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Property Tax Resources

Nov
06

Retail Property Taxes Will Rise

​Unless assessors can recognize the challenges facing shopping centers, taxes will increase dramatically.

As retailers rise and fall in the age of Amazon, property taxes remain one of the retailer's largest operating expenses. That makes it critical to monitor assessments of retail properties and be ready to contest unfairly high taxable valuations.

Assessors – and property owners attempting to educate those assessors – must understand how the changes taking place in the retail sector affect property value. Assessors must adjust their models to reflect new market realities, and property owners or their representatives must be able to explain why previously held valuation assumptions could no longer be valid.

No going back

Changing consumer tastes have always required retailers to adapt in order to survive, but traditional retailers are facing a different kind of challenge today. The increasing role of e-commerce in overall sales reflects a fundamental change in consumer behavior that will not reverse course with the whims of fashion. The ability to shop online is resetting consumer expectations, and retailers are struggling to adapt and stay competitive.

This struggle is evident in store closings that in 2019 are outpacing closings from the prior year. In addition to the threat of e-commerce, some economists believe a recession is coming in 2020. Falling retail sales, rising assessed property values and changing consumer demographics could combine to accelerate store closings in the years to come.

With millennials and Generation Z mixing into the workforce and increasing the demand for online shopping, retailers and property owners are facing new challenges in catering to consumer expectations unique to these generations. Strategies range from adjusting store buildouts to completely changing the store footprint to fulfill online orders as retailers do what they can to compete with online sellers. In addition to these changes, many property owners are stepping away from traditional big box retailers and are instead looking to restaurants and entertainment venues to anchor shopping centers and drive customer traffic.

Restaurants and experiential retail

Across the nation, retail property owners are working to fill vacant spaces with tenants that will offer millennials and Generation Z an exciting and unique shopping experience. In doing so, these owners are attempting to "e-commerce proof" their centers by shifting from big box anchors to an experiential model. Some retailers catering to these two tech-savvy generations are using tenant improvement allowances to build out highly specialized spaces, while others focus on social media. Select retailers even offer discounts to shoppers who share photos of their store or products on platforms such as Instagram.

Retail developments that once contained 40% to 50% restaurants are now filling as much as 70% of their spaces with restaurant operators in an attempt to drive traffic. A rising threat to this strategy are food delivery services such as Grubhub, Uber Eats, and Door Dash, which are collaborating with major restaurants that have previously had no food delivery. Pizza chains and other food-delivery-based retailers losing market share must now re-think their strategy and even partner with these third parties to expand their customer base.

Home food delivery partnerships continue to evolve as well, with restaurant operators looking into cloud kitchen concepts. These allow restaurant operators to operate from industrial space, avoiding retail rents and the need to pay back above-market tenant improvement allowances. Once the cloud kitchen space is running, the operator can rely on third-party delivery services to get the product to the consumer. This is a growing risk to shopping centers that rely on a restaurant tenant base to draw customers.

Clicks and bricks

Physical retailers attempting to compete with Amazon's fast delivery have introduced buy online pick-up in store (BOPIS). Many sellers have found BOPIS difficult to implement due to expensive software that tracks live inventory and requires staff training. Essentially converting a retail-only property into a retail and warehouse hybrid, the method may require modifications to the real estate. This reclassification should be discussed with assessors, because retail space typically commands higher rental rates than warehouse space.

Grocery anchors have also begun to adopt the BOPIS model, and some are finding the logistics a challenge given their existing footprint. As a result, some stores are expanding into smaller, adjacent in-line suites to offer this service. Where this happens, a property owner that was once receiving all in-line rents may now collect reduced rents for these suites, given they are now part of the anchor space. In this scenario, it is important for the valuation to weigh the potential grocer expansion into these in-line suites and adjust as needed.

Assessors must understand the changes rapidly taking place for this product type and their implications for valuation metrics. Given millennials' and Gen Z's familiarly with the internet, e-commerce as a percentage of retail sales is expected to continue to rise.

