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Property Tax Resources

Jan
05

Battling Excessive Taxation in Economic Downturns

"Despite the abundant news coverage indicating that real estate continues to sit without being sold, taxpayers will encounter strong opposition when they try to obtain corrections in their assessments."

By Kieran Jennings, Esq., as published by Midwest Real Estate News, January 2009

Two problems now plague Ohio commercial property owners. First, the economic troubles faced by the entire nation also exist in Ohio. Second, the state is one of the very few that permits school districts to intervene in the assessment process.

In almost every commercial assessment hearing, school boards are present, making it virtually impossible for the Board of Revision to continue working toward its original goal, to find efficient ways to correct assessments. Instead, due to the school boards' involvement, tax cases may, and often do, take several years to come to resolution. This presents a real problem for over assessed property owners suffering from vacancies.

Take for instance an office or retail building that experienced a large drop in occupancy just as the market began to soften. Tenants staring into the face of a recession always put on their cost cutting hats. They look carefully at total occupancy costs, not just the rent, and this creates an obstacle for them in signing a lease. The problem is that at a time when taxpayers need fast tax relief in order to attract tenants, school boards seek to protect the tax base, causing prolonged litigation.

Taxpayers, Take Action

In this continuing economic downturn, taxpayers need to focus on those expense items that offer a real opportunity to positively affect the bottom line. All too often, taxpayers fail to recognize that property taxes fall into this category. Every dollar spent on property taxes removes resources that could help to increase sales and/or provide greater efficiency of operation. Thus, taxpayers need to carefully examine their tax assessments and determine whether a tax appeal should be filed. And time is not on the taxpayer's side, as tax complaints must be file in Ohio before March 31, 2009.

The larger southern (Cincinnati area) and central counties (Columbus and Dayton areas) have reassessed for the 2008 tax year. Summit County also reappraised for 2008. The final new values will appear on the first half 2008 tax bill payable at the beginning of 2009.

Property owners in these three areas face a difficult challenge because the data available for reappraisal reflects the peak of the real estate market, not the downturn precipitated by the credit crunch. In counties such as Cuyahoga, Lorain and Lake, assessments continue to be based on the high 2006 values. In all these areas, taxpayers are likely to receive excessively high assessments, which need to be appealed.

Despite the abundant news coverage indicating that real estate continues to sit without being sold, taxpayers will encounter strong opposition when they try to obtain corrections in their assessments. In order to meet this opposition head-on, well-documented arguments for tax relief become a necessity. In some instances that means providing the county Board of Revision with income and expense information and/or comparable sales; in others it may mean submitting an appraisal with testimony from an appraiser.

Unfortunately, it takes more than a well thought-out and documented argument to win a tax appeal, as school districts who receive the lion's share of the property tax revenue will strongly defend their tax base. Therefore, a taxpayer may be successful at the county Board of Revision only to find that the local school board has appealed the decision to the State Board of Tax Appeals.

At this point, the schools' attorneys get the opportunity to investigate taxpayers' evidence and they investigate for months or even years, casting the widest net possible in their fishing expedition. Since school attorneys are not assessors, nothing requires them to seek fair taxation for owners, so they may aggressively seek the highest assessments for their districts.

A critical step in the appeal process involves learning about the attorneys hired by the school districts, how receptive these attorneys may be to determining a fair tax assessment and how predisposed they are to giving the taxpayer a hard time versus looking for a win-win solution. By understanding the adversary, the taxpayer gains some perspective on how to negotiate with the school districts' attorneys.

While owning commercial real estate remains a sound long-term investment, in a down market owners need to diligently scrutinize the basis used by the assessor in determining their property tax assessments. Changes in the economy and financing can dramatically impact the value of real estate. Failure to file tax appeals when appropriate can cost owners tens of thousands of dollars in excessive taxes.

KJennings90J. Kieran Jennings is a partner in the law firm of Siegel Siegel Johnson & Jennings, the Ohio and Western Pennsylvania 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..

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Apr
08

Keeping an Eye on Commercial Property Tax Assessments

"...whenever the assessor seeks income information, the property owner should ensure that only income attributable to the real estate is provided."

By Robert L. Gordon, Esq., as published by Midwest Real Estate News, April 2008

Throughout the United States, assessors constantly search for new ways to squeeze value from commercial property. Assessing the business value of the property rather than just its real estate value has become one of the most common stratagems assessors employ. They do this by purporting to value the property on a traditional income approach, but then use the income generated from a business conducted on the property to derive the property's value. This violates the fundamental rule of ad valorem taxation, which states that only value generated by the real estate itself can be taxed.

