Is This The Right Time To Appeal Your Real Estate Tax Valuation?

November 13, 2008

Your real estate tax bill may hold the potential for significant annual cost savings, as a result of the recent decline in property values in many areas. This decline has led to concern about whether property tax assessors have accurately valued commercial real estate.

In Ohio, all real estate is reassessed for tax purposes every 6 years by the county auditor on a parcel-by-parcel basis. In addition, in the third year of the cycle, the auditor uses area-based sales data to estimate neighborhood trends and establish new tax values for each parcel. For several counties in southern and central Ohio, the 2008 tax year (taxes payable in 2009) is either a general reappraisal year or a triennial update year. Some of these counties are:

2008 Reappraisal

2008 Update

Butler

Clinton

Clermont

Delaware

Montgomery (Dayton)

Franklin (Columbus)

Greene

Hamilton (Cincinnati)

All properties in those counties have been revalued and the tax bills to be mailed in late 2008 or early 2009 will reflect new values. Unless the values are changed by the county board of revision as a result of a valuation appeal, they remain in place for the succeeding three years.

The auditor may have been more or less accurate in adjusting values to reflect current market conditions. The “true,” or “fair market,” total value number on your tax bill should represent 100% of the value at which your property would have sold in an arm’s length transaction on the valuation date (January 1, 2008) between a willing seller and willing buyer, after exposure of the property to the open market.

If the auditor’s value exceeds the property’s actual fair market value, a property tax appeal may be justified. Effective property tax rates on commercial and industrial property in Ohio generally range between 1.5% and 3.0% of fair market value. So, a property that has been overvalued by $1,000,000 potentially represents a $30,000 annual cost savings opportunity. For income-producing properties, where taxes are often passed through to tenants either directly or as part of CAM charges, this difference could distinguish a competitive property from one with above-market cost structure.

The window of opportunity to file a tax appeal is relatively short – from January 1 through March 31. For those users who pay taxes as part of escrow payments, some extra due diligence may be required to find out the new tax value. Most county auditors’ web sites include a search feature that simplifies such fact gathering. (Take care to ensure that the numbers you are viewing represent the updated 2008 values, not older 2007 values. In many cases, the 2008 values are not posted on the county web sites until mid-December or later.)

In addition, be aware that several recent Ohio Supreme Court decisions have underscored the principle that the sale price of a property, in a recent arm’s length transaction that closed either before or after the tax valuation date, equals its tax value. It does not matter whether the property was fully occupied or vacant at time of sale, or whether the actual rents or operating expenses were at market levels.

Absent such a sale, and in a market of declining values, it is all the more important to obtain an accurate independent appraisal of the property before proceeding with a tax appeal. The county auditor’s mass appraisal or computer-driven update methodologies typically do not take into account these recent conditions.

In Ohio, tax appeals on properties held in an entity name generally must be filed by an attorney. Other technical requirements make the appeal process a demanding one. Failure to file properly can preclude your ability to appeal until the next three-year cycle.

For assistance or advice regarding property tax matters, please contact any of the attorneys in Frost Brown Todd’s Real Estate or State and Local Tax Law groups.

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