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Property Tax Resources

Jan
15

Now's Time to Prep '07 Personal, Industrial Property Returns

"Penalties for failure to file a personal property return on time can range from 5 percent to 50 percent of the taxes attributable to the personal property. This penalty can be waived only upon a proper showing of good and sufficient cause - which does not include inadvertence, mistake, reliance upon advice from a tax professional or lack of knowledge of the filing requirement - or if the year for which the return was filed was both the first year that a return was required to be filed and the first year for which the taxpayer filed a return."

By David Canary, Esq., as published by The Daily Journal of Commerce, January 9th, 2007

Jan. 2 is the date when all property subject to taxation is identified and required to be listed in real and personal property tax returns. All taxable real and personal property is valued for assessment purposes as of Jan. 1. And ownership and responsibility for payment of taxes are determined as of Jan. 1.

Now that the bowl games are over and the Christmas lights have been taken down, property owners are well advised to take stock of the status and use of their real and personal property as of Jan. 1 in preparation for filing their real and personal property tax returns by the March 1 deadline.

Non-exempt personal property subject to assessment, taxation

Every year, the Oregon Tax Court hands down numerous opinions enforcing penalties on up to 50 percent of the taxes upon businesses and individuals that failed to file personal property tax returns. In some cases, the taxes and penalties assessed go back five years, and the tax court has no jurisdiction to waive penalties because of a taxpayer's lack of knowledge of the filing requirement.

So let's be clear. All personal property not exempt from property taxation shall be valued and assessed at its real market value as of jan. 1. Personal property held for personal use is exempt. Licensed motor vehicles are exempt. Inventory held for sale in the ordinary course of business is exempt. And certain farm machinery and equipment is exempt. Assessment of personal property worth less than $12,500 may be canceled upon filing a verified statement with the county assessor.

Every person and every managing agent or officer of any firm, corporation or association owning, or having in its possession, non-exempt personal property on Jan. 1 must file a personal property tax return with the county assessor by March 1 of each year, but the assessor, upon written request filed before the deadline, shall allow an extension to April 15.

As between a mortgagor and mortgagee, or a lessor and lessee, the actual owner and the person in possession may agree between themselves as to who files the return and pays the tax. However, both parties will be jointly and severally liable for the failure of either party to timely file a personal property return, including penalties.

The personal property return is required to contain: a full listing of the personal property owned or in the taxpayer's possession as of Jan. 1; a statement of its real market value; a separate listing of those items claimed to be exempt as imports or exports; a listing of the additions and retirements made since the prior Jan. 1, indicating the book cost and the date of acquisition or retirement; and the name, assumed business name and address of each general partner (or, if it is a corporation, the name and address of the registered agent). The return shall be annexed an affidavit or affirmation of the person making the return that the statements contained in the return are true. Return forms may be obtained from the office of the county assessor.

Penalties for failure to file a personal property return on time can range from 5 percent to 50 percent of the taxes attributable to the personal property. This penalty can be waived only upon a proper showing of good and sufficient cause - which does not include inadvertence, mistake, reliance upon advice from a tax professional or lack of knowledge of the filing requirement - or if the year for which the return was filed was both the first year that a return was required to be filed and the first year for which the taxpayer filed a return. The imposition of the penalty for late or non-filing of a personal property tax return may be appealed to the county board of property tax appeals.

IPR presents tricky problems

Owners of principal and secondary industrial property must file an industrial property return (IPR). An IPR is a combined return of both real and personal property. The IPR and instructions specifying the information to be included in the return are available on the Oregon Department of Revenue's Web site (search for "industrial property return form").

Essentially, the IPR requires the same sort of information as the personal property return: listing of assets, statement of value, book cost and date of acquisition or retirements. However, unlike a personal property return, an IPR requires a great deal more detail. For example, in addition to reporting the cost of acquiring a piece of machinery, the industrial taxpayer must report the cost of transportation, engineering, installation and special foundation, piping and wiring. Then there is the tricky problem of correctly reporting the cost and value of rebuilds, remodels, upgrades and capital maintenance to industrial plants. And, of course, as with personal property, failure to file the IPR by the March 1 deadline subjects an industrial taxpayer to late a filing fee and penalty.

Owners, lessors and lessees of personal or industrial property are well advised to begin preparing now for the march 1 filing deadline that is fast approaching.

