Menu

Property Tax Resources

Jan
07

Tax Data Reveals Plunge in Atlanta Commercial Property Values

"As of November 2010, 99.1% of appeals from the 2008 tax year had been resolved. For the 2009 tax year, 79.1% of appeals had reached a resolution; while only 16.4% of the cases from the 2010 tax year had been resolved...."

By Lisa Stuckey, Esq., as published by National Real Estate Investor-Online/City Reviews, January 2011

As in many U.S. markets, most property owners in Atlanta believe that commercial real estate values in the local market have been declining, and that the declining trend will continue. What is less clear to taxpayers and taxing entities is the severity of value losses and whether property taxes have come down to a corresponding degree.

An analysis of Atlanta-area commercial property valuations and property tax appeals in years past was conducted to determine if, indeed, the perceived drop in property values has occurred, and if so, what effect that drop had on property taxes. Possible new trends can also be extrapolated from the data.

LStuckey_graph

Measuring loss: Which yardstick?
A review of commercial property sales tracked by CoStar Group confirms that asset values have declined since 2008. Yet the degree of decline varies depending on whether the data are broken down by the number of properties or by square foot.

On a per-unit basis, sale prices for multifamily, retail, office, industrial, healthcare, flex, hospitality and specialty properties in Atlanta-area zip codes fell 25% from the beginning of 2008 through the start of 2010. Looking at those same property types on a per square foot basis, it appears that values fell 15%. Taking those results together, we can say that commercial values have decreased by 15% to 25%, or about 20% on average, from Jan. 1, 2008 to Jan. 1, 2010.

The pool of commercial tax parcels in the city of Atlanta has remained fairly constant over the past three years. The number of commercial parcels in the city was 16,347 for tax year 2008, 16,280 for tax year 2009, and 16,184 for tax year 2010.

Appeals fluctuate
In 2008, 5,069 property owners in Atlanta filed tax appeals, representing approximately 31% of all commercial properties. For tax year 2009, the number of appeals filed by taxpayers fell to 2,087, or approximately 13% of all commercial properties; the number of appeals increased to 3,467 for tax year 2010, representing approximately 21% of the commercial properties.

One possible and likely explanation for the marked decrease in the number of appeals filed from tax year 2008 to tax year 2009 is that Fulton County mailed assessment notices for the revaluation of all commercial properties for tax year 2008. That gave city of Atlanta taxpayers the opportunity to file appeals from the notices. However, for tax year 2009, the County did not issue widespread assessment notices. Only taxpayers who received notices were informed enough to file returns of their opinion of value with the tax assessors and, thereby, were assured of receiving assessment notices from which to appeal.

As of November 2010, 99.1% of appeals from the 2008 tax year had been resolved. For the 2009 tax year, 79.1% of appeals had reached a resolution; while only 16.4% of the cases from the 2010 tax year had been resolved.

In cases from the 2008 tax year, resulting valuations averaged 30% less value than the original assessments. In the 2009 appeals, the average reduction in value was 25%. The few cases resolved from the 2010 tax year brought down the original assessments by an average of 29%.

Clearly then, Atlanta property values as well as Atlanta property taxes have dropped. On a weighted average basis across the three years, assessments reflect a reduction of approximately 30%.

In spite of the inherent limitations of analysis with many appeals still waiting for resolution, the available data from concluded appeals shows a clear trend: A significant number of commercial property owners in the Atlanta area have achieved substantial valuation reductions in the past three years.

New rules kick in
Under a change to state law effective in tax year 2011, which began on January 1, county taxing authorities will send notices of assessed property values to all Georgia taxpayers for each tax year. With this change to the law, property owners will no longer be required to file a return of their opinion of their property value with the county tax assessor in order to receive an assessment notice from which to appeal.

Based on an examination of the past years' data, it appears that approximately 16,000 assessment notices will be mailed to commercial property owners in Atlanta. Judging from recent trends, anywhere from 15% to 30% of those assessments will be appealed.

