As you go through the 2019 budget process with your office buildings, you will undoubtedly have to look at every major expense item in great detail. There are two major expense items that are a frequent topic of discussion and have a direct correlation to each other – property taxes and capital expenditures (CapEx). Property taxes are one of the largest single expense items on every office building budget, and CapEx are an essential part of the budget process, but often times there is not an extended effort to tie the two together.
So how do they relate? It is simple. Property tax laws in virtually every state require that a property be valued as it sits on January 1st of each year. If a CapEx budget on a building shows a required expenditure to replace the roof, HVAC system and new elevator system, then those cost estimates can be used for property tax reduction purposes.
We have represented many Fortune 400 companies and saved them millions of dollars using CapEx budgets as part of the property tax appeal process. In some cases, the budget alone can play a role in the process. But in order to enhance the property tax appeal effort, it is often worth the time, effort and money to obtain a Property Condition Report (PCR). These reports are detailed property inspections that support tax reduction related to all deferred maintenance items within an office building, and also include pictures and cost estimates. PCRs can translate into hundreds of thousands of dollars in tax savings each year and millions over time.
For example, Paradigm has represented two side-by-side office building for one of the largest companies in America with the following results:
- 2015 Tax Savings: $344,732
- 2016 Tax Savings: $157,349
- 2017 Tax Savings: $214,792
- 2018 Tax Savings: $629,383
Better yet, these buildings represented above were not your major CBD $100+ million office buildings. They were your typical suburban office buildings valued in the $20-30 million range. Total tax savings on these two office buildings in a four-year period was over $1.3 million, so you can imagine the magnitude of the savings with larger properties.
The primary basis of this appeal effort was driven by CapEx budgets supported by two PCRs that cost a few thousand dollars each. This $12,000 expenditure (two reports per building over a four-year period) coupled with extensive appeal efforts by a team of professional tax consultants produced a net of all fee savings over $1.1 million for this client on just two office buildings.
Aside from the deferred maintenance issues and tax savings, you can also reduce property taxes due to “mother nature” damage such as hail, hurricane, tornado, or flood damage. These repairs are often covered by insurance, but any unrepaired damage as of January 1st may be used to lower property taxes.
If you have any questions regarding how to translate your capital expenditures to property tax savings, please don’t hesitate to reach out. We have a team of experienced and aggressive property tax consultants with expertise in the office sector across the entire country ready to assist.
Market Leader, North Texas