Canary90David Canary has specialized in state and local tax litigation for the past 18 years. He has worked for the past 13 years as an owner in the Portland office of Garvey Schubert Barer and prior to that was an assistant attorney general representing the Oregon Department of Revenue. He has the distinction of trying several of the largest tax cases in Oregon's history. He is the Oregon member of American Property Tax Counsel and an active member of the Association of Oregon Industries' Fiscal Policy Council. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Jan
15

Texas Efficient Property Tax System Could Serve as Model for Other States

The taxing units that impose and collect the tariff do not value property; an appraisal district is set up solely for this purpose.

"A recent review of the 30 states with the largest property tax indicates that Texans enjoy one of the most efficient systems. The Texas method clearly illustrates five significant characteristics that make for a taxpayer-friendly process."

By Jim Popp, Esq., as published by Real Estate Forum, January 2007

Some states tilt their tax systems toward fairness to the taxpayer and others tend to favor the taxing unit. Fairness of the system and to taxpayers depends on each state's legislature. Since property tax is levied primarily on real estate, many of the favorable taxpayer systems are a result of a commercial real estate community's involvement with the legislative process.

A recent review of the 30 states with the largest property tax indicates that Texans enjoy one of the most efficient systems. The Texas method clearly illustrates five significant characteristics that make for a taxpayer-friendly process.

The state separates the valuation method from the levy and collection process. The taxing units that impose and collect the tariff do not value property; rather, an appraisal district is set up solely for this purpose. This removes valuation from any appearance of political influence. It also promotes taxpayer understanding because a single value is established on a property for use by all taxing units. An effective check-and-balance system is provided by an appraisal district board of directors appointed by the taxing units and a state ratio study review of appraisal district performance. The ratio study compares the market value of commercial assets to the appraisal district tax value for a sample of properties. It is a means to encourage valuation at 100% of market value.

Second, a fundamental goal of any fair property tax system is to place a value on property that is equal in comparison to others and accurate compared to an understandable standard. The valuation of an asset based on 100% of market value each year accomplishes both of these goals. It is equal because the same standard applies to all and is understandable because property owners are familiar with market value. Systems with appraisal ratios (valuation at a percentage of market value for different properties) or appraisal limitation caps (an artificial limitation on yearly value increases) invariably create a sense of unfairness among taxpayers.

Providing meaningful information about and access to the process is also important. In Texas, a single notice is mailed for each property if the value increases above the prior year. A statewide uniform challenge deadline is applicable to all local appraisal entities. An owner can challenge the valuation of the asset by filing a simple form without any reason for or evidence in support of the challenge. Hearings at the administrative level are informal. Finally, taxpayers have the ability to vote to rollback tax increases over 8%.

The state also provides for equality of value among various types of commercial properties. Owners frequently comment that they just want to be treated fairly. For example, an investor purchases an office building for $100 per sf, resulting in $100-per-sf tax value, but competitive office properties remain at $80 a foot. An equal and uniform statute allows comparison between the tax value of the $100-per-sf property and the value of comparable assets. Thus, the tax for that property would be reduced to $80 per sf in order to conform to the equal and uniform statute.

Finally, it's essential to maintain a level playing field. All remedies encourage the tax authorities to negotiate in good faith but not be so one-sided as to affect overall fairness. Taxpayers are entitled to attorney's fees if they prevail in a lawsuit. This encourages the settlement process. The appeal process consists of an informal administrative first step in which many problems are resolved. Then a formal appeal to district court is filed. Lastly, taxing units possess limited opportunities to initiate challenges to taxpayers' valuations.

In reality the life of an industrial building may be much shorter and should result in a reduction of the assessor's value. In addition, costs for maintenance, which simply keep a building productive, should not be used by the assessor to reduce the age of the plant, thereby, increasing the assessed value.

Owners bear a burden of unfair taxation in states where the tax system doesn't include the five characteristics discussed above. Legislators welcome information from informed individuals like commercial real estate owners who often know a lot about property taxes. In states where the commercial real estate community took an active role in the education of legislators about property taxes, the property tax systems have proven to be the most taxpayer friendly.

The views expressed in this article are those of the author and not Real Estate Media or its publications.

JimPopp140Jim Popp is a partner with the law firm of Popp, Gray & Hutcheson, an Austin, TX-based member of American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Dec
12

Looking Back on 2006 - and Forward to 2007

"The decrease in a business' property taxes can be substantial. For example, the property taxes saved or paid in each of the above three examples easily exceed several million dollars. Do I have your interest now?"

By David Canary, Esq., as published by The Daily Journal of Commerce, December 12, 2006

A host of property-tax issues impacted the Oregon business community last year, and more issues will soon arise

For those of you who have faithfully followed this column, you know I have devoted it primarily to property tax issues. How relevant are those issues to the business community? How relevant are property taxes to the decisions that companies make on a day-in, day-out basis?

