Property tax is a tax that is imposed on owners of real estate, including both business owners and residential homeowners. Some governments tax certain types of personal property as well.Since commercial property tax is based on state law rather than federal law, tax rates and calculation methods depend on where your property is located. Depending on what type of business you operate, property tax can be a major business expense.
Based on the Value of Your Property
The property taxation process begins when the state or local government sends an appraiser to your property to determine its value for taxation purposes. You will be notified of the assessment amount. If you disagree with the assessment amount, you are entitled to dispute it. Once the value of your commercial property is determined, the government applies the state tax rate to this appraised value. If you fail to pay the tax, the government can place a tax lien on your property, or on your business's accounts receivable.
Appraisals Based on Fair Market Value
The fair market value of your property is an estimate of the amount for which you could sell it. It takes into account the facilities and conditions of your property, as well as neighborhood property values. Consequently, your appraisal may be lower if your property is located in a low-income neighborhood. Some governments, however, tax commercial property based on its productive capacity. If you own an auto parts factory, for example, the government may tax it based on how many auto parts it can produce in a year, rather than for how much you could sell the production equipment.
Property Tax Rates Vary Widely
The appraised value of property varies widely. Commercial properties tend to be appraised at higher values than residential properties because they incorporate high-value features, such as production equipment, and because they are often located in urban areas. The tax rates that apply to these appraised values are identical throughout a particular state. New York City and Chicago, however, have their own systems. Because of the differences in state tax rates, you might pay 30 times as much property tax in Michigan as you would pay in Massachusetts for the same appraised value. States with low or non-existent income taxes typically have high property tax rates.
Each State Has Its Own Appeals Process
All appeals procedures must comply with the 14th Amendment to the U.S. Constitution, which prohibits a government from depriving anyone of "life, liberty or property without due process of law." You are entitled to a hearing, you may present evidence, and you may appeal an adverse assessment to a court. If your business is a legal entity, such as a corporation, you must hire a lawyer to represent your business at the hearing. If your state assesses commercial property value based on productive capacity rather than fair market value, the issues in your appeal may be more complex.
A Tax Lawyer Can Help
The law surrounding taxes on commercial property is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a tax lawyer.