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Property Tax Resources

Mar
15

Defending Against Property Taxes

Many now believe that filing a tax appeal in the Tax Court remains their only salvation from the ever increasing property tax burden.

"The courts have given significant protection to the assessments. To offer meaningful defense against these protections, a team effort is generally required right from the inception of the appeal. This team should include the taxpayer, property tax counsel and expert witnesses."

By John E. Garippa, Esq., as published by Real Estate New Jersey, March 2007

Legislation in New Jersey inflicts an ever-increasing property tax burden on commercial and industrial property owners. Many now believe that filing a tax appeal in the Tax Court remains their only salvation. With the deadline for filing appeals approaching quickly, owners need to understand the issues and the process involved.

All tax appeals in New Jersey must be filed by April 1st of each new year. At the time of the filing, all taxes due must be paid. having filed an appeal, a chronology of events takes place that ultimately leads to the court determining the value of the property.

Within four months of filing the appeal, the taxpayer will answer interrogatories relating to substantive issues regarding the property. These interrogatories normally focus on specific aspects of the property including the income and expenses.

Since most tax appeals relate to value, the taxpayer at some point needs to retain a real estate appraiser to value the property. This step should be taken in conjunction with a tax attorney. The taxpayer should choose an appraiser who understands the court's expectations as well as the rules of evidence.

These forensic appraisals are considerably different than the garden variety appraisals used in other settings such as financing, insuring and determining value for property sale purposes. In a forensic appraisal, the property must be valued on a standard of value based on competent market evidence. This evidence should include recent comparable sales data and recent competent lease transactions.

Throughout the tax appeal, the property owner must focus on the fact that the burden of proof always remains on the taxpayer - the assessment levied by the assessor is considered presumptively correct. Only cogent and probative evidence can overcome this presumption of correctness.

Taxing jurisdictions do not rely on testimony of the assessor in tax appeals. Rather, they retain independent appraisers to complete a forensic appraisal, which they use in defense against the appeal. Often, the spread between the assessor and the tax jurisdiction's appraisal can be enormous.

For many types of ordinary income-producing property, the appeal trial can be completed in one day. As the complexity of the property increases, the time required to complete the trial also increases. It's unusual for trials involving some of the more complex commercial and industrial property to take several days or more. These more complex properties include corporate headquarters, super-regional malls and major industrial complexes.

Much of the trial's time is devoted to cross-examination of expert witnesses, where every component of the appraisal is subject to intense scrutiny. Often, prior appraisals and testimony by the appraiser comes before the court to demonstrate inconsistencies in the theories espoused by the appraiser. Anyone involved in this process on a regular basis understands that real estate appraising is an art, not a science.

At the end, the court renders a final judgment. If the taxpayer is successful, the jurisdiction will have 45 days to refund the overpayment. Also, the taxpayer receives interest at the rate of 5% a day from the date the original tax payment was made. More importantly, once the court renders final judgment, under New Jersey law, that judgment will not only cover the years appealed, but also two succeeding years. This is called the Freeze Act, and it significantly helps taxpayers in bringing stability to a property tax assessment.

Only rarely can a jurisdiction void application of the Freeze Act. One exception is when a jurisdiction completes a municipal-wide revaluation on all property. The other is if a significant change occurs in the value of the property at a rate higher than other properties in that jurisdiction.

Prevailing in a New Jersey tax appeal has become a Herculean task. The courts have given significant protection to the assessments. To offer meaningful defense against these protections, a team effort is generally required right from the inception of the appeal. This team should include the taxpayer, property tax counsel and expert witnesses. In the end, the team effort should produce a significant return, well justifying the expenditure of time and money.

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

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

 

 

 

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Mar
15

Don't Get Boxed in By Excessive Taxes

Retail Owners Can Fight Assessors' High Valuations

"All too often assessors get away with over assessing big-box properties owned or occupied by national chains. Assessors see cost of construction, sale-leaseback rents or the capitalized value of the lease and just use the information without looking at the relevancy of those figures to market value."

By Linda Terrill, Esq., as published by National Real Estate Investor, March 2007

All too often assessors get away with over assessing big-box properties owned or occupied by national chains. Assessors see cost of construction, sale-leaseback rents or the capitalized value of the lease and just use the information without looking at the relevancy of those figures to market value.

To bring fairness to the property taxation of big boxes, taxpayers need to understand a number of key issues. The following tax appeal case serves as an example of how taxpayers should approach their property tax assessment, even if they think it appears fair.

