Real Estate Taxes & Assessments – Do they work?

We recently attended tax appeal hearings for two office properties we own and we are currently appealing 5 office property tax assessments. It’s interesting how governments have attempted to fund their costs through applying market values to both commercial and residential properties that are in their municipalities. The market turmoil of the past few years has made it almost impossible to value properties with any credibility. As governments search for new income, some have resorted to simply increasing values while the markets have dropped. They know some owners will do nothing and those that do, will have a long and expensive process in front of them in challenging the new values.

Is this a good way for state and local governments to raise revenue? Maybe for income producing properties since increasing values should be the result of higher incomes – thus more cash for taxes. But what about the homeowner whose home increased in value, has higher property taxes, but not the cash to pay the tax? Just because their property is worth more doesn’t mean they will get a raise at work to pay the extra taxes.

Here’s a solution, take the assessed value out of the equation and tax commercial properties on revenue or income. For homeowners, charge a lower or standard base rate (not based on value – maybe square feet) and then a capital gains tax if the homeowner makes money when they sell the property. I just think having the government determine property values is a bad idea.