Nearly three decades ago, California enacted Proposition 13, a highly debated piece of legislation that limited property taxes to 1 percent of the full value of the property, and reduced them statewide by an average of 57 percent.Today, a swelling number of grassroots movements in several states that are protesting skyrocketing property taxes and filing appeals may usher in the question of whether the U.S. will one day need similar legislation on a national level.
Rallies against higher property taxes have occurred recently in Florida, Minnesota, New Jersey, Arizona and Michigan, among others.
In Lee County, Fla., home to such high-end areas as Sanibel and Fort Myers, assessments increased an average of 39 percent in 2006, while appeals more than tripled over the previous year. On a statewide basis, property tax revenue increased 50 percent between 2003 and 2006.
In St. Paul, Minn., an April rally to protest rising property taxes drew nearly 7,000 residents to speak out on proposed increases, including one that would tie real estate property taxes to household income.
In Michigan, Governor Jennifer Granholm has proposed a bevy of tax increases, including a new property tax levied on commercial rental property. Granholm's proposed reforms to help eradicate a $4 billion shortfall drew a "teabag protest" from hundreds who descended recently on the state capital.
TAXES UP, VALUES DOWN
Recently, The Wall Street Journal reported that home values rose by roughly 1 percent last year, while property tax collections went up by 7 percent.
That disparity can occur in situations where changes in the marketplace aren't reflected in assessments in a timely fashion.
"In some states, they don't revaluate every year. They revaluate every three, four or five years," explained Paul Pennington, president and principal of P.E. Pennington & Co. Inc., a Carrollton, Texas-based property tax appeal firm. This can result in a situation where a property's assessed value far exceeds the actual present-day market value.
But getting the market value of an asset or assets changed is possible, and can be done through the appeals process.
"The first step in an appeal is to understand what makes a valid appeal. Get the assessment appeal instructions or guidelines from the assessor and from the assessment appeals board in the county," explained Jim Bone, a CPA and Southern California director of property taxes for Big Four firm PricewaterhouseCoopers. "The second step is to determine the assessment date, and the value of the property as of the assessment date." The best evidence of the value, he said, are sales of comparable property.
Bone pointed out that in the case of real estate values, the comparable sales must be located in the same neighborhood as the property under appeal.
THE ASSESSMENT PROCESS
The job of property assessors is to determine market value. Those values are determined by making a comparative analysis of "like" properties in "like" neighborhoods. Property assessors rely on appraisals and market research, much of which is based on recent sales prices of similar properties.
Once that information is gathered, the appeal can go forward. "Most of the time, if you have a case, you'll get the issue redressed," said Foy Mitchell, vice president of Dallas-based Marvin F. Poer & Co., a property tax consultant.
Statistics published by the National Taxpayers Union, a Washington, D.C.-based advocacy group, indicated that in the case of homeowners, those who appeal property tax assessments receive a reduction of tax in more than 30 percent of cases.
All states and jurisdictions have different property tax rules, so the guidelines and appropriate assessment dates are going to vary based on the location of the property.
"In Texas, the assessment officials are becoming more active in pursuit of market value," said Mitchell. This is one reason that property tax appeals are on the rise in Texas, according to Mitchell. He also pointed to the fact that consumers are becoming more familiar with the appeals process.
Experts said that it's not necessary to have professional representation appear on behalf of a property owner at a property tax appeal - but in many cases, it couldn't hurt.
"You as a property owner may articulate the issue yourself," said Mitchell. However, he said that, particularly in the case of businesses, accountants would have an understanding of the differences between the market value and the book value of property that is subject to taxation. Therefore, they might be better suited to provide information that supports a claimant's position that the assessed value of the property is too high.
Accounting firms that currently provide property tax services for clients might be able to help clients with appeals, particularly if those clients are businesses with high values of property at stake.
Individual homeowners, on the other hand, might find they have more luck researching similar properties through public records - perhaps hiring an independent appraiser - and doing the appeals themselves.
"Most accounting firms won't be handling individual residential assessment appeals, because the potential for tax recovery is relatively small," explained PwC's Bone. "The cost to have an accounting firm handle the appeal would be very expensive, unless it was an extremely expensive home."
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