Commercial property owners are well-advised to challenge the Gwinnett County property tax assessment especially when these are unfair in terms of value, uniformity, and taxability, the grounds for appeal. More often than not, challenging the tax assessment requires challenging the Office of the Tax Assessor’s market cap rate assumption.
Income Approach
The appeal process does not start with formal proceedings per se. You can set informal meetings with the assessment authorities, which can be followed by formal administrative appeals and, if necessary, with court proceedings.
You and the assessment authorities will more than likely agree that the best method for valuing commercial property is the income approach. You should also agree on many of the factual elements for the calculation of the property value, which affect the final Gwinnett County property tax bill.
Again, the market cap rate is a most critical element in the preferred income approach. This is where the disagreements will likely start.
Subjective Judgment
This is because market cap rates are inherently subject to manipulation and opinion, no thanks to the fact that these rates are based on the subjective judgement of multiple factors. Assessors will defend their valuation by citing a “market-derived cap rate”, which may be valid in certain respects but usually yield erratic results. Keep in mind that the determination of the market cap rate typically comes from comparisons of sales between similar commercial properties in the same market.
In some instances, the market-derived cap rate is based on sales but the assessor may not provide a detailed analysis of these sales (i.e., no performance history). The most common approach is making a match between the market income and sales price, and calculating the cap rate. The cap rate is then applied to all commercial property in a one-size-fits-all analysis, which will usually work against the owner’s advantage. Commercial property owners must challenge the market-derived cap rate if they are to achieve equitable taxation.
Furthermore, taxpayers should also push against the use of the enterprise value cap rates, derived from sales of properties with tangible and intangible elements that that may affect sale price but are not part of the real estate income.
This cap rate is based on the return on investment, which is comprised of real estate rental income coupled with the return on investment via business revenue. The non-realty (intangible) components are things like branding, advertising, trained manpower, affiliation, and market dominance. These components should ideally be separated from the real estate component during the Gwinnett County property tax assessment.
Successfully challenging the Gwinnett County property tax assessment requires an effective and efficient plan of attack. Commercial property owners are well-advised to hire the services of an experienced and respected tax consultant who has the knowledge and skills to challenge the assessor’s office about these matters.
