Prevent costly double taxation by simultaneously reviewing your real property and business personal property assessments. Learn how to spot common errors in your assessments and ensure your property is accurately assessed.
Has your property ever been double assessed? Do you know how to determine if you’ve been double assessed?
The best course of action to ensure your property is not double assessed is to review your real property and business personal property assessments together each year. Even if there is little to no change in related values, clerical errors or misstatements can still occur.
Real property assessments are generally based on the current real estate values in the market where your property is located. So, it’s expected that the value will vary each year. Business personal property assessments are generally based on what is reported each year as currently owned machinery, equipment, furniture, and fixtures, not attached to the real estate. Therefore, the value of business personal property will also fluctuate annually.
“I’ve worked with several clients over the years, where double assessments have been identified and corrected, saving them tens of thousands of tax dollars annually.”
“I’ve worked with several clients over the years, where double assessments have been identified and corrected, saving them tens of thousands of tax dollars annually,” said Angie Kirk, Manager of State and Local Tax Services at Clearview Group.
Identifying these double assessments can result in substantial tax savings, but it requires a diligent review of your property assessments. Start by closely examining your real property assessment for any potential errors.
Start reviewing your real estate assessment by verifying there are no clerical errors. Errors happen; your assessor is human. These errors can be minor and often go unnoticed. Still, when they affect your property assessment and, subsequently, your property taxes, you need to ensure they’re corrected to avoid the potential of being double assessed.
When looking for clerical errors, check that the appraised fair market value was adjusted appropriately for the assessment ratio. In many jurisdictions, the assessment ratio, which shows the association of a property’s assessed value (taxable value) and its fair market value (sale price on the open market), is 100%. However, in others, it is less than 100%, and the fair market value should be multiplied by the assessment ratio to determine the taxable value.
For example, in Georgia, the assessment ratio is 40%. So, a property given a fair market value of $100,000 would have an assessed value of $40,000.
It's also essential to ensure any exemptions or credits previously negotiated with your taxing authorities are accounted for if they apply to more than one tax year. Then, verify the basic property information the assessor has on record. Double-check that the square footage the assessor has recorded for the property is correct. And lastly, make sure your taxing jurisdiction agrees with the property address.
These areas are often where property owners can find clerical errors that could harm the property value and even lead to double taxation.
Once you reviewed your assessment for clerical errors, it’s time to determine which approach to valuation was used to assess your property. The three approaches are:
The income approach converts an income stream into a market value for the property. This valuation calculation relies on market sales of comparable properties to determine the risk associated with the property, also known as the capitalization rate.
Properties like hotels and multi-family housing are typically valued using the income approach. Assessors calculate the property's estimated value using the income it generates while also considering the potential profitability and future cash flows. This valuation method is believed to align with an informed buyer's or investor's thinking, making it the most accepted for hotels and multi-family housing.
When using the income approach to determine a property's value, it’s important to know its condition, whether it’s operating efficiently, and the vacancy rate. All these factors affect the property’s ability to generate income, subsequently affecting its value.
With the income approach, the business’s personal property value is often deducted from the real estate value calculation. The taxpayer must ensure the correct personal property value is utilized in this calculation, or one or both of those assessments may be incorrect or overstated, leading to a double assessment.
The cost approach estimates the price a buyer should pay for the property based on the cost of building an equivalent property (cost of the land plus cost of construction minus depreciation).
The cost approach values buildings like libraries, schools, or churches. These are considered special-use properties and generate minimal income. The cost approach would also be appropriate for valuing new construction. It can be relied on to value office buildings and retail properties when adjustments need to be made due to design, construction, or primary usefulness.
If the cost approach was used to value your property, review the difference between the prior and current years' values. Were any improvements or modifications made? Are those changes reflected accurately in the property value?
This approach is the one that can most often lead to double assessment, as items included in the real estate assessment as improvements to the building (such as lighting, security systems, etc.) may already be reported and assessed in the personal property value, depending on the jurisdiction’s filing requirements.
For example, in states like Florida, where leasehold improvements are required to be reported on the personal property return, it’s important to check that those improvements do not appear as taxable on both the personal property and real property assessments. It’s very common for the assessor to pick up building improvements on both the real and personal property assessments, which would be a case of double assessment.
The market approach estimates the property's value based on recent sales of similar properties. This approach is often used for residential and multi-family housing properties.
If the market approach was used, review the property's assessed value to similar properties nearby to make sure the values are comparable. Keep in mind that property size, construction type, age, condition, and what the property is used for will affect the value when using the market approach.
The market approach can lead to double assessment when the assessor values the property using its recent sale price, but that number also includes the purchase of business personal property. It’s important to get the buyer’s breakdown of the purchase price to determine what was included in that number. If the purchase price includes the personal property, which can be the case for multi-family housing properties, the value would need to be adjusted to remove the personal property to ensure accuracy.
Taxing jurisdictions often allow for a maximum annual percentage increase in property value as well. For example, California limits an increase to no greater than 2% each year unless there is a change in ownership or new construction. Georgia has a 3% cap on unimproved property assessment increases. Michigan caps the increase at 5% for commercial properties.
