Fair Assessments: How To Appeal Property Taxes

Posted by Kerri Fivecoat-Campbell on May 1, 2019 12:00:00 AM

Studies have shown that property taxes are the most hated taxes in America. Why? There might be several reasons, including the question of why we should continually pay taxes on property that we own, how the taxes are assessed, and the fact that jurisdictions can not only charge interest but eventually take property for not paying taxes.

The only constant for self-storage operators is that the rules are different in each jurisdiction, and that is also one of the main stressors of having any business.

However, owners do have recourse if they don’t agree with the assessment of their property. They can appeal their property taxes; and if successful, it could save your business a substantial amount of money. Nevertheless, appealing property taxes is an art in and of itself.

History Of Property Taxes

Property taxes aren’t a new concept in the United States, but actually began in Old World England back in 1066. There are many things the original colonists were fleeing when they left Europe for the New World, but if they left due to hefty property taxes, they didn’t escape the old feudal system of their homeland.

When colonists settled Jamestown, they still had to continue paying King James a tax on the profits of their land in their new home. When the colonists revolted, the founding fathers spoke often about abolishing the old feudal system but failed to do so for one reason: The new federal government needed money to operate.

There have been attempts to revolt against the system for centuries, but the revolts have all failed, mainly due to the fact that property taxes are generally used locally to build and maintain roads and other infrastructure, as well as finance public education.

In modern times, citizens have been granted the right to peaceful “revolt” by appealing their property taxes if they feel they are unfair. You can appeal your property taxes on your own, but it is a complicated and time-consuming process that requires the knowledge and sometimes the “in” with a firm that’s familiar with your state and local jurisdiction and the decision makers.

“A self-storage owner should really hire an outside consultant to assist with the process as soon as they receive the notice,” says Donald Shannon, property tax specialist for Herman & Kittle Properties, Inc., in Indianapolis, Ind. The company has 13 self-storage facilities and specializes in assisting with property tax appeals.

How To Appeal Property Taxes

First, you must understand what you’re appealing. “We’ve never seen anyone appeal the property tax rate; you’re appealing the value of your property,” says Shannon. Property tax rates are determined by elected officials in local and state government. The time to discuss rates with your jurisdiction is during board meetings when they set the rates.

The next step is determining how and how often your property tax rates are set. In Indiana, for example, some jurisdictions use the valuation of the property. Other jurisdictions will use the sales comparison approach. In the income value of property approach, Shannon says to take these steps to confirm your valuation:

  1. Determine gross potential income as of the assessment date (which is typically Jan. 1).
  2. Add in your miscellaneous income (boxes, locks, rope, etc.).
  3. Subtract vacancy and collection loss, which gives you the effective gross income.
  4. Subtract operating only expenses (no mortgage or depreciation) from effective gross income, which gives you the operating income.
  5. Divide net operating income by the overall cap rate, which includes the tax rate for your jurisdiction plus the cap rate. That determines the Over All Rate (OAR), which gives the income value of the property.

Other jurisdictions use the sales comparison approach, which allows them to take sales from other properties to determine the per unit value and use and compare against your property.

There are downsides to each of these methods, say the experts. In Maryland, for example, the state does the property tax valuations on a tri-annual basis, which means anything that was assessed for January 2019 had all the assessment work done in 2018, yet the valuation affects 2019, 2020, and 2021.

“When 2021 arrives, you’re looking at a valuation from 2018,” says Rory S. Coakley, president of Rory S. Coakley Realty, Inc., in Rockville, Md., a company that evaluates property taxes for self-storage facilities. “You have to look at what’s going on in the market, whether you’ve lost tenants, etc.”

While many states use the calendar year and do it annually, other states, such as California, go by the fiscal year, July 1 to June 30, says Ken Sullivan, managing partner of RPC Property Tax Advisors in San Diego, Calif.

“July 2nd is the first day you can file an appeal in California, and most counties allow filing until November 30th; but in some counties, it is September 15. This is important, because if you miss the filing date, you’ve lost the appeal,” says Sullivan.

Hiring A Consultant

Some self-storage operators have a consultant on retainer who looks at the property tax assessment each year. “We review properties annually on the income approach, determine the cap rate, and figure out the market value in January of each year,” says Sullivan.

If you or your accountant is doing the math and think your property valuation is too high, you can always find an experienced consulting company in your state and/or jurisdiction. You should be seeking a consultant with a history of valuating self-storage facilities, as well as a good history of settling appeals. It also might help if the consulting firm has former appraisers from your jurisdiction to assist in the appeal.

Coakley, for example, is a certified, licensed appraiser. “That allows me to see some things that don’t make sense in the appraisal,” says Coakley. “Additionally, if you’re a tax consultant like us, we’re on the ground doing real estate and have real life experience the appraiser, who is doing mass appraisals, doesn’t have.”

It’s also important to find a consultant who knows the jurisdictions in which your property is located, which also gives them experience working with the assessors on a personal level. “When we file appeals, for example, in Los Angeles County, the clerk gets a room just for us, because when we have appeals, there are typically 20 to 30 at a time,” says Sullivan.

Finally, when you’re hiring a consultant, ask what the settlement rate is for the firm. The settlement rate for Sullivan’s company is about 90 percent. That’s typically due to the fact that when presented with evidence by a reputable firm, many jurisdictions do no not want to take the fight to the state level.

“Owners are extremely prejudicial of their own case,” says Shannon. “If our client provides everything we need, we will give an honest assessment of whether we should take the case further. Shannon adds that evidence does not include the statement from the owner that “My taxes are too high”. He says that many things, including stats, sales figures, and other comparables are typically required to appeal.

The Appeal Process  

If you or your consultant determine you should move forward in the appeal process, it works differently in each jurisdiction. However, typically it filed through your local assessor as an appeal in the allotted timeframe with all the supporting evidence. “Valuation is an art; it isn’t a science and it is subjective,” says Sullivan.

Experts say many assessors do not want to see the appeal go further, so if your appeal looks good and is supported with evidence, it may be that they will lower your property tax valuation. Sometimes, this could be as high as a 25 to 30 percent tax reduction, which can be significant, even with the percentage of taxes saved fee taken by the consultant.

If your appraiser denies your appeal, you can take your appeal to a tax board, which in many areas is supposed to be an unbiased third party (which is disputed in some areas). If you lose at that level, your recourse typically is to hire an attorney at your own expense and take it to the state.

The bottom line, Sullivan says, is that having a consultant review your property taxes is sometimes a no-risk and free service with major return potential.

Kerri Fivecoat-Campbell is a long-time contributor to all of MiniCo’s publications and the author of the book “Living Large in Our Little House”. She also writes for many other trade, business, and consumer publications and blogs. She currently lives in the beautiful Ozark Mountains with her three rescue dogs.