Menu

Property Tax Resources

Nov
08

Recipes to Reduce Property Taxes Can Ease the Pain of Challenging Economic Times

"Rental rates and asset values have fallen to staggering lows, while snowballing vacancy has sapped income from commercial projects across property types and markets. And with local governments determined to maximize revenue from shrinking tax bases, it is more important than ever that property owners know the best recipes to minimize tax bills..."

By Stewart L. Mandell as published by National Real Estate Investor Online, November 2011

In his 1948 book, "How to Stop Worrying and Start Living," Dale Carnegie titled one chapter, If You Have a Lemon, Make A Lemonade. That advice has been passed down through the years to anyone facing a tough situation. How do you take something that's bad and turn it into a positive? The metaphor is apt for commercial real estate owners today, many of whom are stuck with piles of lemons.

Rental rates and asset values have fallen to staggering lows, while snowballing vacancy has sapped income from commercial projects across property types and markets. And with local governments determined to maximize revenue from shrinking tax bases, it is more important than ever that property owners know the best recipes to minimize tax bills. Imagine an intersection with four 150,000-sq.-ft. office buildings, one on each corner. The four buildings are physically identical, but have economic incongruities that could result in significantly different property taxation. These differences include vacancy rates, current rents, lengths of leases, creditworthiness of tenants and recent financing transactions.

Building A's rents average $25 per sq. ft., which is $5 more than the market average of $20 per sq. ft. But its leases with above-market rents will be ending sooner than the average lease in the other buildings at the intersection. Building A is 90 percent occupied, versus the market average of 80 percent.

If a tax assessor values the property using the actual contract rents, current occupancy and a capitalization rate obtained from a national survey, the property owner might well suffer excessive taxation. Arguing for a few adjustments to that calculation might substantially reduce Building A's taxes. The law of the jurisdiction might authorize a valuation that uses market rent, rather than above-market contract rents. Furthermore, leases that will be ending soon could justify a capitalization rate that is much higher than that reported in a national survey; rates from national surveys often are derived from fully leased, stabilized properties and not ones that soon could have significant vacancy.

If Building A's value is assessed according to its superior attributes and taxed at 2.5 percent of market value, its taxes would be more than $520,000 (see chart). If, however, its valuation is similar to a building with market attributes, its taxes would be around $360,000, almost 30 percent less.

Building B has the market's average vacancy rate of 80 percent and the same, above-market rents as Building A. The property recently sold in a sale-leaseback transaction that priced the building above its assessment.

SMandell_NREINov2011

As with Building A, the applicable law might provide for using market rents in the assessment. Additionally, the sale-leaseback transaction price doesn't preclude a lower assessed value. Some state supreme courts have recognized that sale-leasebacks are simply financing transactions and should not be used to value properties for taxation.

Buildings C and D both have below-market average rents of id="mce_marker"5 per sq. ft. Building C has accepted tenants with greater credit risk to achieve 90 percent occupancy. Building D is in the worst shape, with below-market rents and a below-market 70 percent occupancy rate.

Certainly any tax appeal for Building D would rely on the property's below-market rents and occupancy. Additionally, the taxpayer may be able to show that these problems warrant a higher capitalization rate, which also would reduce the property's indicated value and taxes.

To the extent that Building C, like Building D, has below-market rents, the same holds true. With the above-market occupancy, the owner of Building C will need to determine whether the jurisdiction would accept a valuation that uses market vacancy, and if not, seek an adjustment based on the greater likelihood of defaults.

Dale Carnegie also wrote, "We all have possibilities we don't know about." Well-advised property owners, too, may learn of possibilities for property tax reductions they didn't know about.

MandellPhoto90Stewart L. Mandell is a partner in the law firm of Honigman Miller Schwartz and Cohn LLP, the Michigan member of American Property Tax Counsel (APTC). He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Continue reading
Nov
08

Bay Area Governments Expand the Use of Transfer Taxes to Boost Collections

"Lately, cities and counties have been seeking ways to collect transfer tax from these legal entity transfers. For guidance, they have looked to California's property tax regime, which generally reassesses property when legal entity transfers occur..."