If the current trend of reductions in property values continues, then it is also to be expected that the filed appeals will result in valuation decreases for tax year 2011 as well.

LStuckey_web90Lisa Stuckey is a partner in the Atlanta, GA law firm of Ragsdale, Beals, Seigler, Patterson & Gray, the Georgia 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
Dec
08

Assessors Seek New Ways to Tax Business Income

"Property owners can take steps to protect themselves from assessments that include business income by carefully reviewing the form of the income information they provide to the assessor..."

By Robert L. Gordon, Esq., as published by Commercial Property Executive, December 2010

A recurring challenge to prevent over-assessment of commercial property is to separate true real estate value from business value. True real estate value is assessable for property taxation, while business value is not.

Commercial property owners who conduct businesses on their property must be vigilant to ensure that the assessor is not capturing the value of their business operations in the guise of assessing their real estate. This can occur if the assessor assesses the property under an income approach and includes the owner's business income in his or her computations, claiming that this income is attributable to the real estate rather than to the owner's independent business operation.

The objective for property owners is to ensure that income solely attributable to the owner's business is excluded from real estate income. In general, courts are more likely to allow assessors to treat business income as real estate income where it can be demonstrated that the land itself, rather than the business skill of the owner, is primarily generating the income.

Property owners can take steps to protect themselves from assessments that include business income by carefully reviewing the form of the income information they provide to the assessor. Owners should structure their operating statements so that all income sources not directly pertaining to the real estate are reported and categorized separately.

Taking this step makes it easier to argue to the assessor that the separately reported income should not be included in the real estate assessment. By failing to categorize income properly, owners allow their real estate income and other income to be blurred together in a single entry in their operating statement. This needlessly gives the assessor an opportunity to point to the operating statement as proof that the other income is intertwined with the real estate income and is thus assessable.

Gordon_rRobert L. Gordon is a partner with Michael Best & Friedrich LLP in Milwaukee, where he specializes in federal, state and local tax litigation. Michael Best & Friedrich is the Wisconsin 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
Nov
20

Why Las Vegas Property Tax Assessments Will Exceed Market Value

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

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

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

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

Why_LasVegas_graph2

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

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

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

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

Data lag skews values

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

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

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

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

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

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

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

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

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

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

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

PBancroft150Paul Bancroft is a managing partner in the Tucson, AZ law firm of Bancroft, Susa & Galloway, the Nevada and Arizona member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Continue reading
Oct
23

Lack of Data Complicates Property Valuation

"Consider market developments after the valuation date. Even though an appraiser or the assessor generally ignores after-occurring transactions, an equalization board or court may find the information useful..."

By Elliott B. Pollack, as published by Commercial Property Executive Blog - October 2010

As municipalities reassess real estate within their jurisdictions, those counties and cities which are required to rely upon market value, as opposed to formulaic or historic cost based approaches, have a major problem. The lack of transactions in the late 2007-late 2009 time frame means that appraisers' jobs will be far more complicated.

How to estimate market rent when there are a few tenants signing leases? Is there a way to determine market-based capitalization rates when there are few sales from which rates can be derived? How to calculate band of investment capitalization rates when mortgage financing is so difficult to come by?

When assessors ask themselves these sorts of questions, their reply usually sounds something like this: "I have a job to do. Even in the absence of data, I must determine market value as of my jurisdiction's assessment date. I will do the best job I can in the circumstances."

This means that the ad valorem tax valuation of your commercial property today is difficult to calculate and is likely to be too high.

Take the time to review the accuracy of your assessment with competent appraisal and property tax counsel. If you are fortunate enough to own a trophy asset or a property in a major market, go to internet data sources for a preliminary analysis.

Consider market developments after the valuation date. Even though an appraiser or the assessor generally ignores after-occurring transactions, an equalization board or court may find the information useful.

