessment program further compounds the dating confusion. Many counties delay county-wide reassessment for one year, as authorized by statute, and in some cases, two years. For example, after delaying a scheduled 2004 reassessment to 2005, Charleston County delayed its next scheduled county-wide reassessment from 2010 to 2011 and decided to use a Dec. 31, 2008 valuation date rather than Dec. 31, 2010. The question is what date to use for valuation in the county-wide reassessment. Should it be the date on which reassessment was scheduled to occur or Dec. 31 of the year prior to implementation?
The correct answer is unclear.

Interim Appeals Defy Logic

So, what happens if a property owner wants to appeal the value of a property in the middle of the fiveyear period because of a change in economic performance? For example, is it fair to tax a property based on its economic status as of the valuation date used in the last county-wide reassessment, when it may have lost its anchor tenants since then? Logic and the clear language of state statutes suggest the valuation date should be the lien date, or Dec. 31 of the year prior to the year in which taxes are due, in order to treat properties equally based on economic performance.

According to the South Carolina Attorney General, however, that logic again would be wrong. In 2010, the attorney general opined that county assessors should ignore the unambiguous statutory language regarding valuation date and use the effective date of the last county-wide reassessment. County assessors are implementing this opinion regardless of logic.

In the 2013 case of Charleston County Assessor vs. LMP Properties, the South Carolina Court of Appeals further complicated the dating problem. In this case, the parties agreed to a Dec. 31, 2003, value date because 2004 was the date of the county's last county-wide reassessment. However, the Court determined Dec. 31, 2007, was the proper date for determining the property's highest and best use. In other words, the Court held an appraiser should use one date to determine the property's value and a different date to determine the property's highest and best use. How licensed appraisers meet these requirements and satisfy professional standards under the Uniform Systems of Professional Appraisal Practice defies logic. Logic suggests that assessors should use a uniform date, the lien date, for valuing real property. Logic also suggests the property's economic performance as of the lien date should control for interim appeals. But, then again, whoever said that dating — in love or taxes — had to
be logical?

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

One of the bright spots that have emerged in the real estate market over the past five years of the economic recovery has been the multifamily rental segment. Of the 49 major metropolitan markets tracked by Cassidy Turley, only 17 have a multifamily vacancy rate above 5% and only two have a vacancy rate above 7%, according to the Firm's US Multifamily Forecast Report for Summer 2013.

Rental rates have increased in virtually all markets, with the strongest growth in top-tier cities. In Chicago, for example, rents at class A buildings have increased 21% since 2009. And at the national level, multifamily transaction volume quadrupled between 2009 and 2012. Despite these robust indicators, however, some observers worry that the industry may be overestimating the extent of the US multifamily recovery, and that developers are setting the stage for the next bubble.

Since 2012, construction has come to the fore. Almost 60,000 new multifamily units are expected to reach completion by the end of 2013 in the top 10 markets. The bulk of the new construction is class A buildings, which feature amenities such as a doorman, concierge services, work-out facilities, pools and in-unit washers and dryers.

Millenials, born between the mid-1980s and mid-1990s, appear to be driving the rental market. They are renting instead of buying for several reasons. Some have limited opportunities to finance the purchase of a home. Others want to remain mobile while pursuaing their careers. New construction is highest in cities like Austin, Washington, Chicago and New York, which are some of the prime designations for millenials.

While optimism is warranted, there are signs that the sector may have ignored the lessons of the 2008 recession. The availability of capital alone cannot be the determining factor driving development in a segment of the market that has become dominated by the addition of new supply. The real estate market must operate within the parameters of the greater economy, and that overall economy merits far less enthusiasm than the multifamily boom would suggest.

The liklihood of an over-supply in the apartment market raises interesting property tax concerns. The prospect of lower fundaments raises risk and lowers revenue expectations. Ultimately, it must be anticipated that pricing will change and values will decline.

Real estate taxes are based on market value, but the development of new values for real estate taxes lag well behind the market. In many places, the decline in value over the past five years still has not been fully recognized in the values established by assessors. Developers must have strategies in place which accelerate assessors' recognition of value changes taking place in the market. The key strategy to help owners keep real estate taxes in line with value changes is assiduous appeal of property tax assessments.

In 1989, the response to the savings and loan crises, the Uniform Standards of Professional Appraisal Practice were promulgated by the Appraisal Standards Board. These standards govern both the mass appraisal practices of assessors and the appraisal of individual properties by private appraisers, and will take into account the changes in the market as they arise. Thus apartment owners need to diligenty scrutinize their tax assessments in the next several years to ensure that these assessments reflect the changes in market values, and where they don't file an appeal.3

James Regan is the managing partner of the Chicago law firm of Fisk Kart Katz and Regan, the Illinois member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.. His Fish Kart colleague Antonio Senagore also contributed to this article and he can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

"How will market conditions in 2014 be different from what we saw in 2013?"

Stephen H. Paul, Esq., President of APTC, answered as follows:

"As Congress has been prone to "kick the can" down the road on tough budget issues, I believe many financial institutions holding large amounts of real estate mortgage paper have been kicking the can down the road over the past few years on many of their loans that have been underwater for some time, extending balloon payback dates into the future in hopes of having their troubled properties recover from their lagging performance. At some point, these financial institutions will have to fish or cut bait as to those properties that haven't recovered during their period of leniency. To the extent these institutions swallow hard and take their hits, we could see a large number of properties come onto the market at attractive prices for investors during 2014 — a reprise of 2010-2012.

"As to those properties that have recovered during this forgiveness period, to the extent they come back to the market, if the they're higher quality retail and office assets, we could see some slight appreciation in prices during 2014, certainly in primary, and most probably in good secondary markets as well."

Real Estate Forum, December 2013

Stephen H. Paul is a Partner in the Indianapolis law firm of Faegre Baker Daniels LLP, the Indiana member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

"Natural gas reserves a boom for not just energy industry, but for all of South Texas."

South Texas is humming with activity, much of it attributable to the Eagle Ford Shale and the rapid growth it has brought to the region. The opportunities available and the boom resulting from the Eagle Ford resources have generated significant wealth and economic activity in these modest communities. As the population expands with workers and South Texas hastens to keep up with the surging demand for housing, roads and other infrastructure, property values are on the rise.

The boom has fueled significant tax assessment increases over the past few years. South Texas counties are reaping the benefits of the new prosperity by increasing property values and adding more property to their tax base. The trend serves as a poignant example of how externalities affect value.

What is the Shale?
The Eagle Ford Shale is a geological formation from the Cretaceous period spanning the Mexican border in South Texas into East Texas. It is roughly 50 miles wide, 400 miles long, and pans 30 Texas counties between the Buda Lime and Austin Chalk formations. The shale produces dry gas, wet gas, natural gas liquids and oil.

Some experts believe the Eagle Ford discovery could become the sixth largest oil discovery in the history of the United States. Combine this with the fact that it is as large as or larger than the Barnett Shale play in terms of natural gas reserves, and you have a recipe for a legendary oil and natural gas boom.

Since 2008, the exponential growth in the Eagle Ford Shale has been staggering. In 2008, there were roughly 350 barrels of oil produced in the region per day; today, almost 10 times more barrels of oil are produced per day. And, as of the end of September, an estimated 5,200 drilling permits have been issued.

Benefits to South Texas
In South Texas, housing supply has increased as numbers of transient workers migrate to work in the oil fields, on pipeline projects and in new gas processing plants. From 2000 to 2010, the population in just a six-county region (Dimmit, Frio, La Salle, Maverick, Webb and Zavala) grew by roughly 66,000 people, and housing grew by about 22,000 units.

The results from the new prosperity are evident in the increase in property tax assessment values. For La Salle County's Cotulla Independent School District (15D), total taxable value was over $2.3 billion in 2012, compared to $408 million in 2008. Nearby, the Dilley ISD total taxable value more than doubled to $235 million in 2012, from $103 million in 2008. While the majority of the increase in tax base is due to the value of oil, gas and minerals and the industrial personal property needed for these projects, the ripple effects can also be observed in commercial and residential properties.

For example, lodging room revenues in the oil and gas areas grew by almost 16 percent in 2012, which is more than the state average, according to a report prepared by Source Strategies Inc. for the Office of the Governor, Economic Development & Tourism. Also, room revenues in the city of Alice (Jim Wells County) were $12 million in 2012 compared to $5 million in 2008.
As room revenues increase, appraisal districts have captured the new income streams and raised hotel values.

This is just one example of how the activity from the Eagle Ford boom has filtered down to property values. But while room revenues have been consistently increasing over the last
couple of years, Source Strategies suggests that the growth seems likely to moderate, as revenues during the second quarter 2013 declined slightly in Victoria and Laredo.

Similarly, as the market begins to even out and supply catches up with demand, there may be more stabilization of property values. In any event, property owners should be watchful of market trends in reviewing their property values.

Continued Growth Ahead
Anticipated future production in the Eagle Ford Shale indicates continued expansion in South Texas. By 2021, the Eagle Ford Shale could produce as much as $62.2 billion in output and $34 billion in gross regional products, according to projections by the University of Texas at San Antonio's Institute for Economic Development. More permits continue to be

approved for drilling.