This generally causes no problem for leased property. To take a simple example, a commercial office building clearly can be assessed based on the rental income it generates to the owner. Unquestionably, such income represents pure real estate income, generated by the real estate itself. No assessor would seriously seek to assess an office building by including income generated by the law firms, accounting firms and other commercial tenants who rent the office space.

The problem arises for owner-occupied property, where no rental income stream exists that the owner can identify as income generated by the real estate itself. In such cases, it becomes easier for the assessor to take the income generated by the business the owner operates at that location and try to portray that business income as income generated by the property.

In some cases, it should be obvious that the assessor cannot do so. For example, a successful retailer may generate several hundred dollars of retail income per square foot by selling high-end consumer electronics at its owner-occupied location. It would be difficult in that case for the assessor to claim that the income was attributable to the real estate and not the retailer's business skills. On the other hand, as we will see, where a business operated by the owner is less clearly separable from the real estate, the assessor will have an easier time trying to ascribe the income to the real estate.

Court weighs in on business value

Three Wisconsin appellate court decisions on this issue prove instructive and provide a fairly universal guide to steps property owners in any jurisdiction can take to ensure that assessors capture only the value of their real estate, and not the value of a business conducted on that real estate.

Wisconsin courts require that the real estate itself must have the "inherent capacity" to produce income before that income can be considered in assessing the property. In the first Wisconsin case on this issue, the Court of Appeals rejected a regional mall owner's argument that the mall should be assessed at less than its purchase price on the theory that the purchase price included a business value independent of the real estate. The court held that since regional malls exist for the purpose of leasing space to tenants, all the income generated by leasing this space is "inextricably intertwined" with the real estate and, thus, assessable.

In a second case, the Wisconsin Supreme Court found that income generated by a state-licensed, owner-operated landfill could be included in the property's assessment. The court stated that since the license was "specific to the site" and could not be transferred to any other property, the land itself had " an inherent capacity to accept waste that would not be present" in sites without licenses. The court noted, however, that neither side had been able to find evidence of leases in the local market, that is, instances where landfill operators paid the property owner market rent to lease a landfill site. The court indicated that had such market information been available, it likely would not have permitted the landfill income to be used in formulating the assessment.

Actions Owners Should Take

Property owners in any jurisdiction can glean several lessons from these decisions. First and foremost, whenever the assessor seeks income information, the property owner should ensure that only income attributable to the real estate is provided. For example, this will be relatively easy in the case of a retail sales location, since retail sales income is not properly attributable to real estate.

In more difficult cases, some income may be attributable to the real estate and some may not. In such instances, owners need to carefully structure their operating statements so that income sources not directly pertaining to the real estate are reported and categorized separately, and not intermingled with the real estate income. The more the owner blurs the real estate and other income together in a single operating statement, the easier it will be for the assessor to cite that statement as proof that the income in question is "inextricably intertwined" with the real estate income.

Finally, as the Wisconsin landfill decision makes clear, the best defense against an assessor seeking to include business income in a property assessment is actual evidence of local market rental rates for similar properties. Property owners need to exhaust all possibilities for finding like businesses that lease their space, since such market evidence makes it next to impossible for the assessor to claim that business income which exceeds those market rental rates is attributable to the real estate.

In sum, property owners who carefully review and understand the basis for their property tax assessments, and who regularly focus their attention on how their business income is reported to the assessor, stand the best chance of avoiding unlawful property taxation of their business income.

Gordon_rRobert L. Gordon is a partner with Michael Best & Friedrich LLP in Milwaukee, where he specializes in federal, state and local tax litigation. Michael Best & Friedrich is the Wisconsin 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..

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Nov
11

Cha-Ching

"The Kentucky General Assembly authorized cities and urban county governments to establish programs that grant property tax moratoriums for existing residential or commercial properties "for the purpose of encouraging the repair, rehab, restoration or stabilization of existing improvements."

By Michele M. Whittington, Esq., Bruce F. Clark, Esq., as published in Midwest Real Estate News, November, 2007

The Louisville-Jefferson County Metro Government offers a property tax incentive designed to encourage redevelopment of economically-blighted properties. While not a widely advertised offer, property owners and developers should be aware of this opportunity to reduce their property taxes.