As property owners increase tenant improvement allowances so retailers can keep up with changing consumer tastes, appraisal districts need to consider how above-market tenant improvement allowances affect the lease rate the tenant is responsible for paying. Assessors must analyze the rental rate to factor in these build out costs and, if needed, adjust rent over the least term to reflect the portion that is paying for more costly buildouts. Only then can the assessor conduct a proper rental analysis for the subject property.

Nuanced classification

In addition to thoroughly analyzing rental rates and vacancy risk, assessors must also consider retail classification. With restaurants stepping into the anchor role in many shopping centers, increased traction by cloud kitchens may pose a threat to these tenants' long-term strength. Struggling retailers attempting to implement BOPIS compound this uncertainty, particularly with a potential recession on the horizon. Assessors must consider these factors before selecting appropriate rental rates, capitalization rates and vacancy and collection loss inputs to calculate taxable value.
Kirk Garza is a Director and licensed Texas Property Tax Consultant with the Texas law firm Popp Hutcheson, PLLC, which focuses its practice on property tax disputes and is the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys. He was assisted by Sam Auvermann and Krishtian Bazan, summer interns with the firm.
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Apr
18

Protect Your Rights To Protest Tax Assessments In Texas

Learn best practices for meeting property tax deadlines and handling property tax appeals.

Beset by ever-increasing tax assessments, Texas property owners are allowed to seek a remedy by protesting taxable property values set by appraisal districts. The property tax system can be intimidating, however, and the process is complex and fraught with pitfalls.

To maximize results, taxpayers must understand the assessment process and the deadlines governing filings and protests. What follows are best practices for protecting the right to protest in Texas, along with some tips for meeting key deadlines. And remember, deadlines are subject to exceptions and may change for specific properties, so consult the Texas Property Tax Code or a property tax professional to verify applicable dates.

Learn the appeal timeline. 

Strict filing deadlines govern renditions, protests, litigation appeals and tax payments. Failure to comply with these deadlines may be devastating, resulting in forfeiture of the taxpayer's appeal rights and incurring substantial penalties and interest.

Meet protest deadlines.

Texas appraisal districts value real and personal property annually, usually as of Jan. 1. For commercial real estate, appraisal districts are required to deliver notices of appraised value by May 1 or as soon thereafter as practicable. Taxpayers in most jurisdictions can expect to receive notices of appraised value sometime in April. The deadline for protesting an appraised value is the later of May 15 or 30 days after the date the notice was delivered to the property owner.

In certain situations, appraisal districts are not required to send notices of appraised value, such as when the appraised value of the property did not increase from the prior year. A best practice is to track all documents and follow up with the appraisal district if you have not received a notice by late April to ensure you have the relevant information prior to the May 15 protest deadline. Keep in mind that it is the taxpayer's responsibility to inform the appraisal district of the taxpayer's current address.

When is the business personal property rendition deadline? 

Taxpayers are required to render information regarding their business personal property to appraisal districts annually, generally by April 15. Appraisal districts may extend the deadline until May 15 upon written request by the property owner, a common practice. This deadline can vary, however, depending on whether a Freeport exemption for the property is allowed.

Determining rendition deadlines can be complex and property owners should make sure to communicate with appraisal district personnel about deadlines early on in order to avoid penalties for late reporting. Penalties generally equal 10 percent of the total tax due.

Prepare for hearings. 

After filing a protest on time, property owners are scheduled for a formal hearing before the Administrative Review Board. Often the appraisal district will schedule an informal hearing with an appraiser prior to the formal hearing. Most formal and informal hearings take place between April and July of the tax year in question, and many protests are resolved during this process. Preparation is the key to success.

More deadlines: 

The review board will determine a property value and issue an "order determining protest." Document the date the order is received and follow up with the appraisal district if you do not receive appropriate documentation within a few weeks of the formal hearing date. A property owner has 60 days from receipt of the order to file suit in district court appealing the review board's results.

Taxing entities are required to mail tax bills by Oct. 1 or as soon thereafter as practicable. Taxes become delinquent if not paid before Feb. 1 of the year following the property valuation. That is, for the 2019 tax year, taxes are due on or before Jan. 31, 2020. An active protest or lawsuit does not excuse a property owner's obligation to pay taxes prior to the delinquency date, and failure to pay taxes in a timely manner forfeits the right to proceed with an appeal in court. If an owner prevails in its appeal, the overpayment will be refunded.

