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Property Tax Resources

Jan
01

Nevada Property Tax Updates

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)

 

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Nov
20

Why Las Vegas Property Owners Should Challenge Their Tax Assessments

"Business leaders' confidence in the Las Vegas economy has turned pessimistic and continued its downward slide throughout 2011. The Southern Nevada Business Confidence Index, which measures companies' outlook, fell to 99.91 for the fourth quarter, down from 99.96 in the third quarter..."

By Douglas S. John, Esq., as published by National Real Estate Investor Online, November 2011

While the tourism, gaming and hospitality industries are stabilizing, the near-term outlook for the Las Vegas economy remains bleak. Economic factors that affect real estate value, such as demographics, employment, income and housing, portend minimal growth in the next 12 to 24 months.

Business leaders' confidence in the Las Vegas economy has turned pessimistic and continued its downward slide throughout 2011. The Southern Nevada Business Confidence Index, which measures companies' outlook, fell to 99.91 for the fourth quarter, down from 99.96 in the third quarter. Adding to commercial property owners' woes, real estate values for all asset classes are at historic lows. Property owners want to know if the steep decline in market values since the peak in 2008 will be reflected in the 2012-13 property tax assessments.

Taxpayers will soon find out: Clark County's issuance of property tax assessments takes place in early December. When assessments arrive, property owners will need to evaluate the benefit of filing a property tax appeal.

Tragically, few owners will file an appeal, even though, on average, property taxes account for 33 percent of real estate operating expenses. They will simply pay their tax bills based on the belief that their assessment is reasonable and that challenging an assessment is too expensive, complicated and time-consuming.

However, rather than taking an immediate pass on contesting an assessment, Las Vegas property owners should consider the following points and then decide whether an appeal may be beneficial.

Long-term Benefits

For savvy taxpayers, the next few years represent a unique opportunity to reduce long-term tax liability. Because of Nevada's partial abatement law or tax cap, a successful appeal this year will yield tax savings now and in the future. When property values begin to appreciate, the tax cap will limit the annual increase in tax liability to no more than 8 percent over the prior year.

Recapture Tax

Taxpayers must be careful to sidestep Nevada's recapture tax. Even if a property's taxable value declined last year, Nevada's recapture provision applies if a property's taxable value decreased by more than 15 percent between tax years 2010-11 and 2011-12, but increases by 15 percent or more in the upcoming 2012-13 tax year. If the recapture applies, the amount of tax that would have been collected without the tax cap will be levied on the property.

The Law on Value

It is important to understand how assessors value property in Nevada to evaluate if a property is overvalued. Owners may believe the taxable value appears reasonable based on their understanding of market value in the business world. But market value in the business world is different from market value for property tax purposes. Nevada law requires assessors to determine taxable value based on value in use rather than highest and best use. In many key instances, these two value concepts produce radically different values.

DJohn_NREINov2011

The Cost Approach

Nevada law requires assessors to determine the initial value of all property using the cost approach, which measures the current replacement cost of the improvements minus depreciation, plus the value of the site. The cost approach is limited in its application and is rarely used by investors to determine market value. In a depressed real estate market, the cost approach generally yields a result that exceeds market value unless all forms of accrued depreciation are deducted.

Value the Sticks and Bricks

Market value for property tax purposes is restricted to the valuation of the real estate alone, or the "sticks and bricks." Nevada law prohibits the inclusion of personal property or intangible property in the assessor's valuation. This applies particularly to businesses such as hotels and motels, assisted living and nursing facilities, and shopping centers and malls, which derive significant income from personal property and intangibles such as trade names, expertise and business skills.

Deadlines and Procedures

Owners should start planning an appeal before tax notices are mailed. The property tax appeal timeline is highly compressed in Nevada. Tax notices are mailed in early December, and this year taxpayers have until Jan. 17 to file an appeal. This leaves taxpayers with only about 30 days after receiving the tax notice to determine whether an appeal is warranted.

Where to Begin

Owners unfamiliar with the deadlines, procedures, and valuation methods used to arrive at their assessment can easily miss an opportunity to reduce their tax bill. To maximize the chances for success, an owner should consult with a tax professional or property tax lawyer with a sound knowledge of Nevada property tax law, valuation theory and tax assessment practices to identify potential avenues for reducing tax liability.

dough_johnsmall Douglas S. John is an attorney in the Tucson, Ariz. law firm of Bancroft, Susa & Galloway, the Nevada and Arizona 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
20

Why Las Vegas Property Tax Assessments Will Exceed Market Value

"Some analysts suggest the volume of troubled commercial loans could create a wave of foreclosures similar to those that swept through the residential market..."