As communities in South Texas catch up with the increased activity, property owners should be on guard against unfair and inflated property tax assessments.

Melissa Ramirez is a principal with the Austin law firm of Popp Hutcheson P.L.L.C., 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. Ms. Ramierz can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

"Both residential and commercial policy holders currently benefitting from subsidized rates will see a 25 percent yearly rate increase until each rate reflects "true flood risk" according to the new flood insurance maps to be generated by FEMA. New risk tables will not be available until June 2013, making the magnitude of the adjustments uncertain..."

In Texas, flooding is a part of life. Between the Galveston hurricane of 1900 and Hurricane Ike in 2008, seven major hurricanes and destructive tropical storms have ravished the Texas Gulf Coast. The people of Texas have lived through, and re-built, in the wake of these and many other flooding events.

Congress enacted the National Flood Insurance Act of 1968 to create the National Flood Insurance Program (NFIP), intended to provide an insurance alternative to help property owners meet the escalating costs of repairing damage to buildings and other property losses. The program insures roughly 5.5 million homes, the majority of which are in Texas and Florida. The NFIP also provides building-and-contents flood insurance for businesses.

Communities participating in the program must adopt and enforce a floodplain management ordinance to reduce flood risks in zones recognized as Special Flood Hazard Areas. In exchange, the federal government will underwrite flood insurance for these high-risk communities. The Flood Disaster Protection Act of 1973 made the purchase of flood insurance mandatory for the protection of property within designated special flood hazard areas. Later, the Flood Insurance Reform Act of 2004 further modified the national flood insurance program to reduce losses to property owners with repetitive claims.

Rates for policies under the national program are in most cases substantially lower than privately available insurance, and are the only coverage available for some high-risk locations. Policy premium rates are depicted on flood insurance rate maps (FIRMs) and the mapping process is managed by the Federal Emergency Management Agency (FEMA), which oversees the flood insurance program.

Since 1978, the national flood insurance program has paid more than $38 billion in claims, and in 2012, it insured roughly $1.2 trillion worth of property. In January 2009, mostly as a result of the devastating 2005 hurricane season, the national flood insurance program owed the U.S. Treasury approximately $19.2 billion, with yearly interest payments of more than $730 million. The program's worrisome financial health brought it under scrutiny during the 2009 re-authorization process, and the Government Accountability Office issued multiple reports on the program.

Congress passed the Biggert Waters Flood Insurance Reform Act of 2012 to modify the way FEMA manages the national flood insurance program. The act will require the program's rates to reflect true flood risks, a premium hike that should make the program more financially stable. The 2012 act also calls for FEMA to change the way it implements flood insurance rate maps: Under the act's provisions, actions such as buying a property, allowing a policy to lapse or purchasing a new policy can trigger rate changes, effectively ending subsidies and grandfathered policies.

Both residential and commercial policy holders currently benefitting from subsidized rates will see a 25 percent yearly rate increase until each rate reflects "true flood risk" according to the new flood insurance maps to be generated by FEMA. New risk tables will not be available until June 2013, making the magnitude of the adjustments uncertain.

The uncertainty about rates presents a hazard to property values in high risk areas. The greatest uncertainty and risk to property values, however, may be updates to flood insurance maps, which FEMA is currently preparing.

Some policy changes, such as ceasing to recognize private levies and revisions to historical flood lines, may change the risk rating of many properties. For properties where the risk severity and availability of subsidies are changing, the overall economic viability of the property may be at risk.

Changes to the national flood insurance program have created economic obsolescence affecting the values both of properties currently in the program and of properties not in the program, which may have their risk rating changed by the flood maps' pending revision.

While the magnitude of the change in property values may be unknown for several more months, enough information is available to argue that the additional risk these regulatory changes introduce will reduce taxable values of potentially affected properties. Once all the variables are known, affected property owners should undertake an in-depth analysis of the effect of the regulations on property value to determine whether a tax appeal is necessary to obtain a fair property tax assessment.

Sebastian Rodrigano is a principal at the Texas law firm of Popp HutchesonPLLC. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Rodrigano can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

In order to fund proposed transit improvements in the vicinity of Grand Central Terminal, New York City is considering an air-rights zoning change to allow construction of perhaps a dozen buildings, primarily office towers, that would stand taller than is currently permitted. Developers would be asked to pay the city about $250 per square foot to acquire these new air rights, and the city would use the monies to carry out its proposed public improvements.

The pricing of new air rights under the proposal stands to pit the city against some New York property owners, who could see the value of their own air rights slashed as a result. A question with implications for commercial property owners is, how did the city determine the square-foot charge of $250? An article by Laura Kusisto in the Aug. 13 edition of the Wall Street Journal explores the brewing controversy.

The Landauer Valuation & Advisory organization calculated an estimate of value for the city. Landauer is a division of Newmark Grubb Knight Frank, a well-known real estate advisory firm.

Landauer first determined the value of office land in the Grand Central area, then applied a 35 percent discount. According to Robert Von Ancken, its chairman, residential or hotel uses were not considered in valuing the proposed air rights. Landauer relied on current market data and a methodology used in the past by market participants.

Argent Ventures, which already has a dog in this argument because it owns the air rights above Grand Central, has termed $400 a more accurate unit value. Argent's president has asserted that air rights should not be discounted off underlying land values and might even be worth more than land with the same development potential.

Argent bases this on work performed for it by Jerome Haims Realty Inc. and backed by another appraisal firm. However, as Kusisto notes in her Wall Street Journal article, "Argent has an interest in putting a higher price tag on the air rights because it will have to compete with the city to sell air rights to developers if the rezoning passes."

This controversy obviously sets an existing stakeholder against a municipality that needs to encourage growth in a particular submarket. The value of Argent's Grand Central air rights will be sharply influenced by the city's offerings. The city probably cares as much about creating tax flows from the buildings that would float on the newly created air rights as it does about the selling price, although the Wall Street Journal article does not mention this point.

From a valuation perspective, it would be interesting to review the Landauer and Haims studies, if only to learn in detail how these firms valued the right to create what apparently will be millions of square feet of new office product. Issues such as absorption, the impact of the transportation improvements proposed by the city on market values and the data relied upon to upport the appraisers' conclusions could offer a textbook tudy of a very complicated topic.

Ultimately, the New York City Council must vote on the creation and price of the new air rights.

Elliott B. Pollack is a member of Pullman & Comley in Hartford, Connecticut and chair of the firm's Valuation Department. The firm is the Connecticut 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..

"The varying directions of price trends demonstrate that now, more than ever, Atlanta property owners should closely review property tax assessments and make specific determinations regarding the correctness of the valuation. General sales trends and perceptions provide insufficient basis for deciding whether or not to appeal the county assessment notice..."

There is a common perception among assessors that an increase in real estate sales activity is a sign of an improving economy. For a commercial property owner on the receiving end of a tax assessment increase, however, it is a good idea to analyze how the assessor came to his/her conclusions and then decide if the increase is justified, or if a protest is in order.

Sales of office, retail, hotel, multi-family and industrial properties in Atlanta increased in number from early 2010 to late 2012, according to CoStar Group, a national researcher. But does that increase automatically result in higher valuations? What trends do the sale prices over this period indicate on a per-square-foot, per-room, or per-unit basis? More importantly, what conclusions, if any, should the taxpayer or assessor draw regarding valuation of individual properties?

Retail properties accounted for the largest number of commercial, arms-length sales transactions in Atlanta from the beginning of 2010 through 2012. Narrowing the focus of sale price data reveals that the average price per square foot paid for retail properties in that period actually decreased by 20 percent. Full-year data for 2013 is not yet available, but sales through July suggest that the downward trend in average price per square foot for Atlanta's retail properties is continuing.

Atlanta's highest percentage increase in number of sales from 2010 through 2012 occurred in the hotel market; despite the uptick in volume, the average price paid on a per-room basis for hotel properties decreased by about 17 percent. Available year-to-date data for 2013 indicates that the average room rate for hotel properties may be increasing, with an associated effect on hotel valuations, but each property will require a closer analysis of the class of property sold, its location, and other relevant facts.
Atlanta's multifamily sector posted a compelling percentage increase in the number of sales completed from early 2010 through 2012. In this group, the average sale price per unit increased over that same period. But again, valuing a specific property would require an examination of all factors, such as quality and location.

The market's office sales increased significantly in number from the beginning of 2010 to year-end 2012. During that time, the average sale price per square foot increased, but like other categories, specific factors must be examined to arrive at a fair value.

Finally, while industrial properties experienced a dramatic increase in the number of sales from the beginning of 2010 to the end of 2012, the average price per square foot for these properties in Atlanta decreased steadily in 2011 and 2012. Whether this trend will continue in 2013 is unknown. Sales would need to be examined for specific industry types or sub-categories of properties in order to draw worthwhile conclusions about the value of a particular parcel.

The varying directions of price trends demonstrate that now, more than ever, Atlanta property owners should closely review property tax assessments and make specific determinations regarding the correctness of the valuation. General sales trends and perceptions provide insufficient basis for deciding whether or not to appeal the county assessment notice.

Research regarding many personalized, property-specific factors and criteria are involved in making a determination of value, including an analysis using the income approach. Atlanta commercial property owners should question any assessor's suggestion that sales volume recovery in the Atlanta marketplace equates to an increase in the value of their properties.

