Best in Law: Should Your Business File a Property Tax Appeal?

Best Best & Krieger LLP

Best Best & Krieger LLP

Taxpayers Have Options to Contest their Property Tax Bill

In the past month, California property tax bills have become due. While some markets are hot and property values are rising, commercial property values have declined in some areas, especially office and retail spaces impacted by COVID-19 economic strains.

While many business property owners may elect to simply pay the amount stated on their property tax bill without thinking about the values indicated by the county tax assessor, other property owners will not agree with the amount reflected in their tax bill.

Fortunately, taxpayers have options to contest their property tax bills, including appealing the value of their taxable property. If done correctly, taxpayers may be able to significantly reduce their property tax liability under the current tax year, and potentially on future tax years. If done incorrectly, a taxpayer can spend significant time, effort and money with nothing to show for it.

There are three basic types of taxable property in California: real property, personal property and possessory interests. A property’s assessed value is a critical component of any property owner’s tax bill.

Under California’s property tax assessment structure, revised under Proposition 13 in 1978, real property assessments are set at the base value as of 1975, increased at a rate of the lesser of CPI or 2 percent per year, and changes only on transfer of ownership or new improvement (there are many exemptions to the transfer rule so this is somewhat simplified).

Thus, the longer a property has been owned by the same party and/or unimproved, the lower the base assessed value would be. However, a property that has changed hands often, or was recently improved, would have been reassessed at the market value at that time.

Further, Proposition 8 (Revenue & Tax Code section 51) allows for a temporary reduction in value based on market conditions in a property that reduce the market value, allowing for a temporary reduction in taxes over several tax years (vs. a permanent reduction, at least until the next transfer or improvement). If the most recent valuation from a sale or improvement was based on top-dollar market values, the current value in today’s market for brick and mortar retail might be somewhat less, and the same might be true of an office building impacted by the work-from-home trend.

Given some local market knowledge about their property situation and current market values, a property owner might believe their property tax bill is too high and desire to challenge the valuation of their taxable property.

To ensure the highest likelihood of successfully challenging an assessment, the taxpayer must be diligent to create a detailed and substantive record in the first round of the tax appeal process that will support their claims if it becomes necessary to file a tax appeal in Superior Court. Accordingly, there are a number of key considerations involved in any successful property tax appeal.

The process starts with a request (called “informal” by the assessor) to review the assessment valuation for that year (measured as of Jan. 1). The taxpayer must timely file a form for such request. If the assessor does not respond by the tax appeal deadline in the fall of that year (counties have different deadlines ranging from September to November), the taxpayer must either file an appeal to reserve the right to formally appeal, or forfeit the right for that year.

The informal request may result in a reduction in assessed value, or it may be rejected. The taxpayer has more steps to follow after that to pursue a more formal action. There are additional considerations at each step and traps for the uninformed.

Filing a property tax appeal based on the valuation of taxable property is a complicated process to navigate successfully. However, successful challenges to an assessor’s valuation of taxable property can result in significant reductions in a taxpayer’s tax liability.

This article first appeared in The Press-Enterprise and other Southern California Newspaper Group publications online on June 3, 2021. Republished with permission.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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