Owners of manufacturing and distribution properties are understandably discouraged by the recent rise in assessments and property taxes. For many property owners, assessments and resulting taxes have increased approximately from 35% to 50%. With profit margins under pressure, it’s a good time for owners to learn more about how the system works with an eye to reducing property taxes quickly and cost effectively. And most of it you can do yourself – but knowledge is power.
What are Property Taxes?
Property tax is an “ad valorem,” or “value,” tax. As wealth increases, so do property taxes. This tax provides support for local services, from schools to townships. While the tax is based on the fair market value or cash value (the price it would trade in the open market), assessment methods are specific to case law and state and local property tax rules. The value is set as of a certain date, and the taxes are collected the following year. Generally, the fair market value is adjusted by an assessment ratio and then an equalization factor, both of which are set by law or regulation. The local tax rate (the sum of all tax rates of the various local entities) is then applied to calculate the taxes due. The only number in the process that should concern you is the fair market value determined by the Assessor, as the rest of the calculations are a mechanical exercise out of your control.
The Ins-and-Outs of Appraisals
For this process, you’ll want to pay close attention to dates. Based on the assessment cycle, new assessments are posted after which there is a short window to file an appeal – often no more than 30 days. It’s important, therefore, to do your homework in the Assessor’s office months before the assessment is published. An appraisal consultant can coach you through this process.
When you speak with the field appraiser, make sure to ask for the definition of value used in the jurisdiction and what methods are used in the assessment process, such as cost, income or market approach. Request the underlying data and the property card for each parcel you own.
At this point in time, do not discuss or argue the value – rather, take the information for further study and analysis. Your next step is to research the assessments of properties similar to yours on a per unit basis. With this information in hand, you will know if you have a case and will be ready when the time comes to ask for a lower assessment. Be sure to find out when the assessments will be published and present your case at least 30 days ahead of this date.
Appealing Your Property Taxes
Many tax reductions occur through thoughtful and informed discussions with the Assessor ahead of the assessment publication date. If an informal discussion fails, an appeal can be based upon:
- Correcting the record, eliminating improvements that are obsolete or retired, noting proper age or correcting capacity, or other measures of productivity.
- Comparing your assessment on a per unit basis 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.
Best Practices
Throughout this process, we advise an attitude of cooperation with the Assessor. Correcting the record, providing accurate data and appropriate appraisal reasoning allows the Assessor to legally help you without the cost of an appeal. As noted, an appraisal consultant is helpful in this process.
Sikich can assist you on a non-contingency, consulting basis. We’ve successfully helped many manufacturing and distribution companies significantly lower their obligation at minimal cost, while avoiding a lengthy and expensive appeal process. For questions, please contact us below:
