Property tax

It goes without saying that a business
should always keep on top of its
expenses, but it’s especially important
during poor economic climates. One of
those expenses is property taxes, which
in total comprised the largest share of
total state and local taxes in fiscal year
2007.

One of a typical business’s failings
regarding property tax, says Rick Bell, of
counsel in Baker Donelson’s Atlanta
office, is not knowing that timing is crucial when filing an appeal to state that its
property is worth less than the level at
which it was assessed. When the business receives its annual property tax bill,
it’s too late.

Smart Business spoke with Bell on
what businesses need to know to take
control of property taxes and avoid
spending more than they should.

Why is keeping track of property taxes so
important to businesses?

It’s a large part of a company’s expenses. According to the Council on State
Taxation, businesses paid $577 billion of
state and local taxes in fiscal year 2007,
which accounted for 44.1 percent of
total state and local taxes. Property
taxes on business property accounted
for the largest share of total state and
local taxes in fiscal year 2007 at $203 billion, or 35 percent of total state and local
taxes. Business property taxes increased
6.8 percent from fiscal year 2006 to fiscal
year 2007, rising faster than local business income, license taxes and other
local business taxes.

Why is the current depressed real estate
market important for businesses to consider when addressing their property taxes?

Growth in residential property taxes is
not expected to continue at its current
rate due to declining real property values and increased homestead exemptions, credits and other relief provided
to residential property taxpayers. In fact,
taxpayer ‘revolts’ have driven property
tax reforms in states where residential
market values have fallen below
assessed values, such as Indiana and
Florida. This dynamic is relevant to business taxpayers because the property tax
on residential and business property
accounts for 73 percent of total local
government tax revenues and is the only
major tax source available to many local
governments.

To generate sufficient revenue as the
residential property tax base shrinks,
local governments may shift additional
tax burden to business taxpayers.
Classified property assessment and rate
structures used in many states are
designed to tax business property at
higher effective rates than residential
property. Other tax features, such as limitations on the annual increase in the
assessed value of residential properties,
can also result in higher effective business tax rates while using the same tax
rates and property classification systems
for residential and business property.

Why is timing crucial for a business to
address property taxes?

The time of year businesses receive
their property tax bills, at least in
Georgia, is right about now. But when
you receive it, it’s already too late to
appeal if that’s what you intend to do.
The tax assessment comes out toward
the end of the first quarter, which is the
time you need to appeal. In the current
depressed market, it could be that the
assessment was too high, so an appeal
might be warranted. But a business
needs to know that the beginning of the
year is the time it needs to do something.

Also, businesses need to keep in mind
that if the real estate market doesn’t
change and the value of their property
doesn’t change, an assessment won’t be
sent out. If you don’t know that, the first
time you figure out that you owe money
and what that amount is based on will be
the latter part of the year, when it’s too
late.

What are the chances a business will win
its appeal?

If the value of a business’s property
has gone down and it can show that, it
should get relief from that. In Georgia,
you first file an appeal with the Board of
Tax Assessors, who might then come
back to give you an adjusted number.
The next step is a hearing before a
Board of Equalization and they hear
why you think your property is overvalued. Another scenario is that you go to
arbitration, where you and the county
pick three arbitrators to hear your
appeal. If you’re still not satisfied with
the outcome, you could appeal to a civil
court.

RICK BELL is of counsel in Baker Donelson’s Atlanta office. He has been involved in multi-state tax and unclaimed property issues that
range from tax planning, utilization of tax incentives, audits and administrative practice to litigation and legislation. He can be reached at
(404) 221-6536 or [email protected].