Building for Sale

Buyers don’t care how much money sellers put into a property.

Buyers don’t care how much money sellers put into a property and neither should assessors. For that matter they don’t care (and should not) what the retail sales were either. That is the case Robert Hill is making in Winona County as he represents multiple companies arguing Winona County overvalued their properties.

Read all about it at the Winona Post.

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The Property Tax “Aha!” Moment for Business Property Owners

By Robert A. Hill, property tax attorney and president, Robert Hill Law, Ltd.

You and your team pay attention to the sale of business properties near to or adjacent to your own properties. You easily find the sale price and likely will calculate the square foot price to compare to your own property’s market valuation.

It’s possible you may have even consider the tax assessor’s valuation of your property, but sat passively in frustration in the fact that the marketplace facts do not mesh with the assessed valuation.

The “Aha!” moment occurs when you hear marketplace stories of property owners or competitors that just saved $5 million in their property taxes. When one bears witness to peers having success that dramatically affects their bottom line year-after-year, curiosity is piqued.

I would suggest to you this: Pay attention to the market of similar properties. Watch for sales of those properties and watch closely those businesses geographically near to your property or very much like the market location of your property. When you see like-property sales that are less than your assessed value per foot, raise that red flag. Understand that good property tax attorneys exist that can quickly drive a compromise that directly affects your bottom line. I welcome your call/email to discuss your property tax red flags. We offer a software solution that simply and quickly can validate your concerns with tangible market facts.

Property Tax Reduction Case Studies:

  • Big Box Home Hardware Retailer – $9 million in savings over three years
  • Big Box Pharmacy Retailer – $2 million in savings over four years
  • Minnesota-based Food Retailer – $3.7 million in savings over three years
  • Well-known Food Brand – $250,000 in annual savings

Author Bio:

Robert “Bob” Hill has, for over three decades, successfully represented major companies in property tax appeals through both negotiations with tax assessors and litigation. His dedication to his clients has helped businesses throughout the United States save tens of millions in property taxes. Mr. Hill has earned Martindale-Hubbell’s highest peer review rating of AV-Preeminent for his legal knowledge, communication skills, high ethical standards, and his representation of clients in significant property tax cases.

Seeing a Trend of Buildings being Sold for Less Than Your Property’s Assessed Value?

By Robert A. Hill, property tax attorney and president, Robert Hill Law, Ltd.

As an owner of one or more business properties, you or your team are likely watching the sales of buildings near to or adjacent to your property. I’d call that a “best practice” in business property ownership. But, a “red flag” is the sale of buildings near your property that don’t match the property tax assessor’s valuation of your property.

If you sold your property today and cannot get payment that matches its assessed value, you’re paying too much in property tax. Why not keep that money to hire those needed employees or begin that business-transforming initiative you believe necessary to remain competitive?

Where do you start? Find a property tax attorney team that can help you quickly and efficiently collect the hard facts to ensure you have a case. Look for a team that is scalable and prides itself in compromise, instead of costly litigation.

We can start you and I’d welcome your call. We’ve built a proprietary software system that quickly and efficiently provides the details to determine whether your perceptions are valid and whether a case is to be made. Since we work strictly on a contingency fee basis, there is no risk to you – only the reward that comes from a substantially reduced tax assessment in line with market principles.

Put a team of relentless advocates to work for you.

Property Tax Reduction Case Studies:

  • Big Box Home Hardware Retailer – $9 million in savings over three years
  • Big Box Pharmacy Retailer – $2 million in savings over four years
  • Minnesota-based Food Retailer – $3.7 million in savings over three years
  • Well-known Food Brand – $250,000 in annual savings

Author Bio:

Robert “Bob” Hill has, for over three decades, successfully represented major companies in property tax appeals through both negotiations with tax assessors and litigation. His dedication to his clients has helped businesses throughout the United States save tens of millions in property taxes. Mr. Hill has earned Martindale-Hubbell’s highest peer review rating of AV-Preeminent for his legal knowledge, communication skills, high ethical standards, and his representation of clients in significant property tax cases.