Lisa Stuckey is a partner in the Atlanta law firm of Ragsdale, Beals, Seigler, Patterson & Gray, LLP, the Georgia 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..

Though a few large companies may be expanding in the Portland region, it won't necessarily be a boon to property owners.

"The madness is in the method of assessment, because it is impossible for the assessor to physically inspect and appraise each property on its rolls. Instead, the assessor will typically add up a taxpayer's historical investments in a property as reported each year..."

The real estate headlines in Oregon newspapers this month kindled cautious optimism that the economy is in full recovery. One article touted a boom in the residential and commercial markets of Canby, a Portland suburb, while another trumpeted a bash to kick off a $25 million, mixed-use development in downtown Portland.

These positive headlines added to the stimulating effects of last year's expansion announcements by Nike and Intel. News of those companies' plans for growth in Hillsboro bolstered the industrial, office, and residential markets in the Sunset Corridor.

Industrial property owners, be vigilant. This uptick in the economic outlook does not mean there should be a corresponding increase in a property's real market value and a corresponding over-assessment of the property.

It should be simple to spot an inflated assessment. By statute, a property is assessed at its real market value, defined as what a willing buyer and willing seller would agree upon in an open market transaction. Assessments are also subject to Measure 50's maximum assessed value limitations. The assessed value is the lower of the maximum assessed value or the real market value.

Yet over-assessments are common, and the reasons numerous. Despite the economic uptick, there are still significant economic impacts to industry in Oregon resulting in over-valuation of property by the Counties and the Department of Revenue.

The madness is in the method of assessment, because it is impossible for the assessor to physically inspect and appraise each property on its rolls. Instead, the assessor will typically add up a taxpayer's historical investments in a property as reported each year, and equate the cumulative sum of those investments to the real market value of the property — without any regard to market conditions.

Market conditions that impact a company and the real market value of the property can be significant, particularly for an industrial property. Take a high tech campus that was built in the 1970's and designed for a single user. Back then, tech firms favored flex buildings designed for manufacturing, research and development, assembly, and distribution with a typical floor plate of 40,000 square feet. No thought went into an exit strategy when planning the design or layout of the access, parking, integrated utility systems, and location of the buildings on the property.

Fast forward to 2013, when globalization generally calls for overseas assembly plants and distribution centers located strategically to the company's global market. The need for a single-user campus with six or more dated, 100,000-square-foot flex buildings that share interconnected utilities on a single tax lot is gone. Globalization is an economic force that is external to a company and one that drives down the market price of these facilities. It is a form of obsolescence that is rarely accounted for in a property valuation.

Another factor that assessors typically overlook at industrial sites is functional obsolescence. Consider a facility built 30 or 40 years ago. Technology for the manufacturing processes may have advanced over the years, but the building design, including the ceiling height or floor load, may limit the use of the new technology. The overall utility of the property suffers from functional obsolescence that impairs the market value.

The assessor often lacks the people power to drill down into the details of every property. Because property value reflects not only local market conditions, but also the inherent functional and economic obsolescence unique to the property, a property being taxed solely on a trending basis may be over-assessed.

Cynthia M. Fraser is an attorney at Garvey Schubert Barer where she specializes in property tax and condemnation litigation. The firm is the Oregon and Washington member of the 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..

Owners appealing unfair tax assessments must aggressively and specifically examine the general economic climate.

"While area bankers express high hopes for the coming year, that optimism is not reflected in actual lending practices for the past year. According to the St. Louis Federal Reserve Bank, commercial and industrial loan volume in the United States totaled $16.4 billion in 2012, up slightly from $14 billion in 2011."

By accident or design, assessors tend to punish commercial property owners by increasing the assessed value of properties that outperform the market, thereby generating more taxes for the local government. The problem arises from real property valuations based upon a cash flow analysis, which fails to take into account intangible qualities that boost cash flow but are unconnected to intrinsic real estate value.

Intangible qualities that can increase a commercial property's cash flow include the skills of the management and general business reputation of the owners. Assessors have a tendency to value the business rather than the real property. Consequently, assessors punish owners for efficient and successful management. In order to guard against such an outcome, owners appealing unfair tax assessments must aggressively and specifically examine the general economic climate. In analyzing commercial property, appraisers dedicate pages within each appraisal report to the local economy. Time after time, appellate reviewers in their rush to focus on the cash flow of the specific property simply skip over the plethora of general economic data that fills appraisal reports.

Two measures of local market performance are particularly important in appealing an assessment, however. One metric is retail sales, which provide a clear barometer of general economic conditions. Sales reflect the health of the consumer base and, most notably, employment. With diminished employment, sales fall in the marketplace. The other dataset to examine is the availability of credit for commercial property acquisition and/or development. While valuation authorities rarely acknowledge the relationship, retail sales and credit are inextricably linked.

Follow Sales Tax Receipts

A look at retail sales and availability of credit in the St. Louis marketplace provides a far better foundation for value analysis than do the population counts and various economic facts tacked onto assessors' reports.

In the city of St. Louis, total sales tax receipts increased every year from 2008 through 2012, with just a slight decline in 2010 (see chart). In 2013, however, the trend's trajectory has changed. The city of St. Louis has collected $30.7 million in sales tax receipts year-to-date through May, down 4.9 percent from $32.3 million during the same period a year ago.

Annual sales tax receipts for 2013 in St. Louis based were previously projected to reach just over $120 million based on the actual receipts for the first five months of 2013 and previous years' receipts during the last seven months of the year. However, the closing of a Macy's store in downtown St. Louis in May will dim this picture even further. Banks are feeling regulatory pressure to lower the concentration of commercial real estate loans in their portfolios. Lending to acquire or develop commercial buildings or residential subdivisions tanked during the Great Recession. Today, lenders give more scrutiny to a potential borrower's creditworthiness than before the downturn. The credit quality of borrowers or developers has in many respects become an important factor in the intrinsic value of the project or the real estate itself.

While area bankers express high hopes for the coming year, that optimism is not reflected in actual lending practices for the past year. According to the St. Louis Federal Reserve Bank, commercial and industrial loan volume in the United States totaled $16.4 billion in 2012, up slightly from $14 billion in 2011. Compared to the market's peak loan volume of $26 billion originated in 2008, credit availability in the sector is clearly constrained.

Focus On Fair Market Value

Property owners should keep in mind that the determination of fair market value is based upon not only a willing seller, but also a willing buyer. A willing buyer must obtain financing, and the St. Louis market has tightened up considerably in that regard. A tax appeal based on the scrutiny of credit availability and retail sales will go a long way toward ensuring that careful, prudent entrepreneurship and management will go unpunished by an excessive tax burden.

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.

Two recent rulings by the California Supreme Court may have significant effects on the state's property taxpayers. These effects may be both good and bad, depending on your situation.

"The rule in question had watered down Proposition 13's cap on assessment increases by directly offsetting such increases against depreciation on machinery and equipment..."

The California Supreme Court issued two decisions in early August relating to property taxes that will significantly impact owners of commercial and industrial properties in Southern California.

Decision #1: Ruling Clarifies Tax Exemption for Intangibles

The first decision, Elk Hills Power vs. State Board of Equalization, broadly affirmed the exemption of intangible assets and rights from property taxation. County assessors had previously been assessing intangibles that businesses use in conjunction with real property as part of the real property's value. In other words, property owners were paying property tax on the value of the intangibles associated with operating businesses at a property, as well as on the value of the real estate.

The Elk Hills Power decision changes that by prohibiting assessors from including intangibles in the taxable value of the real property. Moreover, if a taxpayer identifies an intangible to the county assessor and shows the value of the intangible, the assessor must review it. So what are the intangibles that are exempted from taxation? The Supreme Court's decision lists several, including franchises, contracts, assembled workforce, customer base and goodwill.

That list is not comprehensive, however, and nearly all intangibles used in the operation of a business are arguably included. So how should property owners respond to the Supreme Court's taxpayer-friendly decision? First, identify the intangibles used in operating any business at the property and, if possible, attempt to value those intangibles.

Next, report the identified intangibles with associated values to the county assessor. This is especially important if the real property was recently acquired, which allows local assessors to establish new Proposition 13 base year values. If discussions with the assessor fail to result in exclusion and exemption of intangible values from the property tax assessment, the property owner should file and pursue an appeal before the county assessment appeals board.

Decision #2: Court Weakens Proposition 13's Cap on Tax Increases

The Supreme Court's second decision, Western States Petroleum Association vs. State Board of Equalization, involved the legality of a new rule issued by the State Board of Equalization for the taxation of petroleum refineries. The question before the court concerned a rule affecting Proposition 13, a law that essentially limits increases on the assessed value of land to no more than 2 percent annually.

The rule in question had watered down Proposition 13's cap on assessment increases by directly offsetting such increases against depreciation on machinery and equipment. For fixtureintensive properties like refineries, food processing facilities and power plants, the impact can be significant The Court struck down the rule, finding the Board had issued an inadequate economic impact report, and thereby failed to adhere to the requirements of the Administrative Procedures Act. In the same decision, however, the Court also ruled that the Board's reasons for adopting the rule were sound.