Because this is the time of year for retrospection, let's get some answers by looking back on some of the issues discussed in this column and compare them to what happened in our business community in 2006.

The unintended consequences of using Measure 37

In a March column, I discussed the potential unintended consequences of filing a Measure 37 claim. For properties that receive special assessments, such as farm- or forestlands, county assessors keep track of the amount of property taxes that are deferred for the years that those properties are assessed at below-market values. When such a land is taken out of special assessment and used for a higher and better use - say, a residential subdivision - those deferred taxes become due.

Last month, the Seattle-based Plum Creek Timber Co. filed the largest Measure 37 claims on record. The company filed Measure 37 claims seeking permission to develop 32,000 acres of forestland in two coastal Oregon counties into home sites - or to be paid for the difference in value of the land as forestland. Let's hope the company took into account the hundreds of thousands of dollars in deferred property taxes it may be subject to as a result of filing its Measure 37 claims.

Contamination adversely affects values

In an April column, I discussed the fact that, under Oregon's system of assessment at the lower of a property's real-market or maximum-assessed value, environmentally contaminated property is assessed at its market value less the present value of the future cost to cure, or clean up, the contamination. Those costs can be substantial.

Late in November a substantial decrease in property taxes on land located along Portland's South Waterfront was questioned. Upon investigation, the decrease was found to be justified because it took into account the substantial costs to clean up the contamination on the site.

Two-Year Exemption for Construction of Commercial Property

In my June column, I discussed a ruling in which the Oregon Tax Court held that a property-tax exemption for commercial facilities under construction applied to condominiums that were built for resale.

This fall, in a controversial - yet correct - decision, Multnomah County exempted from assessment some South Waterfront a Pearl District residential condominiums that were under construction as of January 1 of the assessment year but were to be sold later that year. At the same time, other homeowners paid the full amount of their taxes.

Should you care about property taxes? For a company that has made substantial investments in plant, property and equipment over the years, property taxes can be a substantial expense of doing business.

Our Legislature has provided for a number of exemptions and special assessments to either encourage development and capital investment or to preserve certain types of property. Over-valuation of property by the assessor can occur for a myriad number of reasons. the savvy property owner not only knows and takes advantage of the allowable exemptions but is ever vigilant about overassessment.

The decrease in a business' property taxes can be substantial. For example, the property taxes saved or paid in each of the above three examples easily exceed several million dollars. Do I have your interest now?

Looking ahead to 2007

First, please note that to pursue an appeal in 2007 you must file an appeal of your 2006 taxes with your county's board of property tax appeals by Jan. 2, 2007. Otherwise, you will have to wait another year to contest your assessment.

Second, in 2007 you can expect the Legislature to consider proposals to completely overhaul Oregon's public finance system. Proposals will range from reductions to the capital gains, estate and property taxes to the creation of a substantial rainy-day fund and a restructuring and reduction of state income taxes. These measures will precede a proposal to embed a sales tax into Oregon's constitution that cannot be increased except by a vote of Oregon citizens. Of course, because of Oregon's initiative process, you can expect any new taxes the Legislature proposes to be challenged. 2007 will be interesting.

Consequently, this column next year will discuss not only relevant property-tax issues that affect a company's bottom line but also changes proposed to Oregon's state and local tax systems. Until then, have a great holiday season.

Canary90David Canary has specialized in state and local tax litigation for the past 18 years. He has worked for the past 13 years as an owner in the Portland office of Garvey Schubert Barer and prior to that was an assistant attorney general representing the Oregon Department of Revenue. He has the distinction of trying several of the largest tax cases in Oregon's history. He is the Oregon member of American Property Tax Counsel and an active member of the Association of Oregon Industries' Fiscal Policy Council. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Feb
07

How to Determine Excessive Taxes

"Managed properly, property taxes are an area where owners produce significant savings without significant expense."

John E. Garippa, Esq., as published by Real Estate New Jersey, February 2006

As we begin 2006, it's appropriate to think about planning for the coming year relating to property taxes. Too often, planning in this area resembles a fire drill, performed at the very last minute. Many times, property owners assume that property taxes are a fixed expense not requiring annual management. However, if managed properly, property taxes can be an area where owners produce significant savings every year without a significant outlay of expense.

Every commercial property owner needs to put tools in place that will allow annual examination of their property's income and expense. On January 1st of each year, enter on an Excel spreadsheet all income and expense information for each property owned last year and in previous years. This enables owners to easily compare this year's income and expenses against those of prior years.

