Whether you’re a seasoned real estate investor, or an owner-occupier, it is important to note that increased property taxation can impact the market value of your property, particularly if your assessment is inequitable. Ensuring that you are taxed fairly and are paying no more than your fair share, is therefore important for proper management of your asset. 

 

Prudent and optimal management of commercial real estate includes close attention to property taxation. Inequitable or erroneous assessments not only rob property owners of cash flow, but can have a seriously negative impact upon potential Net Operating Income, which impacts property value and therefore owner equity. 

 

Property Tax assessments within the Province of Newfoundland & Labrador are updated every three years. New assessments throughout the Province will be released during the last quarter of 2018, with the assessed values valid for the 2019-2021 tax years. The new assessments will have an effective date of 1st January 2017. Typically, market data employed in the assessment valuation analysis is from the year prior to the base date. 

 

The purpose of the property taxation system employed in this province is equitable distribution of taxation within municipalities. Municipalities establish a series of tax rates by property and business type, and apply those rates to the property tax base to raise sufficient funds to meet budget requirements. 

 

For example, assuming that assessed values remain constant during the assessment cycle, municipalities simply adjust the mill rate from year to year, either up or down, to meet budget requirements. Many people erroneously think that when assessed values go up, overall taxation goes up as well. In reality, the municipal budget is what drives the overall level of taxation, with the tax roll simply providing a means for distribution. 

 

During the last assessment cycle within Newfoundland and Labrador, many property owners were concerned with the level of assessed value relative to current Market Value at the time. Due to a declining market, the actual Market Value in many instances may have been lower than the assessment. 

 

For the forthcoming assessment cycle, due to the general downward direction of the real estate market over the previous three years, many taxpayers will likely be somewhat relieved by a similar or lower assessed value relative to the previous cycle. They should not be complacent however, as a lower assessment does not mean that it has been accurately or equitably calculated. 

 

With the purpose of the process being equitable distribution of taxation, the primary concern of taxpayers should be the accuracy and equity of the property assessment.  

 

Typically, assessed values are adjusted more or less in line with the market growth or decline associated with your property’s class and location.  There are a number of reasons why an adjustment to your assessment may be more than the market average. 

 

The previous assessment for instance, may have been in error and below market, therefore requiring a larger than typical increase by the assessor to correct the previous error. In some cases, an error may be carried forward and adjusted in line with other properties. In such an event you may have grounds for appeal.  

 

Given the magnitude of the task that assessors must face every assessment cycle, that being the mass valuation of every property within the province, there is significant potential that some issues that affect your property value may have been overlooked, or handled inappropriately. Independent valuation professionals perform a key role in the municipal taxation process in providing a check on assessed values that may have been calculated in error. 

 

Having received your notice, if you think that your property may not be assessed fairly or equitably, you should appeal the assessment. Property owners typically have 30-days from receipt of the assessment notice with a nominal filing fee, which will be refunded should the appeal be successful. 

 

While residential dwellings can typically be appealed effectively by the owner with reference to comparative sales data, the appeal of commercial or industrial property types is much more complex and requires knowledge of relevant valuation methodologies and access to commercial market sector data, which is not readily available to non-professionals. Furthermore, knowledge of the applicable assessment legislation is required, as well as a knowledge and understanding of relevant court decisions and case law. 

 

In our experience, the best appeal results are achieved by engaging a qualified commercial real estate appraiser (AACI designated).  Such professionals have the training and experience to negotiate effectively with assessors, and have usually argued many cases in court. 

 

For investment, commercial or industrial properties, we typically provide Assessment Appeal services under a three-stage approach summarized as follows: 

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Stage 1:   Assessment Audit

 

We will undertake a preliminary review of the assessed value to determine whether or not the property is assessed fairly and equitably. The client may be asked to provide relevant income and expense information, or other property related information considered relevant by the appraiser. 

 

We would relate the results of our preliminary review in a brief letter, and provide a recommended course of action, which would typically be either to negotiate with the assessor, or to abandon the appeal. We would not pursue frivolous appeals without potential for reduction. 

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Stage 2:  Negotiation

 

Once the client gives us the go-ahead, we would prepare a position paper and start negotiations with the assessor. While a position paper is typically brief, its complexity and required effort depends upon the property. 

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Stage 3:  Appeal Board Appearance

 

If an acceptable negotiation cannot be achieved with the assessor, we would appear on the client’s behalf and present the case before the Assessment Review Court. 

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