Member News

IPTI | Update on U.S. & European Property Tax Issues: January 2021

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 a selection of brief reports from articles contained in IPTI Xtracts which can be found on its website (www.ipti.org).

UNITED STATES

New York: NYC Property Values Decline 5% as Offices and Hotels Stand Empty

  • Office building values drop 6%: finance department
  • Decrease in property value is the most since the early 1990s

New York City property values are set to decline 5.2% from the current fiscal year, the biggest decline since the early 1990s, highlighting the toll the pandemic has taken on the city’s commercial and residential property values.

The city has set a value of $1.3 trillion for its more than one million properties for the fiscal year beginning in July, according to a tentative assessment roll released by the Department of Finance Friday. Commercial properties led the decline. Retail and hotel values dropped 21.1% and 22.4%, respectively, while office building values fell 15.6%.

“By all accounts, 2020 was an extraordinary year with a global pandemic that disrupted virtually all aspects of society,” said incoming Department of Finance Commissioner Sherif Soliman in a news release. “New York City’s real estate market was not shielded from the pandemic’s effects on the City’s economy.”

Real estate taxes are the largest contributor to New York City’s revenue and the primary source of funds that back its approximately $40 billion of outstanding general-obligation bonds. Property tax revenue is estimated to drop by $2.5 billion, compared to the city’s November forecast, Mayor Bill de Blasio said Thursday. Citywide assessed values, which determine the value of property for tax purposes, fell 3.9% to $260.3 billion.

Workers have been slow to return the office and many renters have fled the city to escape the pandemic. Only 10% of Manhattan’s one million office workers had come back to the office as of late October, according to the Partnership for New York City, a business lobbying group.

Manhattan’s office vacancy rate rose to a 24-year high of 13.3% in the third quarter as new space, including the recently opened One Vanderbilt, outpaced demand, according to the city’s Office of Management and Budget. New leasing activity fell to the lowest nine-month level since 1995.

Market values for cooperative, condominium and rental apartment buildings fell 8% to $320 billion. One-to- three bedroom home values increased a slight 0.8%.

New York: Virus Siphons $2.5 Billion in N.Y.C. Property Tax Revenue

The value of office buildings and hotel properties, which have all but emptied out since the pandemic began, is expected to take a nosedive. As New York City officials fight to control the coronavirus by this summer, it is becoming clear that the economic fallout will last far longer: The city’s property tax revenues are projected to decline by $2.5 billion next year, the largest such drop in at least three decades.

The anticipated shortfall, which Mayor Bill de Blasio announced on Thursday, is largely driven by a sharp decline in the value of office buildings and hotel properties, which have all but emptied out since the pandemic began.

City Hall officials said that the market value of the tax class that includes hotel, retail and office properties has fallen by 15.8 percent, putting the city’s budget in a precarious position for the foreseeable future: Roughly half of the city’s tax revenue comes from real estate.

For now, the city will partially offset the loss with increased revenues from income taxes: The “rich got richer,” according to a slide from the mayor’s presentation. But the city will still have to substantially cut spending, although officials gave no clear indication what services might be at risk. Mr. de Blasio said that since last January, the city had already cut 7,000 jobs through attrition and a hiring freeze; he now plans to reduce the city’s head count by another 5,000.

“This is just a total economic dislocation for certain industries,” the mayor said. “We’ve never seen anything like what’s happened to the hotel industry. We’ve never seen Midtown in the situation it is now.” New York has been devastated by the pandemic’s dual paths of destruction: The virus has killed nearly 26,000 people in the city, while hundreds of thousands of jobs and billions of dollars in tax revenue have been lost.

At the height of the pandemic, unemployment exceeded 20 percent; today, a half million New Yorkers remain unemployed. And although some businesses remain open, many workers are staying at home rather than using mass transit to commute to densely packed office buildings in Midtown and Lower Manhattan.

Mr. de Blasio and Gov. Andrew M. Cuomo, who have battled with the Trump administration for more federal aid, have expressed optimism that President-elect Joseph R. Biden Jr., together with a Democratic-led Congress, will bring substantial assistance.

