An overview of the hearing process – it’s not as bad as you think!
I recently represented a client at a hearing in front of the Assessment Appeals Board to challenge the assessed value of San Francisco real estate. Before the hearing, I noticed that all of the other hearings that day had been cancelled or postponed, a phenomenon that I have seen before. Although the Appeals Board does not keep statistics for why appeals are cancelled, I believe that many taxpayers cancel or delay the hearing for one of the following reasons:
- The perception that they will not receive a fair hearing before the Appeals Board;
- Fear that the process is complicated, and will require extensive preparation; or
- Misunderstanding about how the hearing will work.
These concerns are exaggerated, and most owners would benefit by pursuing their appeal. Failure to pursue the tax appeal means that the owner will not receive any consideration of their view that the property’s taxable value is too high. If the appeal relates to the new value after acquisition or construction, then the tax liability could result in thousands of dollars lost. Even if the appeal is a one year “Proposition 8” decline in value appeal, the property owner may be foregoing an opportunity to save money. For every $100,000 in decreased value, the owner could save about $1,400 per year in taxes. These days every dollar counts.
As to the fair hearing issue, in my experience, the taxpayer has always received fair consideration of their appeal. The Appeals Board is comprised of people that have other full time jobs – they are not city regular employees. The law requires that the Appeals Board be real estate professionals like brokers, accountants, attorneys or appraisers. I have found Board members to be quite reasonable and receptive to taxpayers, and not automatically deferential to the Assessor’s position.
The following is a brief overview of the commercial tax appeal hearing process, from the pre-hearing issues through the actual hearing.
Before the Hearing
It typically takes about 6-8 months for a hearing to be scheduled. The taxpayer is entitled to one postponement as a matter of right, provided that the request is made at least 14 days prior to the hearing date. Further postponements are subject to the discretion of the Appeals Board. If the appeal is not heard within two years after the filing date, then the applicant’s opinion of value is deemed to be correct, and will be entered on the tax roll. If the taxpayer does not show up to the hearing, then the appeal will be dismissed, and the decision is final, unless the applicant can convince the Appeals Board that there was good cause to miss the hearing, which is a tough thing to prove.
Negotiation with the Assessor’s Office
It is common for the taxpayer and the Assessor to have no contact prior to the hearing. In some cases, the Assessor will demand that the taxpayer provide extensive information about the property under Revenue & Tax Code Sections 441 & 470 – leases, construction costs, expenses, and other financial information. Although the code obligates the owner to provide certain financial information, there is no penalty for failing to do so, other than the Assessor’s right to postpone the hearing to review any documents submitted by the owner. As a means to force compliance, the Assessor typically threatens to ask the Appeals Board to dismiss the appeal if the information is not provided by the Assessor’s deadline. There is no such provision in the code for a deadline, or the dismissal of the appeal.
If the Assessor does not contact the owner prior to the hearing, some owners request a meeting with the Assessor’s office in the hope of reaching a negotiated agreement, like in the litigation process. In my experience, for commercial properties, these meetings have a limited chance of success, although in some cases the Assessor has agreed to reduce the property’s enrolled value. There is really no motivation for the Assessor to negotiate a deal with the owner. Given the City’s bleak economic condition, the Assessor aggressively challenges most requests for a decrease in taxable value, even if the requests have merit. Owners should be careful during such meetings about what information they provide to the Assessor – it will certainly be used against them at the hearing. However, there is no harm in talking with the Assessor to see if they will discuss a reasonable compromise, but the taxpayer should carefully consider what information to provide during these discussions.
In contrast, some counties, like Contra Costa County, have voluntarily initiated a program to reasonably reduce taxpayer’s assessable values, if justified. Whether this decision was due to a desire to be “fair”, or to strategically avoid administrative costs or more aggressive requests, the difference in approach is significant.
The owner has the right to request that the Assessor provide information that the Assessor used to determine the property’s taxable value. (R&T Code Section 1606). However, the owner must, along with this request, also provide the Assessor with its supporting facts and documents. There are no other requirements that the owner provide information to the Assessor prior to the hearing.
Except in complicated appeals involving possessory interests or construction matters, in most cases it is clear what information the Assessor has in its files – often the purchase price or finished construction cost from years ago. In these cases, it may not be worth the effort to request this information.
The hearing itself is a low-key affair. Typically, there is no one in the room other than the three members of the Appeals Board, the clerk and one or two representatives from the Assessor’s office. Both the taxpayer and the Assessor’s office will have the opportunity to present their case and refute the other side’s arguments.
There are no formal rules of evidence. The taxpayer may provide oral testimony, and present any documentary evidence that it wishes the Appeals Board to consider. The presentation need not be made in a “formal” courtroom style requiring technical expertise or special speaking skills. The burden of proof is on the taxpayer for any requested decrease in value under Proposition 8. The Assessor bears the burden of proof for escape assessments, or if it attempts to assess a value greater than the property’s purchase price.
The taxpayer can best convince the Appeals Board of its opinion of value by providing clear evidence supporting such value. While it is important to provide good support for the taxpayer’s argument, the presentation need not be complicated or voluminous. Three value approaches are in play, the cost approach, the income approach, and the comparable sales approach. For most properties, the comparable sales approach is the most relevant. The taxpayer would need to provide evidence that similar properties sold for the value that they are proposing. These sales must have occurred within 90 days after the applicable “lien date” or effective date of the taxable value and should be as close in time to the lien date as possible. This evidence can be gathered from a real estate broker, various online sources, or the Assessor’s public records.
Using the income approach, the taxpayer may show that the property’s income stream for the applicable time period does not support the assessed value. Often, the owner’s accountant or appraiser can help with this analysis. The cost approach most often relates to recent construction or improvements, and usually turns on whether the Assessor has considered the appropriate costs or any special circumstances during construction that would make the costs excessive in nature. Unfortunately, “soft” costs or permit fees may be considered by the Assessor to be part of the property’s value.
The Appeals Board members often ask factual questions about the property, including the size and use of the property, leasing information, type of construction, and other matters, so the owner should be prepared to talk about these issues.
One wonderful thing about this process is that once you actually make it to a hearing, you usually receive the result within one to three days. If you are successful, the Assessor’s office will then enroll the new value, new tax bills will be issued, and the appropriate refund issued. This process can take up to six weeks or longer, so it is important to follow up. If you lose the appeal, you have the right to petition the Superior Court for reconsideration. Unlike the tax appeal, a petition to Superior Court is essentially a lawsuit against the City. It will be costly, time consuming, and require an attorney.
My advice – take each appeal to the hearing if you have any reasonable arguments. The downside is just your time, the upside is money in your pocket.
Keep in mind that appeals may be filed for 2010-2011 tax bills beginning in July 2010.
Reuben & Junius has handled many of these appeals and helps taxpayers file the appeal, prepare for the hearing, make the presentation, and wade through any technical issues.Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
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