IPTI | Update on U.S. & EU Property Tax Issues: April 2023

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together below a selection of articles from IPTI Xtracts; more articles can be found on its website (www.ipti.org).

UNITED STATES

USA: Half-Empty Office Buildings Will Likely Lead to Higher Taxes for All Property Owners

When cities can’t raise taxes from enough office buildings, they’ll go looking elsewhere.

A topic that doesn’t come up often enough when discussing the future of office is property taxes. Because the money that comes into local and county governments is significant. But what will happen when office buildings’ valuations decline  because of the shifting patterns of demand?

As Danny Ismail, co-head of Green Street’s Strategic Research group, recently wrote, “The likely outcome is for commercial real estate to bear higher tax burdens via higher property taxes, transfer taxes, and potentially ‘green’ taxes. Several cities have already made this move with more likely on the way.”

Pew put together some interesting numbers on the general topic:  61% of tax income to cities and counties comes from property tax. The rest is a mix of sales tax, income tax, and some other types. In 40 states, property taxes lead revenue sources.

As the Urban Institute noted about the importance of property taxes using 2019 data: “All states have property taxes (at least at the local level). New Hampshire was the most reliant on property tax revenue in 2019, as the tax accounted for 36 percent of its combined state and local general revenues. (New Hampshire does not have a broad-based individual income tax or general sales tax). The next most reliant states were New Jersey (29 percent), Maine (27 percent), and Connecticut (26 percent). Overall, 10 states collected 20 percent or more of their state and local general revenues from property taxes in 2019.”

Municipalities and counties are largely dependent on property taxes to pay for what they must do every day. Policing, street maintenance, schools, business development, mass transit—everything. Office buildings have long been important as a funding source through property taxes, which are based on property values. And everyone in the industry knows where those have been going.

“Commercial property values have fallen in the last year given a rise in interest rates but work from home (WFH) is a particularly acute drag on denser urban metros,” Green Street’s Ismail wrote. “Barring a recovery in commercial real estate values or a shift in worker/employer attitudes towards WFH, there is a structural mismatch in how cities will fund themselves going forward. Lower assessed tax values coupled with less in-office work have and will cause damage on city budgets, local infrastructure, and overall quality of life within major cities.”

To maintain the revenue, local and county governments will look to other sources for income. A likely seeming one would be increasing tax rates on other properties, both CRE and residential.

“It’s impossible to predict the form or timing of higher real estate taxes, but the direction is clear,” Ismail wrote. “Empty offices and quiet downtowns are a negative drag on fiscal health without a quick or easy fix. Investors should expect upward adjustments in commercial real estate related taxes as long as workers prefer the home kitchen table to the downtown cubicle.”

Texas: On The Cusp Of Trouble

The Texas Miracle—a state now with 30 million inhabitants, putting the heat on California as the greatest place people have ever flocked to in pursuit of the American Dream. For years, Texas has been the picture of mass prosperity. Home-ownership within everyone’s grasp (and a stellar housing stock). Jobs galore. Entrepreneurial opportunities everywhere. Zillions of children.

A secret to Texas’s success has been, without question, its lack of an income tax. A zero-rate income tax—ask Florida, Washington, Nevada—is a business magnet. States with no income taxes can have other forms of taxes that are on the large side. The property tax is the big tax in Texas. It has gotten large enough to become a clear problem. If Texas does not address itself to this problem and, crucially, solve it correctly, the Texas miracle will be in jeopardy.

Property taxes in Texas, for households for example, generally run near 2 percent of market value. A $300,000 house means a $6,000-plus yearly tax bill in that scenario. In tax disaster areas like New Jersey, such a bill is not exceptional. But in most places across the nation, property taxes are comfortably below this level.

Texas, therefore, has felt popular pressure to “do something” about property taxes over the years. The main something has been a bad thing—coming up with more exemptions that clear out portions of the property value from tax. There is a homestead exemption, a senior citizens’ exemption, and a veteran’s exemption. In the currently meeting Texas biennium, one legislator wants to tack on a further exemption for large families.