Indeed, just before Mr. de Blasio’s announcement, the incoming Senate majority leader, Chuck Schumer, said that he and Mr. Biden had reached a deal for the federal government to cover the full cost of state and city expenses related to a disaster declaration from last March, when the virus was first discovered in New York. The city had been on the hook for 25 percent of the expenses eligible for federal emergency reimbursement.

The move is expected to save the state and city about $2 billion, money that Mr. Schumer’s office said can be used to “tackle Covid-related budget gaps.” On Thursday, Mr. Schumer was promising more to come.

“This is just prelude of better days ahead out of Washington for New York,” he said. “With Biden as president and me as majority leader, it’s going to get better.”

A $1.9 trillion proposal unveiled on Thursday by the president-elect contains $350 billion to help state and local governments. Still, few expect the federal government to be able to fully meet their budgetary needs, especially with the economy in such flux.

In November, the city projected that the budget for the next fiscal year, which starts in July, would include $31.8 billion in property tax revenue. On Thursday, the city said it was recalibrating those expectations downward by $2.5 billion.

“This is an unprecedented drop,” said Thomas P. DiNapoli, the New York State comptroller. “We have notseen property tax collections decline in more than 20 years and never at these levels.”

Even if normal economic activity resumes in New York City, it will not necessarily result in the full-scale return of office workers to office buildings, now that so many have become acclimated to working from home.

In early January, only 29 percent of Manhattan hotel rooms were occupied, compared with 69 percent the year prior. More than 230 Manhattan hotels have closed, at least temporarily, during the pandemic.

The Manhattan retail sector, which was getting battered by e-commerce before the pandemic set in, continues to suffer, too, with rents declining and vacant storefronts increasing.

In 2020, tenants leased just 20.5 million square feet of office space in Manhattan, the lowest level in at least 20 years, according to a recent report from Savills, a real estate services firm.

It “will still be several quarters before workers return to the office in earnest and the full implication of demand shifts due to work-from-home or new location strategies can be seen,” notes the recent Savills report.

Landlords have responded by embracing unconventional ideas, like converting large swaths of underutilized Midtown office space into apartments, a notion recently embraced by Mr. Cuomo.

The agreement with the Biden administration to pay 100 percent of coronavirus-related emergency expenses — similar to one that New York had with the Obama administration in the wake of Superstorm Sandy — will mean about $1 billion for the state and the city each, Mr. Schumer said.

The Trump administration had previously committed to such an arrangement, the senator said, but had never actually acted on it, leaving the city and state to cover 25 percent of those costs. “I asked Trump for this personally two or three times,” Mr. Schumer said. “He said yes, and he never did it.”

Thanks to the arrival of more aid, the city will be able to put off nearly $200 million in cuts to education funding, including a $44 million cut to the expansion of the mayor’s “3-K for All” preschool program.

Earlier this week, Mr. Cuomo announced that the state government was facing a $15 billion shortfall, which he characterized as the largest in state history, something he, too, said he hoped the federal government would help backfill. “We expect basic fairness from Washington,” he said on Monday. “Finally.”

Mr. Schumer said he had spoken to the president-elect and Nancy Pelosi, the speaker of the House, about the need for direct aid to state and local governments — something that was left out of a December coronavirus relief bill — and both leaders were committed to providing it.

But as to whether it means a complete bailout for New York, Mr. Schumer was more circumspect. “We’re going to do everything we can to get the state all the money it needs,” he said.

Indiana: Tax Court affirms assessment of Boone County Meijer store

The Indiana Tax Court has affirmed a final determination rendered by the Indiana Board of Tax Review for a Boone County Meijer store that increased its assessed value over four years. Meijer Stores Limited Partnership in 2014 built a Meijer store in Boone County with related site improvements that was later assessed by the Boone County Assessor.

Meijer argued the valuations were too high and appealed the store’s assessed values for the years 2014, 2015, 2016 and 2017 to the Boone County Property Tax Assessment Board of Appeals and then to the Indiana Board of Tax Review.

Following an administrative hearing, both Meijer and the assessor agreed to provide evidence for the 2016 tax year alone and stipulated that the assessments for the remaining years would be determined by applying their pre-determined trending formula to the Indiana Board’s final determination of assessed value for the 2016 assessment year.