Also, market cap rates and vacancy rates should be utilized to see what changes have taken place in the valuation of a property. For example, if studies indicate greater vacancy rates in the comparable area than in the owner's property, the owner should argue for the utilization of the market vacancy in developing the property's assessment. This, of course, results in a lower property value. On the other hand, if the property demonstrates greater vacancy than the market, this calls for the owner to argue that the property suffers from obsolescence issues.

Retain competent appraisers and consultants to give advice as to what current cap rates and vacancy rates ought to be. At the same time, property owners will want to examine local markets to find comparables indicating what that property would rent for if exposed in the market. This last exercise is critical because taxing authorities base assessments on current market figures, not necessarily the actual income currently derived from a property.

Competently performing the tasks outlined puts property owners in a good position to evaluate property tax assessments aftera ll valuation notices are received on or about February 1 of each New Year. All property owners receive valuation notices reflecting the latest assessment on their properties. What will not be disclosed on the notice is the overall percentage level of assessment in the taxing jurisdiction.

Few taxing authorities assess properties at 100% of present market value except when a municipality-wide revaluation takes place. That means, in all other years, the percentage level of assessment falls below 100% of market value. While actual assessments may not change from year to year, the overall level of assessment within a jurisdiction always does.

Diligent examination of these changes allows the owner to reach accurate conclusions on the merits of a property tax appeal. Any owner can call their local board of taxation or contact the New Jersey Division of Taxation to find out the applicable percentage level of assessment for their property.

New Jersey sets the absolute deadline for filing an appeal as April 1st. Missing this deadline means the owner must await next year's assessment to file an appeal. If owners utilize the tools discussed here, a competent property tax professional will quickly determine if an appeal is appropriate. An ill-advised appeal often results in an increase in assessment if the property is determined to be undervalued. Thus, competency and significant due diligence become critical.

Using the tools describ ed above also allows the property owner to quickly answer Chapter 91 requests filed by the local tax assessor. Under New Jersey law, a tax assessor can annually demand income and expense information for property within their jurisdiction. Failure to respond to these notices within 45 days causes disallowance of any tax appeal for that year. Many legitimate tax appeals are dismissed just for this failure to respond in a timely manner.

These tools also aid in the successful prosecution of an appeal as it goes forward. By demonstrating changes in the property from year to year, legitimate areas of obsolescence and market weakness can be shown to the assessor, producing lower valuations.

Whether an owner has a large, multi-state portfolio or only a single property, employing these tools holds down excessive property taxation. The larger the property portfolio, the greater the opportunity for mismanagement. Ongoing management and record-keeping insures a timely ability to manage property tax expense. The first step is proper planning as the New Year begins.

The views expressed here are those of the author and not of Real Estate Media or its publications.

Garippa155John E. Garippa is the senior partner in the law firm of Garippa Lotz & Giannuario with offices in Montclair, NJ and Philadelphia, PA, and was also the president of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Oct
09

Reducing Excessive Hotel Property Taxes

"Before undertaking an appeal based on uniformity or equal protection requirements, owners should consult with their property tax representative for guidance regarding the relative benefits and costs of pursuing this type of appeal."

Property taxes usually comprise one of the largest single expense items on any hotel owner's P & L. With so much at stake, it becomes critical for owners to understand those issues that allow them to successfully protest excessive property taxes. This article provides an overview of those issues. The process of reducing property taxes works on the government's timetable, not one the taxpayer sets. Every jurisdiction establishes strict procedures for appealing property tax assessments. One missed step in the process can prohibit an appeal to the next level. For example, if an owner fails to protest an assessment at the local review board, many states prohibit an appeal to the state tax court or board. Most of these local review boards meet very soon after annual assessment notices are sent to taxpayers. This allows the hotel owner very little time to decide whether to file an appeal. However, failure to act timely can leave the owner with no appeal options.

Knowing the deadlines for filing appeals is essential to preserving appeal rights. In some jurisdictions, meeting with assessing authorities very early, even before the deadline for appeal, may be beneficial. Experienced property tax counsel can provide guidance as to the best strategy for obtaining a successful outcome based on a property's situation and the particular jurisdiction involved.

Where no basis exists for property tax exemption, do not relent. Instead, determine whether the government's valuation of the property falls in line with other similar properties and with the applicable value standard, usually a fair market value standard (although sometimes labeled fair value, cash value, true value or usual selling price).

In most jurisdictions, a hotel assessed at a higher valuation than other similar properties may bear a very heavy burden of proof in a tax appeal. Such proof requires evidence far more than just comparing the hotel's per room assessment to the assessments of one or two others in the jurisdiction. Before undertaking an appeal based on uniformity or equal protection requirements, owners should consult with their property tax representative for guidance regarding the relative benefits and costs of pursuing this type of appeal.

