Menu

Property Tax Resources

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.
Continue reading
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.
Continue reading
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.
Continue reading
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..
Continue reading
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.

Continue reading
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.

Continue reading
Nov
14

Property Taxes Should Reflect Retail’s Apocalyptic Times

Instead, assessors continue to ignore the clear fact that brick-and-mortar retail is in massive decline.

The retail sector is experiencing its darkest period ever, and taxing entities must come to grips with declining shopping center values.

News reports confirm that national retailers are closing stores at a record pace. In 2017 alone, retail mainstays such as JC Penney, Sears and Macy's have shuttered hundreds of stores. Leading market analysts including Credit Suisse and Cushman & Wakefield have predicted the closing of some 10,000 brick-and-mortar stores.

Even worse, many national retailers are filing for bankruptcy protection, with several others on analysts' watch lists. The more than 300 retailers reported to have filed for bankruptcy protection in 2017 include several major brands, from Payless ShoeSource to Gymboree and Wet Seal. These dire conditions have spurred some economists to describe the ongoing blood-bath as a retail apocalypse.

Double Trouble

There are two main reasons for the retail sector's decline:

First, consumer preferences are migrating from shopping at brick-and-mortar stores to more online shopping. Online sales increased by about $40 billion in 2016 and accounted for nearly 42 percent of all retail sales growth that year. Amazon alone accounted for 53 percent of that growth, reportedly quintupling its North American sales to $80 billion in 2016 from $16 billion in 2010.

Second, today's consumers would rather spend their money on experiences than on material goods. They prefer dining out, going to movies and travel over buying more shoes, jeans, and electronics. And when they buy goods, they are increasingly likely to buy them online.

These ongoing changes in consumer behavior have resulted in a disturbingly high inventory of vacant retail space, made worse by years of over-building in the sector. The United States reportedly has 40 percent more retail space per person than Canada, five times more than the United Kingdom and 10 times more than Europe.

Shopping malls have been particularly affected. Once popular destinations, many regional malls now scramble to find quality tenants and to attract shoppers. To survive, some malls have taken desperate measures to steer customers to their stores, such as hosting amusement parks and concerts. Sadly, analysts predict 20 to 25 percent of U.S. shopping malls will close within the next five years. The market is simply oversaturated.

Value Questions

Consequently, retail property value has plummeted. What once was seen as a safe investment is now fraught with risk. Suffering national retailers have made retail real estate riskier as the chances of store closures and tenant bankruptcies have increased. Investors only value retail properties highly when those assets are generating a reliable stream of rental payments from high-quality tenants. But with department stores, electronics retailers and apparel shops boarding up, there is insufficient demand to sustain the rental rates and occupancy levels necessary for many properties to support historical values.

Unfortunately, tax assessors are turning a blind eye to this new reality, continuing to assume that there is a viable market with robust buyer demand for this property type.

In many jurisdictions, tax assessors have even raised taxable values on retail properties. This has obviously created confusion among property owners, as the values assessed by taxing jurisdictions conflict with selling prices that owners can garner on the open market.

When vacant properties go up for sale, they may linger on the market for years. And when they do sell, they are often sold to unconventional users, such as hospitals, trampoline parks, call centers, churches and schools. These buyers know that they can leverage the market oversupply to achieve low acquisition prices.

When owners point to sales of comparable — and often vacant — retail properties as evidence of market value, tax assessors accuse them of applying the "Dark Store Theory," which many assessors have mischaracterized as a tax loophole. Assessors have even convinced news media organizations of this misconception, evidenced by headlines such as "Sinister-Sounding Dark Store Theory Is Corporate Welfare and "How Big-Box Retailers Weaponize Old Stores."

This has fueled an ongoing debate concerning how to properly value the fee-simple interest in income-producing property, which in most jurisdictions is the taxable value.

In essence, tax assessors claim that retail property owners are trying to escape taxation by calculating taxable value based on the asking rents and sales of vacant retail locations, rather than on actual rents and sales of occupied properties. Tax assessors contend that property owners are comparing apples to oranges.

Property owners counter that assessors are overstating real estate value by capturing the additional value of non-taxable assets, such as long-term leases with brand-name retailers.

Despite this debate, there is no hiding the fact that retail is going dark. Shopping malls and oversized big box stores have become largely obsolete, bankruptcies and store closures plague the industry, and the glut of retail space grows. Preferences for on-line shopping and consumer purchasing patterns are here to stay.

We are reaching a point where the "dark store is the norm. The market has turned previous assumptions about variables such as market exposure, vacancy, capitalization rates and market rents on their heads, resulting in a retail meltdown.

Daniel R. Smith 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. James Johnson is a graduate student at Texas A&M University's Real Estate Center and tax analyst for Popp Hutcheson. They may be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
Continue reading
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..

Continue reading
Feb
01

Putting A Stop To The 'Hidden Property Tax'

When property values rise, tax rates should fall.

Owners should be delighted to see the value of their property increase, but in our current tax environment, higher property values have become synonymous with higher property taxes.

