Tax Valuations and Transactions

This informational overview covers some issues surrounding the taxation of commercial real estate in Texas.

Texas schools, municipalities, and counties rely heavily on property tax revenue, making property taxes a large cost of business.  Texas real estate professionals need a working knowledge of the applicable law. Buyers and sellers should proactively address property tax issues during transactions.  It’s just as important to annually review property tax values in time to allow remedial action within the time frames set by law. Those who miss the deadlines usually lose the chance to seek a lower assessment.

Some Property Tax Issues In Buying And Selling Real Estate

Questions for Due Diligence Checklists

Buyers sometimes make major miscalculations on or simply ignore  the property tax consequences of purchasing real estate.  A buyer might, for example, pay $20 million for property assessed at $10 million, based on pro-formas which assume that the property’s assessed value will stay constant.  This can lead to unpleasant surprises later.

Instead, buyers should early on learn the property’s current tax valuation, and determine if the sale price might drive up the assessment.  Sophisticated buyers may engage property tax consultants during due diligence to project whether the assessment might increase and if so, at what pace.

Other Important Pre-Closing Questions are:

Given the expected closing date and applicable deadlines, who will be responsible for filing a protest/lawsuit for the  current  year?   At  what point (if any) will responsibility for handling the protest or lawsuit pass from the seller to the buyer? Will a new tax consultant/lawyer be engaged or will the seller’s consultant and lawyer continue to handle any existing protest or suit? Who will receive notifications? Who will ensure compliance with protest and other deadlines and when?

If the sale is for less than the assessed value, who will protest on this basis?  Who will receive what share of any resulting tax refunds?  If a property tax valuation suit for prior years is pending on the closing date, will the seller’s lawyer continue the suit?  Who will receive any resulting refunds?  When will the appraisal district find out the purchase price?  Should the buyer report the purchase price?