By Cris O'Neall, as published by National Real Estate Investor, November 2011

Property owners in and around San Francisco face an increasing tax burden as local governments attempt to bolster their struggling budgets by expanding the scope of transfer tax laws. In recent years, the cities of San Francisco and Oakland as well as Santa Clara County have gone beyond just collecting transfer tax when a deed is recorded, and now collect the tax for real property ownership changes that occur when one company buys or takes over another. The new laws may be working, as transfer tax revenues in all three jurisdictions have recently risen. From the time of its first implementation in the 1960s until recently, local governments only levied documentary or real property transfer taxes when a deed or other legal instrument was recorded based upon a transfer of "realty sold." The amount usually ranged from $0.55 cents to $3 for each increment in the reported price paid for the property.

However, the advent of new types of legal entities which are readily bought and sold has altered the way properties transfer now. As a result, the traditional system for collecting transfer tax via recorded deeds cannot always keep up with today's transactions.

For example, owners frequently transfer single-member limited liability companies and limited partnership interests to other owners. When these legal entities own real property, tracking real estate transfers can be difficult: While a deed is recorded when Company A sells real estate to Company B, no deed recording occurs when Company A buys a controlling interest in Company B, which owns real estate and continues to operate. Because the change in control of a legal entity that owns real property does not require a deed to be recorded, transfer tax is not collected when such legal entity transfers occur. Until now, that is.

New Implementation

Lately, cities and counties have been seeking ways to collect transfer tax from these legal entity transfers. For guidance, they have looked to California's property tax regime, which generally reassesses property when legal entity transfers occur. Amending their transfer tax laws to follow California's property tax system, jurisdictions have adopted ordinances that expand the scope of the transfer tax to include legal entity transfers. Santa Clara County was the first Bay Area jurisdiction to enact a transfer tax on legal entity transfers. The county's law imposes transfer tax whenever a legal entity that holds real property experiences a change in control, either directly or indirectly.

CONeall NREINNov2011

San Francisco adopted an easier approach. It simply redefined the term "realty sold" in the 1960s transfer tax statute to mean a change in ownership control for a legal entity that holds real property. Oakland followed suit, amending its law to include language similar to that in San Francisco's ordinance.

The amendments to these three Bay Area jurisdictions' laws were intended, at least in part, to close a perceived loophole in the transfer tax and thereby increase the amount of tax collected. For instance, when Oakland amended its transfer tax law, it expected to increase transfer tax revenues by $550,000 each year.

Amounts rising

The strategy may be working. In the past one to two years, the amount of transfer tax collected by San Francisco, Oakland and Santa Clara County has been on the rise. By far, the largest rise was in San Francisco where collections have shot up by more than 160 percent over the past two years, while Oakland and Santa Clara County experienced modest gains in transfer tax revenues.

The reason for the increase is less clear. Obviously, a higher number of transactions due to the recovery of the Bay Area real estate market drove some of the surge. And in San Francisco, transfer tax revenues also rose because the city raised tax rates to 2 percent for transactions valued at more than $5 million and to 2.5 percent for transactions million or more, up from 1.5 percent previously.

For comparison, the amounts of transfer tax collected by Berkeley, the City of San Mateo and Contra Costa County—none of which collect transfer tax on legal entity transfers—have been flat in recent years. The experience of these other jurisdictions may be an indication that the expansion of transfer tax laws by San Francisco, Oakland and Santa Clara County to capture legal entity transfers is indeed having the intended effect.

To combat transfer taxes, property buyers should structure transactions to fall under one of the exceptions in California's transfer tax law. If an exception is not available, buyers should timely advise tax authorities of their transaction to avoid costly non-reporting penalties.

CONeallCris K. O'Neall specializes in property and local tax matters as a partner in the Los Angeles law firm of Cahill, Davis & O'Neall LLP. His firm is the California 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.

Continue reading
Oct
27

A Highest and Best Use Analysis Can Reduce Property Tax Liability

"The assessor's mistake was failing to apply a consistent use to the property's land and improvements. While the land value suggested a high-density use, the existing improvements could not support that value..."

By Kevin Sullivan, as published by Commercial Property Executive Blog, October 2011

Property owners often assume that an assessor has valued their asset under the correct use, but performing a highest-and-best-use analysis can prepare the owner with data to recognize and dispute an over assessment.

"The Appraisal of Real Estate, 13th Edition" describes four tests which must be performed sequentially: Is the use legally permissible, physically possible, financially feasible, and maximally productive?

