The real estate market has been on a roller coaster ride over the past few years, and many restaurant properties have seen increased sales prices thanks in part to interest rates that were at historically low rates until just recently. One of the indirect consequences of these recent sales prices may be an increase in annual real property tax assessments. With another tax year just around the corner, many jurisdictions throughout the country will be assessing property taxes based on some of these recent sales prices. In some regions, real estate valuations for property tax assessment have seen year-over-year increases of 30% – 40%. With restaurants already operating on slim margins, a property tax increase could cause significant profitability issues.
Fortunately, most jurisdictions throughout the country allow for property owners who disagree with the assessed value of their real estate holdings an opportunity to file an appeal, thereby potentially reducing the property tax if successful. Typically, the appeal process begins with an annual notice of value issued by the taxing jurisdiction, which kicks off an appeal window that could be as short as 30 days. These notices of value are issued at various times of the year depending on the state, but will provide all information necessary to timely appeal the property’s value. However, there are some states, such as Ohio, that do not provide an annual valuation notice, but instead has a static appeal window each year. Therefore, it is important to understand the appeal rules in each state in which the restaurant is located in order to avoid missed deadlines and delaying potential savings opportunities for another year.
Before deciding to pursue an appeal, taxpayers should evaluate their real estate holdings (including any leased properties where they carry the property tax burden) and estimate the value through any available data (which may include recent sales data, appraisals, and the valuation of similarly situated neighboring properties) to determine if the property is, in fact, overvalued. Often times, taxing jurisdictions will apply a certain percentage increase across the board for specific property classes such as restaurants, and they do not take into account the specific characteristics of each individual building. When evaluating for valuation appeals, it is important to note building-specific factors such as location, age of the building, deferred maintenance, or any other devaluing factors that the jurisdiction may not have taken into account by the taxing jurisdiction.
In addition, any potential tax savings should be considered along with the costs of pursuing an appeal and potential risk of a valuation increase. In order to be successful in a real estate valuation appeal, taxpayers will need to provide the taxing jurisdiction with some type of evidence to prove that the value established by the county is incorrect. Items such as recent sales documentation or a professional appraisal of the subject property are examples that may suffice as evidence in a valuation appeal.
If you think your restaurant holdings may be overvalued, please contact GBQ for a complementary consultation and to discuss the appeal process in greater detail.
Article Written By:
Director, State & Local Tax Services