By Paul D. Bancroft, Esq., National Real Estate Investor, November 2010

The odds are stacked against property owners in Las Vegas, where the commercial real estate market continues to suffer from a severe downturn. With nearly $17.2 billion in distressed assets across all commercial property types, Las Vegas ranks No. 1 among U.S. metros by proportion of distress to total inventory in the local market, according to New York-based Real Capital Analytics.

Some analysts suggest the volume of troubled commercial loans could create a wave of foreclosures similar to those that swept through the residential market, a specter that is eroding confidence in commercial real estate. Meanwhile, the pool of available buyers has shrunk and the return on investment they require has increased, depressing sale prices.

Why_LasVegas_graph2

Vacancy rates are another metric that illustrates the severity of the downturn. The vacancy rate for all classes of office space in Las Vegas has slowed its rate of increase, but is projected to top out at a staggering 24.8% by the end of this year, according to Encino, Calif.-based real estate services firm Marcus & Millichap. By contrast, the firm estimates that the current, national vacancy rate for all classes of office is 17.7%.

Applied Analysis, a research consulting firm based in Las Vegas, reports that vacancy rates have risen for the past four years in every subsector of commercial real estate, from retail to industrial to office. The average price per acre of developable commercial land in Clark County has fallen from a peak of $939,000 at the end of 2007 to $155,000 today, a drop of more than 83%, according to Applied Analysis.

Brian Gordon, a principal at the research company, draws a direct correlation between the weak demand for space and the depressed value of commercial properties.

The cumulative effect of these trends is clear: The market value of commercial property has dramatically declined. The question that remains for property owners is whether the taxable values assessors assign to Las Vegas real estate will reflect the decline in market value. Unfortunately for taxpayers, the short answer is no.

Data lag skews values

During any period of changing real estate values, Nevada's taxable property assessments tend to fall out of step with the current market. The tendency to reflect outdated property values doesn't mean the staff of the assessor's office isn't keeping up with the latest newspaper headlines. Rather, it's because assessors are required to follow a methodology that doesn't reflect recent shifts in market value.

In Nevada, the assessor is required to adhere to a valuation methodology that, in the current market, is biased toward a value that will exceed market value. To begin with, the sales data assessors use to establish pricing is simply outdated.

Nevada tax law requires assessors to value the land and improvement components of an improved parcel separately. The land component is valued by comparing it to the sale of vacant land. The comparable transactions are drawn from sales that occurred six months to three years prior to the valuation date, a point in time when real estate was selling for higher prices than is the case today.

In a market in which values are rising, the reliance on "old" sales data would tend to result in a taxable value that is below market value. In a declining market, however, the reliance on old sales will tend to result in a taxable land value that exceeds market value.

A different problem derives from assessors' methodology for valuing the improvement component of a property. In Nevada, improvements are valued according to replacement cost, or what it would cost to build a duplicate asset today, less depreciation.

Replacement cost is established from cost manuals published by Los Angeles-based Marshall & Swift, which monitors materials pricing for the commercial and residential real estate industries.

Reliance on replacement cost may be relevant in a market that is not overbuilt. But in a market with excess inventory, the replacement cost of a building will not reflect economic obsolescence that makes the space less marketable to tenants, and therefore less valuable.

The appraisers in the Clark County Assessor's office currently are valuing properties for the tax year that begins on July 1, 2011 and runs to June 30, 2012. More likely than not, the methodology they are required to follow will result in taxable values that exceed market value.

If that occurs, the assessor is required to reduce taxable value to market value. As a practical matter, however, it is unlikely the reduction to market value will be made because the assessor's office simply does not have the time or property-specific information on vacancy, rent and expenses to determine the market value of all commercial properties. That limitation puts the onus on the property owner. Taxpayers will receive a notice of the taxable value assigned to their property for tax year 2011-2012 in early December. Even if that taxable value is less than the value it was assigned in the preceding tax year, the bias in the methodology employed by the assessor is likely to have resulted in a taxable value that still exceeds market value.

Owners must ask themselves what a snapshot of their property's market value would be on Jan. 1, 2011. If the market trends previously described continue, any reasonable level of analysis is likely to support a market value for most commercial properties that is less than the taxable value determined by the assessor.

Consequently, owners of most commercial properties in Las Vegas will have good reason to appeal to the county board of equalization for an adjustment this year. The deadline for filing an appeal is Jan. 18, 2011.

PBancroft150Paul Bancroft is a managing partner in the Tucson, AZ law firm of Bancroft, Susa & Galloway, the Nevada and Arizona 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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