A Beginner’s Guide To Commercial Property Taxes

Commercial property taxes are levied on the value of a commercial building. They fund local services, such as schools, fire departments and parks.

Each municipality uses a different approach for calculating commercial property values. The bottom line is that every commercial property has a unique tax-assessed value.

Assessed Value

Commercial property tax is based on a building’s assessed value, which is determined by the local tax assessor. The property’s value is then multiplied by a town or city’s mill rate to determine what you owe in taxes.

As a result, the assessed value of your building can vary from year to year. In most cases, this is not a problem. However, it is important to be aware of how your assessed value may change before you buy a commercial property.

Some communities use a percentage of the fair market value to determine the assessed value of a building. In other communities, a property’s assessed value is based on a fixed percentage of the purchase price.

One way to estimate your tax bill is by checking the assessed value on the county tax assessor’s website. Every county has a different website, but nearly all of them have some sort of search feature.

You should also consider what the city’s cap rate is, which is a measure of how much the government is willing to pay for a property. A lower cap rate means a lower assessment for the building.

Another factor in determining the assessed value of a building is how often reassessment occurs. Usually, this process takes place at least once per year and can be delayed for several years if economic conditions are stable.

When a property is reassessed, the owner or manager of the building must fill out an income and expense form. This information is then used to calculate whether any additional value was unaccounted for in past assessments.

The property tax calculation can be very complex, and it is crucial to estimate the value accurately. Investors should research the current assessed value on the county tax assessor’s website and then multiply that number by the millage rate for an accurate assessment of their property’s tax liability.

In addition to this, if any changes have occurred since the purchase of the property (such as a new building or renovation), the owner must report those to the local assessor. This can also cause a property’s assessment to change, depending on the details of the change.

Base Year

Base year is a key component of a commercial lease and it sets the basis for all future rent payments. It’s also a crucial consideration for tenants looking to negotiate the terms of their leases, as it can affect their overall bottom line.

A commercial lease’s base year is typically the first calendar year of the rental period and it determines how the tenant will be charged for common operating expenses (like council rates and insurance) and building repairs and maintenance in future years. It’s important to understand the base year as it can help a tenant to budget for possible increases in their operating expenses and prevent surprises.

Unlike capital improvements, which usually don’t fall under the umbrella of the base year, common expenses like electricity and gas can increase significantly as buildings fill up with more tenants. Fortunately, there are ways to protect against the unexpected hikes in these costs, and it’s best to start negotiating with your landlord as early as possible.

The most effective way to protect yourself from an increase in your common expenses is by ensuring that the landlord’s base year calculations are accurate and by reviewing historical data and trends to see how expenses have increased over time. It’s also a good idea to ask your landlord for their prior base year calculations before submitting a lease application to ensure you have a fair and equitable understanding of how much money you will be expected to pay in the future.

Another way to protect yourself from increased variable expenses is by negotiating a gross-up provision within the base year lease. These provisions allow landlords to calculate a tenant’s pro rata share of common expenses when occupancy levels are low so that they can recoup their actual expenses during a period of low occupancy.

Improperly grossed up expenses, on the other hand, can result in significant increases later in the lease when a building fills up with more tenants and variable expenses continue to rise. For example, if the base year utilities cost $500,000, but the landlord’s calculations reflect a building that only had 50% occupancy, you could be on the hook for an increase in expenses of over $200,000.

Because of the unpredictable nature of commercial property taxes, it’s a wise move to consult with a San Diego commercial lease attorney when negotiating a new lease. They can help you to understand how a new lease will impact your bottom line and can also assist you in negotiating with your landlord for a reduction in your future real estate tax bill.

Partial Exemptions

Commercial property taxes can be a significant expense for owners, and fortunately, there are several exemptions available that may help you. These exemptions can be either full or partial, and are based on your financial situation and your local municipality’s policies.

If you own property that has been rehabilitated for a new use, you may be eligible for a partial property tax exemption on your building. This can save you thousands of dollars each year.

This exemption is designed to encourage redevelopment and rehabilitation of contaminated properties that have been vacant or underused. To apply for this exemption, you must execute a financial agreement with the municipality that authorizes this program.

Applicants must have legal title to the property and the building must be used for an approved not-for-profit purpose. This exemption is also available for properties that are leased by a nonprofit organization.

For example, a hospital can receive an exemption on some or all of the property value if the facility is operated for medical purposes and meets certain other requirements. The hospital’s legal title must be in the name of the non-profit organization, and it must be used for a purpose that falls within the exemption’s definition.

The amount of the exemption can vary depending on the type of redevelopment that has occurred and the amount that has been spent on the redevelopment project. To qualify for this exemption, you must complete a Form N-RDF and submit it to your tax assessor.

You can also apply for an exemption if you have spent at least $10,000 on renovations that increased the assessed value of your building. This exemption is a declining 10 year partial exemption that declines by 25% each year beginning in the 8th year, until the property is fully taxable.

In addition, you can apply for a partial exemption if your building has an automatic fire suppression system installed that meets the requirements of the city’s building code. This exemption is available to residential, commercial and industrial buildings that have an automatically installed fire suppression system.

Property tax revenue is an important source of funding for cities and towns, and the large scale of real estate in New York City means that it generates substantial amounts of money. However, the tax rate for many types of property has risen significantly in recent years, and the increase is uneven. ETRs for some property classes have risen by more than 20 percent since fiscal year 2000. This is largely due to the large growth of market values, but it also includes substantial new construction and renovation.