Look at the values of comparable properties with an eye to determining the equity of your assessment. Even if a valuation appeal isn't possible, an equalization attack may be an option. Most importantly, talk with brokers and lenders. They may hold valuable information about failed financing applications, busted transactions and lease negotiations which will be of great assistance in weighing the approximate accuracy of the assessor's value.

Pollack_Headshot150pxElliott B. Pollack is chair of the Property Valuation Department of the Connecticut law firm Pullman & Comley, LLC. The firm is the Connecticut 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
15

Mistaken Reform

How Property Tax Caps Increase Your Tax Burden

"Attacks on the property tax continue. Yet as the table indicates, during the past five years, property taxes have risen no more rapidly than the average of the three tax areas.."

By Mark S. Hutcheson, Esq., as published by Commercial Property Executive, October 2010

Complaints about the burden of ever increasing property taxes are a common refrain. Many property tax reform efforts miss the mark, however, and set the stage for greater inequity from misguided attempts to cap valuations.

In New York state, which has seen strong debate over capping property tax growth, the Senate passed a provision to cap property taxes at 4 percent, while several gubernatorial candidates are touting a 2 percent limit. New Jersey recently passed a 2 percent cap on property tax increases. Voters in Colorado, Louisiana and Indiana will consider tax caps or rollbacks this November.

Attacks on the property tax continue. Yet as the table indicates, during the past five years, property taxes have risen no more rapidly than the average of the three tax areas. (Property tax represents 30 percent of all taxes, sales tax 33 percent and personal income tax 22 percent).

Mistaken_Reform_graph

While one of the most popular efforts is to limit or cap increases in taxable property values, this argument diverts attention from more meaningful budget and spending discussions. Texas, for example, has experienced several unsuccessful attempts to restrain value increases as a means of limiting property tax growth.

A report published by the Lincoln Institute of Land Policy in 2008, titled "Property Tax Assessment Limits: Lessons from Thirty Years of Experience," concluded that, "assessment limits are often put forward as a means of combating two problems popularly associated with rapidly appreciating property values: increasing tax bills and the redistribution of tax burdens.

In fact, 30 years of experience suggests that these limits are among the least effective, least equitable and least efficient strategies available for providing tax relief."

Equality of taxation is one of the foundations of a tax system, and sound public policy recognizes that valuation caps are an ineffective limitation on property taxes. The reasons for this are numerous.

Like all artificial limits, a cap creates grossly unequal values within and among different classes of properties. An appraisal cap creates disparities between a property valued at market and another valued with a cap, so that two identical properties are treated unequally. A cap placed on residential shifts the tax burden from residential to commercial property. If both residential and commercial are capped, there will be a long-term shift from commercial to residential, because homes change hands more frequently.

Caps create unfair competitive advantages as well. Properties that lose a value cap—including newly built, purchased or remodeled assets—will be at an economic disadvantage. On the commercial front, where retail and office leasing is highly competitive, new owners that do not benefit from a cap will likely be forced to reduce their profit rather than quote a higher rental rate than competitors. And an investor may decide not to develop in a market where competing properties receive a cap, rather than compete directly with landlords that can charge less rent to make the same profit.

Moreover, caps increase taxes for owners of personal property, and here is why: Caps seldom apply to personal property at manufacturing plants, refineries, chemical plants or utilities, so a cap shifts the tax burden to these types of properties. Typically, local governments raise tax rates to balance the budget shortfall created by the cap on real property. That means personal property taxpayers will pay based on full market value, and at higher tax rates.

There is also a direct effect on land use that can work against personal property taxpayers in a different way. Communities that limit property value increases compete for retail properties that can generate sales tax income. New housing and non-retail properties become undesirable because they provide less tax growth and increase infrastructure demands.