While assessment reductions based on a property's value are often more simple to achieve than a uniformity appeal, valuation appeals still involve a myriad of issues. Those issues can involve the cost approach to value, which can be especially important to assessing officials where construction is recent, as well as the sales comparison approach. Of course, the income approach is usually the most significant indicator of value for a hotel. Unlike some properties leased on a net-basis, where the property's stabilized net income is obvious and capitalization rates are well known, using the income approach to value a hotel is much more complicated because of the many variables that impact a hotel's value. The following points illustrate a few of the most significant variables facing hotel owners in a valuation appeal where the income approach to value is the crux of the dispute:

  •  In calculating the value of a hotel, the primary drivers are expected occupancy and average daily room rates. Other factors include expenses, and as detailed below, capitalization rates. Furthermore, calculating expected income and expenses requires considering the operating experience of the property as well as analyzing data from other hotel properties.
  • Whether basing an income approach to value on a single- year stabilized income or discounted cash flow analysis, the valuation must take into account a market based capitalization rate. The selection of a proper direct capitalization rate or discount rate involves several considerations. For example, the type of hotel property involved, its location, and if available, the capitalization rates for this type of hotel property in a comparable geographic area, as well as the economic performance of the hotel, including its performance relative to other similar hotel properties.
  • Even after calculating the value for the entire business enterprise, the value of personal property and intangible assets have to be subtracted in order to derive the value of the real property. Many states have exempted from taxation tangible personal property found at hotels. In states that tax hotel tangible personal property, other issues may exist, such as whether the hotel has over-reported tangible personal property, and whether the tax authority has accurately accounted for obsolescence.
  •  Last, but not least, hotels need to subtract the value of intangible assets from their business enterprise value. Some intangible assets, such as liquor licenses, rarely encounter controversy regarding their value. Others, such as the value of a franchise, often become the subject of a dispute with the assessor. Many taxing jurisdictions fail to recognize two key issues: 1) that the business enterprise value of a hotel includes the value of intangible assets and 2) that the value of all intangible assets must be deducted from the enterprise value to reach a valuation of the real and tangible personal property.

Unfortunately, unless taxpayers take action, many taxing jurisdictions will collect and retain property taxes based on unlawful, excessive valuations. Now for the good news: when unlawfully excessive valuations are imposed and appeals timely filed, tax savings are often achieved. Of course, the odds of a successful outcome increase with the sophistication, knowledge, and ability of those involved in the property tax appeal.

MANDELL StewartStewart L. Mandell and Michael Shapiro are partners in the Detroit headquartered law firm of Honigman Miller Schwartz and Cohn LLP, the Michigan member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Stewart L. Mandell can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and Micheal Shapiro can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Sep
08

LIHTC Project hit with Full Property Tax Burden

Concord - An LIHTC project for seniors got no breaks from the New Hampshire Board of Tax and Land Appeals. In Epping Senior Housing Associates, L.P., V. Town of Epping, the court ruled that LIHTCs must be factored into the value of the property for purposes of property tax assessment.

The LIHTCs were one of the bundle of rights that Epping Senior Housing Associates enjoyed by the purchase and development of the 40-unit Whispering Pines II, and so they should be counted in the valuation, explained John McSorley, assistant director of the property appraisal division of the New Hampshire Department of Revenue Administration.

The opinion was rendered in march and was a case of first impression, meaning that no court in the state had previously ruled on the LIHTC/property tax issue. Numerous out-of-state cases were cited by both sides, but the court gave weight to those that included the value of credits in the assessment. It said "the New Hampshire tax statutes do not distinguish between property rights that are 'tangible' [meaning land] and those that are 'intangible" [ meaning LIHTCs] in nature."

"Tax credits may run with the land, but they are subject to recapture if the property is sold, which operates as a dis-incentive to sell before the credit period runs out." said Elliott B. Pollack, chairman of the valuation section of Pullman & Comley, LLC, and the Connecticut member of the American Property Tax Counsel. Pollack recently reported on a later-decided Connecticut case that did not give value to the tax credits (see Affordable Housing Finance, July 2005, page 42.)

The New Hampshire court, however, said that under existing state law, this was the only decision it could reach and that it was up to the legislature to change how LIHTCs would be valued.

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Sep
07

Bleak Future for Business Owners?

"Under the tax court's current interpretation, most equipment used in any manufacturing process will now be taxed as if it were real estate."

In the decades prior to 1982, New Jersey enjoyed a robust industrial and commercial environment. This rosy outlook began to change about 1982, and recent events have cast a significant pall over future prospects for industrial and commercial property owners.