In a recent case in Texas, an assessor valuing a historic home operating as a bed and breakfast treated the property as a single-family residence. Tax counsel discovered that the property was zoned for commercial use and legally could not be a single family residence.

Having failed to meet the first test for highest and best use, the assessor incorrectly appraised the property at double its market value. Using the income approach and valuing the property under the correct highest and best use, as a bed and breakfast, lowered the assessment.

In another example, an assessor applied an appropriate land value to a high-rise condo development, but then applied the same per-square-foot value to the land under a nearby, free-standing retail building, inflating the latter property's value. The principle of consistent use states that the land and improvements on one property must be valued based on the same use.

The assessor's mistake was failing to apply a consistent use to the property's land and improvements. While the land value suggested a high-density use, the existing improvements could not support that value. The property was not under an interim use, therefore the highest and best use was a free-standing retail building, requiring a lower land value.

A highest-and-best-use analysis can clearly demonstrate where deficiencies may exist in an assessor's valuation. Performing this analysis can give you the tools you need to reduce your property tax liability.

Kevin Sullivan is an Appraiser and Tax Consultant with the Austin, Texas, law firm Popp, Gray & Hutcheson. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Sullivan can be reached atThis email address is being protected from spambots. You need JavaScript enabled to view it.

Continue reading
Sep
29

Combatting the Road Less Traveled

When an altered traffic route handicaps your retail center, it's time for an assessment appeal.

"Owners should appeal their property tax assessment immediately after a public announcement of a highway or road change that will divert traffic away from their property..."

By Jerome Wallach, Esq., as published by National Real Estate Investor, September 2011

Once motorists lose sight of the property or can no longer access it conveniently, customers stop coming. At the very least, an owner facing such a loss is entitled to a fair property tax bill that reflects the asset's diminished commercial value.

Owners should appeal their property tax assessment immediately after a public announcement of a highway or road change that will divert traffic away from their property. Don't wait for evidence of changing traffic counts. The damage to property value occurs when the public announcement of the traffic diversion is made.

Effect on value

Assessed values are based upon market value, and market value in turn is predicated on a willing buyer and a willing seller. A public announcement that traffic will be rerouted for a period of time is an external event that appraisers refer to as external obsolescence, or something beyond the perimeter of the property that has an impact upon the property's value. Altered traffic routes are something a prudent buyer would consider in determining what to pay for an asset.

The announcement of an impending traffic shift will affect properties in varying time sequences and severity. For instance, the economic lifespan of a highway commercial property such as a convenience store will be limited to the opening date of the new roadway. A prudent buyer will base the purchase price upon the net operating income for that economic life.

There could very well be some residual value after the opening of the new road, but certainly not for convenience-store purposes. The carcasses of functionally obsolete convenience stores can be viewed from any recently moved.

JWallach-graph

Calculating the loss

Determining the property value after a road realignment plan is announced requires the stabilization of the declining income over the predictable remaining life of the property.

Consider, for example, a strip retail center. After the announcement but before construction, there may be no observable effect on retail sales at the center. From the time that the yellow barrels go up and the construction starts, and through the opening of the new road, however, sales and tenancy will decline.

Assuming the center is functioning at 95% of its gross potential at the time of the announcement, there may be a slight drop-off in the first and second year. But assuming a three-year building period for the roadway, leases that expire are not likely to be renewed. Leases in place also are in danger because patronage is expected to decline subsequent to the road opening.

The tenant will lack the ability to make the rental payments and may walk away. As spaces within the center go Notesdark, the property will lose its synergy of crossover customers. At the end of a 10-year period after the announcement, the center will be either dark or attract only an inferior class of tenant, and will at best be a marginal performer.

The property owner must analyze this declining income stream to determine a stabilized income over the remaining economic life of the property. The capitalization rate is then applied to the stabilized income over the property's remaining life as opposed to using the historic data, which becomes meaningless in the face of the changing traffic pattern.

It is critical to remember that the property owner's loss of value occurs at the time the road relocation project is made public, not at some future date. Thus, delaying a tax assessment appeal will only add to the property owner's losses.

Wallach90Jerome Wallach is a partner in the law firm of The Wallach Law Firm, the Missouri 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..

Continue reading
Sep
25

Lower Your Property Taxes with High Tech Tools

"Enter technology. Appropriate software and data management processes can yield consistent appeals results on a large scale. These tools leverage a variety of state and national data sources, both public and proprietary, to the taxpayer's advantage..."

