The Property Tax Gambler: Learn to Play it Right
When property owners ask how to fight their annual property tax valuations, I often think about “The Gambler,” Kenny Rogers’ hit song from 1980. In case you don’t know it, it’s the story of a man who meets a stranger—a gambler—on a train. Seeing that the narrator is distressed, the Gambler says, “For a taste of your whiskey, I’ll give you some advice.” This article will provide self-storage owners a bit of property tax advice, and I won’t charge you with whiskey. However, if it is being offered, I tend to favor bourbons and ryes.
I Can See You’re Out of Aces
Property tax trouble is coming if it isn’t already upon you. The Gambler can see the distressed look on your face. Appraisal districts are never on the forefront of the real estate market, and they can’t be. Typically, they trail behind market data and their values react to the market. They can’t predict the market and assign a value for January 1 that they don’t think will happen until September. That doesn’t mean it can’t happen—occasionally, an appraiser gets eager and chases a trend so much that he or she gets ahead of it, but it’s rare. Regardless, you should know that it’s not a matter of if your self-storage valuation is going up, but when.
Every Hand’s a Winner, and Every Hand’s a Loser
The most popular way to dispute your property tax bill is to protest the market value of the property. This is the value that the appraisal district is supposed to come up with using one of three appraisal approaches to value: the sales comparison approach, the cost approach and the income approach. The first, as you would expect, compares the recent sales of similar properties to estimate the value of the subject property. The cost approach determines the value of the land, then adds the current cost of constructing the improvements today, and depreciates that cost based on age and other factors. Finally, the income approach determines the value of the real estate by looking at the income stream that can be generated by operating a business on your property and calculating the risk involved. But there is another way to address high valuations that can sometimes be overlooked, which is to protest your value on the basis that it is not being valued fairly and equally in comparison with similar properties. This concept goes back to the very first Texas Constitution. The idea that all taxation must be fair and equal is put into practice by protesting on the basis of “equity.”
“Every protest, like every poker hand, has
the potential to be a winning or a losing
endeavor. It depends on how you play
the hand that is dealt to you in the form
of your Notice of Appraised Value.”
Sometimes, your best case is based on market value using one of the three approaches to value. And other times, the better case is to show that a property is being valued unfairly in comparison to similar properties. Sometimes it is both. So, what’s the good news for the taxpayer? The value is set to whichever is determined to be lower between the “market value” and the “equity value.” Every protest, like every poker hand, has the potential to be a winning or a losing endeavor. It depends on how you play the hand that is dealt to you in the form of your Notice of Appraised Value.
Every Gambler Knows That the Secret to Survivin’ is Knowin’ What to Throw Away and Knowin’ What to Keep
Again, the Gambler’s got great advice. Understanding which approach the appraisal district is using to value your property can also let you know what information you may want to share versus what information you don’t. You and your representatives are not obligated to marshal all of your evidence. If they are using the cost approach, you may want to share your construction cost documents to show that they have valued your improvements too high. If you are still under construction on January 1, you may want to show that they were overvaluing the improvements by assuming you were closer to being completed than you actually were. If they are using the sales comparison approach, you may want to keep certain information to yourself. Keep in mind, Texas is a non-disclosure state. That means that the sale price of real estate does not automatically become public record. Buyers are not obligated to share the sale price, even at a protest hearing. If they are using the income approach, they are going to be estimating your rents, your expenses, your occupancy and your risk. Using these estimates, they will calculate a value for your property. Depending on their estimates, it may be beneficial to share these pieces of information. If they have overestimated rents or occupancy, or underestimated risk, they have likely overvalued your property. You can use your rent roll or profit and loss statement to show that their estimates and values are too high. If your information does not indicate that, or if it indicates that your value is more in line with the market, you don’t have to share that information. Know what to throw away and what to keep.
Know When to Hold ‘Em, Know When to Fold ‘Em, Know When to Walk Away, Know When to Run
Know when to hold the appraisal district accountable. While it’s true that appraisal districts have a very difficult job, if they are overvaluing your property, or if they are not treating your property fairly and equally in comparison to your competitors, then they are not doing their jobs correctly. The first necessary step to holding them accountable is to protest every year. These protests are heard before the Appraisal Review Board (ARB). There may also be instances when you will need to hold the Appraisal Review Board accountable, too. If they are not following the correct procedures, protests or lawsuits may be filed against the ARB. Knowing when to fold ‘em is equally as important.
