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Don’t overpay property tax: A guide to proactive diligence

Jun 23, 2023

You filed your business property tax return earlier in the year. Now you just need to sit back and remember to pay the tax bill at the end of the year, right? Not exactly. To minimize any unpleasant tax bill surprises later in the year, some legwork is required now to proactively review and address any correspondence from the assessor.

After your return is received and reviewed (at either local, county or state level), a formal notice of assessment is issued. The notice tells you what dollar value the assessor intends to assign to your personal property or real property, and on which the tax will be based. The assessed value may be the same (or close to) amounts reported on the return or may be significantly less or significantly more than expected.

The notice of assessment is presented in terms of dollar value of the property in question. To calculate the estimated tax bill, apply the anticipated tax rate to the assessment amount presented. Some jurisdictions are forthright about providing the expected tax rate on the notice of assessment, while others are not.

Pay attention to timelines

The time frame to receive the notices varies, depending on the original due date of returns and number of property accounts managed by the assessor. When you receive your notice of assessment, the first thing to do is to note the dates on which open book and board of review will take place. These dates establish the timeline for contesting any proposed values both informally (open book) and formally (board of review).

Open book refers to the day or two set aside by the assessor to entertain questions and new information, which might be used to change the assessment before it is finalized. Board of review is set aside for assessments in which a resolution could not be reached between the taxpayer and the assessor.

It is important to take note immediately, as the window for contest is usually quite short. The time period to contest can be anywhere from two weeks to two months, depending on the jurisdiction. Add to that any delay in receiving mail and that window becomes even shorter.

If you do nothing to contest values, the assessor will assume you agree with them and the assessment will become finalized after the board of review stage or another established due date.

But how do you know if there is a value worth contesting? For personal property and real property that requires the filing of a return, the indexed amounts reported in total are compared to the amount on the notice. For real property that does not require the filing of a return, a notice is typically sent out only if there is a change in the assessed value from the prior year. If the value of the notice is significantly higher than what was reported, it’s a good time to dig deeper.

What is considered a “significant” difference? This answer varies among individual businesses and can be impacted by the market, industry or specific situations. A good rule of thumb is to apply the anticipated tax rate to the difference to determine the ultimate tax impact. Then, compare that amount with the amount of time or fees spent asking questions and/or defending a lower value.

If the time or fees spent are worth a potential decrease in tax to you, consider the difference to be “significant.”

Reach out to the assessor

A good place to start is to ask the assessor what is causing the difference between reported and assessed values. Common causes of increased assessments include property that is owned/possessed this year but was not owned/possessed last year, a change in tax treatment from exempt to taxable, leased assets reported by lessor and not captured on lessee side, and insufficient information to make a proper tax treatment determination.

An informal conversation with the assessor can quickly clear up any questions about the increase and provide an opportunity to submit additional data to support a lower assessed value. If the informal conversation and provision of additional data does not lead to the desired result, the board of review is a more formal space in which to make any argument for a lower value. Best results come from first addressing any easily remedied issues with the assessor.

A reminder that even if an asset is fully depreciated, it still has a taxable floor as long as it is physically located at the reporting location. If there are old assets on the depreciation schedule that have since been disposed, lost or scrapped, it’s a good idea to take inventory and remove any items from the schedule that are no longer present. Although the tax may be relatively small, that unnecessary cost is an annuity that adds up the longer you leave ghost assets on the depreciation schedule.

How Wipfli can help

Proactive diligence with respect to your notice of assessment is key. Wipfli professionals are ready to answer your questions to help put your business in the best tax position later in the year. Our dedicated team of tax consultants can help you navigate the property tax process. Contact us today and find out how we can help ensure you are not overpaying your taxes.

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Author(s)

Tara T. Johnson
Senior Manager
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