The property tax bill comes in the mail, and you pay it. But do you ever really look at it to determine whether you are paying the right amount?
“Property tax on the real estate and personal property that you own or that you lease is part of the overhead of the operation of your business,” says Carl Rashid Jr., leader of the Property Tax Appeals practice group at Dykema Gossett PLLC. “You want to make sure you are paying your fair share of taxes, but you certainly don’t want to pay more than your fair share.”
Smart Business spoke with Rashid about how to make sure you’re not paying too much, and, if you are, how to return that money to your bottom line.
Why should business owners be concerned about their property tax bill?
Real estate values have declined in the last few years, making it a good time to review the amount of taxes that you are paying. If your property was formerly worth $1 million, and you know for a fact that you could not get $1 million for it now, you should not still be paying property taxes based on a $1 million value. If you are looking at the bottom line, as you should be, you have to look at every item of expense in your overhead, and this can certainly be a major one.
When your next tax assessment comes, consult with an adviser to determine if the amount you are paying could be
How can an adviser help lower the amount of property tax a business pays?
Once you’ve received the assessment — usually in February in Michigan — and want to determine if you may be paying too much, contact an attorney to begin the assessment process. The attorney will look at the assessment, look at what comparable properties are going for in the area where your business is located, and oftentimes consult with an appraiser to determine the value.
To assist the adviser in making an accurate assessment, the business owner should provide the notice of assessment; the previous year’s tax bills; any appraisal reports that they may have; the insurance value of the property, although that is not always indicative of the true value of the property; and, if it’s an income-producing property such as an office building, a shopping center or an apartment building, the financial statements from the previous three years.
From there, the adviser will undertake the appeal seeking to lower the appraised value of the property and file it with the appropriate state authority.
How can business owners identify the right lawyer for their needs?
Look at the years of experience and the adviser’s success rate. That person’s relationships with the taxing units in the state are also critical. If those working at the taxing units respect the adviser, they are going to sit down at the table and try to resolve the issues. If they don’t respect the adviser, or don’t have a previous relationship with him or her, it can significantly lower the chances of success.
How long does the process take?
It could be a very long process, as long as three years, because of the backlog the state is facing. During that time, the taxpayer will continue to pay at the assessed value. And if the value is found to be less than the assessment amount, the portion that was overpaid will be refunded when the case is over.
While the appeal is pending, the lawyer will amend the petition to make sure that subsequent tax years are involved. The attorney will also keep you informed of the progress of the appeal as it goes through the tax tribunal or court system, and of subsequent filings.
Then, once there is a hearing and judgment, or a settlement — and most cases are settled — the revised assessment becomes the taxable value. The taxable value is frozen at that number and can only be increased by what the Consumer Price Index is in Michigan, but not to exceed 5 percent.
Once an appeal is settled, can a taxpayer appeal again the following year?
Yes. If you settled at a lower number, and after that the market drops again, as it has in the past few years, your property may be worth less than the value determined when you filed the appeal. If you feel that is the case, it may be worth it to repeat the process.
How does the taxpayer pay the adviser?
The case can be paid on an hourly basis or on a contingent fee basis. A lot of clients prefer not to receive regular bills and would rather pay a percentage of the amount recovered. Some clients also believe that hiring someone on a contingency basis provides an added incentive for the adviser to get results.
Would you advise that every business hire someone to appeal its property taxes?
No. A business should only appeal if there is enough tax dollars at stake to make it worth the time and effort of both the business and the lawyer involved.
It’s really determined on a case-by-case basis. If the amount in dispute is minimal then it becomes a business decision that each owner has to make based on what he or she is comfortable with and whether it is worth it to engage the services of a lawyer.
Carl Rashid Jr. is leader of the Property Tax Appeals practice group at Dykema Gossett PLLC. Reach him at (313) 568-5422 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Dykema Gossett PLLC
If your business has been sued, no matter how strong your defense, there is always a chance that a jury will rule against you. And you have to be prepared for that possibility.
If you plan to appeal a judgment against you, the time to begin to position yourself for appeal is before the trial even begins, says Chris Kratovil, member, Dykema Gossett PLLC.
