Chad Zeznanski, Director of Property Tax Consulting
Tara Johnson, Senior Manager, State and Local Tax Practice
The COVID-19 pandemic has impacted so many facets of our daily lives, and taxes are no exception.
As businesses seek financial relief wherever possible, some outside consultants are encouraging businesses to pursue 2020 property assessment reductions, founded on coronavirus-related economic losses. Clearly, most income-producing properties will suffer coronavirus financial losses and should pursue assessment reduction.
However, most states determine property assessments on prior-year income. As such, pursuing 2020 assessment reductions solely on coronavirus economic losses would be inappropriate in most states. Business property tax values for the 2020 assessment date — for personal property — will most likely remain intact despite the current health crisis.
Therefore, businesses should pursue 2020 and 2021 property assessment reductions based on a comprehensive assessment review.
Types of property tax relief
In general, property tax relief falls into two categories: disaster relief and economic relief.
Disaster relief, a.k.a. misfortune & calamity (M&C): Specifically covers “physical damage” to property(s) resulting from events such as fire, earthquake, tornadoes and storms. It is possible to obtain a current-year reduction in property assessment value/property tax for physical damage. It does not provide property tax relief for economic losses.
Economic relief, a.k.a. economic decline in value: Applies to income-producing property when there is a loss of revenue due to general economic conditions.
The first difference between the two forms of relief is the timing of recognizing the loss.
- For M&C issues, the date of loss becomes the recognized date by assessors to process requests for reductions in the improvement loss.
- For economic decline, the date of loss is statutory, often referred to as the assessment and/or valuation date. For many states, the assessor’s valuation date is January 1 of the current year. Further, for economic decline, it must have been known or reasonably anticipated as of the assessor’s valuation date in order to be relied upon in the relative tax period.
The second difference between the two forms of relief is methodology.
- For M&C, the methodology is an analysis of the value of loss to improvements until such loss is corrected. Forexample, if a fire causes $1 million worth of damage to a structure, you must compare the assessed structure value with the loss incurred to calculate the reduction in relative assessment.
- For economic decline, value decline is due to the loss of revenue; the physical property remains intact but no, or limited, revenue is generated. The methodology is specific to January 1 or other specific date of assessment, and not the actual date of loss.
Challenging your property tax assessment
Various assessors have already indicated that a reduction related to the current environment will not be forthcoming for the 2020 assessment. Just as businesses are seeking financial relief, so too are states, counties and municipalities seeking financial support in the form of tax dollars to offset huge losses in revenue already occurring.
For those states where the assessment date fell within the pandemic timeline or for businesses with high dollars at stake, there may be opportunity or additional incentive to challenge an assessment. With most assessor offices being closed, however, meetings to discuss any reduction could be pushed out until much later in the year.
While the 2020 assessment might well be insulated, reductions in current business revenue associated with the coronavirus should be incorporated into determination of the 2021 assessment. It would be reasonable to expect and/or advocate for a 2021 property assessment reduction due to the COVID–19 economic conditions of 2020.
If you have questions or concerns about the current environment and its impact on your business property, or you feel there are unique circumstances impacting your assessment, contact your Wipfli representative or one of Wipfli’s property tax specialists.