Both parties used the sales comparison, income and cost approaches. For Meijer, it concluded that the market value-in-use for the property was $7,190,000 under the sales comparison approach, $7,750,000 for the income approach and $8,240,000 for the cost approach. The assessor, however, estimated the value of the Meijer property to be $14,450,000 under the sales comparison approach, $14,400,000 under the income approach and $16,550,000 under the coast approach.

The Indiana Board ultimately concluded that the cost approach in certified appraiser and MAI Samuel Koon’s first appraisal, excluding the adjustment for entrepreneurial profit, was the most credible and the best indication of the property’s market value-in-use. It therefore valued the subject property at $12,798,600 for the 2016 tax year.

On appeal, the Indiana Tax Court affirmed upon finding that Meijer had not demonstrated that the Indiana Board erred in rejecting its sales comparison and income approach valuations, adopting the assessor’s cost approach, or rejecting its obsolescence calculation.

First, the Tax Court concluded that what Meijer claims is the Indiana Board improperly performing a market segmentation analysis of big box stores over 150,000 square feet “was simply the Indiana Board acting within the scope of its authority and weighing evidence to determine its reliability.”

“Because the Indiana Board  did  not perform a market segmentation analysis, but simply used ‘mega warehouse superstores’ as a guide for weighing comparability, the Court will not reverse the Indiana Board’s determination that (the) sales comparison and income approaches were unreliable,” Judge Martha Wentworth wrote.

It next affirmed the Indiana Board’s finding because, based on appraisal authority, the Tax Court concluded its reliance on the cost approach was reasonable and supported by substantial evidence.

Lastly, it addressed the obsolescence adjustment issue by finding it was reasonable for the Indiana Board to conclude that Koon’s first cost approach for the assessor inherently accounted for “substantial immediate obsolescence for features unique to the Meijer [s]tore.”

USA: Reduce High Retail Occupancy Costs by Ensuring Property Valuation Isn’t Excessive

E-commerce was here to stay even before the pandemic devastated small businesses and placed an even greater premium on technology. In the changed landscape, lowering occupancy costs by reducing property taxes is one of the most important steps businesses can take to remain competitive.

Stay-at-home orders still prevent many shoppers from visiting their favorite brick-and-mortar stores, while fear of contagion exacerbates consumers’ reluctance to shop in person. Regardless of customer traffic, however, retailers still incur fixed costs including insurance, enterprise software, property taxes and, arguably, rent.

Online-only retailers’ occupancy costs are much lower, making it difficult for small brick-and-mortar businesses to compete. Put differently, sales taxes decline with reduced sales but property taxes do not. Landlords and tenants in triple net leases often fail to examine property taxes, but the survival of both may depend on reducing this cost.

Other costs such as insurance and the enterprise software needed to run the business generally lie beyond a small business’ control and do not diminish with reduced business volume. The active 2020 hurricane season certainly has not reduced insurance costs. During the pandemic, some landlords have deferred or forgiven rent, but this forbearance provides no long-term solution to the challenges e-commerce poses.

The threat that high ad valorem taxes pose to pandemic-battered small businesses is compounded by, and interrelated with, the e-commerce threat. Small businesses face enormous challenges in competing online with major brands such as Amazon and Walmart, which command a far greater web presence than small mom-and-pop retailers.

E-commerce’s challenge to traditional retail will not end with the The bulk of retail sales still occur in stores, with online purchases peaking in the second quarter of 2019 at just 16 percent of total U.S. retail sales, according to the Commerce Department. That percentage slowed to 14 percent in the third quarter.

COVID-19 has accelerated the trend to “Buy Online, Pick Up In Store” (BOPIS). Pre-pandemic, BOPIS offerings were already growing as shoppers used it to avoid in-store browsing time and shipping charges. A 2018 study reported 90 percent of surveyed online shoppers stated high shipping fees and home delivery longer than two days would likely deter them from completing an online purchase. Even before the pandemic, Amazon’s rapid delivery model was pressuring conventional retailers to compete by accelerating shipping times.