In fact, in a concurring opinion, one of the Court's justices essentially invited the Board to reissue the rule as long as it followed the procedures for doing so. It appears that the Board may be preparing to do just that. But this time the rule may be much broader in scope, sweeping in all types of properties that are operated with large amounts of machinery and equipment, which assessors refer to as "fixtures."

If the Board issues a more broad-ranging rule, commercial and industrial properties that use large amounts of fixtures will experience noticeable increases in property taxes. In essence, the Supreme Court's decision in Western States mounts to another attack on Proposition 13, much like the "split-roll" attacks that have sought to apply a tax rate to commercial properties that is different from the rate applied to residential properties. While it is possible that the Board will decline to revisit the matter, the current political and economic situation in California suggests it will enact another rule.

Cris K. O'Neall, partner, Cahill, Davis & O'Neall LLP in Los Angeles. The law firm is the California 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..

Inequities in assessments spark tax controversy in North Carolina's banking hub.

Charlotte, the largest city in North Carolina, is the second largest banking center in the United States. Like the larger New York financial cluster, Charlotte suffered grievous job losses and deflation of property values during the Great Recession. As the seat of Mecklenburg County, Charlotte is also at the center of a tax reform effort marked by record numbers of taxpayer protests, the resignation of the tax assessor and an ongoing attempt by state lawmakers to correct local valuation inequities.

Essentially, the lengthy intervals up to eight years — that North Carolina law allows between revaluations, combined with the effects of deteriorating property values since the onset of the recession, set the stage for a valuation imbroglio for property owners in Charlotte and Mecklenburg County.

Prior to its 2011 revaluation, Mecklenburg had last revalued in 2003. The county planned at that time to revalue in 2007. During the course of the last cycle, however, county commissioners decided to postpone the revaluation until 2009. After the banking crisis and resulting real estate market crash of 2008, when real estate sales largely ceased, commissioners postponed the revaluation to 2010, and then postponed it again until 2011, the eighth year in the cycle, when by law the revaluation had to occur. Presumably, political leaders intended the postponements to allow the real estate market an opportunity to stabilize, and perhaps recover.

Those good intentions and the resulting series of postponements proved to be major contributors to what must be regarded as a blown revaluation, despite the best efforts of what has egnerally been regarded as a highly competent assessor and staff.

The assessments produced significant overvaluations of many properties and sparked mass protests from homeowners in sections of the county and a heated debate punctuated by the county assessor's resignation. Taxpayers had filed 1,542 appeals to the North Carolina Property Tax Commission from the Mecklenburg County Board of Equalization and Review as of mid-April this year, the largest number by far from any revaluation in North Carolina's history.

Pearson's Appraisal Service, an outside consultant the county hired to study the revaluation, reviewed a random sample of the revaluation results and discovered major issues. Although much of the revaluation met acceptable assessment standards, the consultant identified inconsistencies involving both uniformity of assessment and valuation in residential neighborhoods which were heterogeneous with in-fill and tear-down activity and in neighborhoods where the current use might not be the highest and best use.

Problems also emerged in connection with commercial properties, including certain office, retail and hotel categories. Substantial problems turned up involving land valuations in addition to many other issues that the consultant characterized
as minor.

Although the county commissioners voted to expand the consultant's study, they were constrained by a state law that prohibits retroactive valuation adjustments and taxpayer refunds for years when assessments had not previously been appealed. Amid continuing and widespread voter dissatisfaction, legislators, with the support of the county commission, introduced unprecedented legislation on March 4, 2013, to correct the 2011 revaluation.

North Carolina's constitution prohibits classifications of property for taxation except on a statewide basis, and provides that "every classification shall be made by general law uniformly applicable in every county, city and town, and other unit of local government." Another section of the constitution prohibits local legislation extending the time for the levy or collection of taxes.

Attempting to draft constitutional legislation that would address Mecklenburg County's unique revaluation needs, lawmakers worded Senate Bill 159 and its House counterpart, HB 200, to be ostensibly applicable statewide, but with preconditions to application of the statute that only Mecklenburg County is likely to meet.

The North Carolina Senate passed SB 159 unanimously on March 28, and after amendment in the House, the bill was returned to the Senate, which concurred in the House amendments on July 18. SB 159 provides that the county must conduct a general reappraisal within 18 months if the following is found to exist:

• The county has evidence that the majority of commercial neighborhoods possess significant issues of inequity
• Instances of inequity or erroneous data had a significant impact on the valuation of residential neighborhoods,
• The county's last general reappraisal was performed in 20082012 when the economic downturn most severely affected home prices,
• The county's evidence resulted from a review by an appraisal service retained by the county and resulted from a sample size of not less than 375 properties that were examined on site.
• The reappraisal is to be applicable to all tax years from and including the year of last revaluation,
• Alternatively, a county meeting the criteria must have a qualified appraisal service conduct a total review of all the values in the county and make recommendations as to true values of the
• properties as of Jan. 1 of the last general revaluation.

Once in possession of this information, the county would be required under SB 159 to correct incorrect assessments to reflect true value as of Jan. 1, 2011, and apply those corrected values for later years in the revaluation cycle. Refunds would be automatically made, with interest, and under-assessments based on the new values would be subject to discovery assessments under existing tax statutes, but without being subject to normal discovery penalties.

Based on the legislative action, it appears that the Mecklenburg revaluation will drag on for some time. Since the county will be reviewing values, the legislation appears to open the door for taxpayers to identify assessments they think unfair and draw them to the attention of the county for review. And as the legislative note accompanying the bill provides, "a taxpayer or county may have standing to challenge" the legislation and "it is unknown whether a court would find the bill to be local in nature or non-uniform."

In other words, lawmakers recognize the potential for a court to rule the legislation as unconstitutional.

Chuck Neely, Jr. is a partner in the law firm of Williams & Mullen, the North Carolina member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Neely can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Property owners to benefit from adjustments in appraisal review boards, appeals and hearings.

"Texas House Bill 585, which passed in June of this year, was written to provide for a fairer and more efficient tax appeal process, and its passage into law may help taxpayers appeal their assessments..."

As the economy recovers and property values rise, real estate taxes are a growing concern for Texas property owners. Each dollar of additional tax is a dollar removed from an income-producing property's bottom line, and some taxpayers will find that the increases in tax appraisals are overreaching and require a formal protest. That being said, taxpayers who protest their property values will likely be pleased with the Texas Legislature's recent revision to the property tax code. Texas House Bill 585, which passed in June of this year, was written to provide for a fairer and more efficient tax appeal process, and its passage into law may help taxpayers appeal their assessments.

Complaints about the state's property tax system often involve a perception of bias on the part of appraisal review boards (ARBs), the citizen panels that hear and decide property tax appeals at the administrative level. A second concern is a perceived lack of responsiveness on the part of appraisal districts with regard to taxpayer concerns. To address this, HB 585 provides for increased oversight of these entities. The new law requires the comptroller to provide model hearing procedures with clear expectations for all Texas ARBs.

In large counties, it also establishes a taxpayer complaint system through a taxpayer Liaison, an intermediary housed at the district and tasked with hearing taxpayer concerns regarding procedures and personnel. The liaison's go-between responsibilities will now increase to include accepting taxpayer complaints and providing clerical support in the ARB selection process.

On top of re-emphasizing oversight and improving accountability, HB 585 tackles another perceived flaw in the property tax appeal system. Appraisal district boards of directors have historically selected ARB members. In Houston, however, a district judge selects Harris County ARB members. ARB member selection in counties with more than 120,000 residents will now take on this same model used in Harris County. Only district judges will possess the power to appoint members.
It's a move that could also have disciplinary implications, as ARB members who do not follow procedures may be removed by a judge as well. And in large counties, the appraisal district will be removed from the panel selection process completely. Aside from the new panel requirements, the new law seeks to make protesting property values easier and more effective. Appeal hearings must now be set for a certain date and time.

If a hearing does not occur within two hours of its scheduled time, a taxpayer may request a postponement. Also, if before a scheduled hearing
a change in value is made with an informal agreement between taxpayers and appraisers, the law strengthens the standards of evidence appraisal districts must provide in order to raise the property value the next year. This could mean less volatility for values. These changes are not the only changes set forth by HB 585, as the new law also provides new procedures for district court appeals. While shifts in accountability and scheduling may seem small, they could indicate a broader trend toward a more fair and equitable Texas property tax system.

As more guidelines favor taxpayers, it improves their likelihood of achieving fair results. What's more, keeping tax values fair will ensure that Texas' ability to attract developers and investors remains strong.

Michael Shalley is a principal and Patrick McGill a tax consultant at the Austin law firm of Popp Hutcheson PLLC. which focuses its practice on property tax disputes and is the Texas member of the American Property Tax Counsel. Michael Shalley can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. an Patrick McGill can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

"According to the Cook County Clerk's office, the budgets for all Chicago agencies increased by nearly $75.5 million over the previous year. Practically all of the increase was concentrated in the levies of the Chicago Public Schools. The increase in the tax rate was due to the decline in property values and the increase in levies..."

Two seemingly unrelated events dominated Chicago news at midyear 2013 and underscored the deteriorated condition of local government and the economy. The first bombshell fell In early spring, when the Chicago Board of Education announced that it was closing 50 underutilized schools and furloughing 1,742 teachers and 1,387 other staff members.