Best practices for appeals

Regardless of appeal status, communicate early and often with the appraisal district and provide requested documentation and information. Informal settlement conferences are good opportunities to get to know the appraiser assigned to the protest and to understand the assumptions supporting his or her analysis.

Be prepared with all required documentation including hearing notices, property-specific information and any appointment-of-agent forms. Consider further protecting appeal rights by filing an affidavit stating the taxpayer's position in advance of the formal hearing date. An affidavit on file protects the taxpayer in the event that they are unable to attend the hearing.

What if I miss my deadline?

Let's assume a taxpayer purchased a retail center for $2 million in December 2018. The appraiser valued the property at $3.5 million for 2019, but the owner believes the purchase price reflects market value. The taxpayer missed the May 15 protest deadline, however.

Fortunately, there is an additional, backstop remedy. Property owners may file a motion to correct the appraisal roll, provided that the assessor's value exceeds the correct appraised value by more than one-third. For our hypothetical retail center, the correct appraised value would need to be less than $2.625 million for the motion to succeed.

The motion to correct the appraisal roll can be filed through the date that the property taxes are due, which in this scenario would be Jan. 31, 2020. Like other protests, the review board's ruling on a motion to correct the appraisal roll may be appealed to district court.

Taxpayers should pay attention to the details of protest procedures and deadlines or hire the right team with the expertise and experience to do so. Otherwise, the owner may get burdened with an excessive appraisal due to missed deadlines or mismanaged internal procedures. Protecting appeal rights is essential to properly managing property tax expense.


Rachel Duck, CMI, is a senior property tax consultant at the Austin, Texas law firm Popp Hutcheson PLLC and Kathy Mendoza is a legal assistant at the firm. Popp Hutcheson devotes its practice to the representation of taxpayers in property tax matters and is the Texas member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys.
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Dec
21

Beware of Double Taxation on Personal Property

While Texas solved the problem, your state may not have addressed the issue.

Many states tax business personal property, a classification that includes furniture, fixtures, equipment, machinery and, in some states, inventory. Whatever the jurisdiction, the values of business personal property and real estate can easily be conflated in ad valorem taxation, unfairly burdening the taxpayer with an additional appraisal and/or taxation.

If you live and work in a state that doesn't tax business personal property, it may be included with the taxes on your real estate anyway. If you are in a state that taxes personal property, you might be taxed for it twice. While it seems contrary to acceptable appraisal practice to include personal property in the real estate value and then to additionally appraise and/or tax the same items, it does happen.

The Texas Legislature wrestled with this problem of additional valuation and taxation for more than a decade. That process and the resulting tax law offer important lessons that may help taxpayers and lawmakers in other states.

Texas gets personal

In 1999, the Texas Legislature enacted Section 23.24, titled "Furniture, Fixtures and Equipment," as a new statute in the State Tax Code. Prior to its enactment, furniture, fixtures and equipment were often included in the appraised value of income-producing real estate for ad valorem taxation. They were also subject to a separate business personal property tax. Section 23.24 eliminates this double taxation as long as the method used to value the real estate takes the business personal property into account.

There are many different kinds of property but only a few approaches to valuation. When the values of real property and personal property are mixed, it is usually because they are being assessed as components of an operating business using the income approach. Hotels and motels, nursing homes, restaurants and convenience stores are among the property types at greatest risk of having real estate and personal property values combined.

An assessor valuing the real estate component of an operating business will likely use the income approach. This method bases value on the income stream a business can generate using the real estate and personal property as components of a business enterprise.

A hotel doesn't have a business without beds, and a restaurant doesn't have a business without tables and chairs. As such, a value determined using the income approach is going to include the value of the real estate and the personal property, as both contribute value to the enterprise's income stream. It's clear to see how using the income approach can conflate real and personal property value into one.

The cost approach keeps those values separate. Using this method, an assessor or appraiser looks only at the value of the land as if it were vacant, then adds the value of improvements based on the cost to construct those improvements minus any depreciation. There is no accounting for, nor any risk of conflating, the business personal property within the real estate while using this approach.