By Walter Wolff, as published by Commercial Property Executive Blog, September 2011

Property taxes represent the largest operating cost for most real estate portfolio owners. By combining powerful technology with a solid data management plan, that pesky annual tax bill can likely be cut, adding dollar-for-dollar to the bottom line.

Successful property tax appeals depend on facts. Not only are facts about the property important, but data pertaining to competing properties, equality of appraisal, intangible components, market trends and macroeconomic forces play a vital role in obtaining meaningful tax savings.

Gathering information about your own property is easy. Rent rolls, income statements and deferred maintenance lists are readily available. Unfortunately, this is where most property tax appeal reviews and preparation end.

It's often the thorough analysis of the myriad of outside data sources available that provides the ammunition needed to maximize tax savings at assessment hearings.

These data are not always easy to access, sort, compare, format and make ready for a convincing presentation. To perform an adequate job, the property owner's tax specialist would need to allocate many days of analysis time for each property.

Now jump into the shoes of your tax consultant, who may be handling thousands of appeals for hundreds of clients in a very tight appeal window. Chances are many stones are left unturned.

Enter technology. Appropriate software and data management processes can yield consistent appeals results on a large scale. These tools leverage a variety of state and national data sources, both public and proprietary, to the taxpayer's advantage.

Good software seamlessly assimilates a property's data, tax roll comparables, recent sales, income models and cost formulas. Equally as important, these efficient systems allow full analysis of each property and printing of final reports in less than 20 minutes.

The next time you meet with your tax consultant, ask for a tutorial on how they analyze your valuations and prepare for hearings. If you don't see a judicious use of technology incorporating third-party data and work-up automation, you may be leaving something big on the table.

Wolff

Walter Wolff is chief technology officer at the Austin, Texas, law firm Popp, Gray & Hutcheson. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Wolff can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Continue reading
Sep
25

How Eden Prairie Mall Challenged the Minnesota Tax Court

"It is now clear that the Minnesota Tax Court doesn't need to merely pick one of the taxable property values presented at trial and can find a taxable value outside the range of values introduced at trial..."

By John Gendler, Esq., as published by NREIonline, September 2011

In several cases over the past few years, the Minnesota Tax Court has found a taxable property value higher than the amounts presented in witness testimony from either side of a tax argument.

Because the Tax Court has the power to increase values as well as decrease them, this trend has raised concerns when considering whether a case should be taken to trial. However, a Minnesota Supreme Court opinion issued this year suggests that the Tax Court's decisions in the future are more likely to reflect facts presented in testimony.

Legal showdown

The pivotal decision stems from Eden Prairie Mall, LLC vs. County of Hennepin in which the Minnesota Supreme Court rejected the Tax Court's value increase for a recently renovated mall from $90 million to id="mce_marker"22 million.

The Supreme Court has said the Minnesota Tax Court cannot simply copy a county attorney's memorandum — including arithmetic mistakes — when deciding to find a value for a property that is higher than that testified to by either appraiser.

Both the taxpayer and government presented appraisals prepared by independent appraisers who had earned the MAI designation from the Appraisal Institute. (The professional accreditation refers to "Member, Appraisal Institute.")

The diverse appraisal testimony included value opinions for Jan. 2, 2005, and for Jan. 2, 2006, as a separate value must be found for each year in Minnesota.

The taxpayer's appraiser relied exclusively on an income approach, citing the lack of comparable sales, and testified to a value of $68.75 million in 2005 and a value of $60.55 million in 2006.

The original assessments being appealed put the mall's market value at $90 million in 2005, increasing to id="mce_marker"00 million in 2006. The government's appraiser gave most weight to the income approach, testifying to a value of id="mce_marker"10 million in 2005 and id="mce_marker"15 million in 2006. Neither appraiser prepared a discounted cash flow analysis.

The judge based her decision on a direct-capitalization income approach, finding that the government's cost and sales approaches were not meaningful given the recent major renovation of the mall. The Tax Court found the value of the mall to be id="mce_marker"22.9 million the first year and a slightly lower id="mce_marker"20.1 million for the later assessment.