School districts, municipalities, counties and other taxing units have the power to limit property tax bills by lowering their respective tax rates as property values rise. Instead of doing this, however, many taxing entities opt for a tax revenue windfall.

Remarkably, as they collect this additional revenue, these same taxing units claim that they have not raised taxes because they have not increased their tax rate. This distinction has afforded taxing units a convenient escape from the ire of taxpayers. But is it fair?

The Texas property tax system has two components: appraisal districts and taxing authorities. First, appraisal districts assess the market value of taxable property within their boundaries. They then participate in protest hearings initiated by property owners about those values and subsequently certify appraisal rolls for taxing entities.

Second, the governmental bodies that levy and collect taxes prepare budgets and, with their certified appraisal rolls in hand, adopt tax rates sufficient to meet those budgets. Then these municipalities, school districts and other institutions send out tax bills and collect tax revenue.

Both appraisal districts and taxing authorities have the power to affect property owners’ ad valorem tax liability. Nevertheless, many media outlets and news publications have blamed appraisal districts exclusively when tax bills have increased.

For instance, on April 11, 2016, the Austin American-Statesman reported: “Home values rise 9 percent in Travis County!” The San Antonio Express-News reported on May 4, 2016, “2016 Bexar County property value is up $13 billion over year before, real estate values up 7.5 percent.” Similarly, on May 25, 2016, the Dallas Morning News warned about “A taxing problem,” specifically discussing how “Dallas property taxes squeeze middle class” because homeowners in that demographic saw an average increase in the value of their homes of over 11 percent.

These news articles focus on the distress that rising appraised values have inflicted upon taxpayers as property tax bills have increased. Is it fair, though, to malign appraisal districts when they are simply fulfilling their charge to assess property values, especially when they do not participate in the tax rate setting process?

State Sen. Paul Bettencourt (R-Houston), who served as the Harris County tax assessor-collector from 1998 through 2008, formed the Senate Select Committee on Property Tax to look into the issue. The Committee has held public hearings all around the state to listen to taxpayers’ concerns arid frustrations about the system.

It has become apparent that the root of the rising property tax burden lies with tax rates set by taxing units, not in appraised values assessed by appraisal districts. Indeed, at a hearing in Arlington earlier this year, there were hundreds of property owners in the audience, but not one complaint about the Dallas Central Appraisal District or the work of its Chief Appraiser, Ken Nolan.

The issue has caught the attention of a number of politically astute organizations, including the Texas Association of Realtors, which has taken a strong interest in Texas’ property tax policy. Its Director of Legislative Affairs, Daniel Gonzalez, has made it his mission to educate the public about what he describes as the “hidden property tax.” This includes spending resources to maintain the informational website, hiddenpropertytax.com, which provides videos, articles, and other details about the problem.

Likewise, certain taxing entities have spoken out against this “hidden property tax.” The mayor of Fort Worth, Betsy Price, in an opinion piece that appeared in the May 19, 2016 edition of the Fort Worth Star Telegram, wrote: “What to do about high property tax assessments? Cut the tax rate.” The Dallas Morning News echoed this sentiment on May 25, 2016, when it explained, “The only way officials can reduce the burden on taxpayers is by lowering their tax rates.”

And why shouldn’t taxing units do this? Our truth-in-taxation laws are supposed to prevent excessive taxation by limiting tax rate increases that lead to higher tax revenues. The same principle should apply when tax rates remain steady, but through the increase in property values, tax revenues soar. That is an unintended consequence of the prosperity of a community that governments should not be able to exploit.

Texas has one of the nations best property tax systems. To make it work, however, appraisal districts and taxing entities alike must do their part in maintaining the system’s integrity and fairness. Local taxing units should not be allowed to hide behind increased appraised values to raise their budgets, nor should the Texas legislature be able to take advantage of higher appraised values by sending less funding per student to school districts.

Instead of vilifying appraisal districts and complaining about a “broken” property tax system, property owners should put pressure on school districts, cities, counties and other taxing entities to exhibit greater accountability and transparency over tax rates.

daniel smith active at popp hutcheson

Daniel R. Smith serves as 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..

Continue reading
Oct
10

Beware of RevPAR in Property Tax Valuations

When comparing hotels for valuation purposes, a common method of making adjustments for the difference between properties is to examine revenue per available room (RevPAR), a measurement of hotel performance.  If executed poorly, these calculations can distort property value and lead to unfairly heavy tax burdens on hospitality owners.

There are two different ways to calculate RevPAR.  The first is to multiply the average rental income per room by the number of rooms occupied, then divide by the number of days in the period.  The other method is to divide total guestroom revenue by the number of available rooms and divide that figure by the number of days in the period.

In an article titled “Using RevPAR as a Basis for Adjusting Comparable Sales,” published in February 2002 by HospitalityNet.org, appraiser Erich Baum voiced a common argument shared by appraisers who advocate for RevPAR adjustments.  Baum contends that the adjustments are appropriate because the revenue a hotel generates is tied to its location and the quality of its product.

The question in valuation for property taxation is whether or not RevPAR incorporates additional, non-real estate values such as quality of brand, management, goodwill, etc., and whether or not the RevPAR adjustment reflects those non-real estate items.