In many instances, however, appraisal districts that were not using the cost approach – or had switched from the cost approach to the income approach from one year to the next – were still additionally appraising and even maintaining a separate account for the business personal property. This would seemingly violate Section 23.24.

Many appraisal districts disagreed, claiming that a separate account for business personal property enabled them to deduct that amount from the real estate. In doing so, they believed that there would be no additional burden on the owner, who would only be paying taxes once on the personal property.

While the tax liability may not be increased, an appraisal district with a separate account for personal property still creates burdens for the owner. The taxpayer is required to file a rendition on the personal property stating either "the property owner's good faith estimate of market value of the property or, at the option of the property owner, the historical cost when new and the year of the acquisition of the property."

If owners fail to file this rendition on personal property already being accounted for in the value of the real estate, they are subject to a penalty that increases their tax liability by 10 percent. It hardly seemed fair that the taxpayer should have these obligations and liabilities regarding property that was already intertwined with the value and tax for the real estate. Two consecutive legislatures agreed.

In 2009, lawmakers created a subsection to Section 23.24. This statute intended to exorcise the appraisal districts' method of having a second account for the personal property and/or attempting to separate or subtract the value of the personal from the real when both values had already been combined in the real estate. Some appraisal districts were still requiring renditions (and seeking penalties for failure to do so) on property value already captured with the real estate.

In 2011, the next legislature removed the additional and needless burden to render business personal property that is not to be appraised separately from real property in the first place. The law now says that if business personal property is being appraised under Section 23.24, then the owner is not required to render anything.

Implications for other states

Check your state's laws regarding the taxation of personal property and make sure you're not already paying those taxes on the real estate.

Texas and Oklahoma tax inventory as well as business personal property, and not only is the tax present, it's prevalent. In 2016, personal property tax made up 12 percent of the property tax base in Texas and nearly 23 percent of Oklahoma's property tax base.

Whether personal property tax is present and/or prevalent in your state, make sure you are not paying personal property taxes where it isn't taxable, or paying it twice in jurisdictions where it is taxable.

Greg Hart is an attorney in the Austin law firm of Popp Hutcheson PLLC, which focuses its practice on property tax disputes and is the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Dec
03

Texas Hotel Owners: Proceed with Caution

Confusion Regarding Tax Code's Rendition Requirements Creates Penalty Trap

A provision in the Texas Property Tax Code requires hotel assessments based on an income analysis to include personal property. However, misunderstanding associated rendition requirements can cause unexpected penalties for hotel owners.

In Texas, both real and personal property are taxed at 100 percent of assessed value. Prior to 1999, a hotel's real and personal property were valued under separate accounts. A hotel's income and expense stream, however, incorporates value generated by both real and personal property.

For instance, a nightly hotel room rate covers the rent for the real property (the room itself) as well as personal property (the furniture and fixtures in the room). This blended income formerly created unique challenges when using the income approach to value hotels for property tax assessments.

In a move toward simplification and to protect against potential double taxation, lawmakers added Section 23.24 to the tax code in 1999. This provision prevents furniture, fixtures and equipment included in a real property valuation from being taxed a second time under a separate, personal property account. The statute was amended in 2009 to stipulate that, for properties such as hotels, the value of real and personal property must be combined into one assessment if the assessor uses an income analysis.

Specifically, Section 23.24(b) states that "in determining the market value of the real property appraised on the basis of rental income, the chief appraiser may not separately appraise or take into account any personal property valued as a portion of the income of the real property, and the market value of the real property must include the combined value of the real property and the personal property."

Section 23.24 simplifies the valuation process for hotels valued under an income analysis, presuming that total income reflects the contributory value of the real and personal property and that separating the two is an unnecessary step when both portions are taxed at a 100 percent assessment ratio.

The legislature amended Section 22.01 in 2011 to include subsection "m," which provides that "a person is not required to render for taxation personal property appraised under Section 23.24."

Taxpayer pitfall

As a result of these provisions, many hotel owners assume that their personal property will be included in the real property assessment and do not submit annual renditions to county appraisal districts. But what happens if a jurisdiction does not value a hotel using the income approach?