In the decision, the Tax Court adopted an argument made by the government's attorney, which resulted in the indicated value being higher than that found by the government's appraiser. Like the government's attorney, the court stated that the government's appraiser had made a mistake in his calculations.

JGendler_eden_chart

Independent judgment

The Supreme Court said that the Tax Court did have the authority to make a value determination that is higher or lower than the testimony of the experts because the judges bring their "own expertise and judgment in valuation matters."

The Supreme Court noted, however, that "market value determinations involve the exercise of complex and sophisticated judgments of market conditions, anticipated future income, and investor expectations ...." In other words, the Tax Court can set taxable values based on its own analysis supported by the factual record. But did that analysis occur?

The Supreme Court pointed out that the Tax Court rejected both appraisers' opinions of market value and adopted, verbatim, a calculation presented by the government's attorney in a post-trial brief, "including several arithmetic errors."

The Supreme Court said "adopting verbatim the recalculated assumptions and nearly verbatim the value determinations ... presented in a post-trial brief raises doubts over whether the Tax Court exercised its own skill and independent judgment."

Although the Supreme Court affirmed other portions of the case, including the increase in value of a separate anchor store, this part of the case was returned to the Tax Court for additional explanation, including its use of income higher than that used by either appraiser.

Furthermore, the Supreme Court explicitly stated the Tax Court could reopen the record and admit additional evidence. It is not clear whether the Tax Court must admit additional evidence, but presumably the taxpayer will seek to do so when the Tax Court reconsiders its decision. At this writing, the Tax Court has not issued a new decision.

It is now clear that the Minnesota Tax Court doesn't need to merely pick one of the taxable property values presented at trial and can find a taxable value outside the range of values introduced at trial.

Importantly, however, it is also clear that the Minnesota Supreme Court will scrutinize those findings, demanding that the Tax Court explain in detail why it is rejecting the testimony and substituting its own opinions and data.

This precedent-setting case could encourage the Tax Court to stay within the range of testimony from the various appraisers, absent a compelling explanation for doing otherwise.

jgendler

John Gendler is a partner in the Minneapolis law firm of Smith, Gendler, Shiell, Sheff, Ford & Maher, P.A., the Minnesota 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..

Continue reading
Sep
25

Distribution Center Dilemma

"Compared to other commercial property types, distribution centers often sustain accelerated physical depreciation soon after construction. Assessors rarely have the manpower to understand the complexities of a particular property, however, and typically apply a very modest depreciation amount annually. Thus, it is the responsibility of the owner's valuation expert to recognize and quantify these issues in an opinion of value..."

By John Murphy, as published by Commercial Property Executive, October 2011

In construction terms, industrial buildings may be the simplest of commercial real estate holdings. But assessing industrial properties—and in particular distribution centers—for property tax liability requires a good grasp of the way the assets function, as well as an understanding of which assessment methods do—and do not—apply to this property type. Owners who understand some essential concepts about valuing distribution centers can better determine whether an assessed value is fair or if a tax appeal is in order.

Important distribution center attributes to consider include building age, building size, land size, land-to-building ratio, interior clear ceiling heights, column spacing, cubic feet and freeway access. Both the sales comparison and income approaches are reliable valuation methods for this product type, but researching lease and sales information can be tricky. For one thing, the value of distribution centers on a per-square-foot basis can change depending on overall size and other factors affecting the building's functionality. The following general rules will help to match comparables research to the property's size:

For buildings 500,000 square feet and smaller, market research starts with the local market, county and surrounding areas:

  • For buildings 500,000 to 1 million square feet, market research extends to state and regional levels.
  • For distribution centers measuring 1 million square feet or more, research should span the national market. With new facilities, assessors typically cite actual construction costs. It is important to note that the cost approach will result in an excessive assessed value without deductions for physical, external and functional depreciation.

Compared to other commercial property types, distribution centers often sustain accelerated physical depreciation soon after construction. Assessors rarely have the manpower to understand the complexities of a particular property, however, and typically apply a very modest depreciation amount annually. Thus, it is the responsibility of the owner's valuation expert to recognize and quantify these issues in an opinion of value.

The same principle applies to physical building attributes that benefit a specific user without improving the building's marketability. For example, new distribution centers typically have clear ceiling heights in the 32- to 36-foot range, while a few have ceilings as high as 110 feet.

Obviously, the latter properties are built for particular users, and the additional clear height will not translate to additional value in the marketplace.

