Real Estate Tax Valuation Notice
It’s “Tax Time” of year.
You thought taxes were behind you on April 15, but now is the most important time of year to be vigilant regarding your Real Estate Taxes. It is likely that you just received, or are about to receive, your Tax Valuation Notice in the mail from the county where your property is located. Review this information closely. The property’s assessed value is used to determine the Real Property taxes that will be billed to you for the next tax season. If you believe there is a discrepancy in your property’s valuation, you’d need to submit an appeal by July 1st or, in most cases, 30 to 60 days from the date the valuation notice was mailed. The date is critical as it is the valuation that can be appealed, not the subsequent tax bill.
Below is a simplified description of how Real Estate Taxes are determined and what action you can take to appeal if necessary. Washington State has one of the most complicated property tax systems in the country and this only scratches the surface of all its intricacies.
PROPERTY TAX FORMULA:
There are three elements that determine your Real Property Taxes.
- Washington State has a Budget Based Property Tax System which results in the Levy Amount. The Levy Amount is the total amount to be collected from the taxpayers by a taxing district to provide the tax revenue needed to fund the budget.
- The Assessed Value represents the total value of all the taxable property in the affected jurisdictions. Some properties are exempt, such as churches.
- The county assessor calculates the Levy Rate necessary to raise that amount of revenue by dividing the Levy Amount by the Assessed Value in the district. The calculation is below.
The Property Tax Formula is: Levy Amount ÷ Assessed Value = Levy Rate.
This result is the Levy Rate for the taxing jurisdiction which is then applied to your specific tax parcel.
Property Valuation x Levy Rate = Taxes Due
The County assessors arrive at the value of all the property in their jurisdiction by looking at different factors in the area: sales comparables, the cost of new construction and, where applicable, the economic value of the property as an investment. They then determine which valuation method, or methods, are best suited to a property to arrive at the “assessed value”. Because this job is too large to be done on a property-specific basis, computer programs are used to assist in the process. Therefore, the valuation of a specific property may be flawed because it is being treated globally and may not be appropriate for that specific property. For example, you may own an old, worn down property in a neighborhood with newer buildings. If the assessor valued your property similar to the newer buildings in the neighborhood, the property could be overvalued which would result in a higher Real Estate Tax. Another example would be if you own a commercial building with long–term, below-market lease rates. The assessor may use current market lease rates and arrive at a much higher value than the market would accept if you were to try and sell the property.
Again, the appeal itself is only for the value of the property, not the taxes. There are specific steps to be taken to pursue an appeal which may vary by county. Each County can provide direction on how to do the appeal.
It is not uncommon for the property owner and the assessor to disagree on a valuation. However, it is not always worthwhile to submit an appeal as the success of an appeal is not assured. When you appeal the valuation, the assessor can (1) argue that the amount they determined is correct, (2) agree with your appeal and lower the valuation, or (3) argue that the earlier valuation was wrong and should be increased. In other words, it is important to understand the value of your property and how it’s calculated before you appeal.
Real Estate Taxes are a significant cost, particularly on commercial properties. The tax amount impacts the cost of doing business for an owner/user as well as the building’s operating costs (and therefore the rents of a commercial rental property). It is important for owners of a commercial property to understand how the taxation system works.
Our property management team regularly engages a Real Estate Tax consultant to assist with the decision to appeal a valuation and further use their services to help with the actual appeal if we decide it’s worthwhile to proceed. The cost of a consultant’s preliminary recommendation is nominal, especially when compared to its potential impact. The typical fees charged by these consultants, if an appeal is filed, are usually a percentage of the achieved tax savings. Their costs are usually a recoverable expense in a commercial leased building.
Be on the lookout for your Tax Value Notice any day now and be prepared to act now if you feel the valuation is too high. While you can appeal the valuation yourself, we would strongly recommend a consultant be engaged for any commercial property.
We believe the information above to be correct, however, we are not attorneys, accountants or real estate tax specialists. Please consult with your legal, accounting or real estate tax professionals for further information regarding this subject.