Now Automated – Property Tax Assessments for Business Property Owners

By Robert A. Hill, property tax attorney and president, Robert Hill Law, Ltd.

Your business property has just been assessed and marketplace knowledge tells you this tax assessment just doesn’t seem right. What to do next?

You need additional facts and you need them quickly. You want a simple means to efficiently find hard facts and determine whether there’s the leverage to save your business hundreds of thousands – or millions – of dollars over the next few years.

We’ve built a proprietary software that offers an unequaled property tax assessment analysis. It’s fast (often completed in minutes), collecting and presenting the facts to prepare a case against the assessor’s valuation. No other property tax firm in the United States has built anything like it.

After a short conversation, we only require a copy of your property tax statement. Results are often tabulated within minutes. To engage our team is simple. Contact us by phone at 952-426-7373, or via our Contact Form. Since we work strictly on a contingency fee basis, there is no risk to you – only the reward that comes from a substantially reduced tax assessment in line with market principles. Put a team of relentless advocates to work for you.

Property Tax Reduction Case Studies:

  • Big Box Home Hardware Retailer – $9 million in savings over three years
  • Big Box Pharmacy Retailer – $2 million in savings over four years
  • Minnesota-based Food Retailer – $3.7 million in savings over three years
  • Well-known Food Brand – $250,000 in annual savings

bobAuthor Bio:

Robert “Bob” Hill has, for over three decades, successfully represented major companies in property tax appeals through both negotiations with tax assessors and litigation. His dedication to his clients has helped businesses throughout the United States save tens of millions in property taxes. Mr. Hill has earned Martindale-Hubbell’s highest peer review rating of AV-Preeminent for his legal knowledge, communication skills, high ethical standards, and his representation of clients in significant property tax cases.

Industrial building

Valuing Future Re-Development Sites

One of the more difficult problems property tax practitioners – and trial courts – face is to determine the fair market value of large industrial plants that are due to close and be torn down. Such properties rarely have much value to either their current owner(s) or for continued use by other industrial users. Often, the land beneath the improvements outstrips the value of the improvements themselves. Yet assessors still are required to value such teardowns according to their current highest and best use as of the Jan. 2 snapshot date, particularly when the time horizon involved in closing such plants often takes years to achieve.

Such was the problematic situation confronting the Minnesota Tax Court recently in Ford Motor Co. v. County of Ramsey. In an exhaustive opinion written by Chief Judge Delapena, the tax court ordered the value of the main Ford Motor Plant parcel located in St. Paul, Minnesota to be decreased by a total of $132.8 million and the real estate taxes adjusted accordingly. In its opinion, the tax court said it was tasked with determining the market value of Ford’s property on each of the valuation dates. The court noted that “Ford and the county have both concluded — and we agree — that [the] traditional valuation methods cannot be used to value the [property]. Briefly, there are no sufficiently comparable sales to examine; no one today would construct comparable improvements on the site; and the obsolete existing improvements would be of no interest to an investor.”

The court also said that it agreed with Ford and the county that the property today would have been purchased by a developer intending to raze the existing improvements, and that it needed to examine what price a developer would have been justified in paying for the property, given the cost of clearing and developing the lots. As viewed by the trial court, “An essential step in the development cost approach is the adoption of a reasonable development plan. Solely to value Ford’s property for tax purposes on the five valuation dates, we have adopted the county’s proposed development plan, which subdivides Ford’s property into 23 saleable lots, and which the county commissioned solely for this property tax litigation.”

The court found that Ford presented substantial evidence that the assessor’s estimated market value for the primary parcel of land was excessive for the five valuation dates in question, but that the tax assessor accurately estimated the market value of a different parcel on the property.