“The reality is, once you’ve lost a jury verdict, if it’s not too late to start the process, then it is certainly very late in the game and not the optimal position to be in,” says Kratovil. “Securing a bond to postpone execution of the judgment is something to be addressed at the outset, rather than at the back end of the trial.”
Smart Business spoke with Kratovil, an experienced appellate attorney, about how to prepare up front to put yourself in the best position for an appeal.
Shouldn’t a company that’s been sued be thinking about winning, not losing?
When a company goes into high-stakes litigation, when trial is at hand, there is a reasonable possibility that it is going to lose. Everyone hopes for victory in the trial court, but if you get through the motion to dismiss stage, the summary judgment stage and all the way to trial, by definition, it is a close case. If you had an ironclad defense, the case would not make it all the way to trial. And if you get the wrong jury on the wrong day, you may lose.
What happens when a judgment is entered against a company?
When you lose and a judgment is entered against you, you are suddenly facing a very substantial liability, often up to seven or eight figures. And that judgment generally becomes executable and enforceable just 30 days after it is signed.
So after just 30 days, there is the possibility that constables will show up at your business with a writ of execution to seize property, or the plaintiff may obtain a writ of garnishment and come after your back account. And there is nothing more disruptive to a business than enduring these sort of judgment enforcement procedures. For example, if a company gets hit with a writ of garnishment on its primary operating bank account, it can’t conduct normal business transactions.
The key point is that once a judgment is entered by a trial court against your company, it becomes enforceable very quickly. A prudent company should start thinking about how to prevent that enforcement before the judgment even exists, and the best was to do so is with a supersedeas bond.
How does a supersedeas bond work?
Many people think that the mere fact that you filed an appeal suspends enforcement of the judgment, but that is not the case in either federal or state court. Merely filing an appeal doesn’t mean you get to delay paying the judgment until after the appeal is over. You need to post a bond to prevent the judgment from being enforced while the appeal is pending. The bond supersedes, or suspends, the judgment against your company during the appeal.
Instead of a bond, a cash deposit can also suspend the judgment during the appeal. But, in my experience, most companies lack the liquid assets to simply write a check for the full amount of the judgment against them.
A company facing a substantial judgment can always resort to bankruptcy, but that is the nuclear option and carries with it a broad array of negative consequences. If you want to avoid bankruptcy while pressing forward with your appeal, the best option is a supersedeas bond.
When should that bond be posted?
It has to be done at the outset of the appeal. But in the current economy, it is a difficult and slow process to get a bond. You have to reveal an awful lot of financial information, because you are coming from a position of weakness, and you are at the mercy of the surety company. If the surety is going to write a bond for you, you have to provide whatever information they want and you have to provide it promptly.
The surety is looking for the ability to repay that bond because, should you lose the appeal, the plaintiff will go after the bond, and the surety wants to make sure you can repay that.
How can a company make that process a little easier?
If you are on the cusp of a trial in a significant case, do not assume you are going to win. Game out the worst-case scenario and be prepared for it. It is truly an existential crisis for many businesses when they get hit with a big judgment because, more often than not, they haven’t done a good job planning for it. They haven’t put the wheels in motion to get a bond, so it’s a mad scramble to get it posted within that short 30-day ‘grace period’ before the constables show up and execute.
What is the role of the attorney in securing a bond?
The attorney can flag the issue for you and make you aware of it well before trial. He or she can put you in touch with sureties and can help explain the case to the bond writers. But, ultimately, the due diligence is between your company and the surety; trial counsel and appellate counsel play, at best, a supporting role.
Don’t whistle past the graveyard and pretend that there is no chance you are going to lose at trial. If you lose at trial and you want to appeal, you are going to need a bond. Always be thinking two, three, four moves in advance. The trial process is a grueling ordeal, but you need to keep your eye on what comes after it. Getting a handle on this supersedeas bond process prior to trial is a classic example of hoping for the best and preparing for the worst.
Chris Kratovil is a member at Dykema Gossett PLLC. Reach him at (214) 462-6458 or CKratovil@dykema.com.