John M. Lynch is a partner at the law firm of Lynch, DeSimone & Nylen in Boston.

Despite the erosion in market conditions in the 12 months following the fiscal year 2002 assessment date of Jan. 1, 2001, assessors, not only in the city of Boston, but across the state, have responded by either holding steady or increasing property assessments rather than making downward adjustments to reflect changes in the marketplace. As an example, 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 in 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.

Frequently, property owners and managers who analyze the annual adjustments to valuations made by the assessors inquire about the level of real estate tax abatement activity in Massachusetts. History has shown that abatement activity is cyclical. When the real estate market flourishes, there are fewer property owners who contest their assessments. On the other hand, as the market shifts downward, ordinarily abatement filings increase. An increase in the filing of abatement applications typically trails deteriorating market conditions by six months to one year. Accordingly, although the city of Boston has reported a decrease in the number of abatement filings for fiscal year 2002, the number of applications filed in Boston and in other communities is still substantial.

Adverse Impact

In addition to the approximate 12-month time lag between the statutory valuation date of Jan. 1 and the year-end mailing of the tax bills, at the present time commercial real estate owners and operators have been impacted adversely by a weakening in demand for space caused by the continuing reduction in workforce by large technology and manufacturing employers, as well as plant closings and consolidations and subleasing of office and residential and development space. Thus, the discrepancy between property values and actual market conditions could continue to be a concern over the next two to three years. Although assessors will no doubt begin to make some downward adjustments next year, it may take several years to synchronize future assessments with the current downward market trend. Accordingly, one should expect abatement application filings statewide to increase for fiscal years 2003 and 2004.

In seeking property tax relief, timely payment of the tax due and filing an abatement application with the city or town are the first, but not the only steps in the process. After filing the application, taxpayers must then be prepared to respond promptly to various forms of statutory information requests issued by cities and towns. These requests seek information necessary to assist the assessors in evaluating the merits of the taxpayer’s application. Depending on the type of property, the information sought may include the income generated by the property, the expenses attributed to the property, construction costs and identification of comparable properties. Some questions, such as mortgage financing details, need not be answered. However, a taxpayer must be wary that a total failure to respond to the assessors’ request for information, if raised by the city or town, will serve as a bar to the taxpayer from appealing the assessors’ denial of the abatement application.

Useful Tools

Negotiations with the assessors following the filing of an application may be a useful tool in resolving minor valuation errors quickly and amicably. At that time, obvious errors in the assessors’ valuation may be brought to their attention and quickly corrected. Moreover, most assessors are well informed and willing to listen. Accordingly, in situations where comparable market evidence shows a property clearly has been overvalued in a mass appraisal revaluation process, negotiations with assessors can result in favorable settlements.

If following negotiations, a property owner feels the assessors are being unreasonable or arbitrary and a settlement cannot be reached, the owner has the statutory right to appeal the assessors’ decision to the Massachusetts Appellate Tax Board, a neutral statewide board located in Boston. Thereafter, the taxpayer must be prepared to meet all deadlines for appealing to the tax board, including meeting the statutory time limit for perfecting the appeal and giving notice to the assessors of the filing. Subsequently, a hearing de novo will be conducted at the tax board. Both the taxpayer and the assessors are given a full opportunity to present and cross-examine valuation evidence at a formal administrative hearing. The taxpayer may meet its burden of proof either through the presentation of affirmative evidence, typically by expert witnesses, that establishes the overvaluation of a property or by exposing flaws or errors in the assessors’ method of valuation. After the close of testimony, any appropriate relief will be granted without consideration to personality conflicts or local politics.

Because of the many procedural formalities involved in achieving property tax relief, the prudent taxpayer would be wise to engage experienced counsel in the early stages of the process to ensure that legal rights are not lost and that potential savings are maximized.

Seeking Real Estate Tax Relief In a Rapidly Shifting Market

by Banker & Tradesman time to read: 3 min