The court ordered the 2006 value on the primary parcel be decreased from $62.6 million to $33.9 million, the 2007 estimation be decreased from $74.5 million to $34.6 million, the 2008 value be altered from $60.5 million to $34.8 million, the 2009 value lowered from $43.5 million to $26.8 million and the 2010 estimation be decreased from $43.5 million to $21.7 million. The court affirmed the substantially lower estimated values for the parcel located in the River Corridor Overlay District: $2.4 million in 2006, 3.1 million in 2007 and 2.8 million in 2008-10.

Given the eventual outcome of this seminal case, the question becomes whether it is better to counsel clients owning obsolete industrial plants to consider the actual price they may achieve by selling their land for re-development versus continuing to treat their property tax assessments as the full value of the existing use? While the outcome in the Ford Motor case suggests the redevelopment alternative may be the preferred option, this outcome was mitigated somewhat by the fact that the plant was located on land in a desirable section of a major city.

Had the functionally obsolete plant been located in a small town, or on the outer edge of a suburb – places where land values are either stagnant or still in decline relative to the market for land in built-up urban core areas like St. Paul – the situation may have been drastically different for all concerned. Nonetheless, after the tax court’s decision in Ford Motor, taxpayers seeking to challenge the assessments of their rust bucket large industrial properties have an interesting alternative to consider, one that should be carefully examined by property tax practitioners and assessors alike. As the old adage says, “Be careful what you ask for; you just might get it.” In the case of Ford Motor Co. v. Ramsey County, truer words were never spoken.

Talking Points – Sale-Leaseback & Market Value

In last month’s article, I attempted to show practitioners how to address the legal issues associated with proving that saleleaseback transactions cannot demonstrate the actual market value of the underlying real estate. Regardless of the case law, however, most assessors still want to consider such transactions as being relevant to the assessments of real estate encumbered by lease payments which are typically fixed to provide for amortization of the purchase price over the term of the lease plus a specified return rate on the buyer’s investment. To educate assessors as to why they must reject such sales, it is wise to arm yourselves with talking points demonstrating various reasons why the real estate is not the only thing involved in a sale-leaseback. I have found the following points to be helpful in my practice and wanted to devote this month’s article to sharing them with my colleagues.

Seller Advantages

Converts Equity into Cash. With a saleleaseback, the seller regains use of the capital that otherwise would be tied up in property ownership; at the same time, the seller retains possession and continued use of the property for the lease term.

Improves Balance Sheet and Credit Standing. In a sale-leaseback, the seller replaces a fixed asset (the real estate) with a current asset (the cash proceeds from the sale). If the lease is classified as an operating lease, the seller’s rent obligation usually is disclosed in a footnote to the balance sheet rather than as a liability. This results in an increase in the seller’s ratio of current assets to current liabilities, which often serves as an indicator of a borrower’s ability to service its short-term debt obligations. Thus, an increased current ratio improves the seller’s position for borrowing future additional funds.

Avoid Debt Restrictions. Businesses restricted from incurring additional debt by prior loan or bond agreements may be able to circumvent these limits by using a sale-leaseback. Rent payments under a sale-leaseback usually are not considered indebtedness for such purposes, thus a business can meet its cash needs through the sale-leaseback without violating any previous agreements.

Deduction of Rental Payments. A seller’s decision to raise funds through a sale-leaseback frequently is based on substantial income tax advantages. The main tax advantage of a valid sale-leaseback is that rental payments under the lease are fully deductible. With conventional mortgage financing, a borrower deducts interest and depreciation only. The rental deduction may exceed the depreciation in three cases: if the property consists primarily of a non-depreciable asset, such as land (although land is not depreciable, rental payments for the lease of land may be deducted); if the property has appreciated in value (while depreciation deductions are limited by the cost of the property, rental deductions may equal the fair market value of the property); or if the property has been fully depreciated.