If there is no limit on tax rates, the cap will simply shift the variable in the property tax equation from the property's value to the taxing unit's tax rate. At best, the property owner's tax bill will remain where it was. At worst, the bill will increase significantly if the taxpayer purchases or improves a property, because they will then lose the benefit of the cap and be required to pay at full market value and at a higher tax rate. In 2010, it is painfully clear that a cap impairs a local government's ability to pay for critical services when state and federal revenues wane and local mandates increase. This shifts governmental control from the local level to the state. Caps impair infrastructure development and result in the imposition of a wide number of local fees and charges to replace property tax revenue. Thus, artificial limits on appraised value have unintended negative consequences. Taxpayers and government alike are better served by pursuing more effective and fairer mechanisms for property tax relief.

MarkHutcheson140Mark S. Hutcheson is a partner with the Austin, Texas, law firm of Popp, Gray & Hutcheson L.L.P., which focuses on property tax disputes and is the Texas member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Continue reading
Oct
08

Caught in 'The Twilight Zone'

"Property owners haunted by flawed approach to tax assessments..."

By Stewart L. Mandell, Esq., as published by National Real Estate Investor, October 2010

Flawed cost-based assessments are a common cause of unlawfully high property taxation. Year after year, inflated valuations by government assessors can impose excessive tax bills on a property, notwithstanding annual taxpayer efforts to correct them.

For property owners, persistently unfair assessments are like Talky Tina, the infamous talking doll in the television series The Twilight Zone. The evil toy ultimately prevails against homeowner Erich Streator, notwithstanding his repeated efforts to remove the doll from the Streator family home. The bad news for taxpayers is that assessors will continue to impose excessive, flawed assessments because they often employ error-prone appraisal methods in the interest of expediency. The following demonstrates a common route to a cost-based assessment.

Software can help assessors quickly calculate the cost of reproducing property improvements, an amount I'll call "cost to build today." To account for physical deterioration of improvements, assessors can use an age-life method.

Twilight_Zone_graph2

For example, let's say a five-year old structure's estimated life is 50 years and its cost to build today is $10 million. The assessor deducts 10% for physical deterioration and adds the resulting $9 million value to the land value for a quick — and often inflated — assessment. The good news for taxpayers is that, unlike the Twilight Zone's Streator family, they have the means to seek and obtain justice.

A compelling case

A recently litigated tax appeal regarding a big-box retail building offers a persuasive example. The taxpayer-submitted appraisal included not only income- and sales-comparison based valuations, but also a proper cost approach.

The cost-based analysis differed in several ways from the tax assessor's hasty valuation. First, the appraisal explained that in addition to physical deterioration, depreciation must reflect functional obsolescence or drawbacks to the property itself, as well as external obsolescence. The latter refers to factors outside the property, such as reduced demand for space due to a recession.

The taxpayer proved that the original assessment was flawed because only physical deterioration had been subtracted from the cost to build today. Additionally, the property owner's appraiser presented comparable sales of other big-box locations where a taxpayer had purchased a site, developed a building and sold the property within a few years. These comparable sales were properties in which the owners had a fee simple interest.

For each comparable sale, the appraiser established the total depreciation of the improvements by first subtracting the original land purchase amount from the recent sale price to arrive at a current depreciated value for the building. Then the appraiser compared that building value to the cost to build today, which showed how much the building had depreciated over time.

The total depreciation at these similar properties supported the case for a lower assessment. In the most extreme example from several comparable sales, the value of the building and improvements was 56% less than the cost to build today. Total depreciation of the improvements in the comparable examples ranged from 42% to 56%. Applying this analysis, even after adding back the property's $700,000 land cost, the property assessment should have been about $3 million instead of more than $5 million.

In this case, the appraiser had comparable sales data on similar properties where land acquisition, construction and a sale had taken place in a relatively short time. In cases where the available comparable sales are of older properties, land sales may be used to establish the land value, rather than using the actual original price. As the accompanying chart shows, the taxpayer demonstrated that the government's assessment was unlawfully inflated by over 40%. Clearly, comparable sales can help taxpayers fight the kind of excessive taxation that should only exist in the fictitious world of The Twilight Zone.