The second shoe to drop — real estate tax bills — arrived in the mail at the end of June. Always a source of trauma, this year's notices delivered an unexpectedly heavy blow in the form of a 17 percent tax rate increase.

If Chicagoans fail to demand action from state lawmakers and municipal leaders to address the budget shortfalls driving these dire measures, economic recovery threatens to elude the city for years to come. But the first step toward change is to understand the funding crises behind the news.

Shrinking values, expanding budgets

Two factors that determine real estate taxes are the total value of all property within the boundaries of the taxing district, and the tax rate. In Chicago, declining property values mean taxing entities would need to increase the tax rate from previous years in order to generate the same amount of revenue collected in those years. Unfortunately, local government budgets have grown, requiring even more revenue and driving up the tax rate even further.

By law, all properties within the city of Chicago must be revalued once every three years. The most recent tax bills were based on the revaluation completed in April 2013. That revaluation determined that the aggregate value of real estate in downtown Chicago had declined 7.5 percent since the previous valuation, and values in the residential neighborhoods had dropped between 14 percent and 20 percent.

According to the Cook County Clerk's office, the budgets for all Chicago agencies increased by nearly $75.5 million over the previous year. Practically all of the increase was concentrated in the levies of the Chicago Public Schools. The increase in the tax rate was due to the decline in property values and the increase in levies.
An office building just west of the Loop's financial district illustrates a typical tax impact on a commercial property. The 10-year-old, 400,000-square-foot building was originally revalued at 20 percent more than the prior year's valuation. After appealing, the value was finally set at a 1 percent increase, but because of the increase in rate, the tax bill increased to approximately $3,196,900, up by $343,200 over the prior year's bill of approximately $2,852,700.

A study in schools

Why the increase in school district taxes? After a stormy negotiation period, the Board of Education and the Chicago Teachers Union agreed on a new three-year contract that was ratified by all parties in December 2012. A few months later, the board announced 50 school closures and faculty layoffs.

The schools scheduled for closing were almost exclusively located in the poorer sections of the city where gang activity and indiscriminate shootings have proliferated. Parents are concerned about the safety of their children, and they have mounted strong opposition to the closings. Some have filed a lawsuit attacking the legality of the closings.

The board is blaming a $1 billion budget deficit for the budget cuts and the personnel layoffs. Pension costs alone have increased by $400 million to a total of $612 million for this year, and along with the new teachers' contract have contributed mightily to the deficit.

In 2011, Moody's Investors Service calculated the unfunded liabilities for Illinois' three largest state-run pension plans to be $133 billion. There can be no doubt that that number has increased significantly over the last year and a half. Like the U.S. Congress, the Illinois Legislature has been unable to make the tough decisions necessary to fund the pension deficits. In desperation, the governor has ordered that the salaries of the Legislature be withheld until they can agree on a pension plan. The response of the Legislature was not to address pensions but to file a suit against the governor on the grounds that his order was unconstitutional.

In addition to the board of education's pension problems, according to a local newspaper, the City of Chicago must make a $600 million contribution to stabilize police and fire pension funds that now have assets to cover just 30.5 percent and 25 percent of their respective liabilities. Without an agreement with the state, the deficit could rise to $1.15 billion in 2016.

Chicago has suffered greatly from the recession. Over the last 25 years, the aggregate value of real estate in the Central Business District has never before declined in a revaluation. Since 2009, however, the vacancy rate for office buildings in the Loop has stubbornly hovered around 15 percent, squeezing property cash flows and asset values. These conditions will continue until the city's unemployment rate of 9.8 percent declines significantly.

The increased tax rates and the school closings have coalesced into tangible issues to which Chicagoans could respond, but they are only symptomatic of much deeper problems that must be addressed. If left unaddressed, tax rate increases and layoffs will become an annual occurrence.

James P. Regan is President of Chicago law firm Fisk Kart Katz and Regan Ltd., the Illinois 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..

"Multifamily housing in King County may be particularly susceptible to inflated assessments in the upcoming years."

Each week seems to bring news of yet another record-selling price for a commercial property in Seattle, including assets ranging from office and retail to apartments and even development sites. Increasing occupancy rates for industrial and retail properties also suggest that property values are headed up.

The King County assessor has undoubtedly tracked these price trends, too. In 2012, the assessor's office reported overall increases in taxable values for major office buildings, major retail properties, hotels and apartments. As a result, many commercial property owners in the Puget Sound region saw increases on their 2012 assessed value notices. In March, King County's chief economist projected that total assessed values in the county would reach nearly $327 billion in 2013 (for taxes payable in 2014), up nearly 4 percent from $315 billion in 2012.

For many taxpayers, notices in 2013 will reflect assessment increases even greater than 4 percent. The general recovery in the Seattle market should not trigger increased assessments for all properties. For example, some suburban areas have missed out on the trend toward increasing property values. And there are always individual properties that do not experience the same increases as their neighbors. Accordingly, owners should be attentive to potentially overstated assessed values.

Multifamily housing in King County may be particularly susceptible to inflated assessments in the upcoming years. One reason is the high prices paid in recent transactions. Another is the ongoing development of many new apartment projects. Even as that construction fervor gives assessors the idea that apartments are hot commodities, these new projects increase the risk of value-sapping oversupply in some submarkets.

Assessed values for Single-family residences make up roughly two thirds of the tax base in Seattle. With that said, home prices have risen 10.6 percent in the past 12 months, according to the Standard & Poor's/Case-Shiller Home-Price Index that was released in late May. As many homeowners receive higher assessments in 2013, that should provide at least some measure of relief for commercial taxpayers.

Prepare For Tax Increases

Budgeting for an upcoming year's property tax bill is always a challenge, in part because tax rates can vary significantly by year and location. Seattle's tax rates decreased each year from 2004 through 2008, then rose a whopping 13 percent in 2009. They have continued to climb each year since. A further, small increase in 2014 tax rates is likely. Within King County, tax rates can vary widely even within a single year. While Bellevue has a tax rate of less than 1 percent for 2013, suburbs in South King County employ tax rates that are half-again higher: Kent, Des Moines and Federal Way rates range from 1.45 percent to 1.6 percent. In order to guard against an in- Dated tax bill professionals must ensure that assessed value notices get routed to a responsible person. If an assessment seems too high, then the appeal petition must be filed within 60 days of the notice's mailing date to preserve the owner's appeal rights.

Most commercial property owners should budget for increased tax liability for 2014 taxes, given the prospect of generally rising assessed values in 2013 and the likelihood of higher tax rates in 2014. Property owners should receive notification of new assessed values by this fall. Then in late January, when counties publish final tax rates, property owners can calculate their tax burden and revise budgets accordingly.

Michelle DeLappe and Norman J. Bruns are attorneys at Garvey Schubert Barer, Washington and Idaho member of American Property Tax Counsel, the national affiliation of property tax attorneys. Michelle DeLappe can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and Norman Bruns can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Keep the belt tightened to combat rising property taxes.

"Property values will likely increase over the next few years, so it is as important as ever for property owners to ensure that their property is fairly assessed."

In Alabama, as in much of the country, many property owners tightened their belts during the Great Recession, looking for ways to reduce operating costs for tenants and themselves. For some owners, a little bit of property tax relief provided a silver lining to the loud of plummeting property values that followed the crash Ben Bernanke and other economists assure us that better times lie ahead, however, property owners should remain vigilant in monitoring properties for over-assessment as the recovery plays out.

First and foremost, taxpayers should familiarize themselves with the general property tax laws and procedures in each market in which they own or in tend to own real estate. Though generally created and governed by state law, the property tax appeal process is often speckled with local nuances and specialized interpretations of law.

Learn key dates, including the valuation date, when assessors distribute notices, and the appeal deadline. How do assessors determine market value? Must an owner pay the full tax bill to preserve the right to appeal? Does the property qualify for any tax exemptions or alternative valuation methods? Local counsel can be an efficient and effective way to monitor these and other property tax considerations.

Perhaps in response to a growing number of tax protests, tax assessment officials are increasingly adding procedures and requirements concerning valuation disputes. These local rules range from requiring specific methods of filing protests - whether on a certain form or by mail, fax or email- to establishing early deadlines for submitting a property's financial statements for consideration of the income approach to valuation. Although the legality of some of these additional requirements is unclear, it is important for the property owner to observe these rules to avoid unnecessary appeals and litigation.

Knowing the correct deadlines is essential, and is more challenging than it may seem. For example, Alabama taxpayers have 30 days after the valuation notice date to file a protest. Each of Alabama's 67 counties sends out valuation notices on its own schedule, typically between April and midsummer. Georgia's 159 counties have similarly staggered notice periods and deadlines. To further complicate things, Alabama does not require valuation notices if the property value is unchanged from the previous year. Nonetheless, the taxpayer has only 30 days from the notice date to file a protest.