BOPIS allows retailers to blend online and in-store customer engagement while offering a more convenient way to shop. COVID-19 accelerated this trend as shoppers sought to minimize interpersonal contact during store visits. Retailers, however, need to be certain that applicable restrictive covenants permit BOPIS, since shopping centers often limit tenants’ right to use common space. Further, traditional methods of valuing properties for tax purposes struggle to recognize and separate the intangible and untaxable value of web presence from the value of a physical location that serves as a pick-up point.

Black Friday and Cyber Monday 2020 illustrate the evolving relationship between brick-and-mortar stores and e-commerce. RetailNext reported foot traffic to physical stores on Thanksgiving through the following Sunday decreased by 48 percent from 2019, while spending per customer increased more than 36 percent.

Mall traffic tracker Sensormatic Solutions concluded that online ordering and social-distancing restrictions made shoppers more “purposeful” on their Black Friday trips. Adobe Analytics reported that Black Friday saw $9 billion in U.S. online sales, a nearly 22 percent increase year-over-year that made it the second-largest online spending day. Cyber Monday brought the largest shopping day in American history with $10.8 billion in volume, a 15.2 percent increase over 2019, Adobe reported. Adobe also noted that Black Friday curbside pickup increased 52 percent year-over-year.

Landlords and tenants must recognize the mutual harm of high occupancy costs and guard against unwarranted property taxes as local governments seek to shore up their finances. Every nickel counts when retailers are under economic pressure just to keep their doors open. Years of remaining lease term is of cold comfort to a landlord whose tenant is forced to close by reduced revenue and high occupancy costs.

Some short-sighted landlords ignore the property tax burden placed on their triple-net tenants until a renewal is imminent since the landlord’s costs are not directly impacted. Where possible, a good lease on multi-tenant properties will address tax challenges and discourage taxes from being viewed as a mere pass- through expense. Further, prudent landlords should help reduce tax costs and avoid being forced to negotiate reduced rent to keep small businesses operating. Most leases do not include a provision permitting tenants to challenge ad valorem property taxes. Similarly, many state statutes only permit property owners, not tenants, to challenge taxes.

Most assessors have not yet recognized COVID-19’s impact on retail stores, primarily because the valuation date for most properties preceded the pandemic’s full impact on retail. That will change in 2021 in many jurisdictions. Similarly, the trend toward BOPIS will increase the intangible value of online presence, generally not subject to ad valorem taxation, and decrease the importance of physical locations.

COVID-19 is pressuring local governments to increase the property tax burden on small businesses. A recent survey found that municipal revenues are down 21 percent while expenses have increased 17 percent amid the pandemic. The survey reported 45 percent of mayors expect to see dramatic budget cuts for education, while at least one-third expect to see drastic cuts in parks and recreation, mass transit and roads. Only 36 percent of mayors expect to see a replacement of the businesses shuttered due to COVID-19.

High property taxes will only exacerbate the municipal revenue problem. A short-term remedy to municipal finances, higher property taxes, risks the permanent closure of many small businesses. Failing to address the problem will only accelerate the decline of physical stores and eliminate their local jobs and taxes.

USA: N.Y. Law Spotlights Lost Nuclear Plant Tax Revenue Nationally

Towns and cities across the country face the major loss of property taxes as nuclear power plants in their borders are shut down. They may be able to make up some of the loss, however, by taxing the nuclear waste storage property that still sits on the sites.

A law just signed by New York Gov. Andrew Cuomo could be a model for communities in New Jersey, Illinois, Wisconsin, California, and other states where more than a dozen reactor sites are slated for dismantling in coming years. Without a national repository for nuclear waste, spent fuel has remained in holding facilities next to reactors.

New York’s first-of-its-kind law allows officials in the village of Buchanan and the town of Cortlandt to assess the economic value of storing the waste at the 240-acre Indian Point power plant, whose third and last reactor is shutting down in April.

Officials started wrestling with revenue options as soon as Cuomo reached a deal in 2017 with Entergy, the plant operator, that it would close Indian Point by 2021.

“There’s really no prototypes for this,” Cortlandt Town Supervisor Linda Puglisi said in an interview. “There’s only 100 nuclear plants in the country… We’re kind of doing it ourselves. We will eventually become the prototype—the example for other communities that have closed nuclear plants. We have no textbook to go to.”

