Understanding the Differences Between Residential And Commercial Property Taxes

Residential & Commercial Buildings

Residential & Commercial Buildings

While residential and commercial property taxes share much in common, there are some essential differences worthy of note. Most reside in the way the two types of properties are assessed.

Residential Property

Municipalities generally assess the value of a residence by looking both at the property itself and by evaluating similar properties in the area. For example, they may look the structure itself and at any substantive improvements made to it (e.g., home additions that increase the structure’s footprint, or substantial renovations that add living space—such as converting an unfinished basement to a rec room). Assessors will likely also compare your home and property to similar homes and properties nearby as well as the prices that these homes are currently fetching on the open market. All of this will allow them to come up with an estimated value your property.    

Commercial Property

For commercial property, the valuation process is both more complex and more rigorous. Most commercial property owners are required to complete an annual income and expense form. This form and the information it contains are used by the local Board of Assessors to help determine the property tax rate for the establishment in question. A sample income and expense form can be found here.

What’s on the Form?

Rental Income

If you own a commercial property, one key area of inquiry regards rental income generated from the property. Depending on the type and use of the property, commercial owners may be asked to provide information on:

• Apartment and room rental income

• Hospitality services income (hotel, motel, hostel, or B&B room rentals)

• Commercial and industrial rental income (storage or manufacturing space leased to other businesses or individuals)

Income from Business Operations

Assessors also need to gauge the income generated by the property via production and will often use current and prior production stats to generate a picture of what the business might generate annually at both peak and base production rates. Assessors then use this information to help them calculate the tax rate for that property for that year.  

Capital Improvements

Another key area of inquiry regards any physical improvements made to the property or structures on it. These may include

• Addition of a new structure

• Demolition of an old, obsolete, or unsafe structure

• Substantial renovation to the property (e.g., roof replacement, new ventilation or HVAC system, interior renovation, or substantial remodel)

Expenses

After establishing an estimate of the income generated by a commercial property, the form asks commercial property owners to enumerate expenses associated with operating and maintaining the property. These may include:

• Payroll

• Insurance

• Utilities (gas, water, electricity, phone, internet)

• Supplies

• Routine cleaning

• Trash and snow removal

• Routine maintenance & repair

…and others.

It’s important to be as careful and detailed as possible when enumerating your commercial expenses, as failure to do so could result in an inaccurate valuation and a higher property tax bill. Assessors use the sum of this information (both earnings and expenses) to set a valuation from which your property tax rate is calculated.

At Home Tax Savings, our goal is to help you make sure your property taxes are fair and proper. No matter the type of property, it is important to challenge any assessment which you feel is too high. For residential property, Home Tax Savings can help you make  a more informed choice while guiding you safely through the often-choppy waters of property tax assessements and appeals. Contact us today and discover what Home Tax Savings can do for you.

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HomeTaxSavings.com is wholly owned by Assessment Solutions, LLC and was established in 2016 as the nation’s first fully automated and integrated real estate assessment review and appeal system. The principals of HomeTaxSavings.com have worked in the real estate and IT world for over 100 years. Founders Keith McIntosh, Stuart Smith, Rachel Brown and Mandeep Sandhu possess a vast knowledge of the industry with many years of experience.  The group is gaining wide popularity having covered The District of Columbia, Maryland, Virginia, Texas, Colorado, Georgia, Florida, California and Washington.


Disclaimer:  This article is for informational and educational purposes only. The HomeTaxSavings.com website is not a market value appraisal, rather it is an assessment tool.