Challenging Real Estate Taxes Can Impact a Property's Bottom Line

By Andrew Glincher Office Managing Partner, Nixon Peabody LLP | October 28, 2008

Having a lower valuation is desirable for the purposes of real estate tax assessment. The lower the valuation, the lower the property taxes.

At a time when the economy is weak and the hospitality industry is suffering, any cost-saving can be helpful and a reduction in property taxes can sometimes provide a good financial cushion.

Valuation is based on a variety of factors including cash flow and, as we all know, cash flow is down for many properties right now. If that is the case, owners should definitely consider challenging their tax assessment. You may not wish to challenge your tax assessment if you anticipate refinancing soon and want to maximize your leverage.

Every city taxes real estate at different rates and has different procedures for challenging these assessments. But the process usually follows a scenario along the following lines.

When property owners feel they are being over taxed, they can file an appeal or application for an abatement within a specified period of time - in some jurisdictions as little as 30 days from the time they receive their tax bill. Generally, to preserve your rights, you will have to pay their taxes - as billed -and be reimbursed or credited (for future payments) later on if they are successful.

In your appeal, you will need to provide evidence that your property is worth less than the municipal authority thinks it is. Evidence could include a recent appraisal, income statements, a demonstration that vacancy rates are up and room rates are down, as well as copies of leases for retail or other tenants. You could also include sales figures for comparable properties. In some cases if you cannot settle your appeal, you will need to hire a valuation expert.

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