Like real property, start reviewing your business personal property assessment by verifying that there are no clerical errors. Make sure the assessment reflects the type of property reported. Ensure different types of furniture, machines, etc., are valued in the correct filing category or classification. Verify the market value is calculated appropriately given the depreciation factors used by the assessor to determine the value.
Like real property, verify the assessment ratio is applied to the market value correctly, if applicable. These areas are often where property owners can find minor clerical errors that, if left incorrect, could lead to a double assessment.
Also, like real property, verify that the taxing jurisdiction on the assessment coincides with the property's address. Sometimes, a property may be on the border of multiple counties or townships, so you want to ensure you are taxed in the correct jurisdiction and certainly not in both.
Beyond typical clerical mistakes, property owners must dive a bit deeper when reviewing their business personal property assessment. Start by verifying that only assessable and taxable property is on the assessment.
Ensure there are no assets on the assessment that were reported on the return as not taxable but were considered taxable by the assessor. Vehicles, inventory, supplies, and specific leasehold improvements are examples of assets considered reportable but not taxable in certain jurisdictions. The assessor may inadvertently treat these assets as taxable when they shouldn’t be assessed. If the leasehold improvements are assessed on the personal property assessment and the real property assessment, this would be an instance of a double assessment.
“In Maryland, we’ve seen real property items included on the personal property assessment, even though the taxpayer reported them as a not taxable property type.”
“In Maryland, we’ve seen real property items included on the personal property assessment, even though the taxpayer reported them as a not taxable property type,” said Kirk. “This happened to a taxpayer when they reported large holding tanks on the personal property return. These were already being assessed on the real property assessment.”
“We were able to work with the Maryland State Department of Assessment and Taxation for the taxpayer to remove the tanks from the personal property assessment and avoid the double assessment.”
Property owners must then look for items that might be considered real estate, like building improvements. Research the taxability of those items in your jurisdiction to ensure that they are considered taxable as business personal property and not as real property. This is particularly important in states like California, where leasehold improvements, whether structural items related to real property or fixture items related to personal property, are reportable. The structure items are considered reportable but not taxable; the fixture items are considered reportable and taxable.
“We’ve worked with the taxing authorities on taxpayer’s behalf in various California counties to remove the double assessment of leasehold improvements that were assessed as fixture items on the personal property assessment but should have been assessed as structure items, which are already assessed on the real property assessment.”
“We’ve worked with the taxing authorities on taxpayer’s behalf in various California counties to remove the double assessment of leasehold improvements that were assessed as fixture items on the personal property assessment but should have been assessed as structure items, which are already assessed on the real property assessment,” said Kirk.
Research may require searching the County or State assessor’s webpage where the business is located for return instructions, an assessment manual, or the current tax codes to review for specific regulations and guidelines on taxable versus not taxable personal property. If any items considered taxable as real property are included in the business personal property assessment, it would be an instance of a double assessment. It should then be reviewed in detail with the assessor.
Property owners will also need to ensure the assessor valued all the assets as reported and did not move them within categories or asset classes as reclassifications.
For any items the assessor reclassifies, you should determine the associated tax impact. Determine if the move affected the assessment in a way that the tax decreased or increased due to the reclassification. Particularly if the reclassification increases the tax, it’s important to review the increase amount and decide whether the reclassification seems appropriate.
It also may be necessary to review the implications of a tax decrease due to reclassification. If the business is in a jurisdiction that regularly audits business personal property, like California or North Carolina, and the reclassification decreased the tax, and that is not correct, during an audit, the property has the potential to be reclassified again and could be subject to future penalties.
At first glance, it might be difficult to understand what to look for when you review both assessments side by side to verify them for accuracy. However, if you have followed the information detailed above for each assessment, it will be easy to spot potential concerns.
Start by verifying that the address and taxing jurisdiction of the property location match on both assessment assessments, assuming you own both the real estate and the business personal property at the same location.
Look over the issued assessment. If you have any questions about the values, request additional information from your assessor to examine them more closely.
Review the calculations on both assessments. Request the assessor’s workpapers for both the real property and business personal property assessments, so you have the breakdown of values.
If the assessment matches the filing, you may not need the assessor workpapers for business personal property. However, if it doesn’t match the filing, you’ll likely need to request them to understand how the assessor valued the assets, if they were not valued as they were reported.
For real property, you will need to request the assessor workpapers or a copy of the property record card to determine the breakdown of the assessment and what is included in the value. It’s important to note, for real property, which of the three valuation methods were used to determine the property's value. If you are unsure, ask the assessor when requesting the workpapers.
Lastly, confirm that no overlap between the assessments leads to a potential double assessment. Verify that there is no business personal property, like machinery and equipment or furniture and fixtures, on the real property assessment. Conversely, confirm that there are no buildings, improvements, or structural assets captured on the business personal property assessment.
Reviewing the assessments can often seem unnecessary and even time-consuming. However, no business wants to pay tax on the same property twice. So, it’s important to make sure your tax assessments are accurate and clearly reflect your real property and business personal property. The responsibility lies with the taxpayer to identify concerns regarding the assessments and tax bills and present them to the taxing authorities.
Our State and Local Tax experts are here to help you with all your real estate and business personal property needs. Let’s start by reviewing your assessments and finding any double taxation. Talk to our experts today!
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