California Car Dealer, are you paying too much property tax?

By Armando J. Ortiz, Commercial & Industrial Tax Agent Paramount Property Tax Appeal

As we all know, the great recession has taken a toll on property values pretty much across the board, but one particularly hard hit sector has been the car dealerships. Beginning in 2008 and lasting until just recently, the decline in values for commercial real estate has been most severe in places such as Riverside County and San Bernardino County where the Property Tax Assessors have resisted Proposition 8 appeals for property tax reductions.

The local or “submarket” market for car dealerships is a thin one, and this can make it even harder to gauge whether or not there is daylight between the assessed value of your real estate and the market value of your real estate.

To give you an idea of the market, in 2010 there were 74 sales of car dealership real estate in the 5 big counties, San Diego, Orange, Los Angeles, Riverside and San Bernardino. Price per square foot ranged from about $152.00 to $213.00.

In 2011 there were a total of 86 sales, ranging from $45.77 to $2,123.08, averaging about $220.00 per square foot.

2012 saw 114 sales ranging from $56.33 to $2,160.00 per square foot, averaging about $172.00, and for the year to date, 2013 there have been 35 recorded sales ranging from $33.10 to $1,420 and averaging back closer to $120.00 per square foot. Talk about volatility! Whew!

While most of the very high and very low prices per square foot are accounted for by the mathematical effect of the size-to
-price ratio, (whereby a larger property tends to exhibit a lower price per square foot}, factors like traffic counts, high end brand and interior improvements, visibility and overall appeal will also affect where a particular property sits within the range.

The point is, that the Riverside County Tax Assessor, the San Bernardino County Tax Assessor, the Orange, San Diego and Los Angeles County Tax Assessors are not going to come knocking on your door asking whether you have experienced economic depreciation. The fact is that you most likely have suffered a decline in value and are entitled to appeal your yearly tax assessment.

Volatility in the real estate market causes lots of anxiety, and keeps many controllers and property managers awake at night. However, there is one benefit to such volatility, and that is, it becomes much more likely that you could successfully appeal your property tax assessment and save yourself thousands of dollars in property taxes.

The trick that many County Tax Assessors rely on is to argue that because you, as a property owner have made significant improvements to your property, (things such as ramps, rooftop parking decks, new service bays or waiting room amenities, upscale tenant improvements, signage and branding) and because of the cost of these improvements, that your assessment should reflect the value of these improvements.

To see the absurdity of this argument, let me make a simple, but useful analogy. The swimming pool analogy. Let’s say that I own a nice suburban house in a newer subdivision and I paid $460,000. Let’s say I build a nice, custom swimming pool for another $40,000 more or less. Unluckily for me, the market for my house is volatile and falling, and last month, I found that the value of my house had fallen to $400,000 and now this month, it’s down to $390,000

But that crafty County Tax Assessor is now saying, “Well, he bought the house for $460,000, and he added that pool for $40,000. His assessment should be $500,000.”

What? Hold on a minute! As a homeowner you would immediately smell a rat, but many commercial property owners and especially car dealerships allow this situation to go unaddressed, simply due to oversight. To many property owners the idea of doing a tax appeal is vague and esoteric at best, and the process of doing a tax appeal seems like a daunting challenge against City Hall, Red Tape, and entrenched bureaucracy.

While it is many of those things, there are professionals out there who make it as easy as signing an authorization and waiting for the check to arrive. Smart property owners file appeals routinely in order to get every advantage they can get. So the question is, are you a smart property owner?