The Kentucky General Assembly authorized cities and urban county governments to establish programs that grant property tax moratoriums for existing residential or commercial properties "for the purpose of encouraging the repair, rehab, restoration or stabilization of existing improvements." This program was established as the result of an amendment to the Kentucky Constitution passed in 1982 by Kentucky voters.

In 1983, Jefferson County was one of the very few local governments to implement the newly passed legislation, and in 2003, the then-merged Louisville-Jefferson County government continued the program. In essence, it encourages redevelopment of existing properties by "freezing" for five years a property's tax assessment at pre-rehab levels. Unfortunately, the moratorium applies only to the "county" portion of the tax assessment, which currently amounts to $0.125 per $100 of assessed value. Efforts to extend the moratorium to other portions of the total property tax assessment have thus far been unsuccessful. Nevertheless, the moratorium presents an additional incentive for a property owner to rehabilitate an eligible property.

The moratorium program is jointly administered by the Jefferson County Property Valuation Administrator ("PVA") and the Louisville-Jefferson County Metro Government's Inspections and Licensing Department ("IPL"). The eligibility requirements for the moratorium are relatively straightforward. First, the existing residential or commercial structure(s) must be at least twenty-five years old. Second, either (a) the cost of the repair or rehab must be at least twenty-five percent of the pre-rehab value (as determined by the PVA's assessment); or (b) the property must be located within a "target area," an economically-depressed area based on residents' income. In the latter case, the cost of the repair or rehab must be at least ten percent of the pre-rehab value.

A property owner wishing to apply for the moratorium needs to submit an application to the IPL. In addition to other requirements, the application must include proof of the building's age, a description of the proposed use of the property, a general description of the work that will be performed to repair or rehabilitate the property and a schedule for completion of the proposed work. The owner should also obtain the necessary building permits and submit them to IPL. Once the application has been submitted, the owner has two years to complete the project. Upon completion of the project, the owner notifies the IPL, which inspects the property for compliance with the rehab plan set out in the application. If the project has been successfully completed, the IPL notifies the PVA, and they issue a moratorium certificate.

The moratorium's benefits can be calculated by determining the difference between the property's pre-rehab and post-rehab value. The PVA certifies the pre-rehab assessment of the property as part of the application process. Once the project is completed, the PVA reassesses the property at the higher post-rehab value; however, with the moratorium in place, the assessment for the county portion of the taxes will be "frozen" at the pre-rehab value. For example, assume that a developer purchases a qualifying property for $1,000,000. After rehab, the PVA reassesses the property for $10 million. With the moratorium in place, the assessment remains at $1,000,000 for purposes of the county portion of the tax, while the assessment for all other property taxes (state, school and others) increases to $10 million. The resulting tax savings for the property add up to approximately $11,250 per year for five years, or a total tax savings of over $55,000.

Property owners considering rehab of an eligible property should pay particular attention to the pre-rehab assessment. If the owner believes the property may be over-assessed, she should meet with the PVA and present evidence of the true value of the property prior to applying for the moratorium. Given the fact that the moratorium freezes the assessment at the pre-rehab value, a decrease in the assessment results in a corresponding increase in the tax savings, once the moratorium certificate is issued.

Conversely, a developer planning to purchase a property for redevelopment should be aware that the PVA's pre-rehab assessment will most likely be governed by the price the developer pays for the property, rather than by the pre-purchase assessment. Using the previous example, assume that a developer purchases a property for $2 million. Prior to the purchase, the PVA had the property assessed at $1 million. The PVA will inevitably pick up the purchase price from the deed and will reassess the property at $2 million, thus decreasing the tax benefit gained from the moratorium.

In any case, owners and developers should be aware of the moratorium process in order to take advantage of the potential tax savings on eligible properties.

MWhittington

Michele M. Whittington is Counsel in the Frankfort office of Stites & Harbison, PLLC, the Kentucky member of American Property Tax Counsel, the national affiliation of property tax attorneys. Michele Whittington can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

ClarkBruce F. Clark is a Member in the Frankfort office of Stites & Harbison, PLLC, the Kentucky 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..
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Jun
12

Consolidation Raises Tax Opportunities and Challenges

"Taxpayers with multiple properties, and tax professionals, will generally find the site is worth the fee. Properties can be accessed by the PVA's parcel identification number and also by the owner's name or the property address."