Since 1982, New Jersey has lost more than 22% of its manufacturing establishments, and more than 49% of its manufacturing job base. These losses outpace the country as a whole, and the declining number of establishments and jobs negatively impact New Jersey's economy. This effect rolls into the future as well because the state has lost all that real property that would have been built and the growth that would have taken place in the economy.

Recognizing the importance of maintaining that manufacturing base, in 1992 the legislature enacted the "Business Retention Act" designed to prohibit business personal property from taxation as real property. It was intended to promote business construction, expansion and acquisition.

Unfortunately, the Tax Court recently interpreted that law in a way that completely turns upside down the rationale for its passage. Under the court's interpretation, most equipment used in manufacturing will now be taxed as if it were real estate. This includes business personal property that costs millions of dollars, like process piping, conveyors, pressure tanks, paint booths and ovens, etc. Any company planning to locate a manufacturing plant here or expand an existing plant will now seriously rethink that move in light of the hundreds of thousands of dollars in additional real estate taxes they will face.

As if that action weren't bad enough, the Tax Court has thrown out the New Jersey constitution's "uniformity" clause, requiring that all real property be taxed on a uniform basis of fair market value (what a willing buyer would pay a willing seller in an arm's length transaction). This new ruling significantly increases many business' property tax assessments.

To illustrate this effect, let's take an automobile assembly plant. No plant of this type has ever sold to a new owner who used the plant to assemble cars. Thus, if the plant sold to a new owner the buyer would pay the plant's owner a substantially smaller amount than the value the plant holds for the owner assembling automobiles in it. The new owner pays market value, not the value the property has as an auto assembly plant. The court's ruling means the auto plant will now pay an assessment based on the value of the plant's use, not the value of the plant in today's market.

The auto assembly plant is just one example of a myriad of New Jersey business whose property will sell at prices far below their property tax assessments. Despite this fact, the taxing authority will assess the current owner at dollar amounts substantially above market prices. This new ruling forces business owners, even those most ardent New Jersey supporters, to look at other states for their for business expansion.

Adding insult to injury, the state assembly approved a measure convening a property tax convention to review and make recommendations for constitutional changes in the way New Jersey taxes real property. This bill awaits a vote in the state senate.For those involved in commercial real estate, it is clear this convention will recommend a change in the state constitution's "uniformity" provision. That change will probably substitute a classification system for the "uniformity" clause.

the classification system taxes commercial and industrial property on a higher percentage of value than residential. Currently, residential and business property is taxed uniformly at the same percentage of value. Under a classification system, the taxing authority could assess residential at, say, 50% of its value, while assessing business property at 100%. Clearly, a greater percentage of the tax burden would be on the business community under a classification system.

Because New Jersey fails to cut spending and rein in run away state pensions, the state will continue to hit its tax base with higher reviews. Manufacturing and other enterprises will continue to wither on the vine as the business community faces higher taxes. In an environment where other states seem to bend over backwards to provide a climate that attracts business, New Jersey has taken a completely different course. Who can take seriously the State Department of Commerce slogan, "New Jersey and You - Perfect Together"?

Garippa155 John E. Garippa is senior partner of the law firm of Garippa Lotz & Giannuario with offices in Montclair, NJ and Philadelphia, PA, New Jersey and 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.

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Sep
07

Checklist for Hiring Best Property Tax Representative

"...distinguishing factual characteristics not marketing boasts..."

Research shows that owners of malls and retail centers look for distinguishing factual characteristics not marketing boasts when they hire property tax representatives to assist them in contesting their property taxes. Four criteria are critical to these owners in making their buying decisions. These criteria are:

