As the economy hums along and grows, taxpayers may overlook property taxes. Applying mass appraisal techniques, assessors cushion their tax bases by increasing assessment on commercial property. While predicting the cessation of continued economic growth is an impossibility, positioning cash flows for such an end is not. To maintain positive cash flows for whatever economic revisions may unfold requires a diligent review of property assessments.
In applying mass appraisal techniques, the assessor fails to consider the specific property’s condition, location, economics, market place, deferred capital expenditures, or other important adjustments specific to the property. Also, although there are three valuation methodologies, for commercial and industrial properties, the cost approach is often applied. Yet, the assessor rarely accounts for all three forms of depreciation that the cost approach mandates. For example, shopping centers, older hospitality facilities, chip factories in their later years, mines near the end of their life, older data centers or coal generating plants, all may have economic depreciation factors that are not considered in their valuation. Courts have found the cost approach maximizes value.
Even when the income approach is applied, mass appraisal techniques result in ranges with the assessor applying that portion of the range that maximizes value and the tax base. Thus, overstating rental income, understating expenses or applying a non-market capitalization rate contribute to over valuing commercial or industrial property.
Only through a taxpayer’s vigilant and annual review of their property assessment can cash flows be maximized and, thereby, the taxpayer assure it only pays its fair share of property taxes.
If you have any questions, please contact Mark D. Lansing in the Washington, D.C. office at 202-466-5964.