Property Tax Appeal in Indiana


#1

We bought a park in Indiana this year and during our due diligence, we found out that the property tax for last year was $5600. This year, there has been a county-wide re-assessment of the parks and they are now going to charge us $8200! That’s about 50% increase from previous year.

I had called the treasurer’s office and inquired about an appeal while back. They just replied that since their appraised value is still less than our purchase price, it won’t work.

Has anybody been successful in appealing tax in Indiana? We also found services that handle property tax appeal (http://www.cptaxadvisors.com/services) . We are debating if we should use them. Any input would be appreciated.

Jae


#2

You have to convincingly separate the “business value” from the Real estate value when you go in front of the appeals board. When you buy a pizza shop do they property tax you on the pizzas sold? No. When you buy a car dealership do they property tax you on the cars? No. When you buy a dairy farm do they tax the cows? Well they’re trying to do that! There are people who do this kind of work (defining the business part of the value). Does the real estate value of a store go up when it changes from a video store to a jewelry store? It’s still the same store.


#3

Jae,

This is a key area of DD that can really sting after the sale. For education purposes I’ll outline some things to do before the sale:

  1. During initial negotiations, work with the seller to agree on a cap rate. DO NOT educate the seller at this time - we are only trying to get the seller to agree with how the park is priced in connection with his/her P/L and how the cap rate effects price. Once you agree that you can purchase the park for $XXX at a "x"cap go to contract with plenty of time for a thorough DD review.

  2. During the DD cash flow audit adjust the p. tax (and all other expenses) to show how “the bank/investors/p. tax appraiser” sees the park. This audit will likely reduce the NOI and with the same cap rate show how much the park is overpriced.

  3. Now is the time to educate the seller and re-negotiate if necessary.

In Jae’s case the p. tax adjustment is a $25,000 mistake (I’ve seen much worse) and every year this common problem will suck thousands out of the P/L statement.

Handled carefully, besides the above negotiating tips, it can be advantageous to all parties to keep the selling price “quiet” and out of public records. No sale means no trigger to the tax man. At the very least, a quiet sale means the tax assessor will not have ammunition to say “hey, my assessment is less then what you bought it for anyway.” This is an advanced subject and is best handled individually on a case by case basis. Additionally, real property and the personal property should be valued individually and often time these amounts are listed in an addendum or as part of the purchase and sale agreement.

Now onto Jae’s questions ~ what to do after the closing. Although I have never tried in Indiana, I have been successful in reducing property tax assessments after the sale in Florida. The tax assessors position that since you paid more then their assessment is simply a stock reply and only partially correct. The key is for you and them is to understand what you really purchased. If your park is lot lease only with a lot of amenities you will likely get nowhere. But, if you purchased a bunch of tin boxes with the land, got some notes, maybe some vacant land, a couple rentals, and a bunch of tools/equipment, etc. etc. then you may get some consideration.

Unfortunately, after the sale is always harder then handling this stuff pre-purchase, but it can be done.

Hope this gets you pointed in the right direction,

Karl

Post Edited (12-17-08 17:25)