I know, it seems like you just paid your property tax bill! And, if you took advantage of an installment plan, you just recently made the last payment. You might ask, “Why should I think about my real and personal property tax assessments now?”
The next lien date is still a few months away, and it won’t be until December that you will receive the tax bill based on your assessment from January 1, 2012. Does that mean it’s too early to begin reviewing your assessment for next year? Not at all!
Your December 2013 property tax assessment will be based on the value of your property on January 1, 2013. As you can imagine, assessors cannot visit every property on that day to determine each property’s individual value. Luckily, the value of real estate does not change dramatically over a short period of time—so assessors don’t adjust value much unless they are aware of facts that will have a direct impact on the value of the subject property. That’s why it’s beneficial to begin formulating an argument now as to why your property is truly worth less than the value it is currently being assessed for.
Before going too far, we need to discuss the concept of assessed value. The amount of taxes you pay is driven by your assessed value, but your tax bill alone does not demonstrate that your assessed value is too high. Taxes are the share of your municipality’s budget allocated to you based on the comparative value of your real estate to the total value of the real estate in your municipality. Let’s say you had two identical properties in two different municipalities, one with a higher property tax bill than the other. You cannot argue that one is over-assessed simply because its property taxes are higher. You must dig further to determine if the assessed value is different, or if the amount of the municipality’s budget allocated to that property is larger.
A better approach is to bring the property’s assessed value in line with its fair market value (FMV). FMV is usually defined as the price at which a property will transfer between a willing buyer and a willing seller. Since it is highly unlikely a property owner will sell his/her property just to determine its FMV, we are forced to find another method to calculate FMV.
The downside is, without a sale of the subject property, the method to calculate FMV becomes somewhat subjective. There is a value to the owner, a market value, a lender's value, an assessed value, an insurable value, and an actual value, but which one is correct? In a perfect world, they would all be the same, but due to subjectivity, no two values will be identical. In today’s market, property value is lower than it has been for years, and because of this, few properties are changing hands. This adds more to the subjective nature used to determine the FMV of real estate. How has your business been performing this year compared to last year? Do you have excess capacity? Has there been any headcount reduction? Is your business or industry experiencing significant technological changes? These and other issues can greatly impact the value of your business, and hence your property’s value as well.
Our property tax specialists at Schenck have the expertise to work with you and the assessor to determine the most likely value of your property. If you have reason to believe the assessed value of your property is higher than its true FMV, please contact us. In many cases, we can work with you to lower that assessed value—which means lower taxes next year and in the future. Contact Bart Halderson or Bob Lange for details.
Bart Halderson is a tax manager with Schenck. In addition to working with clients to review property assessment values, Bart’s experience includes significant tax compliance and planning work for corporations, partnerships, not-for-profits and individual taxpayers.