Turning the Subjective Into the Objective: Using Data to Prove Property Tax Savings

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Turning the Subjective Into the Objective: Using Data to Prove Property Tax Savings

Posted on June 14, 2018

Nearly 40 years ago, I was a rookie property tax consultant working for a major national property tax firm. Texas had no central appraisal districts in those days; county, city and school taxes were assessed separately. Back then, an old-time school district assessor took me under his wing and offered some sage advice that has been the foundation of my success over the years.

He said, “John, don’t ever come into my office and ask me to consider reducing an assessment unless you can prove your case to me in writing.”

Because Industrial Property Tax Solutions (IPTS) deals exclusively with complex industrial assets, the issues affecting our clients’ assessed values are often subjective. This is particularly true when identifying and quantifying abnormal economic and functional obsolescence that isn’t included in the assessor’s valuation formula.

In essence, our job is to turn the subjective into an objective basis for proving our case for a reduced assessed value.

Demonstrating Industry Consistency

The key to quantifying abnormal obsolescence is to demonstrate that each of our client’s operating metrics – such as diminished utilization, declining revenue, excess operating costs or excess capital costs – are consistent with the operating metrics of their industry, as a whole.

For example, we must show:

  • A barge company’s declining freight revenue (economic obsolescence) is consistent with the entire inland marine transportation industry’s operating metrics.
  • A newspaper’s falling print advertising revenue (economic obsolescence) and excess operating cost (functional obsolescence) mirrors that of the global newspaper industry.
  • The excess operating cost (functional obsolescence) of a 40-year-old oil country tubular goods (OCTG) processing plant as compared to that of a modern plant.
  • The diminished utilization of a barge-building-and-repair shipyard (economic obsolescence) is supported by publicly available statistics, including 10-K annual reports and the Federal Reserve Economic Data (FRED) website.
  • The excess capital replacement cost (functional obsolescence) of a utility-scale solar plant is supported by numerous industry studies and publicly available cost data for new plants.

After demonstrating the existence of abnormal obsolescence, the challenge is to quantify it through the application of one or more generally accepted methods, including but not limited to:

  • Asset utilization analysis;
  • Replacement versus reproduction cost studies;
  • Income shortfall analysis; or
  • Capitalizing excess operating cost.

Quantifying Abnormal Obsolescence

Industrial Property Tax Solutions compiles all this data and analysis into a comprehensive report that identifies and quantifies the issues affecting the market value of our clients’ taxable assets – in a format relatable to the assessor. This proven methodology consistently yields extraordinary savings for our clients.

We have broad, deep knowledge of the energy, manufacturing, marine and media industries, their operations, the relevant state and local tax laws impacting them, and effective strategies for applying them. We provide a comprehensive, no-risk property tax savings analysis up front and in writing before our clients engage with us.

If you feel you may not be addressing all opportunities for property tax savings, contact us for a risk-free analysis and situational assessment.