Capital Gain-Ordinary Loss Treatment. Because the property involved in a sale-leaseback generally is held for use in the seller’s trade or business, it qualifies for capital gain-ordinary loss treatment. Under Section 1231 of the Internal Revenue Code, if the property is held for the long-term holding period, gain on the sale, with some exceptions, will be taxable as long-term capital gain to the extent that the gain exceeds the losses in the same year from the sale of other Section 1231 property. However, the gain will be taxable as ordinary income to the extent of recapture income. But in the case that the sale results in a loss, it will be deductible in full as an ordinary loss to the extent the loss exceeds Section 1231 gains from the sale of other property in the same year. This can be a substantial advantage to the seller in a sale-leaseback transaction.

Buyer Advantages

Higher Return Rate. The buyer usually receives a higher rate of return in a sale-leaseback than in a conventional loan arrangement. Also, the buyer may be able to circumvent state usury laws that limit the rate of interest charged with conventional financing. In addition, at the end of the lease term, the buyer receives the benefit of any appreciation in the value of the property. Finally, the buyer can leverage the purchase with mortgage financing; this may further magnify the return rate on the cash invested.

Ownership of the Reversion. The buyer owns the reversionary interest in the property. If the seller has an option to purchase or an option to renew the lease, this may limit or postpone the time that the buyer actually realizes the profit potential. The buyer also bears the risk that the property value actually might decline over the lease term.

Built-in Tenant. Finally, in purchasing the property, the buyer has a built-in tenant, namely the seller.

By using these talking points in your discussions with assessors, you may be able to convince them that the value of the brick and mortar should be determined by actual market sales of similar properties, not the investment value of business transactions in which the value of the real estate is often not even considered – much less relied upon – by the actual market participants.

Minnesota Business Tax

Minnesota business owners may decrease their tax burden through engineering-based cost segregation

Minnesota businesses, just like people, have an obligation to pay taxes. Taxes are the price we pay to live in a civilized society and pay for the great quality of live we enjoy in our state.

Here at Robert Hill Law, we believe that although businesses owners have an obligation to pay taxes, Minnesota companies are not obliged to pay more taxes than are legally due. Funds unnecessary spent on taxes can be used to reinvest in business and employ more people across the state.

One of the primary tax burdens that Minnesota businesses face are property taxes. An accurate property tax assessment is a key part making sure that your company’s profit margins aren’t being unnecessary shrunk.

Engineering-based cost segregation is a powerful method that can significantly decrease the property tax burden of a business. This type of segregation is the IRS-approved way of identifying the appropriate classification of a business’s property for the purposes of depreciation recovery.

Property Depreciation Under the MACRS

Minnesota businesses can recover the costs of income producing property through annual property tax deductions. This is done gradually through a method called depreciation.

The IRS generally classifies building costs into three types categories. Each one of these categories has a different rate of depreciation. Under the “Modified Accelerated Cost Recovery System,” real property is generally appreciated over 39 years, land improvements are depreciated over 15 years, and tangible personal property is depreciated over 5 or 7 years.

Many businesses across the state can benefit from a cost segregation study to determine whether all company property is properly classified. By identifying which items are improperly classified as real property, a business may drastically increase the rate of depreciation they take and reap significant tax savings.

An engineering-based cost segregation study is the most methodical method that the IRS approves for supporting such deductions. Here at Robert Hill Law, we can help Minnesota businesspeople determine whether an engineering-based cost study is right for their company and its assets.

Our team of experts will provide your company with a cost and benefit analysis that will indicate the expected benefits and the flat fee required to complete the full engineering-based study. This will allow your company to make the most educated decision possible as to whether the study makes business sense based upon the projected return on investment. To learn more about cost-based engineering and our services, contact us at 952-426-7373.

Commercial office building

Minnesota businesses complain about high property taxes

Minnesota Public Radio recently ran a story detailing how some Minnesota businesses are struggling to compete along the North Dakota border. Moorhead convenience store and gas station operators were particularly hard hit because their customers can easily go to Fargo for the same services.

Brady Olson is one small business owner who took out a radio ad to voice his concerns regarding increasing sales and property taxes on his gas station.

