You Can Appeal a High Commercial Property Tax Assessment

For most commercial property owners, property taxes are their single largest business expense. Commercial properties include income generating properties like multifamily apartments, retail centers, hotels, office buildings, gas stations, and theaters. Taxes on these properties are the bane of many business owners.

While all people should pay their taxes, they should only pay their fair share, not overpay. Unfortunately, many property owners end up overpaying after receiving high commercial property tax assessments from their local authorities, not knowing that they have a statutory right to appeal these assessments.

The reason your tax bill is high may be because the local tax assessor erred in calculating the value of your property. This is a common occurrence. Appealing such a property tax assessment can save your business tens or hundreds of thousands of dollars over the years.

Local authorities use various approaches in valuing properties for tax purposes, the most common being the income approach and sales comparison approach. The income approach is the most popular. In it, tax assessors value a property based on its capitalized net income. That means the assessors must consider the property’s income as well as expenses to get net income and then use an appropriate capitalization rate. The sales comparison approach is simpler, and involves tax assessors valuing a property based on the recent selling price of similar properties in the area.

In both these strategies, tax assessors can make mistakes. For example, they can make clerical errors on land acreage, net leasable area, or construction year, impacting the overall property value. They can also value properties above the median sales price in the local area or value property twice, resulting in double taxation. The latter happens in states that tax both real estate and business property. In some cases, tax assessors may have even contravened state law. For example, in California, laws restrict real property value increases to no more than 2 percent of the value of the previous year unless there is an ownership change or new construction.

If you have received a high property tax bill, as a commercial property owner, you can request your local assessor to give you details on how they valued your property. If you believe the value they used is significantly higher than your property’s fair value, you can appeal the tax assessment.

It is best to work with a competent property tax manager when appealing a tax assessment. This is because the process itself is involved. You will have to learn the tax appeal process of your local jurisdiction, including the dates for filing appeals, where to file, and how to do it.

Next, you will need to collect the appropriate documents to support your appeal and build a strong case. The local tax assessor may also request additional documents from you. Do not underestimate how much data you will need to collect or send to your tax assessor. You bear the burden of proof in proving your property’s value is less than the assessment value, so you should prepare all key supportive documents.

On the day of the appeal, you will have to go before a tax appeal board, which typically comprises three to eight people. Research the protocol of the hearing beforehand. How long will you have to present your case? Many jurisdictions give appellants 15–30 minutes to present. How will you present your supportive documents such as maps and pictures of your property? Will the tax assessor question you, and will you have the opportunity to cross examine them?

While some jurisdictions use a simple format for their tax appeals, others have adopted a quasi-judicial process with strict rules covering the presentation of evidence and cross examination. Given the stakes of the appeal and the limited time you will have to make your case, it is best that you work with an experienced property tax manager to increase your chances of a successful appeal.