District of Columbia tax assessors and members of the board that hears tax assessment appeals are this year using recently enacted rules to ask commercial property owners for more information about their buildings than ever before.
Records submitted to the Department of Finance and Revenue and the Board of Equalization and Review must include complete rent rolls for office and apartment buildings, and monthly operating statements for one year for hotels, according to city officials. In addition, property owners who believe their assessments are incorrect must file all the documents supporting their arguments within 10 business days after their appeals are submitted.
The new requirements are "a further improvement of our assessment process," according to Robert L. King, associate director of the Office of Real Property Taxes. The information "will better explain the variations" sometimes found in the income and expense reports owners are required to file, he said.
Beginning this year, owners are asked to provide details including the names of tenants, terms of their leases, how much rent they are paying per square foot of office space, and when their leases expire.
City law requires assessors to determine "the present value of future benefits" when determining how much a piece of property is worth, King said. "If we have two properties that are very similar but owners report vastly different incomes," assessors need to know why, he said. "If one property is tied in to a long-term, low-rent lease . . . , to improve our assessment we need to determine why the income is low and when the property can be leased out at market rates."
The demand for this information has caused "much concern" among many of his clients, who fear it might be made public, according to Stanley J. Fineman, an attorney who specializes in commercial tax assessment appeals. Leasing terms and expiration dates of leases are closely guarded secrets in the intensely competitive commercial leasing market, particularly when plenty of office space is vacant or about to be built as is the case now in the Washington area.
Property owners often are willing to offer generous concessions in rents and other terms as a way to lure tenants away from their present offices. Real estate brokers, as well, are eager to earn commissions by inducing tenants to change buildings.
The Washington area Board of Trade also is concerned about the "confidentiality" of information given to the assessors, said Delano E. Lewis, C&P Telephone Co. vice president and chairman of the Board of Trade, in a letter to King. The board intends to ask the City Council to "enact legislation to protect the confidentiality of financial information," Lewis said.
King called the fears of disclosure unfounded. "Strong penalties" for revealing financial information filed with the Department of Finance and Revenue already exist, he said. "We guard information carefully. . . . I don't see [disclosure] as a problem."
The Board of Equalization and Review, which is an independent body, is under no legal requirement to keep data filed with assessment appeals confidential, said Fineman. His clients fear rent, income and expense figures and other data could be revealed through the board, he said.
In the past, Reynolds has refused to divulge income and expense information contained in appeals when reporters have asked for it. One Department of Finance and Revenue official said, however, that he believed that once assessments are appealed, the appeals and information used to support them becomes public information.
Hotel and motel owners are being asked to give the city month-by-month operating statements with detailed income and expense information, including income from sources other than room rentals, average occupancy rates and room charges, and other figures.
Tax assessors will use the new information in determining the values of property for the 1987 tax year, which begins July 1, 1986, King said. The deadline for submitting the information is April 1, but property owners will have 30 days from the time they receive the new forms to get them back to the city. King said there has been some delay in publication of the forms.
The Board of Equalization and Review will apply the new rules to appeals of 1986 tax year assessments, which must be filed by April 15.
The new appeals forms distributed to owners this year will ask them, for the first time, to give the purchase price of the property if it was bought within the last two years. In addition, owners must divulge details of the financing, including the amount of any cash payment, the number of loans on the property, their terms and interest rates. The reason the board wants this information "is obvious," Reynolds said last week at a panel discussion on commercial property tax assessments.
"We've got to look at those trusts and convert those trusts to cash" as a way to decide whether appeals for a lower assessment are justified, he added.
Reynolds told real estate brokers and others attending the panel that the assessment of a property must represent its market value and that "income stream is the critical factor affecting [a building's] market value."
"An investor purchasing income-producing real estate is in effect trading a sum of present dollars for the right to a stream of future dollars," he said, adding that "future dollars are worth less than present dollars" because of the risk and waiting time involved before they are realized and must be "discounted to their present worth . . . . "
In considering appeals from hotels, Reynolds said, the review board will compare their average occupancy rates to the citywide average, which rose from 64.8 percent in 1983 to 70.2 percent last year.