On the contrary, that excess would result in a functional obsolescence deduction. The cost approach is a valid valuation method with newer facilities, provided that all forms of depreciation are applied. Market extraction depreciation, or analyzing actual sales of comparable properties, is an appropriate way to capture all forms of obsolescence.

Another way to look at the excessive ceiling height issue is to consider cubic volume. Consider the example of a 500,000-square-foot facility constructed in 2008 with a 70-foot clear height. The height is a functional obsolescence issue, as the market will not pay for the additional clearance above the standard 32 to 36 feet. How can the property owner's valuation professional measure that obsolescence?

One useful technique to level the comparable playing fi eld is to determine the subject's cubic feet of space. In this example, arguably, the cubic feet of the building would be comparable to properties with twice the square footage.

So the comparables selected for the income and sales-comparison approaches would be 1 million square feet in size, with clear heights of about 35 feet.

The Abatement Trap

Many companies are constructing distribution centers using abatements, which provide real estate tax relief for a time. While these incentives are enticing, it is a good practice for the property owner to obtain an opinion of value from an experienced appraiser even during the years that the abatement is in effect. Assessed values, however, tend to be overstated during the abatement period. If an owner sits idly by and ignores assessments during the abatement period, it will be extremely difficult to challenge an assessed value once the abatement expires. Annually reviewing the property's value should ensure a correct assessment both during and after the abatement.

Property owners need to be conscientious about the complexities involved in valuing distribution centers. This is especially true when a facility has physical characteristics that are outside the norm. Physical, functional and external forms of obsolescence should be recognized by the assessing jurisdiction, and owners must take responsibility for ensuring that assessors fully understand and account for all forms of obsolescence.

JohnMurphy175

John Murphy is director of real estate assessments at the Austin, Texas, law fi rm Popp Gray & Hutcheson. The fi rm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Murphy can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Continue reading
Aug
29

Pittsburgh Exemplifies Pennsylvania's Property Tax Discord

"Pennsylvania has no mandatory requirement for periodic revaluation, meaning that, as a practical matter, no county spends the time and political currency to reassess properties unless a lawsuit is filed forcing it to do so..."

By Sharon DiPaolo, Esq., as published by National Real Estate Investor Online - City Reviews, August 2011

Imagine you are a property owner trying to budget now for 2012 real estate taxes on your high-rise downtown office building, and no one can tell you what assessment your taxes will be based upon.

What number do you budget? What will you bill your tenants?

That property management nightmare is reality in Pittsburgh. The state Supreme Court ordered Pittsburgh and the rest of Allegheny County to reassess properties in 2012, the county's fourth reassessment in 12 years. But with the third quarter drawing to a close, the county hasn't released even tentative assessments, and has no plan to do so before the 2012 real estate bills go into the mail.

Pittsburgh's debacle is but one chapter in an ongoing tragedy, as Pennsylvania's broken property tax system plays out against the day-to-day practicalities of managing real estate. In recent years, the state's system for assessing real property has been under attack — in the courts, in the legislature, in the media and around kitchen tables.

Decentralized property tax system

Pennsylvania is one of only nine states that decentralize the property tax assessment process to the local government level. Its property assessment system operates under six separate statutes which are implemented and funded at the county level.

Pennsylvania has no mandatory requirement for periodic revaluation, meaning that, as a practical matter, no county spends the time and political currency to reassess properties unless a lawsuit is filed forcing it to do so.

As a result, assessments on aging properties grow stagnant while new construction is assigned higher assessments. New assessments occur on a property-by-property basis, either when taxpayers file individual appeals or when taxing districts cherry pick properties to appeal, usually based on recent sales.

For example, two identical office buildings built at the same time by the same builder might originally be assessed at the same id="mce_marker"0 million. But if one of the buildings sells at id="mce_marker"5 million, the taxing district will appeal the assessment of that property, resulting in two identical properties with dramatically different assessments.

Seven Pennsylvania counties have not reassessed in more than 30 years, and Blair County's last reassessment was in 1958. The reason Allegheny County is undergoing yet another reassessment is that multiple lawsuits have forced it to do so.

Currently, Allegheny County is under order from the Pennsylvania Supreme Court to revalue every property within its borders, with new assessed values to take effect for the 2012 tax year. Erie and Lebanon counties are preparing for reassessments to take effect in 2013.