The major legislation pending has it that the exemptions will increase big time and rates will be cut slightly, and the state will send additional money to localities and school districts. Big increase in exemptions, minor decrease in rates, with state money inflated by the Texas boom covering up any shortfalls—this is the current plan.

The finances go in the wrong direction. Texas has high property tax rates. Adding on exemptions all but guarantees that the rates, which are the problem, will not come down. Exemptions mean less revenue with no change in the rate. The state gets high rates with less revenue because of the narrower base.

The straight way to do it is to have low rates with no exemptions. If rates were, say around 1 percent (as is perfectly common including in zero income tax states), the clamor for exemptions, from the homesteaders, the seniors, the veterans, the big families, would vanish. It is also likely that revenue from each increment of the tax base would increase.

But the legislature has not opted for this solution. Over the years, as now, it has dealt with the problem of high rates by expanding exemptions and adding new ones. Therefore, the state should realize that it has to do two things, both close loopholes and lower rates. Lower rates would generate lower revenues in the short term for sure, and the curtailing of the exemptions would enflame classes of owners that have counted on and in many cases lobbied for their benefit.

That’s a political mess. Instead of getting serious about property tax reform, over the years, and at present, Texas has let rates hang high while it loaded up on exemptions. Rates, whatever superficial cuts in current legislation, remain sticky high—because of all the exemptions—and this has served to render yet more valuable still further expansions in exemptions. Everything is moving along the wrong path.

If you’re Illinois faced with such a predicament, you flake out. You ignore the problem, vote your unions a pay raise, and call it a day. But as Texas you are not a modern flop. You are the chosen destination of the latter-day American Dream, in a certain sense the very hope of the world. The seriousness of the matter is profound. If you solve the problem, Texas will continue to captain America. If you don’t, or do something lame, you will permit a problem that is becoming nasty to become embedded even more.

The legislature is currently playing ball with exemptions and is backing off from really touching rates. Let’s say property prices balloon as they have been in this country, and that the exemption expansions take the rate up from near to 3 percent. Pay $15,000 per year on a $500,000 home in Texas?

It’s OK—just be part of a favored constituency and you can tamp that amount down—is a terrible counsel. Try saying that to business. Investors will see the high rate, as well as the games one has to play to get it less applicable in particular circumstances, and say this is no place to invest broadly. A state can go the Ohio/IntelINTC +1.1% route—look at all the businesses we got through tax abatements—or a state can do it for real. Texas has boomed because, more than just about anywhere else, it has had low (zero on the income tax side) and simple taxes and let business come in and make decisions irrespective of government breaks, hiring tons of people in the offing. The flood of business investment, real and uninvited, has been epic.

How hard is it to lower a rate while easing out exemptions? Easier than in the future when there will be more exemptions on current trends. Property values are up—this is the perfect time for a lower rate and cuts in exemptions. The opportunity to reduce a rate with a negligible revenue loss happens to be right now. If the legislature has the wisdom to dismiss the exemption lobbying and cut statutory property tax rates baldly, the Texas miracle has an outstanding chance of continuing apace. If not, the pathetic kind of braggadocio Ohio is prone to could be its fate (to say nothing of Illinois/New Jersey), as its population and all the other metrics stagnate. The further matter is that at this juncture, the nation, the world is running out of exemplars, places where anyone can pursue the dream. Many, many millions, one might dare say globally, are counting on Texas. It should have low tax rates with no exemptions.

Alaska: Senate passes bill to allow municipal blight tax, property tax exemptions

The Alaska Senate voted 13-6 on Tuesday to pass a bill that would apply both a carrot and a stick for local governments to encourage the construction and maintenance of developments.

One provision of Senate Bill 77 would allow municipalities to exempt the owners of newly developed or redeveloped commercial properties from paying property taxes. Another provision would allow municipalities to increase the property taxes of owners whose properties have become blighted by as much as 50%.

Bill sponsor Anchorage Democrat Forrest Dunbar said the bill is aiming at spurring housing development, adding that the high cost of construction in Alaska doesn’t justify new building. The exemption would lower the cost to property owners. “Housing in all of Alaska has become incredibly difficult to pencil out,” Dunbar said.

