The Indian tax Rebellion of 1851 is a prominent example of what can happen as a result of poor property tax policy.  The Indian tribes of southern California were hit with a $600 yearly property tax in 1850 though they lived miles outside of the city and received no services in exchange for the property taxes they were required to pay.  The Indians were already poor and none of the tax was used as a form of government aid for them.

The Indians paid the first year's property tax, but in the summer of 1851 they refused.  They found courage in their leader, Major General Joshua Bean.  The property tax collection face-off led to a full blown war.  Then in an astonishing turn, Bean joined the troops who were sent to quell the revolt and fought the Indians who he had riled into action.  With the loss of Bean, the rebellion ended quickly (in December of that same year).

Though it was not a long war, it came to a tragic close with many deaths on the side of the Indians.  That ill-fated $600 property tax was like building a fire and throwing gasoline on it.

The relationship between the taxed and tax collector has long been a combustible one.  With a well-founded property tax policy in place, friction between the two parties can be minimized.  A policy lacking in basic common sense, on the other hand, is likely to fan the flames of distrust and create a fire which can quickly burn out of control. 

If we learn anything from our history, perhaps it is that we should not let the power of taxation go unrestrained.

Just this past month, Orange County, California sent out over 60,000 erroneous tax bills to its residents informing them that their taxes weren’t paid… when in fact they were! To add to this loving relationship between O.C. and its residents, O.C. recently delayed sending out a half-million tax bills due to an over-calculation concerning a water district’s budgeting. I’m thinking Orange County should take a lesson from the history books, especially the Fries Rebellion

The Fries Rebellion sprang from a national property tax created in 1797 by John Adams in order to generate revenue for military forces.  Those who remembered the hearth tax of England (a much earlier ill-fated form of property taxation) were infuriated by this new property tax.  They became followers of John Fries, who was a leader in protesting the tax.

The first line of defense against the new property tax became stopping the assessors.  If there were no assessors there could be no tax.  Many assessors were beaten and run out of town (for the record I am NOT an advocate for this type of behavior).  In some cases they were held captive and their documents were destroyed.

When John Adams heard of the rebellion he sent forces to capture John Fries.  Fries was convicted and sentenced to death, however he was pardoned before the sentence could be carried out and the property tax was repealed.

No one in O.C. is tying up the assessors or destroying their databases (well, not that I’m aware of) but with so many frustrated (and wealthy) residents, the O.C. should research a little more on the Fries Rebellion… Or really any other property tax rebellion…

When it’s time to measure depreciation for ad valorem tax purposes, obsolescence is typically nowhere to be found.  Understandably, obsolescence is much more difficult to measure than physical depreciation, but that doesn’t mean it shouldn’t be accounted for. More often than not, functional and external obsolescence are not listed on a property record card.  What’s wrong with this picture? 

Typically, assessor’s market value is based on the cost approach and doesn’t include obsolescence.  In many instances, however, we find the assessor’s market value to be greater than the potential sale price of a property.  If only physical depreciation is accounted for, then the difference may be attributable to obsolescence. 

To determine obsolescence, you can look for a superadequacy or a design deficiency and the cost to fix it.  Or you can identify external forces, such as government restrictions, that may negatively affect your property.  The best way to get started is to ask the following question:  If you were to build your facility new today, what changes would you make?

Now if I were a salesman by trade (and aren’t we all, really?), I would say that contracting a property tax consultant is making an investment.  And like most investments, deciphering the fine print can be maddening, especially when you’re dealing with fee structures.  But it doesn’t have to be.

To make your venture easier, you need to know what you’re in the market for.   Start out by making a shopping list of the services you want.  Don’t make the mistake of limiting your decision to “finding someone who can lower my taxes.”  Some of the things you may want to add to your shopping list of deliverables might include detailed documentation, audit representation, project management, physical inspections, disposed assets listings for fixed asset write-off, savings reports, calendar reports, accrual estimates—the list goes on.

Many of these additional service elements can make your job of managing property taxes easier and more fun (Okay, at least it will be easier).  Once you have a clear idea what you want to invest in, the next question is not merely how much, but “how”?

Consider the number of available fee structures: contingency, flat fee, hourly, pro bono, or a combination of any of the above.  Your best choice may depend on how much you think might be saved at the location to be reviewed. The more certain you are, the better it is to move toward a flat fee because the one factor most people forget when reviewing fee structures is the selling of the risk factor. The higher the risk of no savings, the greater need for a contingency fee structure.

Property tax negotiations are based on relationships.  The keys to a quality relationship are communication, honesty and realistic claims supportable by proper documentation.

Taxpayers often resent having to justify the details of their returns, while assessors may be irritated if they feel their authority is being challenged.  Appealing to the next level without discussing the appeal with the assessor first is an example. Either way, emotions can trigger a hasty and sometimes damaging response.  Face-to-face communication between the taxpayer and the assessor up front may alleviate many potential problems down the road. Bringing in an impartial expert can also prevent emotional reactions from occurring and can cool tensions before they have a chance to boil over.