John M. Lynch

Commercial real estate owners and property managers understand the importance of keeping a watchful eye out for property tax assessments that are not justified in relation to market valuations, especially in the midst of a recession. It is not surprising, therefore, that when the fiscal year 2002 third-quarter installment real estate tax bills were issued in most Massachusetts cities and towns late last month, many owners experienced not only a sense of concern, but also disbelief.

Last year, in fiscal year 2001, assessed valuations were increased significantly because of the then rapidly rising real estate market. In the city of Boston, some 2001 assessed valuations rose more than 25 percent over the fiscal year 2000 assessments as a result of a citywide revaluation of all properties. In recent months, as the economy continued its downward slide, many commercial taxpayers expected that real estate assessments would drop in fiscal year 2002. However, assessed valuations in Boston and in other communities in Massachusetts continued to rise. These increases were occasioned, in part, by a significant anomaly in the state’s assessing process, for example, the Jan. 1 valuation date. Real estate must be assessed as of Jan. 1, preceding the July 1 beginning of any fiscal year. Accordingly, assessments for fiscal year 2002 reflect market conditions as of Jan. 1, 2001, a date that preceded the catastrophic events of Sept. 11 and, to some extent, much of the deterioration occurring in the economy throughout 2001.

Market Increases
Between fiscal year 2001 and 2002, the total fair market value of all real estate in the city of Boston increased from $51 billion to $54 billion. Included in this increase was an average 6 percent increase for Class A buildings, 5 percent increase for Class B buildings, 10 percent increase for hotels and apartment buildings and a 5 to 10 percent increase for residential properties. Additionally, due to slight increases in both the residential tax rate to $11.01 and commercial/industrial tax rate to $30.33, the tax burden for most owners and tenants remains high. However, it should be noted that for many residential homeowners the impact of higher assessed valuations was offset by an increase in the residential exemption from 20 percent to 30 percent, which resulted in a rise in the average tax savings for residential property owners from approximately $525 to $880.

Taxpayers who conclude that their assessments are excessive and who wish to seek relief must proceed with caution. Procedures for seeking review and reduction of assessments are governed by statute and the formalities that must be followed are extremely strict. The rules favor the assessors and any missteps by taxpayers are fatal to their rights.

Among the more frequently encountered pitfalls are the failure to file an application for abatement properly, the failure to pay the tax timely and the failure to perfect an appeal to the Massachusetts Appellate Tax Board.

As a general rule, a taxpayer must file an application for abatement with the assessors within 30 days after the actual tax bill is mailed (not after receipt by the taxpayer) and the application must be received by the assessors on or before the 30th day. This rule has been relaxed somewhat in communities that issue tax bills on a quarterly basis, including the city of Boston. There, a taxpayer must file for abatement no later than Feb. 1, the due date for the third quarter tax bill. Further, pursuant to a recent statutory amendment, if an application is mailed by first class U.S. postage and postmarked prior to the 30th day, it will be considered to be a timely filing.

The person upon whom the tax is assessed may file an application for abatement for consideration by the assessors without having paid the tax himself. Other persons with an interest in the property (e.g., a tenant paying more than half the tax, a mortgagee or a subsequent purchaser) may file but, depending on the nature of their interests, may have to pay some or all of the tax prior to filing.

Because assessors have only a 90-day time period to evaluate dozens or hundreds of abatement applications, the majority of applications for commercial and industrial properties are routinely denied. Frequently in this window of time, assessors generate complex forms requesting detailed information pertaining to the operation of the real estate. Prior to filing the response, guidance from experienced counsel is desirable so that a balance may be struck between the provision of legally adequate information to the assessors, without the disclosure of unnecessary or sensitive business information.

To preserve the right to appeal to the ATB in the event that a taxpayer is not satisfied with the assessors’ decision on the application, the actual tax bill must be paid on or before the due date, that is, within 30 days after the bill is sent (when mailed, not when received by the taxpayer). Quarterly bills are an exception. Payments are due Aug. 1, Nov. 1, Feb. 1 and May 1, unless the actual third-quarter bill is mailed after Dec. 31, in which case there is a single payment of one-half the tax due on May 1. Payments must be received by the collector on or before the due dates or the right to appeal is lost.

Owners and managers typically have a strong sense of the real world market value of their properties and they may have even had appraisals performed recently. If your assessed valuation seems out of line with market value or with competing properties, it is useful to discover how the assessors valued the property. At the ATB, a taxpayer may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method or by affirmative evidence, which undermines the assessors’ valuation.

Obvious errors in the assessors’ valuation may often be corrected if brought to the assessors’ attention. However, disputes as to value – which, after all, involve judgment – may not be resolved without prolonged negotiation or hearings before the ATB. Whether a matter is simple or complex, the prudent owner or asset manager who believes tax relief may be warranted should engage experienced counsel early in the process to ensure that legal rights are not lost and that potential savings are maximized.