Commercial property owners across Wisconsin have seen declines in revenue as a result of the COVID-19 pandemic. Wisconsin property tax assessors are required to take revenues and expenses into account when valuing commercial property using the income method of valuation. Property owners should expect to receive their notices of assessment in the mail beginning this spring. But whether these assessments will accurately reflect the decline in value for commercial property as a result of the pandemic is an open question. Owners of commercial properties such as office buildings and hotels should prepare now to object to their property tax assessments.

Commercial Property Assessments Must Be Based on Fair Market Value

Wisconsin law requires real property to be assessed at the fair market value using a three-tiered methodology for valuation. The first valuation tier, which provides the best evidence of a property’s value, will be based on a recent sale of the property in question at arm’s length. If the property had not been sold recently at arm’s length sale, then the second valuation tier may be used. This option provides the next best evidence of a property’s value, and it will examine comparable properties that had recently been sold. If neither the first-tier nor second-tier valuation methods are available, an assessor can use the third tier of approaches to determine a property’s value, and these methods include examining factors such as a property’s cost and the income it generates.

Assessors often rely on the income or cost approaches to determine the value of commercial property. The third-tier property valuation methods give assessors extreme flexibility to adjust the rates used and the calculations performed to increase or decrease assessment values. The decline in the retail sector has accelerated since the start of the pandemic, affecting hotels and other commercial properties. In addition, the dramatic shift to work-from-home combined with other factors has led to lower occupancy rates for office buildings. These factors, combined with shuttered restaurants and bars, eviction moratoriums, and limited or no government assistance means that revenues are down, and the value of commercial properties has declined steeply since last year. Lower commercial property values should result in lower assessments.

This year, it is more important than ever that commercial property owners be prepared to provide assessors with evidence of value to ensure that their properties are accurately assessed. Every property owner has the right to file an objection to an assessment with their local municipality and should do so if their properties are over-assessed.

Objecting to a Property Tax Assessment

A property owner has the legal right to challenge the value of their real property as determined by an assessor. During this process, property owners must meet all deadlines and follow all steps correctly, and failure to do so could lead to the rejection of their objection. In these cases, property owners will have no further options for reducing property taxes based on decreased property values. The processes followed during an objection and the statutes that apply to these situations can be confusing, even for property owners who are sophisticated and experienced, and in many cases, the assessor’s value will be favored over that of the property owner. Property owners will need to understand all of the mandatory steps followed during the objection process and the strict deadlines they will need to meet. Owners of commercial property will want to consider working with an attorney who is experienced in property tax assessment to assist them throughout the process of filing an objection.