TerrillLowesPhoto110

Store Victory: Home improvement retailer Lowe's recently won a property tax appeal case, resulting in a valuation reduction of $2.2 million

In 1997, a developer constructed a large retail warehouse building for a Lowe's. The 133,000 sq. ft. building was built to this user's specifications at a cost in excess of $8 million. A 20-year lease was entered into with a triple-net rental rate of $7.25 per sq. ft. One year prior to the tax appeal, the property was sold for about $9.2 million. The assessor valued the property at $8.5 million, even though it was marketed for $15 million.

At first blush, the facts in this case appear not to warrant a property tax appeal. The assessor valued the property at about what it cost to build, and less than the price at which it sold. This scenario represents the trap that ensnares all too many big-box owners.

However, in this particular case, the taxpayer correctly analyzed the facts, decided an appeal was warranted and successfully litigated a reduction in value to $6.3 million. In litigating the case the assessor and the taxpayer both relied heavily on the market and income approaches to value, but each with a different take.

The market approach

The assessor argued that the capitalized value of the lease was equal to the value of the real estate. Since the value of the lease could be established by the sale, it was crucial for the taxpayer to identify and remove from the sales price any value attributable to the lease in place.

Here the taxpayer had an advantage because the company owned a number of similar properties in different locations. As the market for larger boxes increased, the taxpayer closed the smaller ones and marketed them for sale. There were enough sales to prove two important points. First, the sales were never to another national retailer. Second, these properties always sold for substantially less than their cost to construct.

So, the court had evidence showing the amount the buyer paid for the leased property and what similar buildings sold for without any leases in place. The court ruled that the difference between the selling price of a property with a lease and one without a lease represents the intangible value attributable to the lease in place. The value of the lease isn't the value of the real estate, and only real estate market value is subject to property tax.

The income approach

The battle here was a familiar one. Does the contract rent, the actual rent paid by the lessee, represent market rent? The assessor relied on other build-to-suit and sale-leaseback rental rates. Conversely, the taxpayer argued that these types of rental rates are irrelevant as they are based on financing costs and are not market-driven rates.

The cost to finance construction of a property forms the basis for establishing the lease rental rate, whereas market rates are a function of buyers and sellers agreeing on a rental rate. The taxpayer relied exclusively on marketplace leases as evidence of what one could expect to receive in rent. Again, the taxpayer's argument prevailed.

Scholarly advice

As taxpayers receive their new assessment notices, they need to remember these general principles:

  • For property tax purposes, leased fee and fee simple are different. Don't assume a leased fee sale will also represent the value of the fee simple. If they are the same amount, it's coincidental.
  • Some rents are functions of financing, others are a function of market. Financing rents are prevalent in build-to-suit and sale-leaseback arrangements. If financing rents are equal to market rents, it's coincidental.
  • Remember, the value of the property to the taxpayer is irrelevant. The only relevant issue is what buyers are willing to pay for the property. If the amount a buyer would pay to buy a property equals the taxpayer's investment in it, it's coincidental.

An experienced property tax professional can help with the factual and legal arguments raised here. As a taxpayer, don't let coincidence or other irrelevant issues become the basis for a property's real estate value.

TerrillPhoto90Linda Terrill is a partner in the Leawood, Kansas law firm Neill, Terrill & Embree, the Kansas and Nebraska member of American Property Tax Counsel. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Mar
13

April 1 An Important Date for Property Taxpayers

"April 1 is the last day to file for these cancellations, exemptions and special assessments, and assessing authorities do not have discretion to accept a late filing."

By David Canary, Esq., as published by The Daily Journal of Commerce, March 13th 2007

April 15th is "tax day" for federal and state income taxpayers, but April 1 is equally important to property taxpayers that wish to avoid paying property taxes for the upcoming year. There are a host of exemptions for selected types of properties for which applications or statements must be filed with the local county assessor or the Oregon Department of Revenue on or before April 1. Those exemptions include:

Cancellation of assessment for commercial facilities under construction

New buildings or additions to existing buildings are exempt from property tax assessment for up to two years while under construction. The structure must have been under construction on Jan. 1, 2007, not used or occupied before that time and constructed in the furtherance of the production of income (e.g. an industrial or commercial building or condo). In the case of a nonmanufacturing facility, the structure must first be used or occupied not less than one year from the time construction commenced.

For a manufacturing facility, any machinery and equipment located at the construction site that is or will be installed in or affixed to the structure under construction may also be exempt.