If the appraiser’s purpose is to compare values of hotels as a going concern, including all tangible and intangible items, this adjustment may make sense.  If, however, the purpose is only to value the tangible real estate and exclude intangible business value, as in an ad valorem tax valuation, a RevPAR adjustment may be inappropriate.

Appraisers generally accept that there is intangible value associated with the going concern value of a hotel.  The Appraisal Institute discusses this concept further in the 14th edition of The Appraisal of Real Estate (2013) Chapter 35, “Valuation of Real Property with Related Personal Property or Intangible Property.”  This is important in the world of ad valorem tax valuations because intangibles are not taxable.

Determining Values

To understand whether RevPAR adjustments are appropriate in a property tax setting, consider a nationally branded hotel that loses its brand.  Compare the hotel to its closest competitors using a RevPAR adjustment both with and without its flag.  Conversely, look at a non-branded hotel that becomes a nationally branded hotel and adjust its competitors’ RevPAR -using the same metrics.

Source Strategies produced a study to determine brand values by tracking the subsequent difference in revenue realized by hotels in Texas that gained or lost a nationally branded flag.  A detailed examination of the study appeared in the summer 2012 edition of The Appraisal Journal.

Researchers compared hotels on the basis of their RevPAR index, which measures a hotel’s performance relative to its competitive set.  An index of 100 indicates that a subject hotel is get-ting its fair share of revenue in comparison to its competitors.  An index higher than 100 indicates the subject is realizing more than its fair share of revenue and an index below 100 indicates the subject is realizing less.

Gaining or Losing a Brand

The study tracked five different brands of hotels in Texas between 1990 and 2010 and found that properties which gained or lost a national brand saw a respective drop or increase in their RevPAR index by as much as 40 percent.  Two hotels from the brand study provide an opportunity to test the utility and appropriateness of RevPAR adjustments.

One of the hotels studied was a Hampton Inn in San Antonio.  In 2004, its second-to-last year as a Hampton, the hotel was outperforming its competitive set.  This is indicated by a RevPAR index of 109.  The hotel’s average daily rate (ADR) was $55.60, or 9.4 percent higher than its competitors’ average of $50.82.

The year after the hotel lost its Hampton Inn brand, it operated as a non-branded hotel.  That year the same competitive set outperformed the now non-branded hotel.  The subject saw its RevPAR Index drop to 64, and its average daily rate fall to $39.89, or 35.7 percent lower than the $62.12 average in its competitive set.

Using a RevPAR adjustment would require a positive adjustment of 9.4 percent in one year and a 35.7 negative adjustment just two years later for the same real estate.

Now consider the effects of a RevPAR adjustment to a hotel that starts out as an independent hotel and then becomes nationally branded.  The study showed that one such hotel in Houston went from unbranded to being a Holiday Inn Express.  In 2004, its last year as an independent, this hotel generated less revenue than its competitors, as evidenced by the subject’s RevPAR index of 51.  The competitors’ average daily rate was $29.52, or twice that of the subject’s $14.72 ADR.

The year after the subject became a Holiday Inn Express it outperformed the same competitive set, as evidenced by the increase in its RevPAR index to 129.  As a nationally branded hotel, the subject’s ADR was $40.76, or 29.7 percent higher than the competing set’s $31.43 ADR.

In both cases the RevPAR index changed significantly for the subject properties, while the real estate remained unchanged.  The comps and methods of comparison remained the same.  The only change was the removal or addition of the brand and its resultant change in revenue.

These results indicate that the revenue shift reflects the change in brand and possibly management or goodwill, none of which are a part of the real estate.  Rather, they are separate and intangible components of the going concern.  Because these items are tied to RevPAR, a RevPAR adjustment will entail adjustments to the differences in both the tangible real estate and intangible items such as brand, management and goodwill.  RevPAR adjustments are therefore inappropriate when calculating only the tangible real estate value of a hotel. 

greg hart active

kevin sullivan active

Greg Hart is an attorney and tax consultant at the Austin, Texas law firm of Popp Hutcheson, PLLC, and Kevin Sullivan is an appraiser and tax consultant with the firm.  Popp Hutcheson PLLC represents taxpayers in property tax disputes and is the Texas member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Hart can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and Sullivan at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Continue reading

American Property Tax Counsel

Recent Published Property Tax Articles

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...

Read more

How Office Owners Can Help Lower Sky-High Property Tax Assessments

​The American Property Tax Counsel argues that if a property tax assessment is premised on a uniform per-square-foot value, rental rate or vacancy rate for all office properties in a metro area, the assessor is likely going to overlook distinguishing factors in submarkets that could benefit building owners.

Managing fixed expenses...

Read more

Unfair Taxation? Governments Need to Fix the Right Problem

​Investors should be wary when taxing authorities single out properties to be assessed in a method that is inconsistent with the treatment of other taxpayers in the same class, says attorney Kieran Jennings.

Recently, The New York Times published an article on property taxes imposed on retailers under the headline "As...

Read more

Member Spotlight

Members

Forgot your password? / Forgot your username?