Under current state law, municipalities can only exempt a portion of new commercial developments, including apartments. The bill would change that to allow the entire value to be exempt for a designated period of time.

The blight tax would not apply to any primary residence, so people with low incomes would not be taxed out of their homes. It would leave it up to municipalities that implement a blight tax to determine what their definition of “blighted” is. These municipalities would be required to establish an appeals process. The tax penalty would end when owners fix up their properties.

Dunbar said he believes municipalities are more likely to take advantage of the exemption provisions of the bill than they are to apply a blight tax. But he said the blight tax would address cases where property owners choose not to take care of their properties.

“If it is falling into such disrepair that it’s become a danger to the neighborhood, then frankly that person who owns it, whether they’re in state or out of state, should either fix up the property or sell it to someone who can,” he said.

There is a House version, House Bill 84, sponsored by Wasilla Republican Rep. Jesse Sumner. Sumner said properties that are allowed to deteriorate bring down the values of neighboring properties.

“Blighted properties often become a magnet for criminal activity, which impose additional costs upon local government,” Sumner said at a March 24 House Community and Regional Affairs Committee meeting where the House bill had its first hearing.

Bill supporters point to success Anchorage has had with property tax exemptions to spur some construction. Big Lake Republican Rep. Kevin McCabe expressed concern that the Anchorage Assembly would use a blight tax to “willy nilly” take property.

“I just want to make sure that a … ‘rogue’ is the wrong word, but that an Assembly that is sort of taking their own direction doesn’t create a problem,” for property owners who are experiencing hard times but have hopes for the future, McCabe said. “So I think we have to protect the individual rights as well as the city rights.”

The bill is supported by homebuilders and people working in economic development. Some spoke at the March 24 hearing. Anchorage Economic Development Corp. CEO Bill Popp noted that the bill requires a public process for a municipality to adopt a blight tax, and that business organizations would participate in the process in Anchorage.

Mike Robbins, executive director of the Anchorage Community Development Corp., predicted the bill would stimulate economic and housing development around the state. “We’re suffering from shortages at all levels. Multiple factors have contributed to this environment, which we have no control over,” Robbins said. “But there are some that we can and should work to solve.” Robbins said the exemption provision would help close the gap for builders between costs and the returns needed to make the investment.

A prominent national opponent of taxes has weighed in against the bill. Grover Norquist, the president of the Washington, D.C. nonprofit Americans for Tax Reform, wrote a letter saying the blight tax in the bill would be the broadest in the country.

Norquist raised particular concern over how the bill leaves it to municipalities to define blighted, which he suggested would open it up to abuse. “Since SB 77 allows for any and all standards, no matter how broad or unnecessary, ordinary Alaskans could face strict supervision and a 50% property tax hike for something as simple as a broken window or front door,” Norquist wrote.

Palmer Republican Sen. Shelley Hughes opposed the bill due to the blight tax, saying that she would have supported it if it only included the carrot of the exemption. Hughes said private property is central to the United States.

“We work to cherish it and protect it, unlike the ability in communist countries or under dictatorships,” she said. “We have the right to have property. And I believe that our measures should be to help protect, and not to put a property owner in risk of, eventually, that property possibly being taken from them if the taxes are such that they cannot pay them.”

Hughes attempted to amend the bill on the Senate floor to require that any definition of blighted include that the property endangers public health or safety. The amendment failed, with five votes in favor and 14 opposed.

Democratic Sen. Matt Claman, a former Anchorage Assembly member and acting mayor, predicted that the tax exemption would prove to receive more rapid attention from local governments than the blight tax, which he described as “very complicated.” “It’s another step we can take in making Alaska ready and open for business,” Claman said of the bill.

On the final vote on the bill, all eight Democrats present voted in favor, while Sen. Donny Olson, D-Golovin, was absent. Five Republicans also voted in favor: Sens. Click Bishop of Fairbanks; Cathy Giessel and James Kaufman of Anchorage; Kelly Merrick of Eagle River; and Gary Stevens of Kodiak. The no votes were Republican Sens. Jesse Bjorkman of Nikiski; Robb Myers of North Pole; Mike Shower and David Wilson of Wasilla; Bert Stedman of Sitka; and Hughes.