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
Sep
23

The Tax Credit Conundrum

States moving to address proper valuations of LIHTC projects

"The cost approach calculates the expense of replacing a building with a similar one. That doesn't work in this context because without the tax credit subsidy, LIHTC projects could not be built in the first place..."

By Michael Martone, Esq., and Michael P. Guerriero, Esq., Affordable Housing Finance, September 2010.

An unfair property valuation by a local tax assessor can cripple the operation of a low-income housing tax credit (LIHTC) operation. Unfortunately, the inconsistency and uncertainty of how assessors value completed developments is a common impediment to financing LIHTC projects.

Without guidance at the state level, local assessors may value projects without consideration of the regulations that encumber the property and limit its income producing potential. Tax assessments based upon the highest use, rather than the actual use, of the property can even prevent development altogether.

The majority of states base their property tax valuations on fair market value. Typically, assessors value real estate by one of three methods—the market approach, the cost approach, or the income approach—and each presents challenges in relation to LIHTC assets.

The market approach of analyzing comparable sales is difficult to apply because there exists no market of tax credit property transactions to rely upon.

The cost approach calculates the expense of replacing a building with a similar one. That doesn't work in this context because without the tax credit subsidy, LIHTC projects could not be built in the first place.

The income approach is generally favored when valuing income-producing property, such as an apartment building that generates a cash stream of paid rent. However, conflict exists over whether to value the property based upon estimated market rents or the actual restricted rents that are inherent in an LIHTC operation.

For example, in New York, just as in many states, there existed no clear statutory guidance or case law to provide a uniform method of assessment for affordable housing. Many times assessors took the position that these properties should be assessed on an income basis as though they operated at market rents. The result was inflated property tax bills based on market rents that LIHTC projects cannot charge due to rent restrictions.

State legislation has slowly matured in this area. In 2005, New York became the 14th state to address the proper valuation of LIHTC properties. Other states that have passed legislation adopting a uniform method of assessment include Alaska, California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Maryland, Nebraska, Pennsylvania, Utah, and Wisconsin.

New York's Real Property Tax Law directs local assessors to use an income approach that excludes tax credits or subsidies as income when valuing LIHTC properties.

To qualify, a property must be subject to a regulatory agreement with the municipality, the state, or the federal government that limits occupancy of at least 20 percent of the units to an "income test." The law requires the income approach of valuation be applied only to the "actual net operating income" after deduction of any reserves required by federal programs.

The New York statute is representative of other states, such as California, Illinois, Iowa, Maryland, and Nebraska.

Maryland's tax code states that tax credits may not be included as income attributable to the property and that the rent restrictions must be considered in the property valuation.

Likewise, California mandates that "the assessor shall exclude from income the benefit from federal and state low-income tax credits" when valuing property under the income approach.

However, there are still many states without legislation, leaving the valuation of these projects to the whims of a local assessor who may not understand the intricacies of an LIHTC project.

MMartone_ColorMichael Martone is the managing partner of law firm Koeppel Martone & Leistman LLP in Mineola, N.Y. Michael Guerriero is an associate at the firm, the New York member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Michael Martone can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Continue reading
Sep
23

Golf Course Owners Teed Off Over Taxes

"Taxpayers are left to rely on the courts to compel assessors to value golf courses by present use and condition only..."

By Michael Martone, Esq., and Michael P. Guerriero, Esq., National Real Estate Investor, September 2010

A battle is raging in New York and across the country between assessors and taxpayers at odds over the market value of golf courses and their associated membership clubs.

The front lines in this conflict are clearly demonstrated in Nassau County, N.Y., home to 400 overlapping tax districts and a population suffering the highest taxation burden in the state. The recession and nationwide decline in property values for golf courses have pushed many clubs into severe financial straits as thinning rosters force them to lower dues or scrap fees.

