VOL. 110 | NO. 83 | Friday, April 26, 1996
04-26 Prop taxes
Property taxes are significant, subjective and controllable
By David C. Scruggs
Special to The Daily News
Benjamin Franklin proclaimed, "In this world, nothing is certain but death and taxes." Although certain, property taxes are controllable. Why do business and property owners place a low priority on challenging this burden? The perceived notions that taxpayers have no control, that this is a cost of doing business and that property taxes are a fixed expense are exactly that: perceived notions. Taxpayers have rights and avenues of action that allow them some control over the amount of property taxes they pay.
Property taxes are big business for state and local governments. Nationally, property taxes are imposed within 80,000 jurisdictions with an annual yield of $112 billion. Tennessee alone realizes $1.5 billion annually, with Memphis and Shelby County accounting for approximately half a billion dollars.
Property taxes are the primary source of revenue for most local governments. For 1995, approximately 28 percent of the Shelby County budget and 40 percent of the city of Memphis budget was funded by property taxes. This dependency has shown a significant increase in recent years. Shelby County raised its property tax 10 percent in 1992, while city of Memphis property tax rates increased by 25 percent in 1992 and another 18.6 percent for 1993. On average, the national property tax increase has been about 10 percent annually.
Aside from the real dollar burden, there are intangible incentives for property owners to pay closer attention to property tax valuations. For residential and business owners, high taxes have a direct negative impact on property values, marketability and loan amounts. Taxes in excess of the competition creates an economic disadvantage.
The first step in controlling your property tax expense is to compare the tax valuation of your property with your estimate of its value. On a national average, an estimated 60 percent of real property is over valued. Two percent of these properties are appealed and 80 percent of those appealed receive reductions.
The Shelby County Assessor will reappraise all properties in the county in April 1997. This will be the third reappraisal in six years. Remember that the assessors determination of value is subjective and can be questioned. Some of the questions to ask are:
Is the assessors data accurate?
What approach to market value (cost, income, sales) did the assessor use?
What circumstances (vacancy, obsolescence, contamination) are unique to the property?
The next step in control is to appeal valuations that appear excessive. The appeal process is a long arduous journey fraught with government imposed obstacles and pitfalls. First, review your valuation with the assessor. Understand how he or she valued your property and why. Also examine the assessors valuation of comparable properties to determine equality and uniformity. Suggest a resolution by submitting supportive material for a lower valuation.
If unsuccessful at this level you have a right to appeal to the Shelby County Board of Equalization. The board consists of seven knowledgeable citizens who impartially hear both sides and render a decision. Either the assessor or the taxpayer may appeal that decision to the Tennessee State Board of Equalization.
There are three levels to the state board appeal process. The first level is a hearing before an administrative judge (a lawyer). The next level is before the Assessment Appeals Commission, which comprises six appointed citizens from across the state. The final level is to the State Board of Equalization which includes the governor, secretary of state and other political persons. This final level does not have to hear an appeal unless it wants to in order to declare tax policy. After these administrative appeals are exhausted, either party may file suit in court.
Judge Learned Hand proclaimed "Anyone may so arrange his affairs that his taxes shall be as low as possible. He is not bound to choose that pattern which will best pay the Treasury. There is not even a patriotic duty to increase ones taxes."
The money the government extracts in property taxes is yours, so make sure they deserve it by having a realistic valuation which is equal and uniform with similar properties. Remember that you have a degree of control over your final property tax liability.
Scruggs is a partner with the Memphis law firm of Evans & Petree. He has 20 years experience in state and local taxation law.