It’s tax appeal time again, with the April 30 deadline for filing a Tax Court petition approaching. While the economic recession and the bursting of the real estate bubble have created great hardships for many property owners, if there is any silver lining, it is that there are great opportunities for owners to reduce their property taxes by challenging the assessed values of their properties for tax purposes.  Many of these values are overstated in the current depressed market. Owners of “income-producing” properties (properties that produce revenue through rents) who are considering filing a tax petition should be mindful, however, that a legal requirement to pursuing such an appeal is that certain financial information must be produced to the taxing authority within a certain period of time after filing the petition—upon pain of dismissal for failure to do so.

The financial disclosure requirement states that when a property owner contests the “valuation of income-producing property,” six items of information must be provided to the county assessor. Minn. Stat. § 278.05, subd. 6. These items are: (1) a year-end financial statement for the year before the assessment date; (2) a year-end financial statement for the year of the assessment date; (3) a rent roll on or near the assessment date listing tenant names, lease start and end dates, base rent, square footage leased and vacant space; (4) identification of all lease agreements not disclosed on the rent roll, with the tenant name, lease start and end dates, base rent and square footage leased; (5) net rentable square footage of the building(s); and (6) anticipated income and expenses in the form of a proposed budget for the year in which the taxes are payable. Conspicuously absent from these disclosure requirements are the leases themselves; the statute expressly states that, “the information required to be provided to the county assessor . . . does not include leases.”

The “assessment date” referred to above means the date on which the assessor values the property for taxes purposes and is always January 2 of the year before the taxes are paid. For example, if a property owner appealed the assessed value of the property for the taxes payable this year—in 2012—the assessment date would be January 2, 2011. Accordingly, along with rent roll and square footage information, the property owner would be required to produce 2010 and 2011 financial statements, and a 2012 income and expense budget.

The financial disclosure statute mandates that the deadline for providing this information is “August 1 of the taxes payable year . . . .” Failure to meet this deadline results in “dismissal of the petition.” There are two statutory excuses for missing the deadline and avoiding dismissal of the tax petition: (a) unavailability of the information at the time that it was due, or (b) the petitioner’s lack of awareness of the requirement to provide the financial information.  (Because you’ve read this article, you are now unable to invoke this second excuse—nor can an attorney for the property owner plead ignorance of this requirement.)

It will not be lost on any owner of an income-producing property that the above-described information will enable the assessor to determine a value of the property under the income-capitalization approach to value. This is why it is important to think carefully about filing a tax petition if you have income-producing property, because it may result in putting information into the assessor’s hands that could not only justify the assessed value, but also justify increasing the assessed value—which is a possible outcome any time a tax petition is filed in Tax Court.

That said, the disclosure requirement should not be seen as a deterrent to a property owner filing an otherwise viable tax petition. It is one of a number of considerations that must be taken into account in deciding whether to file such a petition. The potential exposure does point up the wisdom of seeking professional advice and consultation before you file. The real estate valuation subgroup of Larkin Hoffman’s Real Estate Litigation department provides property tax consultation services at little or no cost to the client. We provide free property tax appeal consultations for properties with assessed values of $2 million or greater. For properties with assessed values of less than $2 million, we request a consultation fee of $250.

We have assisted many owners of income-producing properties in determining whether to file a tax petition and in obtaining substantial tax savings through assessed value reductions.  There is still time to seek a consultation before this year’s April 30 filing deadline. Feel free to call or email any of the following attorneys to arrange for an initial consultation: 

Gary Van Cleve: 952-896-3277 or gvancleve@larkinhoffman.com (shareholder)
            Rob Stefonowicz: 952-896-3254 or rstefonowicz@larkinhoffman.com (shareholder)
            Mike Mergens: 952-896-3297 or mmergens@larkinhoffman.com (associate)
            Tim Rye: 952-896-1535 or trye@larkinhoffman.com (associate and licensed general appraiser)