The Benefits Of Proactive Property Tax Management

With the holidays firmly in the rearview mirror and a new year is off and running, most companies’ attention shifts to closing the year-end books, preparing financial statements, and sending all relevant tax documentation off to their CPA for the annual tax return preparation. Amid the chaos of responding to the array of information being requested, one area that can often be overlooked by taxpayers is property tax. Tax bills are issued, paid, and an accrual is set up to amortize the expense over the year and just like that, a task is crossed off the list. However, taxpayers who take an active approach in their property tax administration can find significant benefits and save precious tax dollars.

Read Also: Ohio’s Real Property Tax Overview

For starters, it is important to understand the property tax laws in a particular state in order to determine what is and is not included in the tax base. This is especially important in states that tax both real and personal property. In a dual property tax state, there can be significant benefits in treating certain leasehold improvements as personal property, where permissible. Items such as signage, HVAC for server rooms, and specialty electric may qualify as tangible property in some states. These classifications can simultaneously reduce the value of the real estate for property tax purposes and allow property owners the benefit of depreciating the personal property to lower the overall assessment. Additionally, capitalized repairs to these items may not necessarily add to the value of the property.

Consider Appealing The Property’s Valuation

Another area where taxpayers can actively manage their property tax is through valuation appeals. Each state affords taxpayers the opportunity to protest established values through both informal and formal means. Reducing values through the appeal process directly reduces the tax burden of the property owner, oftentimes covering multiple years. To be successful in the appeal process, the property owner has to be prepared to support the value asserted. This can be satisfied through providing comparable sales data of similarly situated properties, a recent sale of the property (usually within the past two years), or perhaps most commonly, an appraisal performed by an accredited real estate appraiser.

If pursuing a valuation appeal, taxpayers should be aware of the applicable filing deadline, as many state processes begin with the mailing of an annual notice of value. Oftentimes, the defense of not receiving the notice is not valid and taxpayers may be forced to wait for future years to pursue an appeal. Additionally, some state formal appeal processes (like Ohio) are legal proceedings from the onset and an appeal could be dismissed if the appropriate protocols are followed.

Read Also: Managing Your Property Tax Assessment And Related Expense

Consider All Outcomes

Before pursuing an appeal, property owners should perform a cost-benefit analysis, as the potential savings could be outweighed by the cost of the appraisal and potential legal and consulting fees. The property owner should also consider the timing of when the property will be revalued again, as it’s possible a successful appeal could be met with another increase the following year (however, settlement negotiations can contemplate valuation for future years as well). In some situations, reducing property values could put loan covenants at risk, or in the alternative, it is always possible that the property is undervalued and the appeals board could possibly increase the value, thereby increasing the tax burden.

Property tax is often viewed as a passive tax, and in many ways it can be. However, with a little bit of effort and staying on top of the details, taxpayers who take an active approach to understanding how the property tax function works can be the beneficiary of significant tax savings that can be used in other areas of their business operation.

Are you interested in learning more about your property tax options? Contact GBQ and request to speak with a real estate or state and local tax professional.

By Jeffrey Monsman, JD, director, state and local tax services


Check out these related resources:

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Energy-Efficient Building Deductions

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