Washington County is in on-again, off-again litigation and currently preparing for a reassessment for 2014. Lancaster County has cancelled its reassessment for 2013 and now will not reassess until 2017.

Call for statewide solution

When the Pennsylvania Supreme Court ordered Allegheny County to reassess, it stopped short of directing the state's other 66 counties to do the same but called on the legislature to study the system. Motivated by imminent reassessment projects with price tags upwards of id="mce_marker"0 million, both Allegheny and Washington counties asked the legislature to issue a moratorium on reassessments until a state-wide solution could be found.

Two years ago, legislation mandating a moratorium died in committee. Then in late June, 2011, the legislature passed a moratorium on just Washington County's revaluation project in a measure tacked onto Pennsylvania's budget.

On July 8, Gov. Corbett vetoed the bill, so Washington County's reassessment was back on but is now delayed until at least 2014. Currently some legislators are putting together yet another task force to study the issue. If history is any predictor, no statewide solution is on the horizon.

Delay in Allegheny County

Allegheny County's revaluation project has been repeatedly delayed. The county is behind on its preparations for the reassessment project and, in particular, behind on its valuation of commercial properties.

At the latest court conference before Judge Stanton Wettick, who is overseeing the reassessment project, the county admitted that it is behind in valuing commercial properties. At the judge's request, the county produced two alternate plans — neither of which will provide taxpayers with tentative 2012 values until next year.

Under the county's preferred plan, in which it would issue all notices at the same time, preliminary notices would be mailed out Jan. 31, 2012 with final values to be certified by early April 2012.

Under the alternate plan, notices would go out first to property owners in Pittsburgh, in December 2012, with certified values following in February 2012. Property owners in the rest of the county would be forced to wait until March for their preliminary notices and May for certified values.

Further, Allegheny County's plans call for an informal review process to analyze preliminary values. But as the reassessment project and preliminary notices have been delayed while the project drags on, the county has shortened the time for informal reviews from five months to five weeks.

tax_chart_pennsylvania

Complicating the matter for taxpayers and taxing districts alike, Pennsylvania law requires municipalities to set the 2012 tax rates in January, before the 2012 assessment is final. And in Pittsburgh, the school district will issue its 2012 tax bills before the assessment deadline.

Progress?

Last week, Judge Wettick heard a dozen representatives of school districts and municipalities describe how the delay in the reassessment project is affecting their budget process, hiring decisions and tax rates while it increases administrative costs and overhead. The City of Pittsburgh School District reported that it would have to take out a $66 million tax anticipation loan just to make payroll, costing the school district almost id="mce_marker".5 million.

Judge Wettick is expected to select one or the other timetable at a hearing on Sept. 15. Taxpayers and taxing districts alike are keeping a close watch on the outcome.

Gov. William Penn announced Pennsylvania's first property tax in 1683; within two weeks of the tax's enactment, a property owner filed the first complaint challenging an assessment. More than 300 years later, Pennsylvanians still struggle to find the right solution to meet Pennsylvania's constitutional requirement of uniformity in taxation.

dipaolo_webSharon F. DiPaolo is a partner in the law firm of Siegel Siegel Johnson & Jennings, the Ohio and Western Pennsylvania member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Continue reading
Aug
27

Knowing Your Demographics Can Reduce Taxes

"Readily available data such as this can be used to create a compelling chart documenting the losses sustained by a mall owner. Using somewhat different data, a manufacturer can document the depletion of a skilled work force..."

By Christpher Dicharry, Esq., as published by Commercial Property Executive Blog, August 2011

The value of property is influenced by demographic fluctuations. Thus, when property owners receive their tax assessment each year, it is essential that they and their tax professionals carefully examine demographic changes in the markets where their properties are located.

Estimated demographics are available at any time, but the end of a census provides a unique opportunity to mine for demographic gold.

What's Important about Demographics?

A high-end shopping mall in a metropolitan statistical area (MSA) with a decreasing population is a prime candidate for a valuation reduction. The property owner's ability to sustain sales is declining along with the MSA's population, particularly if those leaving the area are high-income earners.

Shifts in population, household income or other demographics affect other property types besides retail. For example, a manufacturer may not sell to local residents the way a retail center does, but it hires from that community.

