What to do about changing property tax rates

Property tax is complicated. It’s also one of those things in life for which you may have a high degree of responsibility and only a limited amount of control. It can feel like you’re at the mercy of tax authorities when it comes to identifying a tax rate, making property tax notoriously difficult to budget for. 

But it’s not all out of your hands. There are things you can do to mitigate the impact of fluctuating tax rates on your real and personal property, starting with knowing:

• Why does your property tax rate change?
• What can you do to manage your property tax rates?
• How can you save money on property taxes?

Your property tax bill has the potential to change each year, even if your property stays the same. These unpredictable circumstances can make it difficult to properly budget if you’re not sure how much you’re going to be assessed. 

There are several reasons why property tax values can change, including:

• Inflation
  Inflation tends to have an annual impact on property valuation. Generally speaking, as the inflation rate rises, your property value increases. Usually the rate is somewhere between 1% and 3%, but in recent years, we’ve seen inflation creep up toward 7%. There are many factors that complicate the specifics, including uneven increases across sectors and types of property. 

• Depreciation
  Assessors are responsible for determining the current value of your real and personal property. Simply put, they take the original cost of the property and apply a rate of depreciation to come up with their valuation. But not all things depreciate at the same rate. Because office equipment depreciates faster than, say, farming equipment, you’d see a higher depreciation rate applied to the former.

• Politics
  Real and personal property taxes often serve as a key source of revenue for local governments. How do they determine which tax rate to apply? It can often be as basic as dividing all of the assessed values in the jurisdiction by the amount of budget not covered by other revenue sources (e.g., sales tax, federal funds). It can mean smaller increases in some years, followed by steeper jumps in others, depending on the projects and expenses the local government has taken on.

Though the tax rate might be a wild card every year, that doesn’t mean you can’t do anything to improve your property tax situation. Here are three strategies you can adopt to help manage your business’s property tax rates:

Take advantage of reinvestment zones.
To build needed infrastructure and encourage development, cities and other municipalities sometimes designate investment zones. These zones are essentially geographic areas identified for potential improvements, funded through a portion of the area’s property tax revenue.

Governments often entice businesses to build in these locations with tax exemptions on all or part of the investment and build cost of real or personal property. If it’s in your strategic plan to open a new location, building in an investment zone can be a way to help lower your tax bill.

Know your community.
Tax jurisdictions are public entities and often have public meetings where they share property tax rate information. Having a member of your team at these meetings can help you stay informed about potential tax rate increases and help you better forecast your expected tax liability.

Verify your property tax rates.
When you receive a tax bill, don’t just assume it’s correct. While the amount due is likely calculated using software, a human had input at some point in the process; meaning, there’s room for human error.

Imagine you have two locations in the same jurisdiction. On one tax bill, your rate is 1.5%, on the other, it’s 1.75%. The difference could be an assessment error, suggesting you owe more than you’re actually liable for. After all, if an assessor applies the incorrect inflation or depreciation rate, the fanciest algorithms in the world can’t produce a correct bill. 

When it comes to property taxes, there are several areas where you have the opportunity to save money. Three of the most common ones include:

• Assigning the right depreciation schedules to your assets, lowering their value and helping you save on your tax bill
  
• Appealing an assessor’s valuation, resulting in reducing the amount you can be taxed
  
• Paying your property taxes early, making you eligible for a 1–5% discount off your total bill, depending on your jurisdiction
  

To avoid under- or overpayment of property tax, it’s important to know the current tax rates in the jurisdictions where you do business. The good news is, you no longer have to spend hours researching rates, rules, and changes on your own.

Avalara Property Tax captures and validates historical tax rates and other key data points from over 20,000 assessing and collecting jurisdictions. That means you can skip looking up due dates, mailing addresses, and depreciation tables — and spend your time on more valuable tasks, like reducing your organization’s tax liability or growing your business.

To find out more about how Avalara Property Tax can help your business, contact us to request a demo today.