The Senate version of the bill is already scheduled for a hearing with the House Community and Regional Affairs Committee on Thursday. If both chambers agree to pass the same version of the bill, it would go to Republican Gov. Mike Dunleavy, who could allow it to become law or veto it.

Pennsylvania: Given another chance, thousands of Allegheny County taxpayers are filing 2022 property assessment appeals

Droves of Allegheny County property owners aren’t wasting their second chance. As of Thursday, thousands of taxpayers had taken advantage of the “special appeals period” offered by County Council and Executive Rich Fitzgerald to challenge their 2022 property assessments because of the controversy over the ratio used to set taxable values.

In all, 5,113 so-called second-chance appeals had been filed in advance of Friday’s deadline. That’s in addition to the 9,262 appeals that have been filed so far for 2023. Friday is the deadline for submitting those appeals.

Combined, the total number of second-chance and 2023 appeals already has surpassed the 12,655 appeals filed in 2022. The vast majority of those — 11,460 — were filed by school districts or municipalities seeking to increase the assessments on properties that they believed were undervalued.

But Mike Suley, a former county assessment director and board member, predicted Thursday the tables will turn this year, with property owners accounting for the vast majority of 2022 second-chance and 2023 appeals. “I would be willing to bet 95% to 98% are owner appeals because the school districts already had their chance last year and they filed those appeals,” he said.

County Council approved and Mr. Fitzgerald signed legislation in January giving taxpayers another opportunity to file 2022 appeals. The decision stemmed from a ruling by Common Pleas Judge Alan Hertzberg in September that significantly lowered the ratio used to compute the taxable value of properties during property assessment appeal hearings.

Judge Hertzberg set the number, known as the common level ratio, at 63.53%, far below the 81.1% that the board of property assessment appeals and review had been using in 2022 hearings. The lower number can make a big difference in the amount of taxes a property owner would pay. At the 81.1% ratio, a house valued at $200,000 on appeal would be taxed at $162,200. But at 63.53%, it would be taxed at $127,060.

The Pittsburgh Public Schools has since appealed the judge’s order to the state’s Commonwealth Court, where a hearing is scheduled next week.

Because of the district’s challenge, the assessment board has been holding hearings on 2022 appeals and determining market value but not taking the final step of applying the common level ratio. That has left thousands of appeals in limbo.

To break the logjam, Judge Hertzberg last week ordered the board to use 63.6% to calculate taxable value in 2022 appeals. That’s the same common level ratio that is to be used in 2023 appeals, as determined by the state tax equalization board, typically the arbiter of such matters.

David Montgomery, assessment board solicitor, said Thursday there’s “no present intention” by members to appeal last week’s ruling, The board typically would have 30 days to do so. At this point, he said, it plans to use the 63.6% ratio in deciding all 2022 appeals, including the second-chance ones, and all 2023 appeals. At 63.6%, a house with a fair market value of $200,000 would be taxed at $127,200.

Like Mr. Suley, Edward Hirshberg, an attorney who specializes in real estate law litigation, believes the second-chance and 2023 appeals are being driven largely by property owners rather than taxing bodies.

Mr. Suley said the lower ratio works more in favor of property owners than municipalities or school districts, which typically use appeals of undervalued properties to help raise revenue.

If the ratio continues to drop, “there will be a very high percentage of homeowner appeals moving forward. Game over for the school districts. The school districts have been doing 90% of the appeals. It’s going to shift the other way now,” Mr. Suley said.

Those wishing to file 2022 second-chance or 2023 appeals still have time to do so either by going online, through email or regular mail, or in person. Since all appeals will be heard by phone, the form must include a phone number the assessment board can use to reach the property owner or his or her representative for the hearing.

All appeals, whether delivered in person or submitted by email, must be filed by 4:30 p.m. Friday. If mailed, they must have a March 31, 2023, postmark.

