Property Tax Best Practices: A Brief Guide to Navigating the Assessment and Appeal Process

January 2, 2020
Written by: Rachel Duck, CREW Austin

If you own or manage commercial real estate, it is likely that you have faced the daunting challenge of forecasting and managing property taxes.  Because property taxes are often one of the largest expenses for a real estate project, a basic understanding of the system can help owners and managers maximize their bottom line.

Understand the Applicable Laws

Property tax is assessed locally and is subject to state laws. Statutes vary from state to state, and a basic understanding of the applicable procedural and valuation laws is key. Pay attention to value standards and deadlines for appeals, renditions, litigation and the payment of taxes. Deadlines are generally very strict, and missing a deadline is one of the most significant mistakes in the property tax process. Failure to comply with applicable deadlines may cost you the right to your appeal and, in some instances, may also incur penalties and interest.

Knowing the frequency of reassessment in each jurisdiction is also essential to accurately forecasting and managing your property tax burden. In Texas, for instance, both real property and business personal property are assessed annually as of Jan. 1. This can sometimes create a more costly scenario, as initial value assessments in strong markets often increase 20 percent or more each year and must be appealed annually to effectively manage the expense.

What are the Factors Affecting Your Property’s Taxable Value?

Property taxes in most jurisdictions are assessed based on some variation of market value. Market value is generally distinct from a property’s internal book value and understanding this value standard is critical. The fundamental premise of a market valuation is the value at which the property would transact on the open market. Market value for most real and personal property is based upon some combination of an income, cost or sales analysis. 

Additionally, the market value of the property may not exactly equate to the taxable value. Most states do not tax “intangible value,” which generally ties to the value of a business or contract. This is particularly relevant in properties such as hotels and senior housing facilities. For example, a 100 room, full-service hotel may have an overall value of $20 million, but 30 percent of that total value may be attributable to the value of the hotel’s business (management, branding, staff, etc.). The value tied to the business is intangible, and thus, nontaxable in most jurisdictions. Therefore, the taxable value of this same hotel is $14 million.

Is Your Property Equally & Uniformly Assessed?

In addition to market value, many states have an equal and uniform provision in their respective tax codes. These jurisdictions require that a property be assessed equally and uniformly with its competitive set. For instance, if the taxable market value for the hotel previously mentioned is $14 million ($140,000 per key), but the median value per key of its adjusted competitive set is $100,000 per key, a value reduction may be supported by equal and uniform provisions.

Get to Know Your Assessors

Property tax assessments have a large degree of subjectivity. The more familiar you become with particular assessors and their preferred methodology, the better able you are to accurately forecast property taxes from year to year. Communicating early and often with the assessor valuing your property will optimize your results.

Don’t Forget Business Personal Property

A handful of states tax business personal property, either in the form of fixed assets, inventory or both. In Texas, fixed assets and inventory are both assessed annually at 100 percent of market value. Check your statutes and corresponding rendition requirements to ensure compliance with reporting standards.

Should You Appeal Your Value Assessment?

When determining whether an appeal is justified, first examine how the assessed value compares to your own value analysis. If the assessed value is materially higher, or errors in basic property information were made, an appeal may be necessary. Secondly, consider any costs associated with an appeal (consulting fees, attorney’s fees, appraisals, etc.) in comparison to potential tax savings to determine if the course of action is financially prudent. In this feasibility analysis, do not discount the impact of a value precedent moving forward. An appeal may not equate to substantial tax savings in the current year, but it could have a significant cumulative impact moving into future years.

Partnership is Key

Managing the vast array of deadlines and laws can be a challenge for property owners with a portfolio spanning across many states. This is where partnerships with trusted and reputable property tax professionals in local jurisdictions add tremendous value. With a thorough understanding of applicable laws and value standards and clear communication with assessors, property owners can effectively manage their property tax burden.

Rachel Duck

Rachel Duck, CMI, is a Director and Senior Property Tax Consultant at Popp Hutcheson PLLC in Austin, Texas. Rachel is involved in the start to finish property tax valuation and appeal process for a variety of commercial properties, including retail, hospitality, multifamily, industrial, and office. She has authored multiple articles focusing on valuation and property tax issues such as the protection of protest rights, accurate forecasts of property tax liability, proper classification of expenses in valuations, and the treatment of personal property within hotel assessments. She is an active member of Commercial Real Estate Women (CREW), serving as the chair of the Austin Chapter’s CREW Careers Committee and as a member of the CREW Network Communications and Editorial Committee. Duck is also a member of the Institute for Professionals in Taxation (IPT) and holds the professional designation (CMI), Certified Property Tax Member of the Institute for Professionals in Taxation. She also serves on the IPT Member Connections Committee and as an instructor at the IPT Property Tax School. Duck is also a member of the Aggie Real Estate Network (AREN) and the Central Austin CCIM Chapter. She has a BA from Vanderbilt University and a Master of Land Economics and Real Estate from Texas A&M University.


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