Cancellation of assessment of pollution control facilities

A pollution control facility constructed in accordance with specific Oregon statutes and that has been certified by the state Environmental Quality Commission may be exempt to the extent of the highest percentage figure certified by the commission as the portion of the actual cost properly allocable to the prevention, control or reduction of pollution.

Exemption of nonprofit student housing

Housing that is rented exclusively to students of any educational institution which offers at least a two-year program acceptable for full credit toward a bachelor's degree may be exempt from certain ad valorem assessment. The exemption applies to student housing of an educational institution that is either public or private.

Exemption of low-income housing

Property owned or being purchased by a nonprofit corporation that is occupied by low income residents or held for future development as low-income housing, or a portion thereof, may qualify for tax exemption.

Exemption of ethanol production facilities

The real and personal property of an ethanol production facility may qualify for exemption of 50 percent of the assessed value of its property for up to five assessment years.

Exemption of rural healthcare facilities

The real and personal property of a health care facility with an average travel time of more than 30 minutes from a population center of 30,000 or more may be exempt from property taxation if the property constitutes new construction, new additions, new modifications or new installations of property as of Jan. 1.

Additionally, the exemption must be authorized by the county governing body in which the facility is located. The exemption can be for up to three years.

Exemption of long-term care facilities

The real and personal property of a nursing facility, assisted living facility, residential care facility or adult foster home may qualify for exemption if the facility has been certified for the tax year as an essential community long-term care facility.

The state Legislature specifically declared that a property tax exemption would enable essential long-term care facilities to increase the quality of care provided to the residents because the full value of the exemption is applied to increasing the direct caregiver wages and physical plant improvements that directly benefit the facility residents and staff.

Special assessment of nonexclusive farm-use zoned farmland

Any land that is not within an exclusive farm use zone but that is being used, and has been used for the preceding two years, exclusively for farm use may qualify for farm use special assessment if the gross income derived from the farming operation meets a certain amount that depends upon the size of the farmland.

Special assessment of designated forestland in Western and Eastern Oregon

Forestland being held or used for the predominant purpose of growing and harvesting trees of a marketable species and that has been designated as forestland or land in either Western or Eastern Oregon, the highest and best use of which is the growing and harvesting of trees may qualify for special assessment if certain other requirements are met and a timely application filed.

Taxpayers that believe they qualify for cancellations of assessments, exemptions or special assessments should contact the office of the county assessor in which the property is located or contact the Oregon Department of Revenue to request application forms and instructions.

The fact that a cancellation, exemption or special assessment is granted for one year does not mean the property automatically qualifies for exemption in subsequent tax years. A number of these cancellations, exemptions and special assessments require that applications be filed with the county assessor or the state Department of Revenue each year. That is, an exemption or special assessment may be lost if an application is not filed in each successive year.

April 1 is the last day to file for these cancellations, exemptions and special assessments, and assessing authorities do not have discretion to accept a late filing.

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
15

New Methodology Hits Hotels with High Taxes

"For over 75 years, hotel assessments took into consideration the fact that a hotel comprised both a piece of real estate and an operating business. Numerous court cases pointed out that using business income and expenses for assessing hotel buildings was incorrect. The courts reminded assessors that business income could not be used to assess real estate."

By Joel R. Marcus, Esq., as published by Real Estate New York, February 2007

The Department of Finance does an abrupt about face by dramatically ratcheting up the new 2007/08 property tax assessments after issuing generally lower ones last year. This represents one of the largest leaps ever in hotel assessments.

The Finance Department raised the tentative hotel assessments citywide by an average of 35%. However, the increases were even more pronounced for some of the City's premier hotels. For example, the Marriott marquis saw an increase from $162.5 million to $227.2 million (an 80% change), the Grand Hyatt went from $75.1 million to $135.4 million, and there were over 40% jumps at The Pierre, Sheraton Manhattan, Le Parker Meridian, Waldorf, and Roosevelt Hotels. The outer boroughs were not spared either, as Brooklyn hotels' assessments increased by 74%. Queens hotels' assessments jumped by 34%, while Staten Island saw a 19% increase and the Bronx only experienced a 6% jump.

Some city newspapers speculated that industry leaders and consultants met with the City last year and convinced them to change the method of arriving at the assessed value for hotels. This new method may have contributed to the modest assessments for the 2006/07 tax year because the Finance Department was using only out-of-date 2004 filings, which covered a period when hotels were not doing as well as they are now. This year, by using current 2006 figures, the new methodology dramatically increased assessments.

