Pub. 1 2020 Issue 2

www.cbak.com In Touch 18 THE OTHER TAX SEASON: PROPERTY TAX TIME IN KANSAS W hen the topic of springtime taxes arises, income tax is what most often comes to mind. But spring is also the start of the property tax season in Kansas. For commercial property owners and the banks that lend to them, property tax season is a critical opportunity to evaluate and minimize their tax liabilities. PROPERTY TAX IN KANSAS Property taxes are part of the “three-legged tax stool”— comprised of sales, income and property taxes—supporting state and local government spending in Kansas. However, Kansas leans more heavily on the property tax leg than most states. Kansas property owners paid more than $5 billion in property taxes last year, with the 18th highest property tax burden in the country. Property taxes fall especially hard on commercial property owners, who pay taxes at a rate that is more than double the rate paid by residential homeowners. For many business owners, property taxes represent one of their largest fixed expenses, and managing property tax liability can be the difference between struggling and thriving. MANAGING PROEPRTY TAXES AT ACQUISITION Property taxes for most property types are based on “fair market value,” which is (highly summarized) the amount of money that a well-informed buyer is justified in paying and a well-informed seller is justified in accepting for property in an open and competitive market. In determining the fair market value of commercial real estate, Kansas county appraisers rely upon a variety of data sources, including sales prices of similar property types. County appraisers acquire most, if not all, of this sales data from a form, known as a Sales Validation Questionnaire. This form is required by Kansas law in all transactions of real estate, and it provides an opportunity to list the sale price along with qualifying information such as personal property and intangible assets included in such price or anomalies associated with the sale. This form can greatly impact the property tax value of the property being transferred, as well as other similar properties in the county. However, it is often filled out by the closing agent and signed by the seller without input from the buyer. Commercial property buyers should consult a property tax professional to assist with the preparation of this form, ensuring that their future tax liabilities are not overstated by an unadjusted or incorrectly-reported sales price. MANAGING PROPERTY TAXES THROUGH THE APPEALS PROCESS For existing real estate owners, the annual property tax assessment process begins with the receipt of a Valuation Notice around March 1 of each year. The Valuation Notice will report the fair market value or appraised value assigned by the county appraiser to each parcel of real estate along with the property’s classification. If the property owner believes the county’s appraised value is higher than fair market value or that the classification is incorrect, he or she may appeal the county appraiser’s determination within 30 days of receiving the valuation notice. Neither the concept of fair market value nor the property tax classification scheme is necessarily obvious to the lay person. For example, fair market value of real estate should not include the value of tangible or intangible personal property associated with a business. Fair market value should also not be impacted by the value of BY JARROD KIEFFER, STINSON, LLP