Updated december 2019
Challenging a property’s valuation is an increasingly complicated decision
County assessors in Nevada mailed their tax year 2020-21 notices of value in early December of 2019. Many of these notices reflect double digit increases in valuation. These values can be challenged by filing an appeal to the county board of equalization. The deadline for doing so is January 15, 2020. However, an appeal is only worthwhile if it results in tax savings and the determination of whether a reduction in a property’s valuation will result in tax savings has become more complicated by the tax cap.
Despite an increase in a property’s valuation, the amount taxes can increase from year to year is limited by a tax cap that applies to the tax liability, not the taxable value. The tax cap is calculated by (a) increasing the taxes paid in the preceding tax year by an applicable tax cap factor and (b) adding the tax attributable to “any improvement to or change in the actual or authorized use of the property” that was not included in the assessment for the prior year. The portion of the tax which would have been assessed in the absence of the tax cap is treated as an abatement from tax.
For example, last year we handled a hotel property in Clark County which was assigned a taxable value of $22,769,877. Before determining if a valuation appeal was warranted we evaluated the effect of the tax cap. Tax in the amount of $221,048.83 would be assessed on a taxable value of $22,769,877, but in this instance the tax cap would limit the tax actually assessed to $128,659.75. The difference, an amount of $92,389.07, would be abated by the application of the tax cap.
For a valuation appeal to result in tax savings, the value of the hotel property would need to be reduced below the value which would result in a tax of $128,659.75. Here, a taxable value of $13,253,030 would result in a tax of $128,659.75. This is often referred to as the “tax cap value.” For the hotel property, we would need to reduce the taxable value below the tax cap value of $13.2 million in order to generate tax savings in excess of the savings resulting from the tax cap abatement.
For many properties a low tax cap value obviates the need for a valuation appeal, but in this instance we believed the facts would support a market value for the hotel property which would be significantly lower than the tax cap value. After a contested hearing, the county board of equalization agreed; it reduced the taxable value of the property to $8 million for tax year 2019-20.
Tax in the amount of $70,605.50 was ultimately assessed on the reduced taxable value. As a result of our appeal the property owner realized a tax savings of $58,054.25. In addition, the tax assessed on this reduced valuation will become the tax base for applying the tax cap in subsequent tax years. Consequently, even if the assessor’s office increases the taxable value of the property in the following tax year, any increase in the tax actually assessed will be limited by the tax cap.
The advent of the tax cap in Nevada has complicated the question of whether or not a valuation appeal is warranted. While the tax cap often obviates the need for an appeal, it is important to critically examine the tax treatment of property annually to ensure the property owner is paying no more than their fair share of taxes. Our property tax attorneys know the critical legal and valuation factors that affect the tax treatment of property in Nevada and are prepared to assist property owners in evaluating and, when appropriate, challenging that tax treatment.
Paul D. Bancroft
McDonald Carano, LP
American Property Tax Counsel (APTC)