Understanding The Key Points As To Whether Or Not A Tax Appeal Should Be Filed
By Rodger Skare, MAI
Throughout Minnesota, the real estate taxes one pays in a given year are typically determined by the assessor’s estimate of market value (AEMV) for that property as of the beginning of the prior year. For example, the taxes you’ll be paying this year for 2021 are based on an AEMV as of January 2, 2020. While the rate you pay on the AEMV is actually set by local taxing authorities—such as counties, cities, school districts, etc.—the amount of the taxes you pay relative to other properties is a function of your property’s AEMV. If you think your taxes are too high, and/or they are higher compared to most other similar properties, this condition is likely due to having an AEMV that is too high.
To get your taxes reduced in a given year, you typically need to file a petition that applies to the AEMV for the taxes payable in that year. Note that you aren’t actually filing an appeal to get your taxes reduced. This action needs to be done by April 30th of the year the taxes are due.
The reason for the approximate 16-month time lag from the AEMV date to the tax filing date is the assessor needs time to make that valuation, which is typically based on sales and market conditions from the year preceding the AEMV date, and the property owner needs time to react to this valuation and see if the AEMV is suitable for his or her property, especially in comparison to other similar properties. If it is determined, or suspected, that the AEMV is in fact too high, the property owner basically has two courses of action: he or she can try to meet with the assessor try to make a convincing argument as to why the AEMV should be reduced (which rarely works), or they can elect to file a tax appeal on that particular real estate. Often, the latter is the only way to get the attention of the assessor to get them to consider reducing the AEMV in lieu of going to a tax appeal trial.
A property owner can either file this petition on their own accord, which requires some effort in terms of paperwork and filing fees to make sure it is done correctly, or he or she can use an attorney to file on their behalf—typically one who is well-versed in this area of the law. Some charge by the hour; others charge based on a percentage of the tax savings that may result.
Regarding the property valuation, an important consideration in appealing your AEMV is that all real estate in tax court must be analyzed in their “as is” condition, as of the appraisal date, and they must be valued in fee simple estate, which means each property is assumed to be occupied at its market-indicated stabilized occupancy level and its market-indicated rental rate(s) and operating expense rates. This interest is appraised even if the subject property is specifically leased to a tenant or tenants at either an above-market or below-market lease rate(s). Note that a property is never valued in its leased fee estate, because that condition is property-specific, and real estate taxes are supposed to reflect general market conditions for the subject property type as of the appraisal date. The same is true concerning the credit-quality of the tenant or tenants in the property; no consideration can be given in the AEMV determination to a perceived reduced level of risk—and hence a higher value, because that specific condition does not reflect general real property market circumstances.
A valuation issue on the minds of many for taxes payable this year (2021) deals with the impact of COVID-19 on both the general real estate market and each specific property—especially for local “ma and pa” type retail real estate and sit-down restaurant properties that do not have drive-through capability. While one might be thinking this impact should reduce their taxes payable this year, perhaps significantly, it must be pointed out that basically all real estate markets were doing very well at the beginning of 2020, and it was not until the middle of March 2020 that this pandemic made its sudden and significant impact on the economy and the real estate market. That said, however, one should keep in mind that COVID-19 could have an impact on their property as of January 2, 2021—a date we just passed—because it may affect their taxes payable in 2022.
If you are one of those property owners who has questions in regard to this matter and/or you would like a valuation expert to look at your AEMV situation as of January 2, 2020, or even January 2, 2021, or if you think you already have a good case and would like us to refer you to a good property tax appeal attorney, please do not hesitate to call us 612-466-7300 or email us at firstname.lastname@example.org.
About the Author: Rodger L. Skare, MAI has been performing real estate valuation, appraisal consulting and strategic advisory services in the Minneapolis/St. Paul metropolitan area, greater Minnesota, and the five-state region since 1984. He is also an experienced expert witness in condemnation cases, tax court, civil disputes and planning commission hearings. He enjoys boating, biking, choral singing, scuba diving, and spending time with his wife and children at their family lodge on Lake Vermillion.