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 firstname.lastname@example.org.