Posts Tagged ‘Taxes II’
Preparing for Your Hearing
Once a protest has been filed, a protest hearing will be scheduled. Four types of data should be compiled for the hearing: pictures of the subject property, an income analysis, comparable sales data and assessment comparables. Pictures of the subject property should indicate the quality and condition of the improvements on the property. If there is deferred maintenance, document it with pictures and bids. An income analysis should include a profit and loss statement for the previous year and a rent roll for a date near January 1 of the current tax year (most states use January 1 as the effective date for assessment.) The analysis should also detail market rent, market vacancy and market expenses (including reserve for replacement) to derive net operating income for the property (neither depreciation nor debt service should be deducted when calculating net operating income).
If your property has above-market occupancy or rental rates or below-market operating expenses, you should make adjustments when calculating net operating income. If you operate your own property, your income analysis should include an allowance for labor and management fees (if they are not in the profit and loss statement). Revenue not directly related to real estate rental (box sales, truck rentals, etc.) should be excluded. Related expenses should also be excluded. The net operating income is then capitalized to derive an indication of value for the property.
An appraisal may be appropriate to support the value conclusion. Comparable sales are given strong consideration at the hearing because they are an indication of market value. Data from sales of comparable properties for the past year or two should be collected and reviewed. Assessment comparables are given strong consideration at some appraisal districts but not considered at others. Pictures of competing properties that are assessed for less than your property can be an effective tool for cutting your property taxes. Prepare a table summarizing your property and the assessment comparables.
Attending Your Hearing(s) (Informal and Appraisal Review Board)
Once all the pertinent data has been collected and analyzed, the protest hearing process begins. The initial protest hearing is called an “informal” hearing. The informal hearing involves a meeting between the owner, or his designated representative, and an appraiser from the appraisal district. If the owner is not satisfied with the offer made by the appraiser, he may proceed to the next level of the protest process, an appraisal review board hearing (in some states this is referred to as the board of equalization). The appraisal review board hearing, also referred to as the “formal” hearing, involves a meeting with members of the appraisal review board, an appraiser from the county appraisal district (who may be different from the appraiser at the informal hearing) and the owner or his designated representative. The Appraisal Review Board panel may set a value which is equal to, lower than or higher than the level proposed by the staff appraiser at the informal hearing; therefore, the offer made at the informal hearing deserves careful consideration.
The majority of protests are resolved during the informal and formal hearings. However, in a small portion of protests the property owner believes the assessed value can be cut further by filing a judicial appeal. Although few owners pursue the final opportunity to reduce their taxes, owners have the option to file a lawsuit to contest the assessed value. It is probably financially feasible to file suit if the judicial appeal will reduce the assessed value by at least $200,000 to $300,000. This rule of thumb is for Texas; it may be higher or lower in other areas. In Harris County (Texas), for example, about 500 to 800 property owners annually determine there is still enough discrepancy after completing the informal and formal hearings to further pursue an adjustment in the assessed value by filing suit. Litigation in Texas must be filed within 45 days of receiving written notification of the value set at the formal hearing. This process can result in additional reductions in the assessed value; however, it typically takes 12 to 24 months and requires services from both an attorney and an appraiser. Although relatively few owners under-stand how to pursue judicial appeals, they can be a very effective tool in lowering property taxes.
With property taxes making up such a large percentage of operating expense, a commercial property owner I know was recently pleased when his consultant informed him that the company saved over $123,000 in property taxes. Some owners will realize less savings than those, but every little bit helps your bottom line.