As in many other states, Alabama assessors send tax notices to the property's owner of record. This means that tenants - which often pay the taxes and have protest rights under their leases - generally do not receive notices from the assessor. In such cases, the tenant needs to remind the owner to forward valuation notices as soon as they are received, and should independently confirm the notice dates and values with the taxing jurisdiction. In an expanding economy, the valuation date can significantly affect the property's assessed value. For example, Alabama assessments in any given year reflect the property's value as of Oct. 1 of the previous year, so 2013 taxes are determined by the value as of Oct. 1; 2012. Accordingly, an increase in market values in the first quarter of 2013 should have no bearing on the value used to determine 2013 taxes. When reviewing an assessment for accuracy, a taxpayer should consider all factors affecting the property's value. Taxpayers are often focused on the big picture in ad valorem tax disputes such as the net operating income, rent roll, occupancy, capitalization rates and the like.

There is more to be mined in less obvious areas, however. Is the property subject to any title restrictions, such as use limitations or conservation easements? Are there any environmental impairments? Is the property specialized for the particular use of one owner, thereby limiting its market value to potential buyers? Is the property's value affected by "super adequacy," which occurs when the cost and quality of improvements exceed market requirements but fail to contribute to the property's value? An example of the latter would be a government building with security features well in excess of those a private business would require - or pay for. Property values will likely increase over the next few years, so it is as important as ever for property owners to ensure that their property is fairly assessed.

Aaron D. Vansant is a partner in the law firm of DonovanFingar LLC. the Alabama 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..

"While the case law and appraisal science continue to evolve, the framework for valuing properties subject to environmental contamination remains relatively unchanged..."

The legal and appraisal communities have embraced the notion that environmental contamination can impair real estate value. After all, a property's potential uses or limitations on those uses have a direct bearing on the asset's marketability and profit potential.

An investor seeking to rein-in the tax burden on a contaminated property must navigate a legislative and regulatory framework that imposes liability on the property owner for environmental cleanup costs and remediation. In addition to the value lost when a property is directly contaminated, properties in proximity to the contaminated site can also lose value because they are subject to contamination.The devil is in the details, however, and uantifying the direct or proximate impact on value can prove problematic.

The State of New Jersey is a leader in attempting to define the impact of contamination on property value, and its highest court discussed this perplexing problem in the 1980s case of Inmar Associates Inc. vs. Carlstadt.

The New Jersey Supreme Court recognized that the costs associated with cleaning up environmentally contaminated properties would have a depreciating effect upon the properties' true value. The court also noted that deducting those costs dollar-for-dollar from the true value of the property is an unacceptable methodology, and deferred to the appraisal community to arrive at an appropriate valuation method.

Years later, in the case of Metuchen vs. Borough of Metuchen, the court identified a procedure it found acceptable. Without question, uncontaminated land is worth more than contaminated land, the court reasoned. Therefore, as contaminated land is cleaned up, its value increases. The legal question is, how should this capitalization of the cleanup costs affect the market value of the subject property?

In Metuchen, the tax court used the principles established in Inmar to form a foundation or core principles for assessing the value of unused, contaminated property that is subject to mandatory cleanup at the owner's expense, at an estimated but undetermined cost. Those are: cleanup cost, the effect on market value, calculating the impact and treating the cost of cleanup as a depreciable capital improvement.

Taking the lead from the New Jersey Supreme Court's ruling in Inmar, the tax court in Metuchen deferred to the appraisers to determine the costs of cleanup and appropriate capitalization time period. The parties essentially agreed upon the unimpaired value of the property and the court easily reconciled the difference in opinion on cleanup costs.

While the case law and appraisal science continue to evolve, the framework for valuing properties subject to environmental contamination remains relatively unchanged since Metuchen. That formula entails discounting the present value of cleanup costs and subtracting that from the property's clean value.
Most recently, the tax court used the Metuchen formula to find value in an unreported decision.

While courts, property owners and assessors use the Metuchen formula to determine the value of contaminated land, this method fails to deal with other factors associated with contaminated sites. One of those factors is environmental stigma, a term the appraisal community uses in attempting to quantify the adverse effect on property value produced by the market's perception of increased risk. Even after environmental cleanup and remediation, environmental stigma may still lower the otherwise unimpaired property's value.

Philip J. Giannuario is a partner in the Montclair, NJ law firm Garippa, Lotz & Giannuario, the New Jersey and Eastern Pennsylvania member of American Property Tax Counsel. He may be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it..

How a Compelling, Well-Prepared Property Tax Appeal Can Defeat An Unlawfully Excessive Assessment

" A compelling case that is well presented gives the taxpayer the best chance at success."

It's no secret to taxpayers that appealing property tax assessments can be challenging. Typically, taxpayers bear both the burden of proof and the risk of a decision that not only protects government revenue but also ignores the facts and applicable law. Nevertheless, sometimes a compelling and well-prepared property tax appeal can result in tax justice.

A 2013 Michigan Tax Tribunal decision exemplifies the potential for achieving a fair outcome. In this case, the tribunal determined the market value of an apartment complex with 779 units. The analysis was substantially the same for both tax years involved, so just the first valuation date is discussed here.

The taxpayer claimed that the property was worth less than $13,400 per unit. Based on sales of apartments in the area, on an absolute and relative basis, this is a low value for an apartment property in the subject market. To prevail, the taxpayer had to carefully present its case using three essential components:

• A convincing explanation of why the subject property's per-unit value was so low;
• A well-reasoned appraisal based upon both the income approach and sales comparison approach, which demonstrated that the property was worth what the taxpayer contended and refuted the contentions and analysis of the government's assessor and appraiser; and
• Legal authorities whose testimony supported the taxpayer's position.
• The taxpayer needed each of these three ingredients to achieve total victory. It would have been insufficient for the taxpayer to have simply presented an appraisal that reached value conclusions supporting their contentions. In recent years, there have been numerous cases where the tribunal found taxpayer-filed appraisals to be flawed and unpersuasive.

Winning the Case

The taxpayer gave a compelling explanation for the property's low value. In this case, the property's one- and two-bedroom units averaged a mere 581 square feet. The onebedroom units, which comprised more than 70 percent of the apartments, were only 550 square feet. Those measurements were far smaller than those of the area's other apartment complexes, which averaged 750 and 850 square feet for one- and two-bedroom units, respectively.

As the owner explained to the tribunal, the original developer had built the units decades before to serve relatively unskilled young adults working in area factories. The small unit sizes made the apartments affordable for these first-time renters.

The Great Recession reduced demand for all types of apartments, which hurt occupancy and rental rates for the entire apartment market. This economic obsolescence adversely impacted the subject property's value. Further, the recession negatively impacted the subject property far more than other apartment properties because the huge downturn eliminated so many factory jobs for relatively young and unskilled workers. As those jobs disappeared, so did single renters who wanted small units, saddling the property with enormous functional obsolescence.

Given these explanations of the property's deficiencies, the judge could readily accept that even when occupancy improved and became stabilized, the complex would have above-market vacancy and would be limited in the rents it could charge, while forcing the owner to bear most of the utility costs.
These facts were an integral part of the direct capitalization income approach in the taxpayer's appraisal. In this income approach, the appraiser first determined the property's net operating income with occupancy that had reached a stabilized level. This required providing and analyzing the income and expenses of comparable properties as well as the subject property's financial results in recent calendar years. The appraiser applied an appropriate capitalization rate to the stabilized net operating income to determine the property's value as stabilized. The appraiser then subtracted the costs of rent concessions and lost rents the property would experience as it increased occupancy to a higher stabilized level.

In the sales comparison approach, the appraiser presented sales of six comparable properties, and where applicable, made adjustments for numerous elements of comparison, including location and age. Significantly, the appraiser's analysis included not only the commonly used per-apartment unit basis but also a per-square-foot analysis.

The appraiser gave some weight to this sales comparison approach but relied primarily on the income approach. Their testimony, supported by testimony of one of the taxpayer's senior managers, not only satisfied the taxpayer's burden of proof but presented a compelling case.

Having heard this powerful evidence, during the cross-examination of the government's witnesses, it was easier for the judge to see the flaws in the assessor's income and sales comparison approaches. Also, the taxpayer's counsel was able to cite a legal precedent to refute the government's cost approach, which ignored functional and economic obsolescence.

Ultimately, the tribunal rejected the government's value contention, which was 50 percent higher than the taxpayer's, and adopted the taxpayer's claimed value.
For taxpayers who are inexperienced in handling property tax appeals, these cases can be fraught with pitfalls that result in excessive taxation and exasperating endings. A compelling case that is well presented, however, gives the taxpayer the best chance at success. And as this case shows, there are times when tax justice is indeed attainable.

Stewart L. Mandell is a partner in the law firm of Honigman Miller Schwartz and Cohn L.L.P., the Michigan 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..

Owners at risk of unfairly high assessments pending Ohio Supreme Court guidance

"Recent history shows that districts are using sale prices to impose unreasonable tax burdens on taxpayers..."

Like much of the nation, Cleveland is experiencing sluggish but discernible improvements in its real estate market, and buyers are beginning to purchase real estate at prices that exceed the property's tax assessment value. The resulting real estate price volatility puts many Ohio property owners — and recent buyers in particular — at greater risk of receiving an unexpected and potentially unfair increase in their property tax bill. When property values are fragile, unexpected increases in expenses can be disastrous, and that includes an unexpected rise in real estate taxes. Ohio is one of the few states where school districts and other taxing entities have the legal authority to protest the assessed values of properties in their districts and to seek increases in taxable value. In fact it is customary for school districts in Ohio to seek an increased valuation and consequent rise in taxes on properties that have recently sold.

