How to Hire Tax Appeal Consultant to Challenge Assessment

For many owners already operating on thin margins, aggressive tax assessors may be their biggest concern since property taxes are likely to be their sites’ single largest expense. If you believe that your property taxes are too high because the local tax assessor has overvalued your tax credit site, you may want to challenge your site’s tax assessment.

This is what one Mississippi owner did, and eventually won in a state Supreme Court ruling handed down on Oct. 13 of last year. The owner brought the case after the county included the value of the low-income housing tax credits when it assessed the site’s property taxes. The court decided that the county incorrectly used a “cost” methodology instead of a “net operating income” methodology in determining the site’s property tax.

The operating income method uses gross rents less vacancy minus operating expenses to determine a site’s net operating income. The cost methodology values the property as the cost to build or replace the buildings and, as such, indirectly includes the equity associated with the low-income housing tax credits. For the owner, the two valuation methods resulted in very different amounts. Using the net operating income model, the site would owe no taxes for 2009. But under the county’s cost method the owner’s property tax bill for 2009 was $74,038.

If you noticed a big jump in your annual property tax assessment, this could indicate a change in the county’s assessment method of your site. Since each state has a complex property tax system, owners and managers should work with a local expert to understand how a jurisdiction’s policy toward low-income housing tax credit valuation will affect their property tax assessment and possibly reverse any errors made in the assessment. This local expert, or “tax appeal consultant,” can help you challenge an assessment successfully if, after taking a few initial steps, you still doubt the fairness of a tax assessment.

Because tax appeals can involve a lot of money, choosing the right consultant is important. But many managers don’t know what to ask prospective tax appeal consultants or how to assess their qualifications and background. A good first step when evaluating prospective tax consultants is to send a letter requesting their proposals for handling your business. To help you select a consultant, we’ll tell you what questions and information to include in that letter and give you a Model Letter: Request Proposals from Tax Appeal Consultants.

Benefits of Hiring Consultant

Local tax assessors frequently overvalue tax credit and other low-income sites. Assessors often assume that a tax credit site’s value is similar to that of traditional sites in the area. For example, an assessor may assess a tax credit site as though it had the income and marketability of a traditional site, even though tax credit regulations and deed restrictions limit rental income and hold down the site’s sale value. And assessors often fail to consider that these restrictions may be in place for up to 30 years or longer, says tax credit expert Charles J. Durnin.

It takes expertise to prove that an assessor has overvalued your site. You’ll need the help from a tax appeal consultant whose staff is trained in the complex field of property valuation to help your case. When a consultant takes on an assignment, it first comes up with its own value for a property by performing an appraisal. Then it approaches the local tax authority on your behalf to contest the assessed value for your site.

Finally, if you end up suing the tax authority because it refuses to change its assessment, the tax appeal consultant can give you technical support in court and send one of its employees to testify as an “expert witness.”

Information to Give Consultant

A tax appeal consultant needs some basic information about your site before it can prepare a proposal to handle your appeal. Start by giving the consultant the following information about the site:

• Location;
• Date built;
• Number of units and a breakdown by unit size;
• Occupancy level;
• Income and rent restrictions on the site and the period of time these restrictions are effective; and
• Amount of tax bill and assessed value.

What You Should Find Out from Consultant

The key to selecting a tax appeal consultant is asking the right questions at the start. Focus on the consultant’s success in appealing tax assessments for sites like yours in the area, says Durnin.

Qualifications. To start, you need to find out the qualifications of the people you’re dealing with. Look for a consultant where each principal has a property valuation certification called an “MAI” (member of appraisal institute) from the American Institute of Real Estate Appraisers, says Durnin.

Relevant experience. Ask the consultant to detail its experience handling real estate tax appeals in your local area during the past five years. Get specifics about its experience with tax appeals for tax credit sites. And ask whether the consultant’s key employees have served as expert witnesses in tax appeal cases. You should also ask for a list of prior clients to contact as references.

Zero in on consultants who have experience in your area and with your type of site. You want a consultant that knows how to appeal tax assessments in front of the appeals board or court that will decide your case. And you want a consultant who knows how the tax credit program operates and has experience convincing an appeals board or court that the tax credit program limits a site’s value.

Fee information and timetable. Obviously, you need to know what this work will cost you. Ask the consultant to detail its fees for the basic site appraisal services and for submitting an initial appeal to the tax authority. Also, ask about its fees for expert testimony if you’re forced to sue the tax authority.

Ask for the consultant’s timetable for completing its appraisal of your site and submitting an initial appeal. A consultant should be prepared to submit an initial appeal within 45 to 60 days of the date you hire it, says Durnin. If the proposed timetable is longer, this may be a sign that the consultant is too busy or too thinly staffed to give your appeal enough attention.

Professional standing. If the tax appeal consultant or any of its key employees have gotten into trouble because of professional misconduct or mismanaging a housing site, that could undercut its influence with an appeals board or court and be embarrassing to you. It’s important to find out about this ahead of time. Ask whether the firm or its key employees have been subject to administrative actions or proceedings by agencies overseeing their industries.

Compatability. Once you’ve gotten responses, be sure to schedule interviews with the consultants, says Durnin. By meeting the people who’ll be making the case on your behalf, you have a chance to evaluate how well you’ll get along with them as the case moves forward and how they’ll present themselves before an appeals board or judge.

And at the interview, ask the consultants to tell you about the law firm(s) they will work with when preparing to appeal your assessment. Ask for the same kind of information they’re giving you about themselves. If you must sue the local tax authority to get your assessment reduced, you’ll want a law firm that’s already familiar with your case and has a good track record of winning cases in the local courts, says Durnin.

Insider Source

Charles J. Durnin: Senior Vice President, Interstate Realty Management; 3 E. Stow Rd., Marlton, NJ 08053; www.themichaelsorg.com.