The role of property tax appeals in doom loop risks

Property tax appeals are a silver lining for struggling real estate

Property tax makes up a big part of municipal revenue – and the more a city relies on property tax revenues, particularly commercial revenues – the greater risk it faces when values decline. Property tax is also the single largest operating cost for most businesses. After all, when property tax is too high, there is a reduction in the value of property, which reduces the viability of businesses that the city relies on for its revenue.

Unfortunately, property tax assessments are frequently based on outdated data or flawed assumptions, which leave them out of sync with current market realities. With this in mind, it is imperative that CRE owners carefully review assessments to avoid paying more property tax than necessary.

Keys to maximizing appeal opportunities:

• Know the assessment and valuation dates in each jurisdiction where you have properties

• Review your notices of assessment (NOA) and the deadline to appeal

• Get expert help to ensure you are compliant with local procedures

• Ensure you have the evidence needed to present a successful case

• Track the process as appeals can take months or even years to resolve

• Verify the outcome and ensure your refund is issued

What is a “fair share” of property tax?

In most jurisdictions, property tax is zero-sum game. The amount of property tax needed is set by the municipal and school budget, and allocated between taxpayers based on assessed value. Lower taxes for one group of taxpayers means higher taxes for another. To this effect, news stories out of Chicago frequently blame Board of Review decisions on commercial appeals for raising property tax burdens for homeowners.

Property tax appeals are not, however, about winners and losers. They are intended to ensure that a taxpayer is not paying more than their fair share. This means that the amount of property tax allocated to each taxpayer is based on the value of their property. The fairest assessment systems have valuation dates as close as possible the date of taxation, and provide taxpayers with the right of appeal each year.

How appeals can alleviate doom loop risks

Fair allocation of taxes will help foster revitalization, as a reduction in property tax can boost net operating income, free up capital, and assist in attracting or retaining tenants. This helps to keep businesses active, contributing to foot traffic that has a spillover effect on other businesses, and raising property values of not only the appealed property but others in the community.

Figure 1 - Benchmark downtown office buildings - A modest 10% reduction in property tax can boost NOI by 2-3.5%

For a taxpayer to be successful in an appeal, they need to provide arguments and data to support their position. The more data the assessor has, the better informed they are about the current market. Future assessments may be more accurate, and a fairer allocation of property tax means less risk of future loss in revenue.

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