The caveat in Section 23.24 is that the property is valued "on the basis of rental income." Because the income approach is just one of three recognized approaches to value, this statute does not eliminate the independent consideration of personal property in ad valorem taxation for hotels in Texas.

Although assessors value most hotels based on income, there are several common scenarios in which they may use an alternative method, triggering the creation or continuation of a separate personal property account.

Jurisdictions often value newly constructed hotels using the cost approach during the first one to two years of operation, prior to stabilization. Harris County almost exclusively values hotels on the cost approach for the first year following construction.

Hotels that have been in operation for some time but have reached a point of significant renovation or decline in value may also be valued using the cost approach. In such scenarios, the assessor will value personal property under a separate account, and may require the property owner to submit a personal property rendition report.

Failure to render in a timely fashion results in a penalty equivalent to 10 percent of the total taxes due. Unfortunately, the hotel owner is often unaware of rendition requirements until they are penalized for a late rendition.

Rendition required

The following example illustrates how incorrect assumptions about an assessor's valuation methodology can result in unexpected rendition penalties.

Let's assume the assessor has valued a hotel under an income analysis since the taxpayer acquired it in 2010. Based upon this history and prior interactions with the assessor, the owner did not file a personal property rendition with the county appraisal district for tax year 2018.

The property had suffered a significant decline in performance over the past few years despite dramatic increases in land value in the area. After reviewing the documentation provided, the assessor decides to value the hotel at land value, with a minimal contributory value assigned to the improvements.

Since this approach is based upon a cost analysis and not an income approach as in prior years, Section 23.24(b) no longer applies. The switch in methodology triggers the creation of a separate business personal property account for the hotel.

Because the taxpayer's discussions with the assessor begin at an informal hearing after the rendition deadline, the owner does not learn of the change in methodology or resulting new personal property account until the opportunity to comply has passed. Consequently, the taxpayer incurs a 10 percent penalty for failure to file a timely personal property rendition.

An ounce of prevention

It can be challenging to establish complete clarity on an assessor's methodology prior to the rendition deadline. As in the previous example, scheduled discussions with assessors often occur after the deadline. A hotel owner may choose to file a protective rendition to avoid the possibility of unexpected penalties.

In any case, the key to avoiding unnecessary penalties is to communicate as early and often with the county assessor as possible, or hire someone who is able to do so on the taxpayer's behalf. With a thorough understanding of the property tax code and clear communication with county assessors, hotel owners in Texas may bypass the penalty trap.

Rachel Duck, CMI is a tax consultant at Popp Hutcheson PLLC, which represents taxpayers in property tax matters and is the Texas member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys.
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Oct
23

How to Avoid Excessive Property Taxes

Knowing what to look for in monitoring your assessments can help avoid over taxation.

As robust occupancies and escalating investor demand in many markets drive up property tax bills for multifamily housing, apartment owners must continue to monitor their assessments to avoid overtaxation. Knowing what to look for can ease this task, and the place to start is with a firm grasp of the assessor's methodology.

Many taxpayers are unaware that assessors typically use a mass appraisal technique to derive assessments without referencing or even collecting details about a property's unique characteristics or performance. Property owners who understand the mass appraisal procedure have a distinct advantage in identifying assessment errors, and this knowledge can inform the apartment owner's arguments when they choose to fight excessive valuations.

Rooted in Generalities
The burden on appraisers to generate thousands of property values, often annually, is colossal. For this reason, assessors determine most market values for assessment purposes through mass appraisal, which is the process of valuing a group of properties as of a given date using common data, standardized methods, and statistical testing. Assessors using mass appraisal rely upon valuation equations, tables, and schedules developed through mathematical analysis of market data.

Mass appraisal analysis begins with assigning properties to classes or strata based on highest and best use. Valuation models are created for defined property groups, such as industrial or office, and are then calibrated to reflect the market factors for that specific market or submarket.

The International Association of Assessing Officers (IAAO) sets mass appraisal standards for assessors, by which an assessor can appraise the fee simple interest in property at market value. These standards set the preferred methods for mass application of the three traditional approaches to value (cost, sales comparison, and income). Armed with this information, apartment owners can attack mass appraisal procedures that result in values that don't reflect a property's true market value.