While the practice is customary, it is neither predictable nor uniform. The assessment on a property that recently sold can be significantly higher than the assessments on neighboring properties based on its sale price. Moreover, different taxing districts have different policies as to the extent and manner in which they pursue this remedy. For instance, some taxing districts may not aggressively chase sales. Others may seek not only to raise future assessments, but also to retroactively increase the assessment for the past year.

Taxing Sales

In many cases, a recent sale of real property is the best indication of its value, but there are exceptions. Modern real estate transactions frequently include the simultaneous transfer of non-real estate items, or the amount of consideration paid may reflect factors other than the fair market value of the real property. If these non-real estate items are not specifically identified and distinguished from the real estate value, they can be included in the value assigned to the property for files an increase complaint.

Recent history shows that with increasing frequency districts are using sale prices to impose unreasonable tax burdens on taxpayers. In an effort to correct this trend, on June 11, 2012, the state of Ohio enacted a statute that clearly states that real estate assessments must be based on fee simple estate, as if unencumbered. Moreover, the new statute further provides that where there is a recent arm's length sale, the auditor may consider the sale to be true value.

Read together, in order for the assessor to consider the sale price to be true value, that sale would have to reflect the fee simple estate, as if unencumbered. To understand why and how that is so important, it is useful to look back over developments in Ohio law over the past decade.

The Changing Law

Ohio law always provided that assessments shall be made based on true value and that "the auditor shall consider the sale price of such tract, lot, or parcel ... to be the true value for taxation." In 2005, the Ohio Supreme Court interpreted that statutory language to mean that there is no further evidence necessary to prove true value. Later, the Supreme Court expanded the ruling by stating that leased fee sales were also acceptable. (Leased fee value is based on a landlord's expected rental income from a leased property.) Even worse, later cases expanded the law to include leased fee transactions as comparable sales even when appraising fee simple, owner-occupied properties. And finally, other cases set precedents that precluded the county auditor, the state Board of Tax Appeals, or Common Pleas Courts from taking into consideration circumstances which indicated that the sale was not representative of market value. Despite the state's recent efforts to stop counties and school boards (which can file suits) from preying on investors buying property in Ohio, the trend has continued.

Real estate buyers in Cleveland must be even more careful to take appropriate steps to ensure fair treatment. As recently as March 2013, an assessor used the sale price of the ongoing business of a 127-bed nursing home, which was part of a sale that included 72 other nursing home operations in a multi-state transaction, to determine its assessed value. The sale price of the nursing home was $10.6 million, and the assessor valued the property at that price. The taxpayer's appraisal valued only the real estate, which came to $3.5 million (see chart). In short, the county is now taxing the value of the personal property and business operation at the nursing home when it only has authority to tax the real estate.

State lawmakers have attempted to make the law more uniform and equal by establishing a standard of fee simple, as if unencumbered, while providing flexibility to use a sale where it is warranted. What is still needed is guidance from the Supreme Court to enforce that standard.
Until the court has an appropriate case to provide that needed guidance, investors need to structure transactions with taxation in mind. To be recently purchased must be treated like those that have not been sold. Unfortunately, the burden falls on the parties in the transaction to make sure that all documents involved in the sale, particularly those that are recorded publicly, reflect only the real estate value.

Countermeasures Emerge

As an alternative, many investors have taken to purchasing the entity that owns the property rather than the real estate. Purchasing the entity eliminates the need to record a new deed, which is often the triggering event for school districts to file complaints seeking additional property taxes. As a result, the county may unknowingly be forced to treat all taxpayers alike. Moreover, state law prevents the schools from using the purchase of an entity to treat new buyers differently than existing owners. In 2000 and in 1998, the Ohio Supreme Court ruled that the sale price of all the shares of a company's stock does not establish the value of the company's real property. This is true even where the only asset of the company is its real estate. By purchasing an entity rather than the bare real estate, a taxpayer has at least a fighting chance to have equal treatment under the law. Given the complexities of such a transaction, however, buyers should seek local counsel when using this acquisition strategy.

Kieran Jennings is a partner in the law firm of Siegel Jennings Co., L.P.A., the Ohio and Western Pennsylvania 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.

The response to alleged improprieties by Los Angeles County Assessor John Noguez has hurt taxpayers in ways that were unforeseeable when Noguez took office more than two years ago, or when the investigation into those improprieties started last year.

Prosecutors filed dozens of new charges on April 23 in relation to a corruption probe that began more than a year ago. Prosecutors have alleged that Noguez accepted bribes to illegally lower assessments on a number of properties represented by tax consultant Ramin Salari, and named Mark McNeil, one of Noguez's aides, in the charges as well. Prosecutors contend that the scheme cost taxpayers at least $9.8 million in lost tax revenue.

As if the scandal alone weren't enough, the response by the Los Angeles County Assessor's Office to those improprieties has impaired taxpayers' ability to communicate with the assessor's office to resolve property tax appeals. This new communication breakdown, in turn, has increased the cost and time required to process appeals.

New policies

After Noguez took a leave of absence in mid-2012, the Los Angeles County Board of Supervisors appointed an interim assessor who launched an internal investigation of the assessor's office. The temporary assessor published a "First 100 Days" report in October 2012, establishing two policy initiatives that have significantly damaged the property assessment system's function and efficiency. One measure assigns new personnel to represent the assessor's office before the county's assessment appeals board; the second institutes higher assessed value approval thresholds for settlement of cases pending before the board.

The latter initiative was instituted after a former appraiser in the assessor's office unilaterally changed assessed values for wealthy property owners without management approval. Requiring approval from upper management has reduced the number of cases settled prior to hearing, and either forces more property tax appeals to go to hearing (a surge which has overwhelmed the appeals board's limited resources) or necessitates postponement (which adds to the backlog of pending cases).

Report by independent auditors

The investigation of Noguez also prompted the county's board of supervisors to retain independent auditors to evaluate the assessor's management practices. In late 2012, those auditors issued a comprehensive report which included specific recommendations for the handling of property tax assessment appeals. For example, the auditors recommended that the assessment appeals board force appeals to hearing by not granting more than one hearing postponement to taxpayers.

The assessor's office and the appeals board agreed with some of the auditors' suggestions: The assessor adopted a suggestion that the assessor's office not share case data informally with taxpayers prior to appeals board hearings, and the appeals board concurred with the suggestion that a fee be charged to file assessment appeals.

The changes suggested by the independent auditors, particularly prohibiting informal pre-hearing information exchanges with taxpayers, reduces the possibility of resolving cases short of hearing. The auditors' recommendation that the appeals board avoid granting taxpayers postponements is unrealistic because, in many cases, the assessor is the party asking for more time.

Registration of property tax agents

Another recommendation by the independent auditors was to require persons who represent taxpayers to register as "tax agents." As of this writing, the board of supervisors is considering a registration program that will require people who appear before the assessment appeals board or have contact with the assessor's office, tax collector's office or auditor-controller's office to register as tax agents and pay an annual fee of $250. The program will cover in-house company tax representatives, attorneys and enrolled agents. Registrants would have to follow an 11-point code of ethics and report all political contributions made to any public official in Los Angeles County. Individuals who fail to comply with the registration program would be fined and their names would be listed on the county's website. The California Legislature has also introduced a bill with provisions similar to the proposed Los Angeles County ordinance.

The policy changes described above have slowed the assessment appeal process in Los Angeles County at a time when the system can least afford it. In 2012, assessment appeal filings in the county increased to more than 40,000, a four-fold increase since 2007. The changes in personnel representing the assessor at the appeals boards, new limits on staff authority to settle cases prior to hearings, the recommendation to limit postponements coupled with a restriction on informal information exchanges with taxpayers before hearings, and the requirement that taxpayers' agents register with the county, all work against the speedy resolution of assessment appeals.

The county's assessment appeal system was intended to promote informal and rapid resolutions of property tax appeals. The changes recently implemented or to be implemented by the county and its assessor will thwart those aims, hampering taxpayers' ability to obtain speedy redress of their claims and undermining the effectiveness of the assessment appeal process.

Cris K. O'Neall specializes in property and local tax matters as a partner in the law firm of Cahill, Davis & O'Neall LLP, 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.

In Utah, only real and personal tangible properties are subject to property tax. Intangible property is exempt from Utah property tax. This includes such things as licenses, contracts, trade names custom software, trained workforce, copyrights and goodwill. If a property owner acquired any of these intangible properties along with the real estate, then there is an opportunity to reduce the property tax obligation for the real estate and other personal property. The key is to identify and separate the portion of the total purchase price that is associated with the intangible properties.

What is the standard of value for property tax?

Utah is a fair market value standard state. In simple terms, fair market value is the price a typical, willing buyer would pay a typical, willing seller for a property, with both parties being knowledgeable of all relevant facts. Accordingly, investment value or the price a specific buyer paid to acquire a property for a particular use may not indicate the fair market value. The price may need to be adjusted if the owner is trying to use it as evidence of the taxable property value.

What are the reporting requirements?