  • Experience in property tax but also in related areas such as appraisal or real estate that can aid in the property tax outcome.
  • Resources, the depth of people and scope of expertise to handle the matter and the access to any necessary outside resources such as lawyers and expert witnesses.
  • Leadership, a clear demonstration of a leadership role in property taxes because owners believe that leadership is a factual predictor of success.
  • Relationships, a firm culture that fosters long-term relationships.
  • While owners need to ask tax representatives many questions in order to determine how well they measure up to the criteria, the following 20 areas of questioning are critical:
  • What mall/retail center properties have you represented?
  • What percentage of your clients are owners of mall/retail center properties?
  • What articles relating to malls/retail centers has your firm written and had published in trade and/or professional journals? How many of these articles has your firm written in the last three years?
  • How many administrative hearings or lawsuits involving mall/retails centers have you personally been involved with in the last two years?
  • Describe some of the more significant ones?
  • Which MAI appraisers have you personally worked with on mall/retail center cases? Describe their valuation approaches?
  • Explain the evolution of appraisal theory and describe the content of appraisal literature relating to malls/retail centers?
  • What approaches have you used over the last several years to resolve mall/retail center cases? How do these approaches differ from other tax representatives or from tax authorities?
  • What appraisal designations do any members of your firm have? What courses in appraisal methods have members of your firm taken or taught? In what years were these courses taken or taught?
  • Other than appraisal and tax consultant experience, what other backgrounds do members of your firm possess that would aid in your representation of us?
  • What leadership position(s) has your firm occupied in the property tax field and in what years was this?
  • Have you been involved with your state Legislature in developing property tax law? How were you involved with these legislative matters?
  • What efforts does your firm undertake to keep informed about mall/retail issues in other states?
  • What memberships does your firm hold in national property tax organizations and how often over the last three years have you personally attended their meetings?
  • Describe how you keep informed concerning legal issues relating to malls/retail centers? If the candidate firm is not a law firm, ask, "Describe how you handle matters involving legal issues?"
  • Describe the credentials of members of your firm and the length of time they have been with your firm?
  • Who will specifically handle my case and will my case be moved among various members of your firm?
  • What does your firm do to develop an exchange of ideas among your clients? For example do you introduce your clients to each other?
  • What do you do to insure prompt and effective communication with your clients? What form of reports can I expect?
  • What factually distinguishes your firm from other providers?

Using these questions with appropriate probing for factual answers will provide owners with the information they require to select the most qualified property tax representation.

Jim Popp Web-ResJim Popp is a partner with the law firm of Popp Hutcheson PLLC in Austin, Texas. Popp Hutcheson PLLC is the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys. Mr. Popp can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Aug
09

Taxation of Business Enterprise Values

"Property owners must help define the parts of a property that are real estate, separating out the non-real estate assessable property. "

The only property in the state of New York subject to taxation is real property. The state legislature has reinforced this point by stating, "Notwithstanding [all other general or local laws to the contrary], personal property, whether tangible or intangible, shall not be liable to ad valorem taxation."

Although local assessors can only levy property taxes on real estate alone, their valuations embrace elements of business value, personal property and intangible property. Depending on the nature of the real estate property type, assessors tend to inflate valuations.

This inflation is best explained by breaking down real property assessments based on asset class.

Hotels. By nature, a hotel operation combines real estate, e.g. bricks and mortar, with business enterprise and personal property. When a patron rents a room, he pays for the use of furniture, hotel services, room service and the reputation of the hotel (franchise value).

Shopping Centers

Much debate has taken place around the country regarding the significant elements of business enterprise value as they relate to shopping centers. An experienced developer has multiple centers and an organization of people who orchestrate the selection and mix of retail tenants, using their expertise to provide incentives that can attract anchor department stores. The marketing, advertising and development skills of the developer account for a mall's success. However, the assessor rarely takes this into account when he capitalizes all of the mall's net income. Of course, the mall derives income from sources such as licenses for pushcarts, car dealer displays, special events an dother items. Despite the fact that none of these income streams derive from real property, no deduction is ever given for the business enterprise value created by the developer. When amlls are rated, sales per foot is the benchmark, not rental rates per sf, which recognizes business enterprise value.

Office Buildings.

Here, profits generated by the owner from sales of services requested by tenantes are included in assessors' total net income for a property. These services may include items such as build-outs and extra services not part of the lease provisions. If the tenant ordered a door or extra cleaning from a vendor, these actions would not be classified as real estate income. However, if the property owner's business provides the service, it somehow transforms itself into real estate value.

If a building has an emergency power generator, it is generally separately assessed, even though the owner reports the tenant's rent, which includes use of the generator. The assessor also values the office building, in effect doubling taxation.

Signage.

Assessors tax billboards and electronic signs on buildings based on the owner's net income from these signs rather than taxing them on the physical value of the signs. An owner of a building that received advertising revenue for the use of billboards on its property will often find that the assessor uses that income to value the real estate. However, when a company like MetLife puts its name on its own building, it pays no extra tax.

Billboards and electronic signs on buildings are also taxed based on the owner's media business net income rather than physical value. Depending on the content and type of business using signage, it produces income, which is often assumed to be part of real estate value. If Ernst and Young put its name on its own office building, no extra tax sould be due, but a Jumbotron in Times Square might pay real estate taxes on its income from advertisers, if assessors could get their hands on it.

If the trade name "Trump Place" were separately rented from its owners, would rental payments be real estate income? What difference in value would occur if a hotel had no TVs, beds, furniture, brand name, good reputation, trained workforce or reservation system? That bare-bones hotel building is the only property that's assessable. It is the fee-simple estate stripped of its intangible business enterprise and personal property that, by law, should be the basis of a property tax bill.