As population declines, the value of a manufacturing facility in that market will likely decline. This is particularly true if the manufacturer had targeted a specific MSA to maintain skilled employment levels.

Demographics are Readily Available

Anyone with a computer or iPad can access U.S. Census Bureau data across the United States and convert the relevant information into a compelling graphic.

For example, it has been widely reported in the media that the Century III Mall in West Miflin, Pa. is struggling. A comparison of 2000 and 2010 Census data shows a decrease of 6% in the population within a 30-minute drive of the mall.

Readily available data such as this can be used to create a compelling chart documenting the losses sustained by a mall owner. Using somewhat different data, a manufacturer can document the depletion of a skilled work force.

While many factors affect value, and such raw data may not be admissible for an appeal, it is useful for presenting to the assessor convincing evidence to support an argument for a tax reduction.

DicharryPhoto

Chris Dicharry is a partner in the law firm of Kean Miller LLP, the Louisiana 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..

Continue reading
Aug
25

A Proper Property Tax Strategy Saves Money

"Dates and timing involve more than just a knowledge of deadlines. Based on knowledge of the law, the savvy tax payer will know the best time to contest their taxes or to close a deal. Dependent upon the jurisdiction, an investor that enters into a land contract or purchases a property's underlying business entity may be able to put off for years the event that triggers an assessment change..."

By J. Kieran Jennings, as published by Commercial Property Executive Blog, August 2011

There are essentially four elements in developing a strategy to minimize property taxes: The law, dates and timing, risk and reward, and a professional team. As in many aspects of real estate, there are practical considerations and then there are details to be addressed by specialists.

Here are some points to consider in your strategy development:

  1. The law that governs property taxation can vary greatly among states, and practical knowledge of tax law is not confined to simply how frequently jurisdictions reassess, but also to how, and what, is being taxed? In certain states, for instance, property is assessed as it is encumbered by its leases. As a result, a property purchased and improved with a building on leased land likely will not be assessed equally to an otherwise identical, neighboring property. Understanding the law regarding what and how property is taxed remains key to knowing how or if, to fight your property assessment.
  2. Dates and timing involve more than just a knowledge of deadlines. Based on knowledge of the law, the savvy tax payer will know the best time to contest their taxes or to close a deal. Dependent upon the jurisdiction, an investor that enters into a land contract or purchases a property's underlying business entity may be able to put off for years the event that triggers an assessment change.
  3. Risk and reward need to be balanced. In a number of states, an ill-advised tax contest can result in an increased assessment.
  4. Taxing authorities are digging in their heels and some are on the offensive. Owners of real estate that is under-assessed, yet they decide to file tax contests simply due to the weak economy may find that the local jurisdiction has hired professionals seeking to increase the assessment to meet fair market value. Quality professional advice reduces risk.
  5. Your professional team, including expert witnesses and local counsel, should consist of knowledgeable tax professionals that fully understand local tax law as well as individuals that understand valuation. Local knowledge is essential.

With a carefully thought-out strategy, you can work with the motivations of the parties to drive a settlement or avoid a hot-button issue with the judge or assessor.

kjennings

Kieran Jennings is a partner with the law firm of Siegel Siegel Johnson and Jennings, which focuses its practice on property tax disputes and is the Ohio and Western Pennsylvania 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..

Continue reading

American Property Tax Counsel

Recent Published Property Tax Articles

Use Restrictions Can Actually Lower A Tax Bill

​Savvy commercial owners are employing use restrictions as a means to reduce taxable property values.

Most property managers and owners can easily speak about their property's most productive use, in addition to speculating on a list of potential uses. Not all of them, however, are as keenly aware of their property's...

Read more

Nothing New About The Old ‘Dark Store Theory’

Statutory law continues to require that assessors value only the real estate, not the success or lack thereof, by the owner of the real estate.

Assessors and their minions frequently take the position that an occupied store is more valuable than an unoccupied store, a conclusion commonly referred to as the...

Read more

Benjamin Blair: Creative Deal Structures Can Yield Tax Benefits

​Managing expenses is one of the best ways to ensure the long-term profitability of investment properties, and prudent developers know the importance of carefully monitoring and challenging property tax assessments. But student housing, as a subsector populated largely by tax-exempt educational institutions, presents unique opportunities to minimize taxes for some...

Read more

Member Spotlight

Members

Forgot your password? / Forgot your username?