An Overview Of Property Tax Appeals

The filing period for 2010-2011 Proposition 8 tax appeals is now open. If your property is assessed for tax purposes at a value that exceeds the current market value of the property, you may have a potential tax appeal case. Appeals are filed with the county in which the property is assessed. Most Assessor’s Offices do not automatically lower commercial valuations to reflect the current market: it is necessary to file an appeal. Most counties have forms available on-line to file a tax appeal.

There are two different types of appeals. One is known as a “Proposition 8,” appeal. The other is known as a “Base Year” appeal, and is based on Proposition 13. A Base Year appeal challenges the value that the Assessor enrolls for a property at the time it is sold or when new construction is completed. Proposition 8, on the other hand, appeals reflect a temporary decline in a property’s value for situations such as the current depressed market. It is these Proposition 8 appeals that are discussed in this article.

A Proposition 8 appeal is an appeal to temporarily reduce the assessed value of a property. The reduction, if granted, is effective for one year. The following year, if another reduction is warranted, another appeal needs to be filed. The reduction is not permanent; the base assessed value of the property does not change. So, if you receive a Proposition 8 reduction for this year, and the market rebounds next year, the assessed value and taxes for that property will bump back to where they were before the reduction was granted.

When considering whether the assessed value of a property should be temporarily reduced, the Assessor considers its value as of January 1, before the start of the fiscal year. So, for your property taxes that are due in December 2010 and April 2011, the valuation date for assessed values was January 1, 2010 (the “lien date”). The Assessor’s Office will only consider market conditions and the property’s condition as of the lien date, not as of the current time period.

The property interest, or bundle of rights, appraised for property tax purposes is the “fee simple” estate. This is the 100 percent ownership. If a property is encumbered by below-market or abovemarket leases as of the lien date, the impact on value of the lease will not be factored into the value. This can be detrimental to a property on a long-term, below-market lease. At the same time, it can be beneficial to properties that were leased at the height of the market and are leased at abovemarket rates. The bonus rent attributed to any existing leases should not be considered when estimating the property’s assessed value as of the lien date.

Although the Assessor’s Office will not reflect the income generated by above- or below-market leases, it will factor in vacancies that existed in an investment property as of the lien date. So, if an investment property is only 75 percent occupied, the assessed value of the property should reflect a deduction to bring the property up to stabilized occupancy.

The Assessor maintains separate assessed values for the land and the improvements on every property. Many times, the land may be under-assessed, and the improvements over-assessed. In a Proposition 8 appeal, the assessed value of each component is not considered separately. Rather, the total assessed property value is considered relative to the property’s total market value.

The first step in the tax appeal process is to file an application of appeal with the Assessment Appeals Board. Once an application is filed, the county will send a request for information. If you
do not respond to this request, the Assessor can request that the Assessment Appeals Board not hear your case, but rather close the case. If a case proceeds, the Assessor’s Office may attempt to resolve it informally rather than going before the Board. This is advantageous to both the Assessor’s Office and the applicant as an Assessment Appeals Board hearing is much like other courts of law, and can be both time-consuming and costly. If the valuation issue is resolved on an
informal basis, a “stipulation” to value must be signed by both the applicant and the Assessor’s Office, and then approved by the Assessment Appeals Board.

In the vast majority of cases, Hulberg & Associates has been able to settle cases far short of going before the Appeals Board. Although the staff at the Assessor’s Offices currently has enormous workloads due to the number of appeal filings, we typically find that they welcome our careful data and analysis, which greatly helps resolve the valuation issue without going to the Appeals Board.

One important factor to consider in a tax appeal is that the burden of proof in a tax appeal case resides with the applicant, or property owner. The applicant must provide compelling evidence that the property is over-assessed, or a reduction will not be granted. The Assessor’s Office (or the applicant) can request a formal exchange of information prior to a hearing. If the appeal goes before the Assessment Appeals Board, there are Rules of Evidence. For example, sales that are used to compare to the subject must not have closed escrow more than 90 days after the Date of
Value (January 1 of the tax year).

The filing period for 2010-2011 Proposition 8 tax appeals is now open. The window of opportunity to file an appeal closes either September 15, or November 30, depending on the county in which the property is located. The application to file an appeal is available on-line through most county Assessor’s Offices. Each county has a slightly different form. You can file this appeal yourself, or Hulberg or your attorney or accountant can assist you. Be sure to properly mark whether this is a Proposition 8 or Proposition 13 appeal. Some counties require a filing fee (only about $35). Some require two copies of the application be submitted; others only require one. When filing an appeal, be sure to follow the specific instructions provided by the county in which the property is located.

If you think your property might be over-assessed, you may want to file an appeal, simply to protect your rights. The cost is minimal and the forms are easy to fill out. If you miss the appeal deadline under Proposition 8, you cannot later contest your valuation.

In summary, many properties in California are currently over-assessed. Property owners that are well-informed can take advantage of the assessment appeal process to reduce their property taxes. We hope this overview helps in that process. Our overview should not be considered an official guide to the process, but rather based on our experience in providing tax appeal valuation and consulting services to our many clients.

If Hulberg & Associates can be of assistance with your property tax needs, please contact us.

Norm Hulberg, (408) 279-1520, x142, or
Yvonne Broszus (408) 279-1520, x135, or

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