Real Estate
Scrutinize Commercial Property Tax Bills: Errors Happen
Almost everyone expects commercial property taxes to rise as local governments seek more money for schools, law enforcement, fire protection and other needs. But when you get your tax bill, take a close look. It may have increased too much.
Here are a few items to check:
Number transpositions - It's possible for assessors to make errors in the physical descriptions of properties. They might list the property as being 21,000 square feet when it is actually 12,000. Transposition of numbers is one of the more common mistakes when recording data.
Improvements - The bill may include assessments for improvements that were never made.
Classification - The assessor might improperly classify your property. For instance, it may be a Class B building incorrectly listed as Class A with a higher rate. (See right-hand box.)
Don’t assume that any errors you find are new. The former owner may have been overpaying as well. Just because your rates are unchanged from previous years, doesn’t mean they are right.
Your CPA can review your property tax bill for mistakes and do a comparative analysis. In other words, compare your taxes with those on similar properties and businesses in the area.
When making comparisons here are a few points to check:
Make sure the properties are truly comparable. Don’t compare a retail business to an industrial property or a storefront to a store located in a mall. Unlike homes, which are often built in homogeneous tracts and therefore can easily be compared to surrounding properties, commercial property is considerably harder to match exactly.
If you find that you are paying more taxes per square foot than a comparable, older store down the street, check to make sure that different tax rates haven't been grandfathered in.
Discuss your tax bill with similar commercial operations in your area that aren’t competitors. This can help each business determine whether it is paying too much.
Different jurisdictions have different systems for tax assessments and appeals. If you think you have a legitimate claim, you can generally pursue tax relief in one of two ways:
1. Negotiation - The most common remedy is to ask for a negotiation with your local tax authority. Talk to your CPA about assisting you in proving the true valuation of your property, which could result in a lower bill.
2. Appeals or protests - Many, but not all, states, hear property tax appeals or protests based on a comparative analysis. A successful appeal can lower your current and future taxes significantly. You may also be able to appeal past property tax bills and get refunds.
As a last resort, if you have substantial proof of an incorrect property valuation but are unable to succeed through negotiation or appeals, you may want to take your case to court.
Play it smart: You may have a good case and an excellent chance of successfully lowering your tax bill. But unless otherwise advised in writing by the taxing authority, be sure to pay your taxes on time as assessed, rather than risk penalties and interest for non-payment.
How Buildings Are Classified
Building classification is often subjective and it varies by location, but here are some common guidelines:
Class A - Often used to describe the highest-quality buildings. These properties are generally newer, of superior construction (often steel and concrete), in excellent locations, include attractive amenities, and may be 100,000 square feet or more.
Class B - These properties are in good locations but are likely to be smaller than Class A, not renovated, and of wood frame construction.
Class C - These are generally older buildings in average or fair condition that have not been renovated.
For more information about our services to the real estate industry,Contact:
Brian Williamson, CPA, Partner - Dallas/Fort Worth at 972.448.6959 or
Elizabeth Bunk, CPA, Partner - Houston at 713.297.6913.
The articles in this newsletter are general in nature and are not a substitute for accounting, legal, or other professional services. We assume no liability for the reader's reliance on this information. Before implementing any of the ideas contained in this publication, consult a professional advisor to determine whether they apply to your unique circumstances.