There’s an old saying that there are only two certainties in life – death and taxes. For thousands of business owners across the country, increasing commercial property taxes have become a burden they can no longer bear.
Appealing a property assessment can literally make the difference for them as to whether they survive and continue operating. But two things are the keys.
Owners need to review their property tax valuation in a timely manner, and unfortunately, the system is moving further and further away from owners being able to do so themselves.
They need to have professional representation because the process is getting more and more difficult.
A report released by the Fraser Institute in October 2019, Who Bears the Burden of Property Taxes in Canada’s Largest Metropolitan Areas?, found entrepreneurs and small business owners bear much higher property taxes – 240 per cent more, on average, in major metropolitan areas – than comparable residential properties.
More businesses appeal property tax assessments
Over the last few years, there has been a definite increase in the number of businesses across Canada which have gone the route of formally appealing their property assessments.
Every year, the appetite for reviewing and determining whether properties have been assessed and taxed fairly grows.
Essentially, it comes down to competition. Everyone is competing with their neighbour, who is looking to get that extra dollar off of their operational costs.
Given the current state of our economy, every business is trying to save as much money as it can and this is one of the best ways for owners to reduce their operational costs – something that is becoming increasingly critical during these challenging times.
Property tax a big part of business operational costs
Property taxes can eat up more than 50 per cent of a business’ entire operational costs. So owners really need to get a handle on this crucial part of their operations. Owners need to realize they don’t need to blindly pay their property tax bill; rather, they should always ask, “How is this property tax bill calculated?”
The way the system is laid out in most of the major jurisdictions is that the property owner receives an assessed value before the actual tax rate is finalized.
Businesses do not realize what they are paying until they actually receive their tax bill. However, by then it’s past the point that they can appeal.
It is extremely important then that a business owner, with the aid of a professional, becomes involved with the appeal process upon receipt of the assessment notice.
Every jurisdiction is different. Owners need to understand where their current assessment is coming from and from there can determine if it’s worth it to go forward with the appeal.
Looking at market value for your property
The key is to determine if the property assessment falls in line with the opinion of market value for your property, or whether it has been equitably assessed with other similar properties in your municipality. A professional will possess the experience and comparable data necessary to determine if an appeal should be filed.
In most cases, if an assessment has increased substantially, it will likely mean property taxes will increase as well.
There’s no hard and fast rule, but generally, an owner’s budget increases by about three per cent year-over-year on property taxes. Properties that range in the five to 10 per cent increase of assessed value – or even more – are ones that typically should be further reviewed.
Research is key in any appeal. Owners planning to appeal should first contact the particular municipality and try to understand how the assessment was created. The municipality needs to provide a rationale on where the assessment valuation comes from.
This requirement is a part of every single piece of legislation in all jurisdictions.
But, owners also need to contact a professional to look over the assessment because there are so many moving parts that go into it.
Essentially, owners need to know what comparable properties are paying and how much their values are to get a valid indication if what they are experiencing is in line with those comparable properties.
Appeal process is sophisticated
The appeal process is fairly sophisticated. Depending on where a business owner is located within the country, they will need to have an agent and perhaps an advocate.
In certain jurisdictions, they will need to have a lawyer or a legal team. In others, they can represent themselves.
But, the process is fairly arduous. Businesses have to go through the litigation process to get the valuation down for the most part.
Fortunately, in certain areas, assessors are trying to make it a little more open where one can have negotiations with the assessor one-on-one to start, prior to the assessment valuation being finalized.
From that point, if a resolution is not possible, owners will have to go forward with the formal appeal process.
Although a business owner could go through the appeal on their own, it is not recommended because they will not have the data, the information, or really, the experience to understand the process.
Determining market value for an assessment is much different than determining market value for an actual appraisal. Appraisals are site-specific, looking at the property on its end and how it is performing.
But, when looking at an assessment value, one needs to look at the market as a whole. Assessments are required to value using mass appraisal.
Therefore, it is critical here to know comparables – to know and understand competitors and similar properties, and use that information to lower the overall market valuation, which will then reduce corresponding property taxes.
Real estate appraisal companies are getting busier
The majority of most municipalities’ budgets are generated through property taxes. As municipalities grow, tax rates change and for the most part, commercial rates increase. Essentially, more taxes are owed for the same property.
More reviews are becoming necessary to determine if they are in line with market values, which means companies in the real estate appraisal area are becoming busier. They are looking at more and more properties every year.
What used to be a little- or less-known part of real estate is becoming more and more prominent as people look to save every dollar they can and get every advantage they can – particularly in challenging economic times.
In the past, people who appealed their property assessment were considered to be the odd ones out. That has changed today because of the large swings in property taxes.
Now it has completely flipped. If you’re not appealing your taxes, or at least getting them professionally reviewed, you are not one of the sophisticated players compared to your peers.