Yes, it is possible to save hundreds of thousands of dollars per year on your commercial real estate property taxes! All it takes is a little planning and prompt, timely action for property owners to significantly reduce their property tax burden. The following five tax tips are ones every commercial real estate owner should follow.
1. File property valuation appeals on time. As attorneys, the most valuable advice we can give our clients is to file valuation appeals on time. The period to appeal valuations sometimes is extraordinarily brief. For example, by the time a tax bill is received, the time for appealing the valuation has oftentimes already expired. Therefore, it is important to plan in advance, especially since rules and forms vary between entities.
If owners fail to file appeals contesting the valuation for a particular tax year on time, they cannot obtain a tax refund or bill reduction for that year, even if their property has declined in value or is not as high as the government's valuation. It is important for owners to plan in advance for filing an appeal, especially if they anticipate that their properties have significantly declined in value.
2. File supplemental and escape appeals within the stated deadlines. In many situations, the clock starts ticking from the date that the assessor or tax collector issues its notice, even if it's not mailed on that date. These notices are typically issued when property has been sold, a change of ownership has occurred, new construction is completed or when the assessor realizes something was missed or an erroneous exemption occurred. Because these notices may show up unexpectedly, you should prioritize your response and act swiftly in filing your appeal.
3. File an appeal to seek correction of base-year value promptly. A property's base year value sometimes can be reassessed upon a change of ownership or after new construction. For the appeal to retain its maximum value to you, it is important to act quickly when you receive the supplemental or base-year notice. Attorneys should be involved as early as possible to assist in planning for and filing appeals, gathering evidence, conducting negotiations for a stipulated assessment and/or for litigating the appeal. Oftentimes, the benefits of a successful appeal and the resulting valuation may carry over for several years.
4. Identify a reduction in your property value. Owners of commercial real estate should know how their property is valued and when it changes in value. It is a worthwhile investment for owners to consult with a professional appraiser to understand the method used to value their property. Owners then can compare that value with the property's assessed value. If the value of the property has declined below the assessed value, then an appeal should be filed in a timely fashion. Here are some common situations that may signal a potential decrease in property value:
* Loss of a major tenant, especially an anchor tenant in a shopping mall;
* Prolonged vacancy of space;
* Decline in revenue;
* Decline in rents for new leases;
* Decline in sales prices of comparable properties;
* Decline in economic market conditions, such as a rise in interest rates or change in capitalization rates.
5. Be alert for a change of ownership. A "change of ownership" is a technical, legal term that sometimes triggers a reassessment and is a potential trap for the unwary. Many property owners do not realize that a change of ownership can occur in circumstances where there is no apparent purchase or sale of property, such as a transfer of ownership within an entity or a lease of 35 or more years, including options. Also, a lease for any term of or an exclusive right to use property owned by a government entity may create a possessory interest subject to property taxes.
Generally, a change of ownership occurs with a transfer of a controlling interest in an entity (e.g., more than a 50% interest) or a sufficient interest resulting in a change in control of the entity (i.e., more than 50% of ownership). However, some transfers in title do not involve any tax consequences, such as original co-owners transferring title from one form to another in the same proportion (although subsequent transactions may trigger a change of ownership even if no owner obtains more than 50% of the ownership interests, such as when the original co-owners cumulatively over time transfer more than 50% ownership interest in the new entity), or transfers between affiliates.
While there is no need for property owners to know all of the various rules and exceptions relating to a change in ownership, it is important to know enough to be alert for situations that may give rise to this occurrence.
Savvy property owners will involve their attorneys early, because careful planning in the structuring of transactions can avoid triggering events that will result in a reassessment. Additionally, property owners should remember that the time for filing an appeal triggered by a change of ownership is very brief, as discussed previously. An appeal can always be dismissed at a later date, but the consequences of a missed filing usually cannot be reversed.