“The system is broken” -- Assessor
by Mike Kroll
City of Galesburg Township Assessor Darrell Lovell acknowledges with regret that his is elected office is not well loved by many taxpayers. As assessor Lovell is charged with the responsibility of determining a fair market value for all non-agricultural real estate within his township boundaries, that is most of the City of Galesburg. It might surprise you to learn that Lovell is growing increasingly frustrated by what he sees as an unnecessarily complex system that is increasingly finding itself manipulated in ways that challenge Lovell's desire for fairness and equity across taxpayers.
“The system is being abused by companies that exist solely to profit by securing property tax reductions for large commercial or industrial real estate holders at the tax paying expense of the rest of us,” explained Lovell. “The system includes a method of protest for tax payers who believe that their real estate is over valued resulting in higher property taxes, as it should. But a whole industry has sprung up composed of attorneys, appraisers and others who in effect speculate in property tax appeals. Often they file such appeals totally independent of the true property owner and later split whatever tax savings they can win or negotiate. This sad situation is very much like an ambulance chasing lawyer filing lawsuits on behalf of injured parties who haven't even consented to be clients.”
Lovell's feathers are well ruffled by property's tax protests on behalf of commercial or industrial property's submitted by these outside firms who attempt to bully or intimidate downstate officials into substantially reducing the assessed value of such real estate, often without the active participation or knowledge of the property owner. In recent years it has become standard practice for these professional property tax appeal companies to file a bunch of appeals on local commercial or industrial properties. With the increasingly common downsizing or closure of small town industrial operations these companies have become more and more active.
“The former Maytag warehouse is a perfect example of what is wrong with the system,” asserts Lovell. “With manufacturing buildings closing right and left across America these property tax consultants are targeting smaller communities like ours as easy pickings for big bucks appeals. In many cases they don't even bother to obtain real appraisals or they buy what amount to sham appraisals written to suit their needs. It is tough to find comparable industrial properties in smaller communities and these companies see local officials as less sophisticated and savvy, more likely to be intimidated and often unwilling to spend local tax money on their own experts to counter the sham appraisals.”
Each spring property owners have the opportunity to appeal the value of their real estate as determined by their local assessor. The appeal process is a multi-step process where you first contact the county supervisor of assessments with you concerns. In the case of a simple error or oversight this is often all that is necessary to work out a agreeable solution. But if the property owner still feels the assessment is too high they can file a formal appeal with the county property tax board of review (BoR). This board of local citizens sets up hearings where both the property owner and the assessor state their case and the board rules on an appropriate assessment for the tax year in question. Remember, property taxes you paid in two payments this year are actually for the previous calendar year.
Both sides are permitted, in fact encouraged, to bring evidence and/or experts to support their case for an appropriate property value. Often this means hiring an outside expert to conduct an appraisal of the property. Not surprisingly, in the absence of compelling evidence or testimony to the contrary most hearings result in upholding the property value set by the assessor. If the tax payer is still unhappy with their property's assessed value they can appeal this decision to the state property tax appeals board (PTAB), the last administrative appeal possible before a head-to-head battle in court.
“As of property tax years 2000 there was general agreement that the former Maytag warehouse had a market value of over $15 million. The following year I still had the property valued at that level and Maytag hired an appraiser, Salisbury and Associates, as part of their appeal. The Salisbury appraisals placed a market value of $9.35 million on the warehouses and when the matter ended up before PTAB they ruled that the fair market value was $10,257,510 for the 2001 property tax year. Over the next two years neither Maytag nor anyone else filed any appeals of the property tax bill for the warehouses and as of January 1, 2004 I had them valued at $10,462,680 due to the 2003 state-assigned 1.02 multiplier.”
By this point in time it was well know to all that Maytag would soon be shutting down operations in Galesburg. The plant would close for good on September 16, 2004 but the company put the warehouses up for sale in June, 2004 listing them for $8 million. As is his custom Lovell assumed that they would not get the full amount upon sale of the property and adjusted his fair market value down to $7.5 million effective for the 2005 property tax year.
On February 14, 2005 Deloitte Tax, a “property tax services group consisting of 400 professionals in 41 cities throughout the United States and Canada” filed an appeal on the Maytag warehouse's 2004 property tax bill that was payable in 2005. Deloitte took this step independent of Maytag and was apparently unfamiliar with the local process. They alleged that the warehouse was worth only $2,124,780 as of January 1, 2004 but they had not done an appraisal and their paperwork was not complete according to Knox County Supervisor of Assessments Joyce Skinner and on March 17, 2005 the BoR refused to grant Deloitte a hearing.