As officials faced the stark reality of safekeeping 125 spent fuel casks on two giant pads of concrete each the size of a football field, they needed to devise a plan. While the worth of the spent fuel may be up for debate, the cost of each storage cask was $1 million, according to Buchanan Mayor Theresa Knickerbocker.

“It’s not really fair to the communities not to be compensated for that being stored here,” Knickerbocker said in an interview. “That was not the agreement for the communities to keep it here for an indefinite period of time.”

Local officials say that without the legislation, tax assessors would have been left without anything to appraise—only a former nuclear plant without the ability to generate electricity.

“The waste may not be worth anything. The ability to safely store may be where the value is,” Thomas Watkins, Cortlandt’s tax assessor, said in an interview. “This stuff can’t be moved by road, by plane, by barge, by train. It cannot be moved. But guess what? We have a piece of land upon which we can store nuclear fuel. So, what’s it worth?”

But determining its economic price tag won’t happen overnight, and it could take years. Unlike assessing a building or an apartment or an office building, determining how spent fuel is stored is a complicated process that will require further research.

“By not having this door open, we were going to lose a big part of our tax base,” said Watkins. “This was an exercise in securing the ability to assess. I am confident that there is value in this real estate.”

With no economic assessments and data readily accessible, Watkins said he has been researching case studies worldwide on spent fuel, noting variation among different facilities even if in similar situations. “What the actual number is going to be—he doesn’t have that figure yet, nor do I,” said Puglisi.

New York officials are hoping that their efforts will serve as a template for other states left with offline nuclear facilities and ailing budgets. “We’re all in the same boat,” Knickerbocker said. “We don’t know how long it will be there. It could be five years. It could be 50 years. Who knows?”

Veronica Laureigh, the administrator for Lacey Township, home to Oyster Creek, an 800-acre nuclear plant in New Jersey that shut down in 2018, has been holding conversations for over a year on how to assess a spent nuclear fuel site.

“We’d love to do something similar to New York,” said Laureigh, who will be attending a meeting this week to discuss whether there’s any chance of passing a bill in the New Jersey Legislature.

“It’s supposed to be temporary, but what is the definition of temporary?” Laureigh said. “I don’t believe that any of these communities that have power plants signed on to the fact that now they’re going to become a waste storage site for nuclear power.”

Lacey Township has suffered less than its New York counterpart, thanks in part to an $11.1 million state energy tax receipts program and property taxes it continues to take in from the dormant facility. But the township risks losing millions in real estate taxes in the near future when plant operator Holtec begins to dismantle the facility. Those plans are still being drafted.

Some communities would have more than one legislative hurdle.

David Knabel, the administrator of Zion City in Illinois, said he has been pursuing a similar approach to help boost the city’s ailing budget after the 1998 closure of the Zion Nuclear Power Station, but faces the additional challenge of changing the current state assessment law first.

He’s faced pushback on whether the five acres of concrete that stores the spent fuel can be considered real estate versus personal property, which could be taxed to help close the gap on his roughly $1.5 million annual deficit.

“You should be paying $120 million in property taxes, because there’s only a dozen places where you can store this, and their argument is going to be the law currently says, ‘You can only value the pads,’” Knabel said in an interview. “We don’t have the assessment law backing us as its currently written.”

EUROPE

Germany: Berlin’s property tax reform proceeding according to schedule

The German capital has been working hard on implementing the 2019 ruling of the Federal Constitutional Court regarding the country’s property tax.

Germany’s federal and state governments have long struggled to reform their property taxes after a ruling of the Federal Constitutional Court in November 2019. While The federal government proposed a new calculation model from 2025 that takes into account the value of the real estate in addition to the area, some states such as Bavaria, Baden-Württemberg or Hesse want to go their own way and use different methods.

Berlin, however, has decided to implement the model proposed by the federal government and work is proceeding as planned, according to officials.

Preparations for the reform of the property tax in Berlin are progressing, according to Finance Senator Matthias Kollatz (SPD). “Since 2019 we have been working on the implementation of the federal law.

