Real estate taxes

AL communities should review to reduce liability

Property taxes can represent 15% to 20% of occupancy overhead costs. Like other major operating expenses, annual property taxes should be reviewed to determine whether they are excessive and can be reduced.

This article is not intended to provide an exhaustive explanation of how local assessment authorities determine the value of assisted living properties. Instead, it offers ideas, arguments, and methods that owners and managers may want to consider that might convince local assessment authorities to reduce specific property tax assessments.

Different authorities

Each state has different assessment authorities. Some states have regional assessors, county, district, city, village, or town assessors. The first step in reviewing property tax assessments is to determine the assessment authority that has jurisdiction over your facility.

Most real estate assessments are based on records maintained by local assessors. If the records contain factual errors, the assessed valuation might be incorrect and excessive. Do not assume that the assessment authorities have crosschecked and verified all factual data contained in their property record. Many assessors’ offices are short-staffed and have high workloads and limited resources. Visit the assessor’s office that is responsible for the real estate assessment. Most property description records are considered public record and should be available. Obtain photocopies of the assessor’s records that pertain to your particular piece of real estate. Check that the descriptive data is correct and that factual errors do not exist. If an error is detected that causes an assessment to be higher than it should be, provide the correct information to the assessor on a timely basis.

Definition of value

Each state has adopted its own statutory definition of value to be estimated for purposes of annual real estate tax assessment. Determine the specific value standard for each jurisdiction where your organization 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. Learn about the equalization procedure and how it affects the real estate you pay property taxes on. Some companies receive assessment notices and tax bills, but are not aware that the values stated are at a reduced percentage of market value. The assessed value must be equalized to 100% in order to determine the estimated market value placed on the real estate by the assessor.

When the market sales comparison approach is applied, it is important to determine whether the sales have been adjusted to exclude business value. Most state statutes require only the real estate be taxed.

If the income approach has been applied, an overassessment may occur if nonreal estate items are included. Assisted living facilities have a high concentration of nonreal estate income. The monthly rent is not just rent for the unit, but nursing services, transportation, social services, meal planning, housekeeping, laundry, recreational therapy, and other resident services can be included. If the assessment authority is using the all-inclusive monthly payments in applying the income approach, an effort should be pursued to convince the assessor to exclude nonreal estate revenue. The operating expenses will most likely include nonrealty payroll costs for kitchen staff, food service manager, chef, servers, dishwashers, recreational staff, administrative staff, marketing director, and executive director. Just as the income should be adjusted for nonrealty income, the expenses should be adjusted to reflect only real estate related costs.

If the building is designed similar to an apartment complex, one way to remove all intangible business value is to estimate the market value as an apartment complex. Due to variations in unit designs, common areas, and amenities, it can be difficult to adjust for these differences.

The cost approach is not a good method of estimating the market value of assisted living facilities because they are costly to construct, and usually take two to three years to become fully occupied and leased out.

Critical date

Each state has its own assessment or valuation date that is a critical date. The assessed valuation is to be as of that statutory date, and reasons why this date is important include new construction in progress, remodeling under way, vacant space, physical condition of the building, utilization of the building, and date of occupancy. The market value of a building only partially constructed as of the assessment date can be dramatically different from a fully finished, operational building later in the year. Be conscious of the assessment date and use it in your favor to control and possibly reduce your real estate assessments.

It is important to be aware of the time line local assessors use 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. Most assessment authorities must operate within time constraints to complete their estimates of value, and often face staffing limitations and inadequate resource materials.

The goal should always be to work with local assessment officials to establish a mutually satisfactory assessed valuation of your real estate, or at least a value you can live with. Unfortunately, situations can arise which 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 can assist in the timely and proper filing of the documentation necessary to make a valid objection or appeal.

Property taxes can negatively affect both short- and long-term returns on assets. They can create a distortion of high overhead. Annually reviewing real estate tax assessments can lead to reducing them.

William Ardern II is licensed to practice law in Illinois and Wisconsin. He is the principal of Wisconsin Property Tax Consultants, Inc., ( and has more than 29 years experience assisting commercial and industrial property owners in Wisconsin. He can be reached or (800)444-0399. Long-Term Living 2010 November;59(11):44-45

Topics: Articles , Finance