During a modern property tax petition case we were shocked to hear the local property tax assessor make the statement, "Have him close the business and I'll think lowering the taxes". We looked at one other in sheer amazement and before I could notify the assessor that he had just admitted to taxing the business business as opposed to strictly the real estate, Clay had taken out a legal pad and said "Wait! Let me quote you on that!" The safe bet assessor gladly made the statement once again unaware of the fact Clay was indubitably documenting the quote to be utilized later while a formal appeals board hearing. Real Estate Taxes are just that, a tax that is attributable to the real estate only. This assessor made it quite clear that this personal care installation was being taxed, not only on its real estate, land plus improvements, but on the business business (intangible assets) linked with the business occupying the improved property.
Appraisal literature features an plentifulness of articles addressing the valuation of discrete properties with a focus on the segregation of intangible components from the tangible assets. Most state laws hold only real property and other tangible assets branch to taxation so the importance of separating these components of value is most apparent in property tax assessment. Intangible assets, though they may improve the value of the total operating enterprise, are not branch to ad valorem taxes.
Commercial property, especially nursing homes, personal care centers, assisted living center and hospitality owners should analyze their ad valorem tax obligation immediately. We continue to find that most assessors are incorrect in the way they are assessing these specialized types of properties. Many times these properties sell and exchange along with not only the real estate but the businesses themselves. The majority of the assessing officials will plainly collate the property at this sale price, which often times not only consist of the real estate but also the personal property and business business value (Bev) which is also referred to as going-concern value.
Valuing the going concern is fairly easy using discounted cash flow techniques or an income capitalization approach. The strangeness arises when there is a need to decompose the going concern value into the discrete elements as required for evaluation and condemnation assignments.
In distinguishing in the middle of Bev and real estate value, it is fundamental to identify that income generated from a business conducted within the real estate is not the accepted quantum of real estate value. Instead, that income is the value of the going concern. For many extra purpose properties, the business business component is substantial, so the potential for error is large if going concern value and real estate value are confused.
In using the income Approach, it must be kept in mind that the possession nursing home is more than a real estate entity consisting of land and buildings. It is a installation equipped and staffed for providing personal services. Recognition must be given to this factor in the form of a "business profit" to the owner of operator.
The real estate alone (land and buildings) is not the celebrated income-producing factor as in a installation such as an apartment building. A nursing home provides many personal services to its occupants as part of the charge for occupying a room or a bed. These consist of food, nursing care on a 24-hour basis, and a little estimate of entertainment....The possession nursing home is a "special use" property. As such, the shop is quite limited. Furthermore, the extra build limits the alternate uses for the real estate.
During a recently located case of a property containing both a personal care installation and an assisted living center, we argued that the personal care installation added no value and in fact was a determent to the ample property. This was based upon the Ky required cost arrangement of .80 per bed per day and that no economical investor would even exertion to buy the property and continue this center based on that income. This is attributed to the going-concern and was provided to the assessor to demonstrate the lack of current success of the business within the real estate. In expanding this property suffered an immeasurable estimate of functional obsolescence as it was constructed in 1969. The assessor agreed and explored alternative uses for the assisted living center and was also of the plan it did not report the top and best use of the property. The total evaluation was lowered from ,087,100 to ,000,000 with an every year tax recovery of ,267 or 6,337 over the next five years. The total savings are immeasurable as they are carried into perpetuity due to the fact there is a new beginning point (,000,000) in which the evaluation may be raised in the future.
The land and buildings are not the chief income-producing factors in a nursing home......The value of a nursing home is enhanced by its reputation and good will in the medical and nursing field and in the society at large.
If a firm is flourishing it does not want to sell except for a bonus; if it is bankrupt, it often sells at a business agreement upset price; and in neither case is true value measured. When Dodge Bros., automobile industry was purchased by capitalists, it was reported that an reduction of many millions of dollars in stock was paid for goodwill.
It is therefore easily understood that a law requiring property to be assessed at its actual value, its real value, its cash value, its shop cash value or its full cash value does not mean its "transaction value" where cash paid represents but a fraction of the sales price, nor does it mean the all cash price paid at a forced sale.
This intangible value is not generally taxable. A tax assessor is often confused when an market property sells at a form greatly above the assessed value. He has not the data at hand from which to fathom the intricacies of patent rights, goodwill, etc., and often the problem is left unsolved.
Ad valorem tax is one of the only taxes one pays that is based upon someone's plan of value. Incompetence means you pay more! Don't let an incompetent assessor cost you thousands of dollars by development you pay more than your fair share by along with Bev!
By Bryan S. Reynolds and Clay J. Wells
Incompetence Means You Pay More!