Successful business enterprise models are by nature intangible, brought about by time, expertise and business skills. They consistently produce additional rental income. Property owners and their representatives must help define the parts of a property that are real estate, separating out the non-real estate assessable property; otherwise owners will have paid much in taxes without realizing it.

The views expressed in this article are those of the author and not those of Real Estate Media or its publications.

JoelMarcus Joel R. Marcus is a partner in the New York City law firm of Marcus & Pollack, the New York City member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Aug
07

Gateway School District is Challenging Major Property Assessments

Gateway School District is challenging real estate assessments on major commercial properties in Monroeville in lawsuits that could significantly increase tax revenues. Gateway maintains that Monroeville Mall, Miracle Mile Shopping Center and the old Cochran automotive property are undervalued on the tax rolls. Hundreds of thousands of dollars, perhaps millions, are at stake. For every $1 million in assessed value, Gateway, Allegheny County and Monroeville collect $26,300. The school district takes the lion's share, or about $19,410. The tax cases, filed in Common Pleas Court, also offer a glimpse into the arcane world of high-stakes commercial real estate transactions.

The biggest challenge is over Monroeville Mall, which is assessed at $120.8 million. A year ago, according to news accounts, Miami-based Turnberry Associates sold the mall to CBL & Associates, of Chattanooga, Tenn., for $231.2 million. The mall pays about $3.2 million a year in property taxes. Using the sale figure, taxes would increase to $6.1 million. But CBL attorney J. Kieran Jennings testified at a May 27 hearing before the county Board of Property Assessment, Appeals and Review that CBL did not buy the mall for $231 million. "There was absolutely no transfer of property," he said. He said the original owner still owns the land and CBL is the tenant. CBL pays a ground lease of $650,000 a year and has an $11.95 million option to buy. He claimed the property is worth $12 million -- 90 percent less than the appraised value -- in a letter to the assessment board. But he testified at the hearing, "I'm not saying that's what it's worth. That is not what we're proposing. You have an extremely convoluted transaction here."

At $231 million, he said, the mall would be priced "way beyond what we ever see in Allegheny County. And $12 million is certainly a ridiculous number." The correct assessment may come down to separating the value of the mall's real estate from the business' other assets.

Both sides bolstered their cases with documents that CBL filed with the Securities and Exchange Commission, but they ended up confusing the hearing officer. Gateway cited a filing in which CBL declares that it acquired the mall "for total consideration of $231.2 million," including a $134 million debt, $61 million in new partnership shares and $36.25 million in cash. Jennings cited a different SEC filing in which CBL put the "transaction costs" slightly higher, at $231.6 million, including a $134 million debt, $46.2 million in partnership shares, $39.5 million cash and a $12 million obligation in the land underlying the mall.

"I certainly need some help here," said hearing officer Ken Gossett.

"It's confusing," The property should be appraised, Jennings said. "It may be that it gets appraised, and it comes in at $175 million," he said. "It may come in at $120 million. It may come in at $230 million. But ultimately we do know this. We know we have a sale ... that has a tremendous amount of extensions to it. It was certainly not something we'd call a clean deal."

Gossett said he would rule that the evidence was insufficient to change the assessment, and Gateway could appeal to Common Pleas Court. Hearing officers made similar rulings in the other cases. Miracle Mile, at 4100 William Penn Highway, is assessed at $31.1 million.

Oakmont Partners LLC bought the 51-year-old shopping center in March from Casto-Skilken Group, the original developer. The price was not disclosed, and the transaction included several other area shopping centers.

Oakmont partner Stephen Zamias would not say how much Miracle Mile is worth. "As it is now, $31 million is extremely fair, based on where the income level is," Zamias said. Then noting that three store spaces are vacant, he said "It's probably over-assessed."

The Cochran property at 4200 William Penn Highway is assessed at $13,057,300. Cochran Automotive used to sell cars there and now a Lowe's hardware store operates from the site. The property owner is listed as O.F.E.W limited partnership, which traces back to the new No. 1 Cochran automotive complex farther up the highway.

The partnership's attorneys declined to discuss the case. Gateway appealed the Cochran assessment to Common Pleas Court in April and the mall and shopping center assessments on July 12. Gateway Solicitor Lawrence Demase would not say what he thinks the three properties are worth. Gateway was not entitled to private records for the property assessment hearings, he said, but in court he can use the discovery process to get better information. "We can try to unravel the situation," Demase said. He said the cases could take several years to resolve.

(Bill Heltzel can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or 412-263-1719.)

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