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Commercial Course

Brief Introduction To A Commercial Property Tax Overview

Commercial and industrial properties fall into a category that are the source of many property tax problems. Most obvious is that they represent a significant cost of doing business. A small error can result in a large tax liability.

The bigger the property, the more dollar value is attached to this overhead cost. Distressed commercial properties need to be timely in addressing ever changing market conditions. If they miss their opportunity to appeal they lose substantial dollars.

Many of the same factors that affect the valuation of residential property also affect commercial and industrial property. However, there are other factors as well that must be brought into consideration. Vacancies, elimination or a change in highway traffic, casualty loss as a result of a flood, hurricane, tornado or other natural disaster, etc.

The nature of property valuation is extremely subjective. Some of these subjective estimates involve the impact of factors such as age, physical condition, functional obsolescence, external obsolescence, capitalization rates, rental fees and other general market conditions. The chance of your client paying more than their fair share of property taxes may be fairly high.

In a sense you are a bounty hunter looking for homes or businesses that are overtaxed. If, for instance, a business lost its anchor tenant their income is severely reduced. The valuation for a business is based in an Income Approach NOT a Market Approach. For a business, the business property tax valuation can be challenged and a reduced property tax would be in order.

A property may be inappropriately assessed due to:

• Costs that do not contribute to value
• Obsolescence attributable to technological change
• Higher fractional double taxation due to improper classification
• Improper use of purchase price
• Adverse economic conditions

Plus a multitude of other factors.