Golf_Courses_graph2One prominent Long Island club recently sold to a developer. Another declared bankruptcy, and surviving golf courses are fighting to avoid similar fates. Closures outpace new openings as demand for golf declines and revenue growth remains flat in the face of rising costs especially property taxes.

Exacerbating the tax problem are assessors who turn a blind eye to the economic forces threatening the survival of private clubs, and who instead pay undue attention to alternative land uses. Taxpayers are left to rely on the courts to compel assessors to value golf courses by present use and condition only.

In most all cases a golf course sells for a price that includes its business operation and personal property, but only the value of the real estate may be considered in setting the property tax assessment.

Development factor

Many courses are bought and sold for their development potential, grossly inflating values. Where developable land is at a premium, reliance on comparable sales could tax private golf courses from existence. The cost approach, too, is generally reserved for specialty property.

For these reasons, courts require the assessor to value the private golf course based on its value in use when employing the income capitalization approach. With this approach, a not-for-profit private club is valued as if it were a privately operated, for-profit, daily fee operation.

The courts tend to determine a golf course's income stream by capitalizing the amount a golf operator would pay a property owner as rent for the course. They use this methodology because golf course operators typically pay a percentage of gross revenues as rent. That amount can be capitalized to arrive at a value. The capitalization of golf rent to value is a hotly litigated issue and influences the percentage rent to be used.

 

Conflicting formula

Rents for golf course leases are influenced by differences in tax burdens from one location to the next. Similar golf courses operating under a similar operating basis, yet in differing locations with disparate tax burdens, must be equalized to arrive at a fair and uniform tax value. In a recent case, the court sought how best to keep the influence of high tax burdens from unfairly distorting value.

In that case, the assessor preached the application of an ad-hoc, subjective adjustment to the percentage rent to reflect a greater or lesser tax burden. This approach assumes the rental amounts would be triple-net. In a triple-net lease the tenant pays the real estate taxes, and the percentage rent is adjusted to reflect local taxes on a case-by-case basis.

The taxpayer offered another, more reliable method, the "assessor's formula". This formula lets the assessor follow the law, which calls for like-kind properties to be equally and uniformly assessed. The formula takes into account the income stream, the cap rate and the tax rate.

For example, consider two identical properties a city block apart, but in separate tax districts. One district has high tax rates, and the other a low tax rate. Because the assessor's formula weighs all three elements used to arrive at market value, it produces fair tax assessments as opposed to a subjective adjustment that is not computed on a scientific basis.

The accompanying chart shows the difference in assessments when the assessor's formula is used instead of an ad hoc, subjective tax adjustment. The assessor's formula provides a superior method that both assessor and taxpayer can rely on.

MMartone_ColorMichael Martone is the managing partner of law firm Koeppel Martone & Leistman LLP in Mineola, N.Y. Michael Guerriero is an associate at the firm, the New York member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. They can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it..

Continue reading
Sep
16

Paid Rent - Not Lease Rates - Reveal Taxable Value

" Few U.S. markets are stable these days, however. In today's economic tumult, a property's leased fee position—its value based on contract lease rates—may not reflect current, dire market conditions that can bring down its taxable value..."

By Mark Maher, Esq., as published by Commercial Property Executive, September 2010

Many states assess commercial property on a fee-simple basis, using market rents and vacancy rates to calculate a property's potential income and value. That may work in a stable market, where multi-tenant properties have rent rolls that continually turn over and are consistent with market rents.

Few U.S. markets are stable these days, however. In today's economic tumult, a property's leased fee position—its value based on contract lease rates—may not reflect current, dire market conditions that can bring down its taxable value. It's more important than ever to educate the assessor to the realities of leasing in 2010.