“Keep in mind that in the property tax
world, relationships matter. You tend
to see the same faces every year you
fight your property value. The people
who have added to your frustration
and consternation one year can also
be strong allies that you don’t want to
alienate for future years. ”
While it is usually beneficial to file a protest and hear from the appraisal district as to how they came up with your value, there may be times where their value is correct or so close that it may not be worth you or your agent’s time and energy to fight the value. There are times, not often, where it may be best for an owner to withdraw their protest. There may be instances where you achieve a moderate level of success in lowering your values via protest at the ARB. You probably didn’t get all that you asked for, but maybe you got just enough. That would be the time to walk away. There are occasions where the ARB may completely agree with you. They listened to your carefully prepared, expertly laid out, meticulously supported opinion and came down on your side completely. When this happens, listen to the Gambler. Run. But what happens when you don’t get what you’re after? What should you do when the ARB outcome is not one you want to or should walk (or run) away from?
You Never Count Your Money When You’re Sittin’ at the Table. There’ll be Time Enough for Countin’ When the Dealin’s Done
In the song, the Gambler advises the narrator not to dwell on losses. Great advice, and you especially shouldn’t dwell on losses in the moment. Don’t let stress, intensity and even animosity of a protest hearing boil to the surface. Keep in mind that in the property tax world, relationships matter. You tend to see the same faces every year you fight your property value. The people who have added to your frustration and consternation one year can also be strong allies you don’t want to alienate for future years. Leaving a relationship unspoiled by your frustration this year allows the possibility of collaboration with appraisal district employees in the future. However, if it all goes wrong—if you can’t convince them with all of the market data and the most plausible impassioned arguments—there is yet another opportunity to reduce or further reduce your value. After your administrative remedies have been exhausted through your ARB protest to an unsatisfactory conclusion, there are more avenues for relief. Depending on the type of property and the facts of your case, you may be able to appeal to the State Office of Administrative Hearings (SOAH) or to binding arbitration. And all ARB decisions, regardless of property type, may be appealed to District Court in the county where the property is located. But you can only pick one. There are some requirements to file with SOAH. The subject property must have a certified value of $1 million or more. The appeal can’t be for industrial property, and the basis of the appeal must be market or equity. The appeal must be filed within 30 days of receipt of an Order Determining Protest (ODP) sent by the ARB. The owner must also file a $1,500 deposit, $300 of which is nonrefundable. If the final determined value is closer to the taxpayer’s stated value at SOAH, the rest of the taxpayer’s deposit is refunded. If it is closer to the appraisal district’s stated value, the deposit is forfeited. The proceeding is overseen by an Administrative Law Judge (ALJ) who may or may not have a real estate background or extensive knowledge regarding the valuation of real estate. If this doesn’t sound like the way to go, arbitration is also an option. A taxpayer may choose to appeal the ODP to binding arbitration through the Texas Comptroller. To be eligible for arbitration, the assessed value must be $5 million or less. If the subject property is a residential homestead, there is no value limit. The request must be filed within 60 days of receipt of the ODP. As with an appeal to SOAH, a deposit is required for arbitration. The deposit amount varies between $450 and $1,550, depending on the assessed value (the higher the value, the higher the deposit). And as with SOAH, whichever party gets closer to their number gets their deposit refunded to them minus an administrative fee. As the name suggests, the arbitrator’s decision is binding. These first two options have their usefulness and place with certain properties some of the time; I find that most appeals are better off going to District Court. A property tax appeal to District Court must be filed within 60 days of the receipt of the ODP. There is no deposit but there is a filing fee. The amount of the filing fee varies from county to county, but it is generally between $300 and $500. Like any other lawsuit filed in District Court, taxpayers are allowed to represent themselves, but it is very strongly suggested they utilize an attorney experienced in litigating real estate values in such proceedings. The Gambler is probably familiar with the proverb, “The man who represents himself, has a fool for a client.”
If You’re Gonna Play the Game, Boy, You Better Learn to Play It Right
My firm advises anyone who owns property in Texas to file property tax protests every year. Even a modest reduction administratively can be a good first step to lowering the property value in subsequent litigation and sometimes for subsequent tax years. The rules, regulations, laws, deadlines, valuations and sometimes even politics involved within the world of property tax protests and litigation are difficult to navigate. Whether at the administrative level or the judicial level, be sure to enlist the help of property tax professionals with the skill, knowledge, experience, education and training to help you fight rising property values. I hope that, like the advice the Gambler gives in the song, this article has given you an “ace that you can keep.”
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This article was originally published in Self Storage News
Greg Hart is a property tax attorney and consultant, and he is the managing partner at Hart Legal Group, PLLC. Greg has been litigating the value of real estate and advocating for his clients for over 20 years. He holds the CMI designation (Certified Member of the Institute) from the Institute for Professionals in Taxation (IPT) and is a nationally known speaker and writer on the subject of property tax.
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