For over 75 years, hotel assessments took into consideration the fact that a hotel comprised both a piece of real estate and an operating business. Numerous court cases pointed out that using business income and expenses for assessing hotel buildings was incorrect. The courts reminded assessors that business income could not be used to assess real estate. Instead, some method of allocation or extraction had to be employed to remove the income related to furniture, fixtures and equipment and franchise and business value.

In New York City, assessors accepted this premise but chose different approaches over the years to accomplish the job. In some years, they deducted a factor for business value when using sales to value hotels. In recent years, since sales no longer form the basis for assessing most commercial properties, income capitalization has become the primary valuation method. Hotels were sometimes assessed by applying higher capitalization rates, sometimes by deducting business income and sometimes by applying an expense ratio of 75% to room revenues before capitalization. All these approaches have now been abandoned.

Under the new method, assessments are based on a unique gross income multiplier formula where room revenues are converted into market value. The record indicates that this formula is not used anywhere else in the country.

The first step in the new formula calls for estimating room revenue by taking the latest income statement and adjusting it upward to account for normal occupancy, alterations and so on. A percentage of food, beverage, conference and exhibit revenue is then added to this room revenue number. The total gross income thus derived is divided by 365 and then multiplied by 960 for luxury hotels. According to the Finance Department, this calculation provides a fair market value for the hotel's real estate. Should the hotel also contain apartments, retail, office, garage, signage/billboard, telephone or other income, the net income from these categories is then capitalized and added to the prior calculation. To determine the assessment value, the assessor multiplies by 45% the final number derived from these steps.

To illustrate how the new formula works, consider a hotel with a room income range of $295 to $371. The new formula puts the hotel's income at $475, with an estimated market value of 4456,000 per room, an assessment of $205,200 per room, and property taxes of $22,572 per room. These calculations give no effect whatsoever to the age and condition of the property, its franchise, its advertising budgets or whether it is a union or nonunion operation.

The unfairness and inaccuracies of this new method of valuing hotels are overwhelming, so much so that the assessors have already spoken our decrying this methodology and claiming it was a contrived deal made by a consultant and the industry leaders. The Chief reported in a May 2006 article that David Moog, the assessor's union leader, claimed the method violated good assessing practices and was an improper way to determine fair market value.

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

MarcusPhoto290Joel R. Marcus is a partner in the New York City law firm of Marcus & Pollack LLP, 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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Feb
15

How Owners Can Keep Property Tax Bills in Check

"Creating an ongoing dialogue with the assessor becomes the key to avoiding excessive property tax valuations. This dialogue should educate the assessor about the distinctive nature of LIHTC properties and send the message that the LIHTC owner will be cooperative, yet aggressive in protesting excessive property valuations."

By Gilbert D. Davila, Esq., as published in Affordable Housing Finance, February 2007

The unique characteristics of low-income housing tax credit (LIHTC) projects make it difficult for assessors to appraise these properties for property tax purposes, and can ultimately lead to excessive valuations. However, LIHTC owners need not despair, as they can use several methodologies to determine whether property taxes are excessive and challenge those assessments.

How to recognize excessive taxation: Errors in basic data

The initial step calls for a review of the basic data contained in the taxing authority's property records. This examination offers the LIHTC owner the first and easiest place to determine the appropriateness of levied tax assessments. Assessors' records commonly contain errors in one or more of the following areas: a property's age, square footage, unit mix, and/or facility amenities. An error in even one of these fundamental property characteristics can significantly increase a property's overall assessment.

A more significant error commonly made by assessors results from their assessing a LIHTC project as if it were a traditional multifamily complex. Property codes are commonly assigned to property types, which dictate what criteria will be used in arriving at the property tax assessment. A simple coding error can result in an excessive valuation in the millions of dollars. LIHTC owners should verify that their projects have been coded as low income housing properties.

Most jurisdictions provide taxpayers with specific protest avenues to correct these common mistakes. LIHTC owners should be prepared to share a current rent roll with their assessor in order to document the property's square footage and unit mix. Owners should also provide the assessor with a copy of the property's Land Use Restriction Agreement (LURA) to confirm its LIHTC status.

Lack of equality and uniformity

LIHTC owners should ensure that their property has been valued fairly and equally in comparison to other LIHTC projects in the taxing jurisdiction. Many states require that assessments among comparable properties be equal and uniform. A LIHTC owner's assessment should fall within a uniform range of values when compared to other LIHTC properties.

For example, if an owner's project is valued at $60 per square foot and there are 10 other comparable LIHTC projects in the taxing jurisdiction valued between $40 and $45 per square foot, the owner's property should also fall within the $40 to $45 range.

