By Alejandra Zilak

obody likes to pay taxes, yet everyone must pay them in a multitude of ways: income, capital gains, sales, homes, and commercial property. These vary depending on your jurisdiction, and while you can get creative with deductions and deferring liability, you’re confined to what the law allows you to do.

Fortunately, when it comes to property taxes, the law does allow you to challenge them, but it’s crucial to know when and how to do it. While adding something else to your to-do list may seem like too much of a hassle, challenging a questionable tax assessment can very much be worth the time, especially if you submit a thorough appeal.

Before getting into the details of challenging a tax bill, it’s imperative to first understand how property taxes work. “The city council, board of supervisors, school district, or the local entity that puts together a budget takes that number to the assessor and asks them to tax properties to meet that budget,” says Ken Nitzberg, co-CEO of Devon Self Storage. “That may reflect the value of the real estate, or it may not. What happens is that they have their desired outcome, then work backwards to get there by taxing owners to meet that goal. And that budget may reflect what the county needs but doesn’t necessarily reflect the fair value of the taxed asset.”

A big contributing factor to miscalculating the assessed taxes is how assessors obtain market data. AJ Osborne, CEO and founder of Cedar Creek Capital, warns that market reports may reflect skewed information. “When you look at national reports to verify delinquencies and property values, only about 15 percent of self-storage is represented,” he says. “This data comes from CMBS loans, which are mainly concentrated in the biggest market. As a result, that 15 percent may not represent the market your facility is in, and this can hurt you dramatically.”

This question is a sensitive one, because owning property comes with a sense of pride. “No owner likes to look at their property and make an inventory of what’s wrong, but when it comes to your tax bill, you should do it,” says Melissa Shandor, director of third-party management at StoragePRO. “Pay attention to increased costs of energy and other utilities, any needed repairs, depreciation, and dips in occupancy or revenue due to an increase in local competition.”

In addition to how much the real estate itself is worth, it may be tempting to include every single line of income generating components: lease-up projections, ancillary services, and growth potential. But whether that’s relevant depends on how your jurisdiction calculates tax assessments.

“Some jurisdictions use an income- or a revenue-based approach that is impacted by dynamic pricing,” Shandor says. “Other jurisdictions use a cost-based approach, where the assessor is looking at the value to replace the structure. Market value, acquisition value, comps, and more can be used, so you have to dive in and make sure you understand what metrics they’re using to calculate your bill.”

Osborne also warns about looking only at comparables. “The biggest problem we run into is that tax assessors tend to assess storage as real estate. This can be a problem when you have two facilities that may appear identical yet have totally different revenue and net profits.”

He explains that while the buildings may be the same age, quality, and location, the unit makeup can be different. “One can have 50 percent of their units be 10-by-10 in a market that has no demand for that size, while the other one may have a different apportionment, with a higher percentage of units that are in high demand, and this one will make far more revenue than the first one.”

Once you decide it would be worth it to challenge a property tax bill, it’s important to be mindful of the process, so that you can increase the likelihood of success. Noteworthy facts include:

You Don’t Know What You Don’t Know
This is not the time for educated guesses. “Owners sometimes attempt to challenge tax bills on their own because they don’t want to incur the fees associated with hiring a professional,” states Shandor. “But when you weigh the cost of hiring a professional versus the reduction they could get you, in the long run, an attorney could save you more. There are so many parameters that come into play and deadlines to consider. You could have the best evidence in the world, but if you inadvertently miss a due date, it’s not going to matter. Sometimes it’s not worth handling it on your own, and you will net better results with a professional.”

Nitzberg agrees. “Unless the owner is knowledgeable in property taxes, how they work, and how they’re calculated, it’s best to hire a property tax firm that can review the tax and determine if it’s correct, or whether they need to file an appeal.” He warns that if you’re not an expert, you probably won’t come up with the right answer. “Property taxes can be confusing and complicated, and if you don’t know what you’re looking for, you won’t know which supporting documentation to add to challenge your assessed value.”

Mill Rate Vs. Property Value
When you receive your bill, review the value the assessor has assigned to your property. “There are two parts to a tax bill,” Nitzberg says. “One is the mill rate [or millage rate]. This is the rate the taxing entity has determined it to be. This won’t change, regardless of what you do. Then there’s the assessed value of your property. This part is highly subject to interpretation, and if it doesn’t reflect the market, you can appeal and adjust it.”

Miscalculations Of Income Assumptions
Ancillary products should not always be counted in the valuation. “That has nothing to do with the value of the real estate,” says Nitzberg. “If you estimate your income based on everyone paying on time and everything being leased up, you’re going to have inaccurate projections. It’s what you actually put in the bank that matters and creates value that would be taxable, so you need to be careful when the assessor hands you a form requesting information. You have to make sure you’re answering the correct way.”

What Not To Include In The Valuation
If your self-storage facility includes metal units, check to see if the assessor has included them in the value of your property, as they may be considered personal property and taxed differently. “It’s an arcane little niche in the tax code,” says Nitzberg. “Metal units are not considered real estate. The same goes for personal property as office equipment. In smaller storage facilities, that may not amount to much, but in large commercial real estate spaces, it could make a difference.”

Know The Law
While it may be reasonable to assume that everyone who works at the assessor’s office knows what they’re doing, that’s not always the case. In every jurisdiction, the tax appeals board is appointed by high-ranking executive officials. And as is often the case in government positions, sometimes the people who are appointed get there due to who they know, not what they know. While it’s possible that some know tax law like the back of their hand, many have little to no experience in either taxes or real estate. Therefore, it is up to you to be thorough in your due diligence.

Be As Detailed As Possible
“Most people who appeal their property taxes only fill out the form provided for that purpose and don’t provide any additional documentation,” says Nitzberg. When filing an appeal, you’ll have a greater likelihood of success if you include all supporting documents while citing every applicable statute. “You can do two pages or 25 pages. One shows you did the work. It’s important to not leave a lot of room for the assessor to hide.”

Documents to add include evaluations showcasing taxes on comparable properties, recent sales, a professional appraisal, any errors in the description of your property, photographs of the facility, market studies, capitalization rates, and anything else that helps support your claim.

“Start with the basics,” says Shandor. “Check your bill; is the square footage, the number of units, occupancy, etc., correct? Then, whatever method the tax assessor in your locality uses, that’s what you should work from. Since different areas calculate taxes based on different methods, know what they use, verify accuracy, and gather evidence.”

Nitzberg adds that his firm submits hundreds of pages with all relevant details in support of an appeal. He points out that while doing things this way doesn’t guarantee you’ll get what you’re asking for, it would be rare to be fully denied. “The last thing the assessor wants is to be embarrassed in a hearing in front of the appeals board or end up in a news story. So many times, if you do everything in your power to prove your case, it’ll get approved.”

In summary, every owner should study their tax bill to ensure accuracy, especially when there has been a new assessment. If you truly believe it should be lower, it behooves you to appeal. “In most jurisdictions, there’s no filing fee,” adds Nitzberg. “In a handful of them, there’s a de minimis fee, but if it can save you money, it’s worth it. Ultimately, the government’s No. 1 goal is to collect as much money as possible. They run on a different track. It’s up to you to play the game well and protect your own bottom line.”