In order for the required data to be submitted digitally and processed further from 2022, the existing programs must be comprehensively revised and expanded, despite the corona-related restrictions, we continued all work in Berlin. We are right on schedule,” explained Kollatz to the DPA.

In Berlin, around 800,000 plots of land have to be re-evaluated and extensive databases digitized for the reform. This process should be largely completed by mid-2024. For the second half of 2021, Kollatz plans to provide information to all people, companies and associations involved in the reform process.

Property tax is the municipalities’ most important source of income. Berlin earns around 820 million euros annually. The Senator for Finance underlined once again that the reform should not flush either more or less money into the state coffers – politicians call this income-neutral. He has long been pointing out that for many Berlin tenants in normal residential areas there should be no additional burdens.

UK: To save the high street, first fix business rates

The UK’s property-based tax is not fit for a post-pandemic world. Even before Covid-19, a stroll down the high streets of Britain’s less prosperous towns, pockmarked with boarded-up shops, could be a dispiriting experience. The pandemic is  making  a bad  situation  much  worse. The recent failures of Arcadia  and Debenhams alone have put at risk 25,000 jobs and 600-plus stores, many of them “anchors” of town centres or malls. The causes of the retail meltdown, including the online shopping boom, are complex; remedies will need to be no less so. But one urgent reform priority is the property-based tax known as business rates.

Not all store chains are in crisis. Food retailers’ revenues have surged as they have picked up sales from consumers shielding at home, and from hospitality businesses and “non-essential” retail rivals hit by virus restrictions — though grocers have faced heavy costs from scaling up operations to meet demand. After a backlash over £900m dividend payments this year, Tesco bowed to pressure to pay back what it saved from the government’s one-year business rates “holiday”; rivals such as Wm Morrison, J Sainsbury and Asda followed suit.

The estimated £1.8bn the supermarkets are returning could help to fund a one-year extension of the broader rates holiday from next April — which the government should announce now to give struggling retailers and hospitality businesses a vital breathing space.

A thorough revamp should then aim to make business rates fit for purpose. Their principle remains sound; easy to collect and hard to evade, property taxes to fund local amenities date back centuries. The system introduced in 1990 — a tax linked to assessed rental values — ran smoothly for a while. But the tax rate has soared from 34 per cent of “rateable” values to more than 50 per cent, partly to maintain revenues after successive governments introduced reliefs for smaller businesses that left 600,000 paying no rates at all.

Rateable values, meanwhile, became disconnected from the rents they are meant to reflect. They were not revalued between 2010 and 2017, when retail rents slumped in deprived areas but soared in the richest, and retail sales were shifting rapidly online. Transitional arrangements phase in rate increases after revaluations to avoid sudden big jumps, but also slow reductions — which retailers say leaves depressed high streets in the Midlands and northern England in effect “subsidising” affluent parts of the south. The next revaluation is in 2023, so after the rates holiday retailers will be paying rates that reflect pre-pandemic values with little relation to today’s reality.

To make the system workable, the provision that business rates are supposed to raise a similar inflation- adjusted total each year — currently about £26bn — should be dropped. Reliefs should be reviewed and many phased out, and the rate rebased to closer to its original level. Revaluations should be annual, rapidly reflecting changes in conditions. Such reforms could also help to ease the transition for office property, which faces potentially seismic changes if more people choose to work from home post-Covid.

What they will not do is level the playing field with online-only retailers, which pay much lower rates than groups with lots of high-street stores. A digital sales tax would capture some of the shift in sales but would need careful structuring to avoid simply adding to the cost burden of store-based retailers that have expanded online. Such an idea may merit future discussion. The priority today is to ease the business rate pressure on retailers and slow the retail shake-out. Towns and cities need time and space to manage the transition to the high street of the future.

UK: London retailers & other businesses face £2.8bn business rates bill next year

  • 70,000 London shops, pubs, restaurants & hotels face £2.8bn business rates bill when the tax relief ends
  • All business premises will return to normal business rates liabilities from April 1 next year
  • The government has not yet indicated if it would provide targeted support or to extend the one-year business rates holiday

Almost 70,000 business premises across London face a combined business rates bill of £2.8 billion from next April without discerning targeted support, experts have warned.

