Cutting Taxes with Due Diligence

As published by Real Estate New Jersey, April 2002, By John Garippa

Running a corporate property tax department has never been more difficult,  because as the economy falls, profits deteriorate. That reflects itself in lower property values. These factors bring substantial pressure on corporate property tax departments to reduce property taxes.

But despite previous recessions, property tax collections have continued to rise. According to a Tax Foundation report, local property tax collections (in constant dollars) increased over 90% between 1980 and 2000. That's an average increase of about 4.5% per year. Since 1932, property tax collections declined in only 11 of 69 years, the last decline in 1980.

Property taxes are incredibly costly. The U.S. Department of Commerce recently estimated that in 2001, corporate profits in this country totaled approximately $474 billion. That same year, corporate property owners paid about $142.5 billion in property taxes, 30% of profits.

The average corporate property tax department has hundreds of parcels of property scattered across many jurisdictions. Typically, it faces great difficulty in analyzing this type of portfolio on a regular basis. The common problems facing most departments are knowing what is owned and what is assessed.

A central repository of tax information accessible through the Internet is something that all tax departments should consider. Such a system should include assessment information, equalization ratios, tax rates, filing dates, tax payment dates, important phone numbers and names of assessing officials, and tracking of any appeal currently taking place.

The system should also insure that all tax bills are reviewed for accuracy in a timely fashion. It is not unusual for tax departments to pay unnecessary tax penalties because a tax bill was not reviewed, and payment not authorized by the due date. A system such as this can eliminate significant paperwork associated with reviewing property at diverse locations and provide information to help determine whether an appeal should be filed.

With this inventory tool in place, the corporate property tax office is now set to take the next series of steps in this process. All property should be reviewed annually to determine whether market forces have impacted value. The tax department should be well aware of all applicable deadlines for administrative appeals and litigation. All property that has been recently purchased should be examined to see if that purchase price results in assessment reductions. Periodic reviews of comparable assessments should take place so that discussions about uniformity and fundamental fairness can be made to assessing officials.

An annual review of property inventory should also take into consideration whether there is an intangible value component that continues to be reflected as real property value in the assessment. Property that has significant business components such as hotels, regional shopping centers, and senior living facilities all have such intangible values. These business components should not be assessed.

Tax departments also need to be well aware of recent trends affecting value. One issue recently brought into focus as a result of the 9/11 attacks is the specter of increased property insurance costs. Owners of high profile property will see higher insurance bill, and insurance rates for certain kinds of commercial property will significantly increase. This means that the value of income producing property will be lessened, while assessors will not have taken into consideration this sudden change in the marketplace. Only a sophisticated tax department, staying abreast of current market trends, will be in a position to take advantage of these types of issues.

Lastly, all corporate property tax departments should periodically review the performance of appeal providers. A critical review of those individuals who are providing appeal services must be made each year. Such a review must include whether these providers are using the best current arguments and whether appeals are being settled at discounts from that which ought to be obtained.

Often, tax departments fail to review the performance of these outside providers. It isn't unusual for such firms to experience high turnover, which results in different people working on these cases. Only by monitoring results can the department be assured of continued high quality work.

John Garippa is the senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair, New Jersey and Philadelphia. Mr. Garippa is also the president of American Property Tax Counsel, the national affiliation of property tax attorneys.