Pennsylvania: ‘An unusually slow year’: Philly has roughly 17K property assessment appeals to review

Property assessments dictate how much property owners must pay in property taxes. Bills are due on Friday.

Nearly 20,000 property owners in Philadelphia challenged their most recent property assessment. Amid rising values, the overwhelming majority of them are still waiting for a response from the city.

Chief Assessment Officer James Aros Jr. said this week his department had ruled on roughly 3,000 of these informal appeals since last December’s deadline. He insisted the pace would pick up in the coming weeks.

“We expect that to be ramped up pretty significantly as folks are getting out there. They’re calling people, making appointments, and they’re trying to get to a couple of blocks and knock out a bunch of these at a time,” said Aros Jr. during a budget hearing on Wednesday in City Council Chambers.

It’s unclear when the city will finish responding to the remaining appeals, known as “First Level Reviews.” In the meantime, property owners must pay their property taxes based on the new assessment while they await a decision, said a city spokesperson.

If owners also filed a formal appeal with the Board of Revision of Taxes, they can pay their bill based on their prior year assessment until there’s a ruling in their case, according to the city. Property taxes are due on Friday.

Kate Dugan, a staff attorney in the home ownership and consumer rights unit at Community Legal Services, said the “unusually slow year” for “First Level Reviews” is causing some homeowners a major headache.

“For homeowners with mortgages, forward and reverse, that’s an especially frustrating timeline because those companies, for the most part, already advanced taxes,” said Dugan. “So we have clients whose mortgage payments went up and they’re not going to be able to fix that. They’re not going to be able to do a new escrow analysis for months.”

Lower-valued properties were most likely to be over-assessed, according to an analysis conducted by the Philadelphia Inquirer. The paper also determined the most recent assessments were least accurate in low-income and majority-Black neighborhoods across the city.

Released in 2022, the latest round of property assessments caused widespread sticker shock. Residential property values increased by an average of 31% after a three-year pause in the process, a gap partially caused by the COVID-19 pandemic.

Thousands of appeals followed. And based on the volume of “First Level Reviews,” Mayor Jim Kenney’s final budget proposal includes a “temporary freeze” on property assessments so the city can work through all of the challenges.

According to the city, “First Level Reviews” require a homeowner to prove that either:

• The estimated market value of their home is too high or too low.
• The estimated market value is accurate, but inequitable.
• The characteristics of their property that affect its value are substantially incorrect.

This week’s progress report comes at a time when the Office of Property Assessment is short-staffed.The office is down nearly 50 staffers, including some real property evaluators, according to budget testimony.

OPA is budgeted for 225 full-time positions.

“The less evaluators we have, there’s more accounts that an individual may have,” said Aros Jr.

In the face of increased assessments, City Council passed legislation aimed at easing the financial burden of the new values. That included raising the value of the homestead exemption from $45,000 to $80,000. That change was projected to lower property tax bills by about $1,119 each year. The tax break previously saved homeowners about $629 annually.

Another measure overhauled the Longtime Owner Occupants Program, an initiative designed to protect low-to-moderate homeowners in swiftly gentrifying neighborhoods from being displaced. And another bill yielded changes to a program that enables older Philadelphians to freeze their property assessments.

City Council is weighing whether to reinstate a 1% discount on property taxes for homeowners who file them early.

EUROPE

France: One-in-five French municipalities ‘expected to raise property tax’

This is despite the fact that the government has asked councils not to increase the tax and even try to lower it

Homeowners in France could be hit in the wallet this year by local property tax rises. Paris (+52%), Grenoble (+25%) and Lyon (+9%) have already hiked their taxe foncière (property owner’s tax).

It is estimated around 20% of municipalities could follow suit, Franck Claeys, deputy delegate of the Association of urban France communities (L’association de collectivités France urbaine), told Le Figaro.

Councils must decide before April 15 on whether to increase the tax. It comes on top of a 7% national increase to the property values that are used — in conjunction with local rates — to calculate people’s bills. The only way this would not be passed onto homeowners is if local authorities reduced the rates they apply.

