Battling Property Taxes

At 29 percent, the taxes on your business property comprise the second largest tax burden born by most retailers. (Income taxes represent the largest share at 36 percent.) And, believe it or not, chances are that the present assessment on your store property is shot full of errors.

According to one survey, a whopping 75 percent of 375 senior financial executives at large companies challenged the property tax assessments on their employer's property. Even more surprising, nine out of ten of those who challenged the assessment reported that they had been successful in reducing their property tax bills.

Fortunately, there is no "bad" time to check the tax bill for your business property. Even tenants, especially those whose rent increases as property taxes escalate, can profit from a review of the assessment on their business premises.

Unlike most other taxes, property taxes are computed for you by the local government. The taxpayer is then told how much to pay. While the Internal Revenue Service verifies all figures used by the taxpayer, few taxpayers understand their property tax bills, let alone how they are computed. Nor are they aware how easy it is to check their property tax bill.

A quick look at the more than 14,000 property tax jurisdictions in the country (every state is divided into local property tax jurisdictions) reveals why 70 to 75 percent of all challenged assessments eventually result in bill reductions. All properties, residential and commercial, received an initial property tax assessment at some time in the past. As the property changed hands or improvements were made over the years, the basic assessed value increased — theoretically. But rarely does anyone bother to check whether that original assessment was correct, or if the later additions had been reported correctly.

A building constructed by a retailer for business purposes has an assessed value that is supposedly in line with the value placed on similar, neighboring properties. Unfortunately, few property tax systems rely solely on a building's construction cost, even though that is a far easier figure to compute than comparative values. Remember, being a "tax on value," no assessment should take into account what the property is being used for. Its value should be computed in the same manner as similar properties.

Armed with a few facts about the store property, it is relatively easy for any retailer to review their property's record in the tax assessor's office. As public records, your property tax records are available to everyone. What's more, most tax assessors, elected or not, are generally eager to cooperate and willing to correct any errors brought to their attention.

And, boy, do those errors exist. Some examples: an assessment for a two-story building where a one-story building stands; a "200-foot deep" building standing on a lot that's only 75 feet deep; a "basement" where none exists; or a "parking lot" that is really part of a neighboring property. Those are just a sampling of the kinds of errors one can find. What's more, mistakes in property measurements, construction materials, and roof types and conditions are actually quite common, and can be quickly corrected by the property tax assessor. Unfair valuations, on the other hand, may require assistance to correct.

All property taxes are considered "ad valorem" taxes. That is, taxes based on the value of the property. However, since so many variables enter into the equation, it's rare that an assessor and the owner will agree on the assessed value of a property.

Should the assessor refuse to correct any errors found on the assessment record, or should you want to challenge an assessment on the grounds that it is not comparable to other, similar properties, the matter will be taken before a local review board. In some jurisdictions, it may be necessary to submit a formal complaint or appeal in order to go before the review board.

In most cases, the review board is an informal meeting between the property owner (or their representative) and a small group of citizens appointed or elected to listen to challenges to tax assessments. Once before the review board, the retailer's goal is to show that the current valuation of the property — and the computations made to arrive at that figure — are erroneous. Therefore, when attempting to sway the board, a smart retailer will amass as much documentation as possible to support the claim for reduced valuation.

In the event that the assessor turns a deaf ear and the property tax review board denies a request for a lower valuation, the next step is to present the case to the state board of appeal. And finally, in the rare instances where these steps have failed, the entire matter can be taken to court.

The time to review those property tax assessments on your gift and decorative accessories business is now, not when the local assessor reassesses all of the properties within his or her jurisdiction. And certainly not when a new addition to your store is completed.

Horror stories abound about the errors in property tax assessments. But remember, while few retailers actually check their property tax assessments, the success of those few who do should be enough for any retailer looking to save money, because this year's erroneous assessment will cost you money for years to come.