Ignoring Property Tax Management Strategies In Florida Can Be Costly
In addition to considering the basics like square footage, price and location, buyers of commercial real estate need to learn and prepare for a property’s tax liabilities long before they purchase it.
In Florida, the tax environment is especially complex for first-time purchasers of commercial properties, said Steve Tropea, a director with Property Tax Alliance Group. He said professional property tax advisory services can help buyers navigate the nuances of the state’s tax system and minimize their liabilities for the entire life cycle of their investment.
Located in Fort Lauderdale, PTAG is focused on managing property tax liability for commercial, corporate and investment properties in Florida’s markets. Tropea said that the firm assists in structuring deals for clients involved in portfolio sales, entity purchases and purchase price allocations so owners receive the most favorable tax treatment.
“Our clients benefit from these types of early approaches as well as forecasting tax fluctuations, which help the grading and financing processes for potential investments,” Tropea said. “Lenders don’t like to see higher property tax estimates but appreciate clients who apply extra measures of due diligence and proactively manage their tax liability to improve cash flow.”
This proactive stance shouldn't end after the sale, either.
“The 2020 Covid economy impacted property owners’ bottom line, and how well they documented those effects will be reflected in their 2021 tax appeals,” PTAG partner Tim Hart said. “That information will be vital after Notices of Proposed Property Taxes/Truth in Millage, or TRIM, arrive in the mail in August and petitions are filed.”
TRIM notices are how Florida’s county appraisers notify property owners of their property tax liabilities that will be reflected on the tax bills to be mailed in November. For most owners, their TRIM notices will be their first opportunity to review the current year’s property tax levy.
Florida doesn't levy income tax and relies solely on sales and property tax revenues. This means owners should diligently monitor their property tax assessments and submit petitions to appeal property values to the county value adjustment board within 25 days from the TRIM mailing date.
This year, many taxpayers will be surprised to see their property tax increase regardless of 2020’s pandemic-related disruptions. In tourism-dependent Florida, revenues generated in its arts, entertainment, recreation, hospitality and food service sectors declined by more than 20% in 2020. Hotels, shopping centers, office buildings and most companies were considered nonessential businesses and forced to shut down. Unfortunately for commercial real estate owners, Florida county appraisers won’t factor these events into their assessments.
“There is an inherent conflict with typical property tax valuations,” PTAG Managing Partner Jeff Nelson said. “Counties, when setting values, should look at market conditions and their effects on a property’s performance. However, they won’t recognize the financial obstacles leading up to the lien date of Jan. 1, 2021. Instead, their models view property in the best possible light. By the time the tax rolls were certified in June, prevailing attitudes were that the pandemic has ended and that the markets are recovering.”
Florida’s property and business owners have a different view of the economy than county tax assessors.
“Owners are still reeling from the past year,” Nelson said. “Businesses were shut down part of the year, if not the entire year. Single-tenant businesses such as health clubs, hospitality, theaters and restaurants are still suffering.”
Prior to the Jan. 1 lien date, property owners had the opportunity to defend themselves against a 2021 property tax increase through careful record-keeping. Ideally, they have been meticulously documenting their income, regular and extraordinary operational expenses, hours of operation, staff hours and other analytics. This data will help them account for losses from forced closures, eviction moratoriums, capacity limitations and other disruptions exacerbated by societal fear and uncertainty. A well-prepared record of events is crucial for successful 2021 appeals.
“PTAG professionals guide our clients to be mindful and to record any circumstances negatively impacting their property values, especially the significant layered effects that government-forced mandates had on their bottom lines the past 18 months,” Hart said. “The property tax line item often is a business’s largest expense, and the most profitable owners diligently manage their property tax liability.”
For a normal year, relevant documentation includes records of a property owner’s year-end income and expense statements, current rent rolls and deferred maintenance expenses such as structural improvements, roof maintenance and other repairs. But 2020 wasn't a normal year.
“Property owners need a fair valuation, and it's critical they documented their experience in 2020,” Nelson said. “It is safe to say that no business owner had complete control over the use of their properties during all the days of 2020. Multiple restrictions on property owners significantly reduced their properties’ intended use, prohibited evictions and severely hindered the capacity for profits. Property owners should not be taxed as if the government did not shut them down. If your business was forced to close during any time of the year, you are impacted.”
Additionally, owners should be prepared to show coronavirus-related impacts such as operating expense increases, revenue interruptions or vacancies. Data supporting the impact of capacity limits, social distancing, eviction moratoriums, lost revenue, lost productivity due to a severely fragmented office culture, sick employees, home offices, employee learning curves and a host of other factors will effectively reflect the adversity property owners experienced in 2020. They also will significantly increase the chances for successful property tax appeals, Nelson said.
“Owners or their agents waiting to take action until TRIM notices arrive will find themselves scrambling to recall, account for, organize and report relevant data, and chances are that useful information will have already fallen through the cracks,” he said.
Property owners shouldn't assume Florida appraisers will automatically reduce values unless they force the issue, and even then, they will focus on factors that support a higher value.
“Those who wait until August before initiating their processes have already left money on the table for the 2021 tax year and need to temper their expectations,” Nelson said. “They should absolutely file appeals, but appraisers are prepared to defend their values.”
This article was produced in collaboration between Property Tax Alliance Group and Studio B. Bisnow news staff was not involved in the production of this content.
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