Business Owners Seek to Cut Costs by Appealing Property Assessments

Raymund Flandez of the Wall Street Journal reports that the bad economy and the deteriorating commercial real-estate market have motivated some small-business owners to fight their tax assessments.

Ann Jones of Columbia, S.C., thought there might be a mistake when she received a property valuation from Richland County in January. The co-owner of the Dog Eared Corner LLC, a pet-grooming company, saw her commercial property’s value assessed at $287,000, after she had just bought the three-story building three months earlier for only $210,000.

Ms. Jones decided to file an appeal with the tax assessor’s office. She told them about the new appraisal done during the purchase, the wear-and-tear of her building and the fact that comparable business properties in the area were empty. As a result: her tax bill of $7,200 was reduced to $5,900 this year.

“For a small business in a bad economy, this reduction is a lifesaver,” says the 54-year-old Ms. Jones. “When you’re in a survival mode, every dollar counts.”

The property-tax burden on a business varies widely, but being a fixed cost, it’s significance has increased as revenues dwindle and margins erode in the recession. This has made commercial property tax appeals, which are processed in the same manner as residential property tax appeals, a more popular option for small-business owners looking to cut costs.

Some business owners are prompted to appeal because of fresh assessments that lag behind the current value of the business’s property. South Carolina, where Ms. Jones runs her business, recalculates property values every five years; the last assessment was in 2004.

Some states have doled out fresh assessments in the midst of budget shortfalls. Cities and counties are under pressure to stabilize their budgets by making sure revenue from property taxes continues.

“Municipalities are caught in a hard spot,” says Tom Bothen, associate director of the Center for Urban Real Estate at the University of Illinois at Chicago.

Although some commercial property owners routinely appeal assessments each year or whenever there’s a new one, industry experts say there’s been an inordinate number of clients this year who are appealing for the first time.

John Terrana, a partner at Forchelli, Curto, Deegan, Schwartz, Mineo, Cohn & Terrana LLP in Uniondale, N.Y., says he’s been getting 20% more inquiries this year over last year for tax appeals. Lance Hulsey, vice president of Haws Consulting Group, a property tax consulting firm in Campbell, Calif., says his firm is doing 30 to 40 appeals this year versus 20 to 25 last year. Brian Bishop, senior consultant at the Aegis Group LLC in Nashville, a property tax consultancy, says he has about 15 clients this year, versus the four to five clients last year.

Mr. Bothen says that the cost of appealing by using lawyers is paid through a contingency basis—an average of a third of annual tax savings won. Mr. Bishop’s firm, for example, takes a 20% to 40% contingency fee. Mr. Hulsey’s firm charges 20% to 35% of annual tax savings. And the risk that a property value is raised from an appeal is minimum, experts say, since there are typically only two results: Win a reduction on the assessment or pay the current assessment as is. Some states are gearing up for more filings.

Read more at: Wall Street Journal