Scrutinize Commercial Property Tax Bills

It’s not unusual for 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.

Check out these items:

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 into a category with a higher rate. (See right-hand box.) Check into whether you are eligible for special rates or credits. Some jurisdictions apply total and partial exemptions and credits to property tax, based on how the property is being used. However, it is the owner’s responsibility to apply for these. In other jurisdictions, there is a lower tax rate for vacant commercial and residential property.

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.

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 considerations:

  • The properties should be truly comparable. A retail business isn’t the same as industrial property and a storefront can’t be compared 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.
  • If you find that you’re 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. However, watch deadlines. Some jurisdictions only allow written protests of initial assessments during a 30-day period after tax bills are sent out.

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 might 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.

© Copyright 2016.

How Buildings Are Classified
Building classification varies by jurisdiction. In some cases, property is divided into classes such as residential, commercial, industrial and open space. There can also be further classifications of each class. Here is an example of possible commercial classifications:

Class A – Sometimes 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.