If the looming economic downturn is threatening your company's expansion plans, you're not alone.
When a company's growth slows, opportunities to obtain economic development incentives diminish. However, while some opportunities disappear, others present themselves.
One counter-cyclical opportunity to incentives is that of appealing property taxes -- and the time to strike may be right around the corner.
Most states tax real property, which is property permanently affixed to the ground. Many states also tax tangible personal property, which is everything else.
In a downward economy, presenting a case for a valuation reduction can save significant dollars.
To formulate an argument, you first need to know that property values, both real and personal, are typically assessed in three different ways.
First, value is based on market data that shows similar property being bought and sold in local transactions. This is known as the sales approach.
Second, value is determined based on estimated costs to replace the property, minus allowances for wear and tear. This is called the cost approach.
In the third method, value is based on the anticipated income the property will produce, capitalized over the expected life of the property. This is known as the income approach.
Often an average of all three methods is used. It's up to you to let the tax assessor know specifically how and to what extent your property is devaluing.
Assessors do not automatically
reduce assessments.
The only time real property gets adjusted is during an occasional
mass-revaluation.
A building permit could also trigger the reassessment of a particular property.
Personal property, on the other hand, is valued each year based on the information you provide in your tax return. Because the valuation process is so mechanical, it rarely depicts the asset's true value.
To ensure that your asset values are correct, you need to meet with the assessor and discuss any factors influencing their value and demonstrate that either an economic or functional obsolescence exists.
An economic obsolescence is an outside condition that negatively effects your facility's value. For example your profit margin decreases because the cost of raw materials increases.
Economic obsolescence is measured by capacity utilization. A functional obsolescence exists when there is an inherent flaw in your facility that has limited its value and would otherwise have to be changed if replaced.
| One counter-cyclical opportunity to incentives is that of appealing property taxes -- and the time to strike may be right around the corner. |
For example, your power consumption is higher than a newer facility because of its older technology. Functional obsolescence is measured
in terms of efficiency relative to a
standard.
Once you have formulated your obsolescence arguments, talk to the assessor as soon as possible.
Assessors appreciate hearing from you informally, and well before the assessment deadline.
If you are convincing enough, there is a good chance that they will offer you a reduction.
Evaluate any offers carefully because a formal appeal may cost you more than you receive in additional savings.
If no offer is forthcoming from the assessor, and if the values you derive based on the three methods of valuation warrant a reduction, don't be afraid to appeal.
You may need to hire experts to defend your valuation and represent you in court, but the potential for savings may warrant the necessary efforts
John Skowronski is director of proactive incentive programs at Mintax, an East Brunswick, N.J., economic development consulting firm specializing in incentives.
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