This example clearly demonstrates the importance of assessors properly categorizing and coding a LIHTC project in its records. A low-income housing project should not be valued at the same level as a traditional market project.

Owners need to compare their property's assessment to other LIHTC properties on a square footage and per-unit basis. If an owner's property is assessed disproportionately higher than comparable properties on these two factors, an argument can be made for a value reduction based on equality and uniformity, regardless of the assessor's "market value" claims.

Educating the assessor about LIHTCs

In most jurisdictions, the assessor's statutory responsibility is to value a property as its "market value" as of a particular valuation date. Assessors commonly derive a market value using one or more of the three classic approaches to value: the cost, income, or sales comparison. They will encounter difficulty in applying these valuation methodologies to an LIHTC property because of the unusual restrictions imposed by the LURA.

The cost approach presents inherent obstacles for the assessor due to the need to quantify functional and, in particular, economic obsolescence brought about by the LURA restrictions. Under the income approach, the assessor experiences problems with the quantification of income (actual versus market), the extraordinary expenses incurred by LIHTC projects and the calculation of a reasonable capitalization rate. Finally, the sales comparison approach will be difficult to apply when there are no sales of comparable properties and because of the restrictive covenants that run with the land.

LIHTC owners find it beneficial to educate themselves about the difficulties assessors face when valuing projects. This helps the LIHTC owner educate the assessor about the unique characteristics of the project and helps to inspire confidence in the appraisal methodologies proposed as a solution to the valuation difficulties.

Points to discuss with the assessor

Creating an ongoing dialogue with the assessor becomes the key to avoiding excessive property tax valuations. This dialogue should educate the assessor about the distinctive nature of LIHTC properties and send the message that the LIHTC owner will be cooperative, yet aggressive in protesting excessive property valuations. The following points provide owners with arguments to prove to the assessor that they should deviate from their normal appraisal methods.

Intangible value

A debate continues among assessors concerning whether tax credits should be considered when valuing a LIHTC project. A LIHTC property's total value derives from two primary components: the real estate and the tax shelter benefits. Appraisal scholars argue that, for tax assessment purposes, these benefits should be segregated into tangible value (that is, the benefits attributable to the real estate) and intangible value (that is, the benefit attributable to the LIHTC). this classification is crucial because, in most jurisdictions, assessors cannot include intangible values in their property tax assessments.

If a LIHTC owner's property is located in a jurisdiction that does not give the assessor guidance on the tangibility issue, owners should always argue that the credits are not a benefit attributable to the real estate but rather, comprise intangible value that should not be a component of the market value assessment. This argument will always lead to reduced property values. To help bolster this argument, an owner should show the assessor sample legislation from other jurisdictions that dictates that tax credits are intangible. Even better, LIHTC owners should join forces and lobby their state legislators to enact statutes that direct assessors to exclude tax credits from the valuation equation.

Illiquidity

A LIHTC owner cannot sell, transfer, or exchange the property without meeting certain conditions and obtaining government approvals. In addition, the LURA dictates whom the property can be sold to, and whether the property's restrictions survive a sale. These factors make for an extremely illiquid asset. Most "market value" definitions assume a willing buyer and willing seller in the open market. Such a definition cannot be easily applied to a LIHTC project. Owners should argue that the illiquidity of a LIHTC project be accounted for in the property tax assessment. One suggestion is to recommend a 15percent to 25 percent discount off the indicated value via the income approach to account for the illiquidity of the investment.

Restrictions and expenses

A LIHTC property operates under limited potential due to the restrictions associated with the LURA. The restrictions are long term, with severe penalties for violations. Resident restrictions result in additional risk and effort.

In addition, LIHTC owners experience higher expenses because they must meet certain reporting, record-keeping, and documentation edicts beyond conventional practice. Rental rates are limited, but expenses are not.

Owners should insist that the assessor take into account the effects of these restrictions and expenses on a property's tax assessment. An owner could argue that the restrictions, risk, and expenses that distinguish a LIHTC project from a typical market complex support the use of a higher capitalization rate in an income analysis. This will, in turn, produce a reduced taxable value. Armed with methods of recognizing excessive tax assessments and arguments to thwart these excesses, LIHTC owners will be in a good position to gain fair taxation of their properties.

DavilaPhoto90Gilbert Davila is a partner with the Austin-based law firm of Popp, Gray & Hutcheson, LLP. Popp, Gray & Hutcheson devotes its practice exclusively to the representation of taxpayers in property tax appeals and lawsuits and is the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys. Mr. Davila 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

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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