Property tax relief planning during times of COVID

April 29, 2021

By Josh Malancuk, CPA, and Karen Koch, CPA, MT, Tax Insider

As we mark the one-year anniversary of the COVID-19 lockdowns, the economic fallout may be felt for years. But only recently have homeowners and business owners come to grips with the pandemic's impact on their property taxes. While the impact of lost wages and retail receipts was felt almost immediately in city coffers, property assessments are only now starting to take effect — and most assessors have massive budget holes to fill.

When the new property tax rates and assessments start arriving in the mail, jaws will be dropping in many parts of the country — especially among business owners. But instead of getting angry, taking the right approach to a solution can substantially improve your client's ability to negotiate and reduce their tax hit for years to come. Don't rush into this decision, and it's not an area where you want to be a do-it-yourselfer.

Many state and local governments maxed out their emergency services and aid programs in 2020. As operating costs rose dramatically during the pandemic, those costs will likely be passed on to their business property taxpayers in the form of tax levy increases through rising tax rates. These tax torpedoes will hit capital-dependent businesses especially hard during the next year or two.

First let's look at which clients might be most in need of help.

Hardest hit industries

There are three major property types expected to be vulnerable near-term:

1. Manufacturing. Most manufacturers own large buildings and lots of equipment. States tend to impose heavy real estate and personal property taxes on manufacturers. That's not likely to change, even though the pandemic has significantly reduced manufacturers' customer demand, production, and revenues. Why? Because property tax represents a regressive tax burden to these capital-intensive businesses. Also, since many manufacturers are facing cash-flow challenges, they are finding it difficult to honor their debt obligations. As the COVID crisis drags on, more and more manufacturers may struggle to recover — and may even declare bankruptcy — depending on how robust (and effective) government intervention is.

For clients in manufacturing, the solution can be as simple as knowing the exemptions or valuation allowances that a particular state offers to manufacturers — opportunities that many manufacturers and their financial advisers frequently overlook.

2. Hospitality. The travel and hotel industries were especially hard hit during the pandemic. In fact, the hit on the travel industry was nine times worse in 2020 than it was after the 9/11 terrorist attacks. A November 2020 survey by the American Hotel & Lodging Association found that 71% of U.S. hoteliers could not survive another six months without further government assistance. Although many hotels are in danger of losing their properties to foreclosure, their property tax payment obligations have not been suspended. Hotels are generally taxed heavily on their real estate because of their construction costs and high ongoing revenue potential.

3. Senior care. The pandemic hit senior centers especially hard in 2020 from both a financial and safety perspective. Most senior communities are not accepting new residents and many families moved their loved ones out of senior communities during the COVID crisis, unsure about when they will return. Reduced occupancy, rising operating costs, and declining revenues caused by rent concessions have created a perfect storm of financial hits for senior care operators. Considering the already-high property taxes senior communities pay for additional décor, living amenities, and specialty equipment, there's concern there won't be enough facilities open to handle the needs of the ever-growing senior population.

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