Property Data Errors
IAAO standards dictate that valuation models should be consistently applied to property data that are correct, complete, and up-to-date. However, assessor records commonly contain errors relating to a property's age, total square footage, net leasable area, number of apartments, unit mix, and facility amenities. An error in one of these fundamental property characteristics can significantly increase a property's overall assessment.

When arguing errors in specific property data, apartment owners should be prepared to share a current rent roll with their assessor in order to document the property's square footage, net leasable area, number of units, and unit mix. It may also be helpful to provide the assessor with copies of the property's most recent marketing materials, which show the project's various floor plans and amenities. Finally, pointing out land-size discrepancies or external nuisances such as traffic or airport noise can be helpful in arguing for lower values.

Income Approach
Assessors typically use the income approach in valuing apartments. Mass appraisal application of the income approach begins with collecting and processing income and expense data gathered from the marketplace. Appraisers then compute normal or typical gross incomes, vacancy rates, and expense ratios to arrive at a net income that is capitalized using a market-driven cap rate. This approach is often problematic because it fails to take into account a property's unique economic performance in a dynamic market.

Perhaps the best defense against excessive appraisals is to attack an assessor's mass appraisal income pro forma. Apartment owners should distinguish their property's rental rates and expense ratios from market data by providing current and prior-year operating statements if the numbers support a value reduction. Assessors often overestimate rent and underestimate expenses.

Owners should also provide occupancy reports to portray the property's occupancy trends, compare the property's occupancy level with market comparables, and outline any concessions and allowances the owner provides renters to maintain occupancy. The standardized vacancy and collection loss factor used in a mass appraisal income approach rarely captures the true physical and economic occupancy of a project.

Finally, owners should refute cap rates derived from sales of properties that aren't comparable to the subject.

Mass appraisal is a necessary evil that apartment owners should guard against. Knowing how assessors apply the procedure will help taxpayers in their continued fight to reduce property taxes.


Gilbert Davila is a partner in the law firm of Popp Hutcheson PLLC , the Texas 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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Sep
14

Are All Bricks Created Equal?

Proper functional obsolescence may not be factored into the estimates provided by the cost estimating services.

Appraisal districts across Texas often use the cost approach to determine market value for property tax purposes, and when valuing certain commercial properties via the cost approach, county appraisers frequently use cost-estimating services. These services enable appraisers to estimate the cost of the subject property's improvements as if they were new, as well as determine the depreciation to apply to the subject.

Cost estimators can be a great resource and valuation tool, but the appraiser is likely to reach an incorrect value conclusion using estimates from one of these services without also incorporating proper analysis of functional obsolescence.

Functional obsolescence is one of the three types of depreciation that measures a building's function and utility against current market standards. Given this, placing all weight on a service's depreciation estimates could lead to incorrect assessments that ignore functional obsolescence within the property's total depreciation.

The Trouble With Tables

Cost-estimating services typically provide depreciation tables that contain depreciation data for multiple commercial property types. County appraisers often cite these tables as their main source of depreciation support when using the cost approach.

It is important to know that these tables typically assume that all components of the improvements for the various property types depreciate equally across time. So for example, a brick used in a multifamily or office development will depreciate at the same rate as a brick used in a fast-food restaurant or movie theater.

Often-overlooked warnings from these services point out that certain real estate product types are subject to functional obsolescence that occurs rapidly and can significantly reduce the economic lifespan conclusion for the applicable property type. Given this information, a determination of total depreciation for the subject property must include an appropriate functional obsolescence analysis.

Evaluating functional obsolescence involves an analysis of the utility of the improvements, and how that degree of usefulness affects total depreciation. As an example, consider the fast food industry, which has evolved drastically over the past few decades.

As fast-food real estate models from the 80's and 90's continue to become obsolete, new models have appeared to attract and retain the millennial and Generation Z customer base. Because of this, it is common practice for fast-food companies to refresh their store models every five to 10 years, with a complete rebuild taking place every 20 to 25 years.

This refresh-and-rebuilding cycle is necessary to fit ever-changing consumer tastes and demands for this real estate product type. While the store refresh may include new flooring, additional exterior decoration and color schemes, a complete rebuild is necessary when the utility of the building no longer fits the current design standards demanded by the market. An economic life of 20 to 25 years may be appropriate to capture the potential functional obsolescence associated with this industry.