On the plus side, conditions to obtain a €100 taxe foncière reduction for people aged 65 to 74 on January 1, 2023, or an exemption for people aged 75, have been made a little easier. These are conditional on the receipt of certain benefits or a low income.

Previously, people could only claim if they were living with people meeting the same criteria. This rule has now been lifted so people meeting the criteria can claim even if, for example, they live with an adult child who does not meet the ‘low income’ criteria.

Conditions have been relaxed for low-income taxpayers to have a reduction or exemption on their former main home (and a taxe d’habitation exemption) if they move to a retirement home.

They benefit even if they let it be used for free by people other than their spouse or dependents who were living there when they left.

Portugal: Unused rustic land where houses can be built will pay more tax

“Collection of urban property tax on rustic buildings that are in urban perimeters” is one of the measures included in the Mais Habitação program.

Rustic properties which are not being given any use, and which have constructive capacity, being in the urban perimeter, will start to pay more Municipal Property Tax (IMI), which is one of the measures contemplated in the Mais Habitação program, approved this Thursday (March 30, 2023) by the Council of Ministers. This means that landlords will pay urban IMI instead of rustic IMI.

The “charging of urban property tax on rustic buildings that are in urban perimeters” is, moreover, one of the measures contained in the explanatory document of the Mais Habitação package , which idealista/news had access to.

In this way, the Executive “forces” the owners of unused rustic land that can be the target of new constructions, and that are in the urban perimeter, to be classified as land for construction.

The difference, in terms of tax payment, is that a rustic property has a reduced taxable value, which means that the IMI is also lower. Becoming classified as urban property , the tax to be paid will be higher.

“[The idea] is not to apply the urban IMI in any rustic building. We are talking about buildings/land classified as rustic within the urban perimeter, because (…) there are owners who acquire land and keep it for many years without using it, in order to wait for its price and value to increase to have a greater added value, without giving it effective use. And as it is classified as a rustic building, they pay less than any of us pay for the property tax on a house where we live”, explained Prime Minister António Costa at a company conference.

“What is established? It’s just that the councils, when they verify that there is an owner who, instead of promoting the urbanization of the land, in the urban perimeter, is simply leaving the land inactive, waiting for a better time, then it will be able to tax it according to the urban IMI rules and not according to the rustic IMI”, he clarified.

UK: Business Rates Proposals are Necessary But Not Sufficient, Say Small Firms

Responding to the Non-Domestic Business Rating Bill, announced today, Martin McTague, National Chair of the Federation of Small Businesses (FSB) said:

“Today’s legislation makes good on useful moderate changes promised to the business rates system in England. However, overall the proposals are necessary but not sufficient.

“Moving to more frequent revaluations will prevent the existing problems of the tax system falling behind the economic situation at the time, with the Government piling on CPI inflationary increases each year in between revaluations. The aim now should be to move the system to an annual assessment, requiring significant modernisation of the Valuation Office Agency.

“FSB campaigned strongly for net zero and other investments by a small business into its premises to be exempt from business rates, to avoid the perverse disincentive of increased bills after doing the right thing. So we are also really pleased to see that set out, today.

“However, the 2019 Manifesto commitment to hold a fundamental downward review of business rates has not happened. And as a result, these changes do not amount to the fundamental overhaul the system needs, to reduce the chilling impact of a regressive tax that you pay before even earning a penny in turnover, let alone profit.

“After Brexit, COVID and the energy crisis taking up Ministerial bandwidth, there are no more excuses and we want to see this review delivered, as promised, before the end of this Parliament.

“As Secretary of State for Levelling Up, we are asking Michael Gove to see the local economic benefits of cutting business rates, to unleash a local economic growth dividend across the country as businesses in our communities are freed up to invest, recruit or expand. The best way to do this would be to increase the threshold for Small Business Rates Relief and Rural Rates Relief to £25,000, removing thousands of small businesses out of the bottom of the tax altogether.”

