Commercial Tax Appeals 101

Real estate assessment is the process of placing a value and classification on commercial, residential, agricultural and multi-use property for purposes of annual taxation.  Missouri law requires that your county Assessor reassess your real estate every odd-numbered year (2011, 2013, 2015, etc.) for tax purposes (personal property,  however, is reassessed every year).  The value placed on real estate during each reassessment year generally remains the same for the following even-numbered (non-reassessment) year.  However, improvements or new construction can be reflected on the tax rolls for a non-reassessment year. If the assessed value changes in a non-reassessment year, the Assessor must send a notice of increase to the taxpayer.

Determining “Assessed Value”

Under Missouri’s Constitution, all real property assessments must be based upon true, fair market value and be uniform across the same class of property.  In order to assess your real estate, the Assessor must determine the fair market value (a.k.a “true value” or “appraised value“) of your real property as of January 1 of the reassessment year.  Fair market value is generally defined as the price the property would bring when offered for sale by a willing owner not obligated to sell it and bought by a buyer willing but not obligated to buy it.  Generally, there are three recognized methodologies for determining fair market value:

  • Market Approach (a.k.a. “sales comparison approach”):  Property is evaluated by comparing recent sales of similar properties.  Generally, this is the most reliable approach for appraising residential property, because there are frequent sales of similar properties.  Adjustments to value can be made for finished basements, attached garages, etc.
  • Cost Approach (a.k.a “replacement cost approach”): Appraising property under the cost approach requires a valuation of the land, as if it was vacant.  The Assessor then adds to such value the amount required to replace your structure with one of similar construction and amenities, including current costs of materials and labor, overhead, profit, permit fees, etc.  If your structure is not new, the Assessor would them apply depreciation  and subtract that amount from the replacement cost to determine fair market value under this approach.
  • Income Approach:  This approach is most often utilized for shopping centers, apartments, and office buildings.  Generally, under this approach, the Assessor estimates the potential gross income from rentals of the property and then substracts an amount for vacancies and operating expenses.  The amount of net income is then converted to a value for the property, using a process called capitalization.

Once fair market value has been determined, the assessor calculates a percentage of that value to arrive at  the assessed value. The percentage is based upon the classification of the property (commercial, residential, agricultural), as determined by the type of property or how it is used:

  • Residential Property: The assessed value is 19% of the fair market value for the property, as of January 1 of the reassessment year.
  • Commercial Property: The assessed value is 32% of the fair market value for the property, as of January 1 of the reassessment year.
  • Agricultural Property: Generally, the assessed value is 12% of the fair market value for the property, as of January 1 of the reassessment year.  If the agricultural land is actively farmed, however, it is assessed according to its “productive capability.”

For example, if your commercial property’s fair market value is determined to be $1,000,000.00, the assessed value of the property would be $320,000.00.  If the same property was classified as residential, its assessed value would be $190,000.00.

(Click here for more on how your real estate is “subclassified.”)

Real Estate Taxes

The tax on real property is determined by (1) the assessed value placed on the property by the county Assessor and (2) the tax rate set by your local government where the property is located.  The result is the amount of tax levied and owed on the property for a given year.  Tax bills are generally mailed out in late fall every year.  With respect to real estate, the liability for taxes levied against real property “runs with the property.” (Conversely, personal property taxes do not “run with the property.”) In other words, if the property changes ownership, the new owner is liable for any unpaid taxes. If taxes are not paid, the taxes become a lien and the property can be sold to satisfy the unpaid taxes.

Appealing Your Property Value

Given that the appraised value of your real estate determines the amount of taxes assessed on the same, the appraised value is often disputed and appealed by property owners.  The assessed value is not set in stone, even during a non-reassessment tax year.  Appeals can be made for, among other things, overvaluation, discrimination, misgraded agricultural land, exemption, or misclassification.  While a property owner can appeal the assessed value of real estate, there are a number of strict deadlines that the owner must follow and retaining an attorney is highly recommended.  There are generally three stages for contesting the assessed value of your real estate, and an attorney is recommended at each stage:

  1. Informal Meeting at the Assessor’s Office: Property owners generally receive notice of the reassessed value of their real estate sometime during the spring of the same tax year.  As soon as the property owner is notified of the reassessment, a property owner’s attorney may schedule an informal meeting with the Assessor’s office.  While such meetings are often unsuccessful, they are incredibly informative.  Indeed, one can learn how the assessment was made, what factors were considered and what type of records were utilized by the Assessor.  Such knowledge is very helpful when appealing the assessed value to the Board of Equalization and Missouri State Tax Commission.
  2. Appeal to the Board of Equalization: The Board of Equalization is a statutory Board that is governed by the Missouri Constitution and Missouri Revised Statutes. It has the responsibility of determining the correct value of real and personal property for individuals and businesses.  A property owner’s attorney may appeal the assessed value of their real estate to the county Board of Equalization or request an exemptionImportantly, an appeal can be made in both reassessment and non-reassessment years (i.e. odd and even-numbered years-or both). The deadline for filing an appeal is very strict.  For example, in St. Louis County, Missouri, the deadline for filing an appeal is the second Monday in July. Appeals filed after that time are untimely and will not be considered.
  3. Appeal to the Missouri State Tax Commission: If the Board of Equalization appeal is unsuccessful, the property owner may appeal to the Missouri State Tax Commission by September 30 or 30 days after the Board’s decision, whichever is later. The State Tax Commission process is formal and largely governed by Missouri’s Rules of Civil Procedure. An attorney is highly recommended.  Importantly, property taxes must be paid on or before December 31, and become delinquent after that date. Given that the appellate process in front of the State Tax Commission takes some time, taxes are usually due and must be paid before the matter is completed. Consequently, the property owner must usually pay the tax under protest. Any overpayment will be reimbursed upon a successful result in front of the State Tax Commission.

It goes without saying that an real estate tax attorney is highly recommended for real estate tax appeals.  A property owner can not merely complain that their property tax is too high.  Instead, the property owner must present evidence that the assessed value of their property is incorrect and supporting the property owner’s opinion as to correct assessed value.  Such evidence can come from, among other things, an appraisal, sale of the property, lease agreement and photographic evidence with respect to the property at or near the time the property was reassessed or factual or expert witness testimony concerning the property’s assessed value from the owner or third-party witnesses.

Contact Commercial Property Tax Appeal Attorney Drey Cooley by filling out the form below or calling him directly at 314-505-5486. He endeavors to respond to all inquiries within 24 hours.

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The content on this page does not constitute legal advice and is for informational purposes only.  You should not act upon the information presented on this website without seeking the advice of legal counsel.  Should you wish to speak to an experienced commercial and residential real estate tax assessment appeals attorney, please feel free to contact me directly.  You may also view more information concerning my legal services and background.

The content on this post does not constitute legal advice and is for informational purposes only.  You should not act upon the information presented on this website without seeking the advice of legal counsel.  Should you wish to speak to an experienced commercial and residential real estate tax assessment appeals attorney, please feel free to contact me directly.