Picture A Theater

Movie theaters are another competitive product type that may be subject to functional obsolescence outside standard physical depreciation. Theaters built in the 1990s and 2000s may struggle to compete with the eat-drink-and-play models that continue to increase in popularity. Across Texas, select stand-alone theaters that lack dining, bar, and event options continue to see revenues decline.

Theaters without these features often lack the capacity to add a commercial kitchen, bar service, or bowling alley into their existing structure, which limits the utility of the property based on market tastes and preferences. These older theaters may also contain large projection rooms that were previously used to house large equipment and film reels. Given the arrival of digital cinema, most projection rooms now require less space to house and project content into the auditorium.

Auditorium spaces are also evolving, based on the capacity to house premium luxury sections or reclining seats with independent power modules. These popular seating features have resulted in auditoriums having less seating capacity, given the additional space required for each seat. Clearly, it is important to analyze and recognize any applicable functional obsolescence that could affect this property type.

Real estate product types continue to evolve along with consumer standards and tastes; it will be important to consider the impact these requirements have on a building's utility over time.

Cost-estimating services are a great tool that is used frequently for valuation, but it is important to know what is – and what is not – reflected in their information. Once assessors realize this distinction, they can apply proper analysis of total depreciation in their cost-approach determination of a property's market value.


Kirk Garza holds the MAI designation of the Appraisal Institute and has earned the CCIM designation through the CCIM Institute and the CMI designation from the Institute of Professionals in Taxation (IPT). Kirk is a Director and licensed Texas Property Tax Consultant with the Texas law firm of Popp Hutcheson PLLC, which focuses its practice on property tax disputes and is the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys. Joseph Jarrell and Jordyn Smith are graduate students at Texas A&M University's Master of Real Estate program. They may be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
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Aug
08

Oversupply, Taxes Choke Self-Storage Growth

 According to Gilbert Davila, principal at Popp Hutcheson PLLC, an Austin-based law firm specializing in property taxes, the hikes are primarily attributable to basic increases in construction and investment in self-storage properties across Texas. Based on how pricing for commercial real estate in Texas has generally skyrocketed in recent years, appraisal districts are now able to derive very low cap rates for many of the properties they assess. In addition, Davila says appraisal districts are only just beginning to have access to comprehensive data to use in valuing properties in this sector. "Prior to the last couple years, appraisal districts weren't very aggressive on self-storage owners, and now they're playing a  game of catch-up" he says. "However, we should be past the worst of the exponential increases and should see more stagnant property tax valuations for the year 2018."

Davila also points out that many self-storage owners are now protesting their assessments in court. Because Texas law requires all properties within a certain jurisdiction to be assessed equally and uniformly with facilities of similar sizes, this litigation should help lower the median level of valuation for self-storage assets.

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May
24

Use obsolescence to lower hospital property taxes

Property taxes based on excessive valuations are smothering traditional hospital owners.

All too often, tax assessors ignore functional and economic obsolescence that increasingly afflict hospitals, instead treating these assets as financially productive institutions that hold their value. Hospital owners, however, can leverage obsolescence to reduce taxable values and property tax bills.

Click the link below to continue reading.

https://www.beckershospitalreview.com/finance/use-obsolescence-to-lower-hospital-property-taxes.html

Daniel R. Smith, Esq., is a principal with and general counsel for Austin, Texas law firm Popp Hutcheson PLLC, the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys. Kevin Shalley, CMI, is a tax consultant and manager with Popp Hutcheson PLLC, specializing in healthcare properties.

 Contact Daniel at This email address is being protected from spambots. You need JavaScript enabled to view it. and Kevin at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Apr
03

Consider Appealing Assessments to Hurricane-Damaged Property

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

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

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

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

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

Deadline Shortened

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

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

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

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

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

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

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

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

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Jul
01

Are You Leaving Property Tax Savings On The Table

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

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

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

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

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

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

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

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

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

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

Did you miss the deadline to protest the appraised value?

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

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

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

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

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

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

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

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

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

 

daniel smith active at popp hutcheson

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

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