By Bruce F. Clark, Esq., as published by Midwest Real Estate News, June 2007

With the January, 2003 merger of the Louisville and Jefferson County governments, Louisville/Jefferson County became the largest metro area in Kentucky. As a result, property owners in Louisville and unincorporated areas of the county now pay real property taxes to the metro government. In addition, the owners in the 83 suburban cities in the metro area may continue to pay city property taxes, similar to those that were assessed prior to the merger.

Regardless of a property's location, tax assessments are made by the Jefferson County Property Valuation Administrator (PVA). Tony Lindauer assumed the office after the November, 2006 election. The Jefferson County PVA's office has consistently been one of the most professionally-administered offices in the state, and it appears this distinction will continue under Mr. Lindauer's administration. Taxpayers in the Louisville Metro Area need to be aware of the services offered by the Administrator's office and use them to alleviate their property tax burdens.

Get Help

The PVA's website, found at www.pvalouky.org, provides an invaluable tool for taxpayers and tax professionals. In October 2006, the website won the Web Marketing Association's 2006 Government Standard of Excellence Web Award in a competition with over 2,300 other entries.

While certain information can be obtained from the website at no charge (such as parcel identification numbers and current assessments), the majority of the information is only available by subscription — $25 per month or $300 per year. Taxpayers with multiple properties, and tax professionals, will generally find the site is worth the fee. Properties can be accessed by the PVA's parcel identification number and also by the owner's name or the property address. The site provides information on the current assessment, including: a breakdown by land and improvement values; property characteristics, including acreage, building square footage and construction; sketches and photographs of the improvements; assessment history; sales history; and links to the current year's tax bills.

This information helps taxpayers challenge their tax assessments. Verifying the data on which the Administrator's office based their assessment represents one important use of the information. For example, the PVA often calculates the square footage of a building based on an exterior measurement that may not reflect the actual or usable square footage. Then, too, the possibility exists that the PVA holds incorrect information regarding some characteristics of the property, such as the percentage of an industrial property with HVAC. If the Administrator's office possesses incorrect information, the taxpayer can provide the correct information and likely obtain a tax reduction.

The PVA has underway the reassessment of nearly all the land in Jefferson County, so taxpayers may be seeing significant increases in their assessment. In some areas, 2006 land assessments increased by over 25 percent from the previous year. The PVA's values are backed by a "land study" of recent sales, but this does not mean a taxpayer lacks recourse. In some circumstances, land values can be challenged. A taxpayer may have paid a premium for a particular tract of land due to considerations such as location or market coverage (often the case with banks, service stations, etc.). Thus, the sales price might not be equivalent to the "fair cash value" (the standard for assessments in Kentucky). In such cases, a taxpayer can use the PVA's website to gather sales data on nearby tracts of land in order to demonstrate that the taxpayer paid more than "fair cash value" for the property, and that the assessment should be reduced accordingly.

For possible tax savings, owners also need to analyze the assessed value of their improvements by using depreciation or other obsolescence factors. For example, the Administrator's office placed a value on a building based on the value stated in the building permit at the time of construction. Depending on the type of building (usually industrial or warehouse properties), the taxpayer may be able to argue that the value should be decreased to account for normal or abnormal wear and tear (physical depreciation). Arguments for lower valuation also exist when changes in the market occur for that type of building (economic obsolescence) or when outdated or unusual features of the building make it less marketable (functional obsolescence).

New Requirements

The Jefferson County PVA now requires taxpayers who challenge their assessments to sign an affidavit stating an opinion of value for their property. While it has been customary for a taxpayer challenging the assessment to make a declaration of value, the fact that the PVA now demands that the taxpayer swear to that value is somewhat troubling, since filing a false affidavit could result in criminal penalties. If asked to complete the new form, taxpayers need to insure that their opinion of value rests on a reasonable basis.

The affidavit also calls for the property owner to attest that all of the taxpayer's property has been listed with the Administrator's office. This appears to put a taxpayer in the position of guaranteeing that the PVA has picked up any additions or expansions to the property. While Kentucky law always required a taxpayer to "list" all property with the PVA, this affidavit seems to put an even greater burden on the taxpayer.

The Jefferson County PVA's office remains one of the most user-friendly offices in the state. A taxpayer dissatisfied with his or her assessment should not hesitate to contact the office about protesting an assessment. By providing the Administrator's office with the right information, a taxpayer may be able to obtain a reduction in an assessment, and in any case, can get a full and satisfactory explanation as to how the Administrator assessed the property. The PVA's office offers taxpayers their first chance to obtain a property tax reduction, but remember, good documentation is critical.

