Don’t be surprised if the assessor’s office doesn’t welcome you with open arms when you file an appeal this year. Times are tough all around and taxing jurisdictions are no exception. Sales and income tax revenues are down and everyone knows that property taxes are in for a beating. When exactly the beating will take place seems to be a point of contention. If the volume of appeals being filed is any indication, taxpayers are claiming that the decline in values should be recognized now. Whereas, it appears as though assessor’s offices are claiming that value declines have not yet been reflected in the market. In other words, they seem to be taking the position that taxpayers will need to prove a decline in value. I discussed this issue in my earlier post Quantification Is King. 

So, what can we expect for 2009 appeals? 

• Due to assessor’s offices throughout the country receiving appeals near or at record numbers, large backlogs will be the norm. 
• Taxing jurisdictions may be reluctant or unwilling to settle cases due to budgetary concerns or time constraints.
• Assessor’s offices will, most likely, rely on the fact that a taxpayer carries the burden of proof in an appeal and proving values may be difficult due to the lack of recent transactions. 

For these and other reasons diligence and creativity will, no doubt, prove to play a very important role in 2009 property tax appeals.

Why we need to be diligent in conducting property tax assessment reviews. 

There are situations where, because of the ridiculous run up on property values over the past few years, a property’s assessment may have lagged behind the market and may have been under assessed. Even with the recent dramatic declines in property values the property may still be equitably or under assessed. 

Let’s say that you receive your 2009 assessment notice indicating the assessment of a property to be $1,000,000. The property was assessed at $1,000,000 for the 2008 tax year as well. Some might immediately say that there is no way the property is worth the same amount in 2009 as it was in 2008 and an appeal needs to be filed. However, let’s say that in 2008 the actual market value of the property was closer to $1,500,000, not the $1,000,000 that it was assessed at. If the value of the property has decreased by 30% between 2008 and now, the property might still be fairly assessed at $1,000,000. 

Without a proper review of the current and past market values of the property you might find yourself trapped into an unwarranted appeal. At best, money and resources are dedicated to an appeal with no savings potential and, at worst, you could find yourself fighting an increase. 

There are many savings opportunities out there and, of course, we need to be aggressive in discovering and pursuing them. However, we also must maintain a rational and diligent approach.

This is the first of a few posts I will make over the next few days to share my thoughts on a few issues that I think are worth consideration as we work our way through the 2009 appeal season. 

The 2009 property tax appeal frenzy is well underway. It’s sure to be one of busiest years in recent memory. There’s also no reason why it shouldn’t prove to be one of the most productive years in a long time. However, I think that there may be some misconceptions about what to expect and, perhaps as important, what not to expect.

 I think we all agree that values have declined. It’s close to impossible to argue otherwise. That said, we are not going to find ourselves ”shooting fish in a barrel”. 

There’s more to it than simply raising our arms and saying, “we all read the papers, we all watch the news…” Of course values have declined in virtually every sector. Companies and entire industries are facing double-digit loses. Closures and layoffs are rampant. Need I go on? 

So, why isn’t it as simple as filing an appeal and waiting for a refund check?

Quantification is king! 

Probably the most important issue that must be taken into consideration for tax appeals in 2009 can be summed up in one word: 

PROOF

Taxpayers carry the burden of proof in a tax appeal. They must prove that the assessment is excessive and in order to do that they must present evidence. However, thanks to the chaos in the capital markets and the resulting credit freeze, transactions are scarce, to say the least. An excerpt from a recent CoStar article reads:

“with the capital markets in disarray and few comparable transactions upon which to build a foundation, buyers and sellers can’t agree on pricing. 

In fact, one widely watched transaction-based index published at the MIT Center for Real Estate couldn’t even produce a retail index for the fourth quarter due to the dearth of transactions. The overall sample size for various other property markets was “scarily low,” acknowledged David Geltner, director of research at the MIT Center for Real Estate. ”

So, although we may all agree that values have declined, proving values for the 2009 tax year becomes more challenging due to the lack of reliable market information. 

2009 presents a great opportunity for companies to significantly reduce their property tax liabilities. However, It is not realistic to think that appeals will be a walk in the park simply because of the current economic conditions. If anything, 2009 tax appeals will require more work, diligence and creativity than in the past. The good news is that it will be worth it. 

Marion County has announced that the mailing of final 2007 tax bills will not occur until sometime this summer. These bills will serve as the final 2007 (pay 2008) bills and will reconcile the difference between the estimated first half bills and the bills reflecting the new 2007 values. These bills will be based on a valuation date of January 1, 2006, meaning the value will be based on market activity for 2004 & 2005. This is going to be a tough sell to taxpayers in the midst of the current economy.

Normally, 2007 taxes would have been paid in May and November of 2008. However, due to the state ordering the county to conduct a reasssessment for 2006 and a computer system snafu, everything has been pushed back. Right now, Marion County is indicating that the 2007 bills will be mailed in June or July and will be due within 30 days. The hope is to have 2008 bills sent a few months later and 2009 (pay 2010) bills to resume a normal schedule of being due in May and November of 2010. It sure will be interesting to see how taxpayers react to being required to pay 2 1/2 years worth of tax bills within such a short time frame.

The Virginia Attorney General has issued Opinion Number: 09-109 regarding the term ”original cost” as it relates to the assessment of tangible personal property. The opinion states that, “it is my opinion that the term ‘original cost’ means the acquisition cost of property from the manufacturer or dealer, i.e., the original cost paid by the original purchaser of such property from the manufacturer or dealer”.  The first thing to point out is that this is what personal property appraisers define as historical cost.

Now, let’s say that an individual or company acquires a business in the state of Virginia. The cost of the assets to the present owner (what personal property  appraisers define as original cost) will be the values that the will be carried on the company’s books for accounting purposes. This  could result in a “step-up” or a “step-down” in value and could be different than what the opinion defines as the ”original cost” of the assets.  How will the assets be valued for tax assessment purposes?

According to this opinion, the assets must still be valued using the “original cost” of the assets (trended & depreciated). An issue arises due to the fact that the taxpayer would now, theoretically,  need to maintain two sets of books (one for accounting and one for property tax reporting). Furthermore, what if the taxpayer does not have the “original cost” information (I have seen this happen many times)? Now, the taxpayer would have to accept the figures on the personal property return and make additions and deletions going forward.

I am just skimming the surface of this issue here, but hopefully you can see how this has the potential to result in innaccurate assessments of personal property assets in Virginia and elsewhere.