Avoid Overpaying Nursing Home Property Taxes
|BY WILLIAM B. ARDERN II|
|Avoid overpaying nursing home property taxes|
A primer on the pitfalls leading to unnecessary overhead
|Annual property taxes for nursing homes can represent a significant overhead expense. Many nursing home administrators, operators, and owners are unaware that property taxes are an annual operating cost that can be reduced.|
Personal Property Assessments
Most companies “roll over” their personal property self-reporting form schedules every year by relying on the previous year’s self-reporting form and updating it with asset disposals and current-year asset additions. Overassessments can easily be submerged on the self-reporting form schedules, unless an itemized review of personal property is completed. The benefit of an itemized review includes verifying that the asset is still on the premises and in use. Make sure taxes are not being paid on items that are no longer on-site.
Many companies are not aware of the full scope of certain statutory personal property assessment exemptions. Personal property overassessments can occur because statutory exemptions are not being maximized. Make sure your facility is maximizing the use of all available personal property assessment exemptions.
Another way personal property tax overhead can be reduced is to eliminate any overassessments that exist because of double assessments. Certain real estate improvements can also be assessed as personal property. Make sure that no double assessments exist between the personal property and real estate tax assessments.
Some taxing authorities establish annual personal property assessments with their own estimates if no personal property return form is filed with them. These are sometimes identified as “doomage assessments,” and they can increase over time. If a doomage assessment exists for your organization’s personal property, prepare a proper personal property return form and file it on a timely basis with the assessor. It may be possible to reduce the current year’s personal property assessment with the filing and, if not, positive results can occur for the next assessment year.
Real Estate Assessments
Correcting factual errors in the assessment records that have resulted in an over-assessment can be one method of reducing a real estate assessment. Facilities should cross-check all factual data contained in the assessment records and provide the assessor with correct information immediately if errors are identified. A local property tax specialist can complete this task with the assistance of corporate personnel.
If the assessment authority does not have a current diagram, drawing, or sketch of the building or site layout, provide one. Personnel within local assessors’ offices appreciate taxpayers that maintain good communications with their offices and provide them with information that can help them do their jobs more effectively and efficiently.
Each state has adopted its own statutory definition of “value” for purposes of estimating annual real estate tax assessments. It is vital to determine the specific value standard for each jurisdiction where your corporation owns or leases real estate. In addition to knowing the applicable definition of value, it can be useful to be aware of key administrative and judicial interpretations of the standard.
The majority of states employ a market value standard for purposes of establishing annual real estate tax assessments. Many states apply equalization rates to the assessors’ estimates of market value to derive the assessed valuations. As a result, some companies receiving assessment notices and tax bills are not aware that the values stated are at a reduced percentage of market value. The assessed value must be equalized to 100% to determine the estimated market value placed on the real estate by the assessor. Learn about the equalization procedure and how it affects the real estate your company pays property taxes on.
The three traditional approaches to estimating the market value of real estate can be applied to your corporation’s real estate to evaluate whether an overassessment exists. Unfortunately, certain assessment authorities do not use, or consider applicable, all three appraisal approaches. Each state has adopted some form of guidelines, standards, rules, policies, and statutory laws that govern how real estate assessments are to be established. The latitude each assessment authority has in selecting the specific valuation methodology to be applied to different types of real estate varies from state to state and even between local assessment authorities. Some states have very specific laws that require only a certain valuation methodology to be applied by the assessor for particular types of real estate, while others give local assessors extreme discretion not only in the method applied, but also in how the final assessed value is determined.
It is important to determine both the required and the optional valuation methodologies the assessment authorities can apply. A local tax specialist can provide you with insight concerning the valuation methods that are required, those that are optional, and what a particular local assessor favors. Surprisingly, the methodology that is used by an assessment authority can change from year to year, depending on personnel changes in assessors’ offices, law changes, and administrative practices.
Finally, relevant local real estate market sales and lists of competing properties for sale or lease provide useful data to evaluate whether a particular assessment is low, high, or fair. Without insight into current real estate market conditions, your properties may be overassessed, and you may be paying more real estate taxes than are appropriate.
Economic conditions in the area, or within the industry, can cause economic or external obsolescence to the real estate your company owns or leases. Assessment authorities do not necessarily automatically reduce real estate assessments because of the loss in value caused by factors outside the property. External obsolescence can be temporary or permanent, and can adversely affect both land and building components of a property’s market value.
Critical Dates and Deadlines
It is important to be aware of the timeline local assessors work on in establishing the assessed valuation of your real estate. If an assessor must have a value set by May 15, and you provide him or her with critical data on May 14, rather than in January when it was requested, your ability to informally influence how the assessed valuation will be established will be lost.
Be sensitive to the local assessor’s situation. Most assessment authorities must operate within time constraints to complete their estimates of value, and often face staffing limitations and inadequate resource materials. Moreover, those charged with the administration of the property tax are not necessarily provided with the necessary tools and resources to complete the task.
Although the goal is to develop an amicable working relationship with local assessment officials, situations can arise that might compel you to consider filing a formal objection to a specific real estate assessment and pursuing an appeal. For states and local jurisdictions where a formal assessment appeal may be necessary, determine the deadline date for filing the formal objection or appeal documentation. Besides other advantages already mentioned, a local property tax specialist not only will be expert on upcoming appeal deadlines, but also can assist in the timely and proper filing of the documentation necessary to make a valid appeal. It may appear simplistic to know appeal deadline dates, but there are numerous objections and appeals throughout the United States that are summarily denied or rejected because deadlines are missed. By staying ahead of the critical dates and deadlines, your company can avoid losing an opportunity to reduce a real estate tax assessment.
Property Classification and Exemptions
If the nursing home is for sale, and the assessed value is higher than its listing price, submit a copy of the listing contract to the assessor and request that the current year’s assessment be reduced to the listing price or less. If formal, written offers have been received that were too low, or some of the contingencies prevented the sale from closing, consider submitting photocopies of the offers to the assessor to request further reduction of the assessment.
Assessment jurisdictions that apply an income approach to establish the annual real estate assessment often have to rely on revenue and expense estimates rather than actual income and expense data. Analyze the income approach being applied, and provide the assessment authority with actual historical financial data to prove the assessed valuation is excessive and should be reduced. It is advisable to check with the local assessor that if financial data are submitted to his office with the express request that it be maintained as confidential, the request will be honored. Most assessment authorities will keep this financial data segregated from public records.
William B. Ardern II is an attorney and property tax consultant. He is a Principal of Wisconsin Property Tax Consultants, Inc., a Mequon, Wisconsin, firm that specializes in real estate and personal property tax assessments in Wisconsin. He can be reached at (262) 241-1500. To send your comments to the author and editors, e-mail firstname.lastname@example.org. To order reprints in quantities of 100 or more, call (866) 377-6454.
Topics: Articles , Facility management , Finance