In many cases, the data in the rent roll don't convey the full story of a property's performance. Tenants may be missing payments or be late in meeting their obligations. Some spaces might be rented but physically vacant as companies close sites and consolidate operations. This "shadow space" that is leased but unoccupied reduces the appeal of the rest of the property to potential new users. Worse yet, shadow space is often available for sublease and directly competes with the landlord for tenants, usually at attractively low rates.

Another common source of overvaluation by assessors is published asking rental rates, which many jurisdictions equate to market rates. Such information is easily available and busy assessors often revert to it as a starting point for valuing properties.

The property owner's leasing team is the best source of information to establish the new, lower market rents that will produce an assessment in line with true value. The taxpayer can build a case by providing examples of tenants signing leases for low rent, but that task may prove challenging because few tenants are currently taking new space.

As an alternative, property owners can marshal anecdotes of failed leasing efforts in order to counter asking-rent data. Lost and dead leasing deals need to be detailed so that assessors can place themselves in the property owner's shoes.

Remember that few assessors have experienced a precipitous downturn before. It's in the taxpayer's best interest to educate assessors on the realities of leasing in a down market.

MMaherMark Maher is a partner in the Minneapolis-based law firm of Smith Gendler Shiell Sheff Ford & Maher, the Minnesota member of American Property Tax Counsel (APTC), 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
23

Don't Forfeit Your Right to a Tax Appeal

"In many cases, taxing jurisdictions cannot support or defend the values that are placed on those properties under appeal..."

By Philip J. Giannuario, as published by Commercial Property Executive Blog, August 2010

With real estate values down in all sectors across the nation, tax appeals are climbing to record numbers. In many cases, taxing jurisdictions cannot support or defend the values that are placed on those properties under appeal.

As municipal revenues run thin and state governments cut programs to balance their budgets, those governments understandably want to avoid returning significant amounts of money as tax refunds.

As a result, many taxing authorities are exploiting technicalities in state laws to seek dismissals of valid appeals. That makes it critically important that property owners stay abreast of all state requirements that may bear on tax appeals, and rigorously follow required procedures.

New Jersey's Chapter 91 statute provides a clear example of the kinds of technicalities state's employ. The statute requires the assessor to send a request to the owner of income-producing properties and ask for financial data related to the asset. The owner then has 45 days to respond to the demand. If the owner fails to respond in that time, he or she forfeits the right to challenge that year's assessment.

In a recent New Jersey case, a municipality moved to dismiss an appeal for a failure to respond to the income and expense request. The property owner had designated an agent to receive property tax notices and correspondence. Although the agent received the request, the agent failed to file the form with the municipality.

The owner argued that the strict words of the statute required the assessor to serve the owner directly. The court held that the only address on file was that of the agent, however, and reasoned that the owner was bound by the statute. On those grounds, the court dismissed the case.

The simple lesson to learn from this example is that a number of procedural hurdles exist in each state's tax law. Taxpayers must become knowledgeable about all applicable procedural rules and create failsafe, redundant systems to guard against the needless loss of their tax appeal rights.

Philip J. Giannuario is a partner in the Montclair, New Jersey law firm Garippa Lotz & Giannuario, the New Jersey and eastern Pennsylvania member of American Property Tax Counsel, the national affiliation of property tax attorneys. Phil Giannuario 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

Environmental Contamination Reduces Market Value

Protest any tax assessment that doesn't reflect the cost to remediate any existing environmental contamination.

Owners of properties with environmental contamination already carry the financial burden of removal or remediation costs, whether they cure the problem themselves or sell to a buyer who is...

Read more

Big Property Tax Savings Are Available

Millions of property tax dollars can be saved by understanding seven issues before buying real estate.

We asked property tax lawyers around the country for tax advice they wish their clients would request before an acquisition to avoid excessive taxation. Their responses, like tax laws, vary by state:

Ask Early. Transaction...

Read more

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

Member Spotlight

Members

Forgot your password? / Forgot your username?