Rapidly rising property taxes and assessments on facilities present major challenges for business owners in the manufacturing and distribution industry. In fact, it’s likely common for owners to undergo a sense of helplessness in effectively managing their bills. They put their trust in a property tax service and, as a result, hope the “system” will somehow take care of it. Often these arrangements come with a hefty price tag – up to 50 percent in contingency fees should any reduction be realized. This is a high price to pay for a situation that manufacturers and distributors can often manage themselves. This article summarizes how the ad valorem tax works and the steps you can take to successfully appeal your taxes yourself.
Fair Market Value
Property taxes, which provide support for local services like schools and townships, are ad valorem, or “value” taxes. This means that as wealth increases, so do property taxes.
The tax is based upon the fair market value or fair cash value of a property. This is generally construed to mean the price a willing buyer and a willing seller agree on (while not under duress and both with reasonable knowledge of the asset being traded). The value is set at a certain date, and the taxes are collected the following year.
The fair market value is generally adjusted by an assessment ratio and further adjusted by an equalization factor, both of which are set by law or regulation. The local tax rate, or the sum of all the tax rates of the various local entities, is then applied to calculate the taxes due. The fair market value determined by the Assessor is the only number in the process that should concern the taxpayer, as the rest is a mechanical exercise that is out of your control and often confusing.
The Importance of Preparing for Assessments
Dates are important to keep top of mind when preparing for the assessment process. Based upon the assessment cycle, new assessments are posted on a certain date and can change every year. As a result, there is a short window to file an appeal – often no more than thirty days. It’s best practice to do your homework months before the assessment is published and to engage an appraisal consultant, who works by the hour rather than on a contingency, to assist you in the process. Beyond these initial steps, learn the definitions of value that are being used by the Assessor (as there are several). Then consider asking the Assessor (preferably the field appraiser assigned to your properties) four important questions.
- What improvements are listed in each parcel? (Ask for a copy of the property card for each parcel.)
- What method(s) and accompanying data are used to calculate the value of the property – market sales, cost approach or income approach?
- Is the Assessor using a Mass Appraisal to support the assessment? (If so, you will want a copy of this.)
- How has the Assessor separated equipment and business assets? These are generally not taxable from the real property, which is taxable.
At this time, we highly encourage that you do not discuss or argue value with the Assessor. Take the information, instead, for further study and analysis. Draw all improvements on a parcel map and indicate age, size, capacity, etc. Lastly, do some comparable work; locate the properties most similar to yours in your immediate area (you can locate assessments simply with an address). Make a note of these properties and know that, with this information in hand, you may have a case and will be ready when the time comes to ask for a lower assessment.
How to Appeal Assessments
Many tax reductions occur through thoughtful and informal discussions with the field appraiser in the Assessor’s Office. A neighborly approach backed by facts supporting a legal reduction in fair market value is typically the most effective way to proceed. Your points for reduction can be based upon:
- Correcting the property card record, eliminating improvements that are obsolete or retired, noting proper age, size or productivity.
- Comparing your assessment on a per unit basis, such as square footage, to recent sales of similar properties in close proximity.
- Comparing your assessment on a per unit basis to those of similar nearby properties so that uniformity and fairness is argued.
- Correcting the record for assets, which should not be taxed for ad valorem purposes, such as intangibles, equipment or business enterprise value.
Throughout this process, we advise an attitude of cooperation toward the Assessor and representatives. After all, your standing in the local community is just as important as the Assessor’s. Correcting the record, providing accurate data and appropriate appraisal reasoning allows the Assessor to legally help you without the cost of an appeal. An appraisal consultant that is paid per hour is extremely helpful in this process – in the end you keep the savings.
Sikich can assist you on a non-contingency consulting basis. We’ve successfully helped many taxpayers in the private industry significantly lower their obligation at minimal cost, while avoiding a lengthy and expensive appeal process. For immediate assistance, please contact Mary O’Connor.