By Barry Sharpe
The property-appraisal process is imperfect, and there are no national standards. Real estate moguls like Donald Trump use this to their advantage when it comes to reducing their property-tax assessments. Why shouldn't self-storage owners do the same? Here’s what you need to know.
Real Estate vs. Income
In addition to the rental of space, self-storage facilities have other sources of income, including truck rentals and the sale of moving and packing supplies. Storage properties are mainly purchased for the income they can generate rather than their potential as appreciable real estate. Therefore, a property assessment based primarily on a facility’s sale price—in which a buyer paid for income potential—may result in the overpayment of property taxes.
Mass Appraisal and Intangible Assets
It’s also important to understand that appraisers don’t assess each property individually. Instead, they use mass-appraisal techniques and often don’t factor out intangible assets, which shouldn’t be taxed as real estate. Intangible assets have no physical substance and can’t be seen or touched. While it’s true they have value, they shouldn’t be included in the property assessment. They include things like:
- Corporate intellectual property (patents, trademarks, copyrights and business methodologies)
- Marketing and management skill
- An assembled workforce
- Working capital
- Contracts, leases and operating agreements
- Goodwill and brand recognition
The business enterprise value of a self-storage property includes the value contribution of the total intangible asset, including a company’s trade name. Brand recognition can increase a property’s revenue. For this reason, some appraisers assess an enhancement value to brands like Trump, Marriott, McDonald’s, etc. However, this should be irrelevant to a tax assessor. Although a popular brand name may make your property more attractive to customers, it should have no taxable market value.
In effect, the more value that gets placed on a brand name as part of a tax assessment, the stronger your argument should be to lower the valuation. Just as Trump has taken advantage of this aspect, it’s possible that someday self-storage companies like Public Storage and U-Haul will also be able to reap the benefits.
An assessment requires judgment on the part of the property-tax assessor. In each case, he’ll use comparable sales as part of his analysis. The more adjustments he must make to account for intangibles, the less reliable the assessment will be. That, my friends, makes it easier for the self-storage owner to make a compelling argument for lowering his assessment and tax bill.
Challenge the Tax
Remember, questioning your assessment is your right as a taxpayer. Why shouldn't we all be like Trump and avoid unnecessary property taxes? You should take advantage of what’s permitted by law. A smart business owner challenges his assessment to ensure he’s taxed fairly.
No two properties are ever exactly alike, and that can be used to your advantage. Explaining why your property is “inferior” can result in reductions. Your description of your property is your opinion of its value, and it can be fun and rewarding to present it to an assessor as though there’s a large, black cloud hovering above it—particularly if it gets you a lower tax bill or a refund.
In your quest for tax relief, cite capital improvements, income and expenses as well as deferred maintenance. With a proper presentation, your challenge can lead to a full or partial victory. If your assessment isn’t lowered, you can at least feel good knowing your property hasn’t been over-taxed. There must be a reason why Trump files property appeals year after year. Apparently, it produces good results.
Be your own best advocate and argue for a lower valuation. Nationally, less than 5 percent of taxpayers appeal their assessments. If you obtain a tax refund, it won’t make a dent in the country’s economy, but it will certainly improve your cash flow.
Barry Sharpe is a managing member and principal at Hialeah, Fla.-based Property Tax Appeal Group LLC, where he oversees every property-tax appeal case filed with the county's Valuation Adjustment Board on behalf of clients. Barry has done tax-assessment appeals for more than 30 years. He's also the owner of industrial and commercial properties, a real estate broker and a licensed building contractor. To reach him, call 305.693.3500; e-mail [email protected].