Commercial property taxes are one among the most important expenses for many owners of commercial real estate. The government estimates a worth annually and extracts money from commercial property owners unless they appeal. The commercial property tax is actually a wealth tax.
How to Calculate Commercial Property Tax
Commercial property taxes are based on the assessor’s estimate of value, the assessment ratio and the tax rate for all relevant tax entities.
The assessor’s value is simply a guesstimate using the cost approach to value (in most cases). The cost approach is considered the least reliable method of valuation by licensed appraisers. Most assessor values aren't accurate.
The assessment ratio is 100% in most states. The taxable value is simply the assessor’s guesstimate of value. Some states have an assessment ratio. The assessor’s estimated value is multiplied by the assessment ratio to determine the taxable value, or assessed value.
There are often multiple taxing jurisdictions for every property, including city, county, school and special districts. The rate is that the sum of the tax rates for all relevant tax jurisdictions. you can do little to impact the rate but do much to impact the assessed value.
Commercial property tax = Assessor value x assessment ratio x tax rate
How to Reduce Commercial Property Taxes
Protest the value of your commercial property annually. Yes, protest each and each year. Even the value didn't change, protest the value . The assessor’s values are based on the cost approach, the least reliable method of appraisal. you can protest both excessive value and unequal value annually.
Protesting excessive value addresses a value in excess of market value. Valuing commercial property is difficult and reasonable people can disagree.
Protesting unequal appraisal is based on similar properties having a more favorable assessed value. Even if your assessed value is below market value, you can likely support an appeal on unequal appraisal. For instance, your office building is worth $100 per square foot (PSF), assessed at $80 PSF but similar office buildings are assessed at $60 PSF. You are at a disadvantage as a landlord if your property taxes are above your competitors.
Protest both market value and unequal appraisal annually. It is your right and most appeals are successful.
Do Commercial Tenants Pay Property Taxes?
Yes, tenants either directly or indirectly pay property taxes. With net leases, the tenant is directly responsible for paying the property taxes. With gross leases, the commercial property owner writes the check to the tax entities. However, the source for payment of taxes is the rent tenants pay. Commercial property owners seek an equitable yield in investment property. Higher property taxes lead to higher rent. Any way you look at it, higher commercial building property taxes mean higher rents and less net yield to the building owner.
Choose O'Connor & Associates to appeal your high property taxes. The process only takes a few minutes, and the results last for years. Lower property tax today.
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