"There are several ways of managing tax reviews across a portfolio, ranging from keeping everything in-house to delegating the entire job to an outside firm. In AMC's experience, the best approach has been a combination of those two strategies - with a team effort that relies on contributions from in-house personnel and outsourced tax and appraisal professionals. AMC's six-step tax strategy can serve as a model for other businesses with multiple properties..."
For companies like AMC Theatres, which has hundreds of locations, the challenge to review assessments for every property and decide whether or not to launch a tax appeal can be daunting. It becomes even more so if the company is a tenant and not the owner of the property.
There are several ways of managing tax reviews across a portfolio, ranging from keeping everything in-house to delegating the entire job to an outside firm. In AMC's experience, the best approach has been a combination of those two strategies - with a team effort that relies on contributions from in-house personnel and outsourced tax and appraisal professionals. AMC's six-step tax strategy can serve as a model for other businesses with multiple properties. Here are the key points:
1. Have the property separately assessed. Whether the company is the anchor tenant or occupies a smaller, in-line space, it's rarely good to be valued with other properties on a single parcel. First, a combined assessment abdicates the right to file an appeal. Second, it may be impossible to discern how the assessor valued the tenant's space versus the other tenants. This leaves each tenant at the mercy of the landlord to appropriately allocate taxes.
2. Involve the company's real estate department. Before a tenant can appeal a valuation from a tax assessor, most jurisdictions require that the lease specifically reserves the tenant's right to contest assessments. The lease may even include language that gives the tenant the exclusive right to decide to appeal and specifically prohibits the owner or landlord from filing on the property. Additionally, the lease should guarantee the cooperation of the property owner throughout the appeal process. Normally, the appeal process will require the owner/landlord to supply financial information, so collaboration and support are necessary.
3. Direct all correspondence where it is needed. Deadlines to appeal property taxes are often very short and can run out during the time it takes to get notices forwarded from the property owner to the tenant. Local taxing authorities will typically cooperate to ensure that all notices, tax bills, etc., are mailed where the tenant designates.
4. Get organized and get help. Once all valuation notices and tax bills are in hand, get assistance from a valuation expert such as an appraiser or valuation consultant. A company with multi-state locations should look to the national market to determine market value, and this kind of information is generally unavailable to local assessors. A third party appraisal can be invaluable when talking to local assessors. Effective tax rates differ enormously from county to county and from state to state. To make better sense of it all, analyze properties on the basis of valuation per square foot in addition to taxes per square foot. Even if the property type is marketed and sold on the basis of value per theater screen or value per apartment unit, most assessors are used to dealing on a square foot basis, and the tenant must be able to speak the language. A valuation consultant also will have access to demographic information that can all be vital in distinguishing one property from another.
5. Analyze properties from an "ad valorem" not "accounting" perspective. Most jurisdictions tax real estate based on the fair market value of the real estate. In other words, in a hypothetical sale, that's the highest price a buyer would be willing to pay for the real estate and the lowest price a seller would be willing to accept, with neither party acting under duress. Working with the appraiser, a tax attorney can analyze the information the assessor produces to determine if the valuations incorrectly include intangible business valuation or personal property or whether the asset was valued using an improper appraisal methodology.
6. Include local tax professionals on the team. The rules for who can file an appeal, when it must be filed, what needs to be included in the appeal and a number of other key requirements vary from state to state, county to county and even from year to year. For multi-property companies, it is virtually impossible to stay on top of these changing rules across the portfolio. By supporting the tax team with local experts, a company can keep abreast of change and ensure that its tax bills are fair and manageable.
The steps outlined will help owners and tenants become more efficient and effective in reining in excessive property tax assessments on their locations across the country.