Generally, property owners will not have a reporting requirement for locally assessed land and buildings. Utah is a non-disclosure state, which means a buyer isn't required to disclose to the county assessor the price paid for real estate.
However, a buyer will likely receive a questionnaire from the assessor requesting voluntary disclosure of the purchase price, as well as access to the property to conduct an appraisal.

After reviewing the real estate, the assessor will issue an assessment that estimates what the property's fair market value was on Jan. 1. The county assessor is required to send notices indicating the property's fair market value and the associated tax by July 22. Appeals are due by Sept. 15, and taxes are due by Nov.

30. Utah does require reporting' of any business personal property. Each year, owners must submit a self-assessment of personal property tax liability, identifying 'the personal property, its cost and date of acquisition. Then the owner must apply a percent good factor to the property based upon the age and type of property in order to estimate the fair market value for the property. The tax commission is required to update and publish the percent good factors each year.

Apply the tax rate to the estimated fair market value to determine the amount of personal property tax due. Generally, signed personal property statements will be due to the county assessor by May 15. Appeals on personal property taxes are also due by May 15, or within 60 days after the mailing of a tax notice. While this brief discussion is certainly not a thorough review of Utah property taxes, it does cover the three basic things an investor should know when making a decision to acquire property in Utah.

David J. Crapo is the managing partner at Crapo Smith PLLC, Utah 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.

"Regardless of property type, commercial owners should vigilantly review assessment notices upon receipt and determine whether the particular property has indeed increased in valuation, or if assessors using mass appraisal techniques have over generalized..."

By Lisa Stuckey, Esq., as published by Southeast Real Estate Business, June 2013

Under a recently enacted law, taxpayers who purchased property in Georgia in 2011 or 2012 face potentially steep hikes on upcoming tax bills. The new statute, which took effect on Jan. 1,2011, provides that the sale amount paid or real estate in an arms-length transaction shall be the property's maximum allowable fair market value for property tax purposes for the following tax year. That means owners of properties purchased in 2011 received ad valorem assessment notices for 2012 at a value no higher than the purchase price.

For tax year 2013, however, the county assessors' offices were free from this limitation on valuation for those specific properties purchased during 2011. For those properties, assessors were required to review the market, make a determination of fair market value as f Jan. 1, 2013, and issue assessment notices based on the new review for those properties. The same is true for owners of properties purchased in 2012. The assessment notices those owners receive for 2014 will be unfettered by the sale amount limitation that held values in check for those properties in 2013. Clearly, new property owners in Georgia must guard against a false sense of security based on property valuations and tax bills received during the year after the purchase of their property.

Georgia property owners need be mindful that tax authorities issue assessment notices in April, May and June, and taxpayers will only have 45 days from the date of the notice to file an appeal if they disagree with the county's valuation. Taxpayers cannot appeal tax bills. If an owner fails to timely file an appeal, there is no further opportunity to appeal the valuation or have any input into the amount of property taxes.

A review of the last few years of commercial sales tracked in the CoStar Group database for tl1e metropolitan Atlanta area, as well as discussions with the major metro Atlanta county assessors' offices, suggests that the property type with the greatest potential for increases in valuation over the next few years is office, but other property types are potentially subject to valuation changes as well.

Regardless of property type, commercial owners should vigilantly review assessment notices upon receipt and determine whether the particular property has indeed increased in valuation, or if assessors using mass appraisal techniques have over generalized. Be aware of the specific attributes affecting the value of the individual property, and ensure that the county appraisal staff has properly considered those factors in determining value.

Worthwhile points to review with the appraiser include a significantly higher vacancy rate at the property compared with other properties in the area, as well as how long the vacant space in the subject property has gone untenanted. Discuss any real or perceived reasons why the vacant space cannot be leased. What rent has been lost? What rent is in arrears, and for how long?

Also make the appraiser aware of any tenant instability or perceptions of tenant instability based on the type of company, and any necessary rent or expense concessions. How does the length of new lease terms compare with older leases? What will be needed in terms of capital improvements cost? And be sure to point out noteworthy or w1usual common area maintenance expenses, or unsuccessful marketing attempts and unsatisfactory responses to that marketing. There are plenty of other fact-specific arguments that will vary by property. When comparing your real estate to sold properties, various important considerations which may be relevant include geographic desirability and demographic comparability (or lack thereof) between the properties; actual and effective age; quality or class of the asset; and size. Consider, too, each property's condition, which may include any physical depreciation or property-specific peculiarities, and the presence of any intangible assets such as branding that affect value. Are the properties functionally equivalent, or is there disparity between the subject and the sold properties, such as differing qualities or quantities of parking, traffic anomalies, and other distinctions?

There are many promising areas for taxpayers to draw from in arguing with county assessors to reduce property valuations, and thus a decrease in the property tax burden. But in Georgia, it is critical for new owners to be diligent about taking appropriate action upon receipt of the county assessment notice.

Lisa Stuckey is a partner in the Atlanta law firm of Ragsdale, Beals, Seigler, Patterson & Gray LLP, the Georgia 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.

"The actual expenses, coupled with the rent restrictions, would cause a willing buyer to pay less for this type of a housing project as opposed to a market-rate apartment complex. Thus, the taxpayer carried its burden in proving that its property tax assessment was excessive..."

By Gregory F. Servodidio, Elliott B. Pollack as published by Affordable Housing Finance Online, June 2013

Property owners and assessment authorities continue to clash over the proper valuation for property tax purposes of rent-restricted, low-income housing. One of the most recent disagreements flared up in the small town of Beattyville, the county seat of Lee County in east central Kentucky.

A developer had converted a former Beattyville school into 18 units of low-income housing apartments. In connection with that conversion, authorities placed a restrictive covenant on the land use, to remain in place for 30 years. Under the restrictions, the Beattyville School Apartments could only take in tenants with incomes equal to or less than 50 percent of the local median income.

The Lee County property valuation administrator valued the property for tax purposes at $662,700, or about $37,000 per unit, in 2011. This value appropriately excluded any value attributable to the issued tax credits. Nevertheless, it was still well above the value of $130,000, or about $7,200 per unit, that the taxpayer presented on appeal. What created such a dramatic gap between those opinions?

The Kentucky Constitution mandates that assessors must value all property for tax purposes at fair cash value, meaning the price that the property is likely to bring at a fair voluntary sale. In arriving at fair cash value, the assessor is not obligated to consider every characteristic of a particular property, but the law requires her to consider those factors that most impact the property's value. In the case of rent-restricted, low-income housing, this requires considering those property characteristics that differentiate the asset from market-rate housing.

Interestingly enough, Lee County's assessor and the taxpayer agreed on just about all of the steps in estimating the property's fair cash value. Specifically, they agreed that the income approach to value was the most appropriate valuation methodology for this property type. They further agreed that the property's actual restricted rents should be used in the development of the income approach. They even agreed that the income approach should use a 10 percent capitalization rate, which is surprising, considering that capitalization rate selection is often a subjective determination and a point of contention between opposing valuation professionals.

The consensus broke down on the issue of expenses. The county's assessor had obtained the property's actual audited expenses as reviewed and approved by both the Department of Housing and Urban Development and the Kentucky Housing Corp. The assessor deemed those expenses to be excessive and decided to cap the expenses used in her valuation model at 35 percent of income. The assessor used the same expense ratio to value other businesses in Lee County. Using lower, capped expenses as opposed to actual expenses produced a value that was five times higher than the taxpayer thought it should be.

On appeal, the hearing officer for the Kentucky Board of Tax Appeals sided with the property owner on the expense issue. He concluded that it was inappropriate to cap the expenses used in the income approach since these expenses are to a certain extent a function of applicable state and federal law, which pushes them higher than those at market-rate apartments. To ignore the actual expenses is to overlook an important characteristic of the property that has a significant impact on its value.
If the assessor felt that the actual expenses were excessive for specific reasons, she could have provided evidence to that effect at the appeal hearing. Simply arguing that they were too high, however, was insufficient to convince the hearing officer to reject the use of audited and approved expenses.

The actual expenses, coupled with the rent restrictions, would cause a willing buyer to pay less for this type of a housing project as opposed to a market-rate apartment complex. Thus, the taxpayer carried its burden in proving that its property tax assessment was excessive.

In concluding that the complex should be valued at $150,000, the hearing officer and in turn the Board of Tax Appeals were mildly critical of the taxpayer's valuation presentation. The hearing officer noted that the taxpayer's appeal petition valued the property between $110,000 and $150,000. During the hearing, the taxpayer refined its value position to $130,000, but in a way that was not entirely clear from the record.

Citing an earlier Kentucky court ruling, the Board of Tax Appeals refused to put the taxpayer in a more advantageous position on appeal than the position it had staked out in its filing. This serves as yet another confirmation that a taxpayer should place the lowest supportable value on its appeal form, so as not to place a floor on its value position during the appeal process.

Gregory F. Servodidio, CRE, and Elliott B. Pollack represent clients in property tax appeals and eminent domain matters at the Connecticut law firm of Pullman & Comley, LLC, the Connecticut member of the American Property Tax Counsel, the national affiliation of property tax attorneys. Servodidio can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and Pollack at This email address is being protected from spambots. You need JavaScript enabled to view it..