Real estate advisory firm Altus Group said that with the one year business rates holiday set to end on March 31 next year, 66,374 business premises – including retailers – across London’s 33 local council areas will return to normal business rates liabilities.

Altus Group said this would total £2.79 billion for the 2021/22 tax year, which begins April 1.

In March this year, just as the Covid-19 crisis started to grip the UK, Chancellor Rishi Sunak wrote off business rates bills for the current financial year in an attempt to negate the economic impact of the pandemic.

The one-year business rates holiday applied to all occupied retail, leisure and hospitality premises irrespective of their size.

However, the government has still not yet revealed if it would extend the business rates holiday or introduce measures that offer targeted support for worst-affected businesses.

“Whilst next April cannot signal a return to pre pandemic levels of property taxes it must strike a balance with public finance affordability,” Altus Group head of property tax Robert Hayton said.

“Adjusting rateable values used to calculate bills, for those properties under appeal, reflecting the profound effect of the pandemic in values ahead of new bills being issued next year is part of the solution which will need to be supplemented by additional targeted support to where it is most needed.”

Earlier this month, Altus Group projected that the UK’s Big 4 grocers – Tesco, Sainsbury’s, Asda and Morrisons – along with Aldi and Lidl will save around £1.87 billion in business rates tax breaks this year despite sales soaring during the pandemic.

This is set to represent more than one sixth of the total £10.1 billion business rates bill which has been written off for all businesses during the year.

Meanwhile, London Mayor Sadiq Khan has urged the government to extend the business rates holiday to provide a lifeline for the capital’s retailers.

UK: Retail counts jobs cost of brutal 2020

More than 176,700 retail jobs were lost in 2020 after a brutal year on the high street led to 15,747 shop closures.

The number was almost a quarter higher than jobs lost in the sector in the year before, according to the Centre for Retail Research, which is warning that 2021 could bring further turmoil.

Joshua Bamfield, director at the research body, said that up to 200,000 more jobs could go this year because of lockdowns and plunging store sales.

“Our forecast is based on a number of factors, such as the cumulative effects of months of closure and its impact upon cashflow and rent arrears that will be payable when the moratorium ends,” he said, adding that the acceleration of online shopping would be “hugely damaging for physical stores”.

More than 71,800 jobs were lost when retailers including Debenhams, Oasis, Cath Kidston and Laura Ashley filed for administration, while a further 11,986 jobs were cut when retailers went through company voluntary arrangements, a type of insolvency procedure. CVAs were used by retailers including Monsoon Accessorize, New Look and All Saints to reduce shop costs either by closing outlets or switching to turnover-linked rent while they were suffering a steep drop in shop sales.

The biggest share of job cuts came from solvent retailers “rationalising” their workforces, resulting in a further 92,921 jobs being shed. Marks & Spencer axed 7,000 jobs in August, Boots cut 4,000, John Lewis made 1,500 redundancies and Dixons Carphone lost 3,700 staff after shutting all its Carphone Warehouse stores.

The lockdowns before Christmas, when retailers typically make a fifth of their year’s sales, have raised concerns about how many further corporate casualties there will be this year. Restructuring advisers are warning, too, that some retailers will take the decision to not reopen stores, even when the present restrictions are lifted.

Robert Hayton, head of property tax at Altus, a consultancy, said: “There is a real risk larger non-essential shops may not reopen once Tier 4 restrictions have been lifted, having missed out on vital Christmas trade. Grants of £3,000 a month won’t even scratch the surface of fixed operating costs, such as rent.”

More than one in eight shops failed to reopen after the first lockdown in the spring as some chains took the decision to mothball unprofitable stores.

The business rates holiday is due to finish on March 31, but retailers have urged the government to extend the relief, particularly as it will take until the spring for Covid-19 vaccinations to be fully rolled out and for shopper numbers to start returning to normal levels.

Mr Hayton said: “It is crucial that government ensures future support is targeted to where it is needed, including funding the valuation office so that it can expedite settlement of the tens of thousands of formal challenges against business rates assessments that must now be reduced to reflect the impact of Covid before bills are sent out.”

Authors:

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

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