BruceFClarkBruce F. Clark is a partner in the Frankfort office of Stites and Haribson, the Kentucky 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..

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May
13

Direct Impact

Highway 40 reconstruction will reduce property values

"Local authorities appear to believe the interference with the traffic pattern will cause a short-term loss and a very positive long-term potential gain. However, the Federal Highway Administration concluded in a recent study that such projects result in "noise, loss of access, loss of parking, diversion of traffic, odors and emissions, loss of business profits and good will, interim construction loss, loss of use and loss of visibility."

By Jerome Wallach, Esq., as published by Midwest Real Estate News, May 2007

Owners of real property in the east-west corridor leading into the core city of St. Louis and the core city itself face a double "whammy" in 2007. First, on January 1, the two-year assessment tax cycle begins in Missouri. Then, in the spring of this year massive $535 millions rebuilding starts on the primary artery into the core city from the west. This reconstruction project on Highway 40 (also known as Interstate 64) is scheduled to close 10-and-a-half miles of this major artery into the city for at least three years. Past experience with highway projects has shown that forecasted completion dates are most often way too optimistic.

With assessors already in the process of reevaluating property for tax purposes and a major reconstruction project beginning in spring, assessors face the task projecting the impact this reconstruction project will have on property values along the Highway 40 corridor and in the core city. Office buildings, service businesses, light manufacturing and residences will suffer from dramatically decreased access, traffic jams, indirect routes extending commuting time and loss of traffic for retail and service outlets.

And all this happens just as the core area of St. Louis is beginning to feel the impact of the dramatic revitalization that has been ongoing over the last several years. One need only look at the new baseball stadium, the approved Ballpark Village with its shops and residences, the dynamic loft developments of shell buildings in the near downtown area and the expansion of Barnes Hospital in the West portion of the city. The revitalization has resulted in rising property values, representing good news for owners and investors. The good news turns bad for property values as the area contemplates the long reconstruction process.

Local authorities appear to believe the interference with the traffic pattern will cause a short-term loss and a very positive long-term potential gain. However, the Federal Highway Administration concluded in a recent study that such projects result in "noise, loss of access, loss of parking, diversion of traffic, odors and emissions, loss of business profits and good will, interim construction loss, loss of use and loss of visibility."

The negative aspects brought about by the reconstruction may well force owners of residential and commercial properties to offer rent abatements in order to hold onto tenants along the Highway 40 corridor and in the core city. Many commercial and residential tenants may just move out because of traffic snarls, noise and the mess of construction. Then, too, commercial tenants may just not be able to tolerate the diminished traffic and attendant loss of revenue and profit. All of this disruption means lower market values, which must result in lower property taxes if taxpayers are to be fairly taxed during the reconstruction period.

Owners should be alert and prepared to react to the new 2007 assessments with an appropriate tax appeal challenging the assessed valuation of a property that may be affected by the reconstruction project. The Missouri Highways and Transportation Commission itself has recognized the decline in business and in occupancy that will result from the project. Comments by public officials demonstrate that various other government agencies know the project will prove bad for business on a short-term basis. Just how bad is an open question. Therefore, taxpayers with property in the Highway 40 area and in the core city must carefully review their assessments to ensure that the assessors have taken into account in their 2007-2008 valuations the negative impact of the reconstruction.

The due date for filling appeals from the assessments is the third Monday in June for St. Louis County and the second Monday in May for St. Louis. Two separate jurisdictions assess properties in the 40 corridor and the core city —- St. Louis County and the city of St. Louis. Taxpayers may find both take the position that the long term effect of a new highway will be beneficial to property values, thus, no interim dip in assessed values are appropriate. The contrary argument, and the one that makes the most sense, holds that in the next two years the market value of most properties in the reconstruction area and the core city will decline. To state it another way, the income stream of commercial properties will not grow until the highway projects is completed.

Since reassessment comes in the odd numbered year of the two-year cycle, the assessors have another shot at determining value as of January 1, 2009. The market at that time will tell the world whether property values have held constant, grown or declined during the reconstruction, which will still be in progress at the end of 2008. Until that time, taxpayers should be on guard and proactive in seeking proper reduction of their tax burden.

Wallach90Jerome Wallach is the senior partner in The Wallach Law Firm based in St. Louis, Missouri. The firm is the Missouri member of American Property Tax Counsel, the national affiliation of property tax attorneys. Jerry Wallach can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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