The very next week, following many press inquiries into their plans Maytag officials in Newton, IA reportedly responded tersely by e-mail to the Register-Mail. Without acknowledging that this entire appeal was actually completed independently by Deloitte and that the Maytag corporation actually had had no role in the process anyway, Maytag announced that it was dropping the property tax appeal. “Maytag has made a business decision to no longer pursue the property tax appeal issue. Beyond this, we have no further comment on this matter.”
The very next month (April 6, 2005) Maytag sold the warehouse to Industrial Realty Group for $3.4 million. This sale again prompts Deloitte to file another appeal of the 2004 property tax bill for the warehouse. Deloitte has an “appraisal” completed in June 2005 and in September 2005 they file second appeal of the 2004 property tax bill.
“This appeal wasn't done by Maytag who actually owned the property in 2004 nor by the company that just purchased the property in 2005,” complains Lovell. “The new appraisal appears to be a sham simply using the sale price to set a property value for the previous year. All Deloitte is out to do is split the tax savings with Maytag. Maytag has already paid property tax on my $10.462 million market value and if Deloitte wins this appeal they stand to split over $300,000 in refunded property taxes and interest. Because of the 2005 sale there is good cause to reduce the market value of the warehouse following the sale but there has been no evidence provided that this property had a real market value less than $10.4 million as of January 1, 2004 and that is what the 2004 property tax bills must be based upon.”
This past January Deloitte filed another proforma appeal of the tax year 2005 property taxes for the former Maytag warehouse pending the outcome of the appeal of the 2004 tax bill. The local BoR denied Deloitte's appeal and Deloitte filed to go before PTAB. Since the local hearing efforts have been made to negotiate some kind of settlement with Deloitte and avoid the PTAB hearing but to no avail. Lovell says they now face an October 3rd deadline and he hopes to meet with Deloitte before then but if things can't be worked out he wants to fight the appeal at PTAB.
“This type of action isn't fair to the remaining property tax payers who's own tax bill will need to go up to make up for whatever savings Deloitte secures on this warehouse. I believe we need to vigorously defend our property tax assessments and historically my tax supported bodies have been willing to share in the cost of counter appraisals and other expenses. It is important that States' Attorney Paul Mangieri and my township attorney become involved in the process immediately to protect the interests of our local tax payers. Ultimately something must be done to fix the system so that the rights or actual property owners are protected while protecting everyone from these predatory firms who seek to manipulate the system for private, third-party gain.”
Timeline to the Maytag warehouse property tax saga
Jan 1, 2001 – Market Value per Property tax assessment $15,178,560
June 25, 2002 – Market Value per Salisbury appraisal $9,350,000 (effective 1-01-01)
Mar 7, 2003 -- Market Value per PTAB ruling $10,257,510 (effective 1-01-01)
Tax year 2002 -- No Change (Maytag doesn't protest Property Tax and 1.0 multiplier)
Tax year 2003 -- Market Value $10,462,680 (multiplier of 1.02)
Jan 1, 2004 -- No Change
June 2004 -- Maytag lists warehouse for sale asking $8 million
Sep 16, 2004 -- Maytag plant closes
Tax year 2005 -- Lovell adjusts warehouse Market Value down to $7.5 million for
2005 property tax year
Tax year 2005 -- Market Value automatically adjusted down to $7,350,000 due to 0.98 multiplier for 2005 property tax year
Feb 14, 2005 -- Deloitte Tax protests Maytag's 2004 property tax bill alleging
1-01-2004 Market Value of only $2,124,780
Mar 17, 2005 -- Knox County Property Tax Appeals Board rules that Deloitte complaint paperwork is incomplete and denies hearing
Mar 24, 2005 -- Maytag reportedly e-mails Register-Mail a short response to queries about the status of the 2004 property tax appeal (“Maytag has made a business decision to no longer pursue the property tax appeal issue. Beyond this, we have no further comment on this matter.”)
April 6, 2005 -- Industrial Realty Group purchases warehouse for $3.4 million
Sep 12, 2005 -- Deloitte Tax protests warehouse's 2004 property tax bill claiming 1-01-2004 Market Value of $3.5 million
Jan 1, 2006 -- Deloitte Tax protests warehouse's 2005 property tax bill pending ruling on 2004 tax bill