A private study of commercial properties sold last year in the District of Columbia found that the general level of tax assessment is "substantially below" the market value level currently prescribed by District regulations.
The study also found that the assessments varied considerably, with some properties assessed far above and others assessed far below their actual value.
"Obviously, this situation is inequitable and unfair to those property owners affected," the study by Tenenbaum-Hill Associates concluded. " . . . Property owners deserve and are guaranteed fair and equitable treatment."
The study was presented during hearings before the D.C. Board of Equalization by Tenenbaum-Hill on behalf of clients appealing their tax assessments. The Kansas City-based firm opened an office in Washington at the beginning of the year to help businesses review and challenge their property tax assessments, generally on a contingency fee basis. The firm does no residential work.
Comparing the actual sales prices of 321 commercial properties sold during 1982 with their tax assessments, the study found that the median assessment ratio--the ratio of an assessment to fair market value--was 75.89 percent for commercial real property in the city. In other words, half the properties sold during the year had been assessed at 75.89 percent or less of their actual sales prices. The law calls for tax assessments to be 100 percent of a building's market value.
The study also found a significant lack of uniformity--indeed, great discrepancies--in the commercial assessments. Half the properties surveyed were 50.16 percent or more away from the 75.89 percent median ratio in both directions; in other words, half the assessments ranged between 37.8 percent and 114 percent of their fair market value, and half the assessments were outside that range.
The International Association of Assessing Officials' standards suggest that assessment uniformity has been met if half the assessments fall within 15 percent of the median.
According to an out-of-town assessor, if an assessment is supposed to be 100 percent of fair market value and it is really 60 percent, it is significantly lower than it should be; but if all properties' assessments are grouped closely around the median, then property owners are being treated equitably. If great discrepancies exist, then some are being overassessed and are carrying proportionately more than their fair share of the tax burden and some are being underassessed and not paying their fair share.
A study of 248 commercial properties prepared earlier by the District of Columbia's Department of Finance and Revenue in April also showed that commercial properties sold last year were underassessed, but not by as much as the Tenenbaum-Hill report showed. The District's review showed that the median assessment-to-sales ratio for commercial properties sold in 1982 was 83.2 percent with half the properties dispersed 18.8 percent or more away from the median ratio.
"In either case, with respect to commercial properties, the general level of assessment and the degree of dispersion are unacceptable," the Tenenbaum-Hill report contends. "Swift action must be taken to ensure that these assessments are adjusted down to the general level of assessment for commercial properties and not singled out for burdensome taxation. . . . "
An official of Tenenbaum-Hill said the firm won tax assessment reductions in about two-thirds of the 97 appeals it filed on behalf of clients. The reductions averaged in the vicinity of just under 20 percent, more than the 15 percent goal they had set, he said. The firm will be appealing about 15 to 20 cases to the Tax Division of the Superior Court, the next step in the process. The cases to be appealed are ones in which no tax relief was granted or in which the firm felt the reductions granted were not in line with what they believe to be the true assessed value of a property.
The study will be a major part of the tax division appeal, he said. The next step, however, the Court of Appeals, is considered the real test of the firm's equalization study. "If the court goes along, it will have a real impact on commercial tax assessments," he said.
City officials said they hadn't analyzed the Tenenbaum-Hill assessment-ratio study.
The city's commercial property tax valuations were challenged from another unusual direction this year, when the government's General Services Administration contested assessments on 12 buildings. GSA won reductions on nine of them totaling more than $19 million.
District officials have said, however, that they expect a certain number of challenges each year and make allowances for them in their budget estimates. Despite reductions won by GSA, Tenenbaum-Hill and others, the city has fared better than expected in the appeal process so far. "We're not displeased with what happened at the Board this year," said Jeffrey L. Humber Jr., director of the D.C. Department of Finance and Revenue. "We did not get as much reductions as we had anticipated; that means additional revenue over what we had estimated."