UK: Concern over administrative burden for business ratepayers

Colliers is warning that the new Non-Domestic Rates Bill won’t solve the business rates question for the retail and hospitality sectors. The Bill was laid before Parliament last week in the House of Commons and is expected to receive a second reading on 24th April.

The Bill came about following the 2020 Business Rates Review and states that there will be delivery of:

• More frequent revaluations;
• Administrative reforms to deliver a sustainable shorter revaluation cycle, which will hopefully enable more accurate rating lists and enable the disclosure of more information to ratepayers about their business rates valuations;
• Measures to support decarbonisation and investment, including a relief for low-carbon heat networks and a new improvement relief so that, from April 2024, ratepayers will not see an increase in their rates bill from qualifying improvements made to their property for 12 months;
• Support announced by the government at the Autumn Statement 2022. This includes a three-year transitional relief scheme. The Bill removes the statutory requirement for revenue neutrality within transitional relief, with the removal of downwards transition;
• The Digitalising Business Rates project, which aims to modernise the business rates system, improve the targeting of rates relief, generate better data for central and local government, and help to improve business rates compliance; and
• Improvements to the administration of business rates, including replacing RPI with CPI as the measure of inflation used in the annual indexation of the multiplier.

“On the surface, these changes look positive for all sectors,” said John Webbers, Colliers’ head of business rates. “We have long been fans of more frequent revaluations and the removal of downwards transition, which will certainly help the retail and hospitality sectors in this current list. Although, ideally, we would prefer annual revaluations if rates bills are to be a more accurate reflection of rental levels.

“The relief for low-carbon heat networks and the new improvement relief scheme are also in the right direction, although we would argue limiting the relief for only 12 months is unlikely to encourage long-term investment.”

However, on closer inspection, Colliers has major concerns about the administrative burden put on ratepayers with the new requirements for the annual provision of information and the duty to notify, whereby businesses will not only need to confirm the physical details of the property on an annual basis, but also provide updates on rents and lease information, as well as trading information, even where there have been no changes notifications. Failure to do so could result in some serious fines or even imprisonment for false statements.

Now an additional 700,000 businesses, who currently pay no business rates due to reliefs — many of these smaller retailers and hospitality companies — will have to send information to the valuation office in a bureaucratic exercise, which “won’t result in any increase in the business rates tax take — just cause an administrative headache”, says Webber.

He added: “Overall, this bill represents a complete changearound in terms of the obligations on the VOA — obligations which are now being put on the ratepayer. The new regime requiring annual notifications and duty to notify is backed up with penalties and onerous fines, which could run into tens of thousands of pounds, with the ultimate sanction of imprisonment.

“Yet no similar obligations have been placed on the VOA to produce its assessments quickly, and any timetable associated with transparency is silent. The government has also said nothing about speeding up the appeals system or any timetable to achieve this.”

Webber is concerned this increasing burden will put smaller retail and hospitality businesses even more into the hands of rogue rating advisers who will claim to advise them through the paperwork.

He said: “Unless the government does something about the issue of rogue surveyors, these new demands will give a green light to cowboy rating advisers, taking advantage of businesses now even more unsure of how to negotiate the complex business rates system.

“Meanwhile, nothing has been said about tackling the real issue with business rates — that it is overburdensome and just too high a tax to be sustainable for businesses. It’s a plus 50p in the pound tax. Far from cutting business rates, as promised in the Conservative manifesto, this year’s list will show a general 7.1% increase in rateable value.

“Even on the government’s figures, the retail sector alone will still be providing £6.7bn in business rates in 2023/4, which is nearly a quarter of the overall business rates tax take, despite the fact that the gross value added from retail to the economy is less than 10%.

“Unless the government reduces the multiplier to levels businesses can afford — say 34p in the pound — none of the above changes will make a significant improvement for businesses in these sectors.

“We will be continuing our lobbying campaign among MPS as this Bill makes its way through Parliament.”

Authors:

• Paul Sanderson, President | psanderson[at]ipti.org
• Jerry Grad, Chief Executive Officer | jgrad[at]ipti.org

Compliments of the International Property Tax Institute (IPTI) – a member of the EACCNY.