“Hi, I’m Brady from Brady’s Service,” Olson said in the radio spot. “Minnesota has quietly been turning my business in to a tax collection business.”

Area officials say that Minnesota has traditionally had lower property tax rates than North Dakota, but the state’s surging oil wealth has changed that. Minnesota does provide some help to the Moorhead area, which is used to defray the cost of workers’ comp benefits and provide small incentives to new businesses.

State Representative Paul Marquardt told MPR News that the taxes Moorhead businesses pay contribute to the higher quality of life, infrastructure, and schools that Minnesotans enjoy compared to some of our neighbors. Marquardt also said that complete parity with N. Dakota is highly unlikely in the near future.

DFL lawmakers recently hinted that some Minnesota tax hikes could go away now that Olson and other local businesses are complaining loudly. One Lino Lakes warehouse owner says that the state’s tax on warehousing services is prompting his company to explore relocating.

“We’ve actually begun the process of looking for facilities in other states,” said Dave Smith, V.P. of Distribution Alternatives. “We’ve actually worked with a real estate agent already. We gave him the list of four or five states to look at.”

One thing that Minnesota property owners can do to combat property tax hikes is consider a reevaluation for their business. Over-assessments are common and a proper valuation can lower the tax burden of a company significantly more than a small legislative bump in rates.

Businesses that occupy single buildings and aging industrial sites are most commonly overvalued, but any type of commercial property can be improperly assessed.

Contact Robert Hill Law to discuss whether your business property may be overvalued.

food processing plant

Case Study: $12 million reduction for a food processing plant

Owned by a food and meat products manufacturer based in Austin, Minn., this Illinois property was originally built in 1964 as a pork processing plant. Over time, several additions were built onto the property as the building was reconfigured into a general-purpose food processing plant with several new product lines.

The local assessor had valued the property at $16.2 million, but Robert Hill Law was able to convince the assessor that the high degree of functional obsolescence associated with the client’s property, combined with price declines for large industrial properties in general, required a major reduction in the assessed value for the plant. The assessor agreed, and the negotiated value was settled for $4.4 million just prior to a board of review hearing.

  • Assessed value: $16.2 million
  • Negotiated value: $4.4 million
  • Amount saved on property taxes: $1.06 million

industrial properties

Hidden factors can lead to overtaxed industrial properties

Industrial properties present special challenges to property assessors. As drivers of the economy, these properties are large, visible structures in the community, home to expensive equipment and activities that generate revenue. In smaller communities, industrial properties are often the main commercial tax base for municipalities. All of these factors make industrial properties opportunities for over-assessment.

Even with a well-maintained piece of industrial property, there are hidden factors that can drive down the true economic value of the building and property. Many hidden factors may differentiate a property from comparable recent sales, even if they appear similar on the surface.

For example, if an industrial property was built more than 30 years ago, there is likely asbestos insulation, antiquated HVAC systems and contaminated real estate. These considerable and costly building code and environmental issues would have to be addressed during any property repurposing, renovation or addition, and could substantially drive down the value of a property during a sale.

Another possible cause of over-assessment comes from elements inside the building, such as a productive workforce employing expensive machinery. These economic factors are a valuable going concern to the owner. Some property tax assessors impermissibly consider a property’s overall worth to an owner in determining assessments. A productive workforce and expensive equipment make a property more profitable to your company, but should not be used to artificially inflate its valuation.

Three questions CFOs should answer about their property assessment are:

  1. Could I sell my industrial property for the same assessed square foot value?
  2. Could I build or buy new comparable property in the larger community for the same assessed square foot value?
  3. Would it be economically feasible to bring the property up to current code and remedy any environmental issues, and continue my current business in the property on its current profit structure?

If the answer is no to any of these questions, it’s time to consider consulting with a professional property tax attorney about a reassessment. A bad financial year for business does not drive down the value of a property or generate a property tax rebate, but the converse is also true – a profitable business in an aging building does not justify settling for a higher property tax assessment.