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The Basics of Business Property Tax

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As a small business owner, you have a variety of taxes to pay. These include regular income tax, payroll tax, and city wage tax. In addition, if you own the building your company is housed in, then you are also responsible for paying the business property tax.

Similar to the property tax that you pay as a homeowner, a business property tax rate is set by the local government agency that handles those transactions. Property tax that is collected from business owners pays for a variety of things in your community: police and firefighters’ salaries, road improvements, maintenance on schools and government buildings, and dozens of other things that are necessary to keep the local government humming along 24/7.

In some localities, the property tax for businesses is reviewed on an annual basis, while other communities may go years without updating it. If you are considering moving into a new building, make sure to determine what the property tax will be. Some small business owners fail to investigate this expense, only to be hit later on with a hefty bill from the local government, sending their budgets into a tailspin.

The amount of property tax that your business is expected to pay each year is normally determined by combining the property tax rate with the assessment of the property (as conducted by an authorized assessor). For example, if you own a building valued at $500,000 and the property tax rate is 4 percent, the resulting property tax would be $20,000.

If you have often wondered how the tax assessor arrives at the tax rate you are expected to pay, it is based on a variety of factors, including:


  • The actual cost of the building. If you have owned your building for a number of years and your local property tax assessment office has not increased your property taxes, consider yourself fortunate. (But be warned -- you never know when they might pay a visit to update those assessments!) If you purchased your building five years ago at the cost of $500,000, then that is the rate your property tax is based on.
  • The estimated cost to replace the building. This figure should be calculated by the company that handles your insurance policies on the building. Sometimes it pays to verify the figure that the property tax assessment office is using against the one that your insurance company has come up with. Often you will find a significant difference between the two amounts.
  • The historical value of the property. Is your business housed in a property that has been declared “of historical significance?” While you may enjoy doing business in such a charming space, you may be paying more in property taxes than you would if you were set up in a standard office building nearby. Do a comparison study to see how much money could potentially be saved by moving out of your present historical site.
  • The potential value of the building. When setting property tax rates, the local property tax assessment office will factor in the potential value of the building. This involves determining how much revenue your business is generating by being located in that facility.

    Should you feel your property tax is too high, you do have the right to contest the assessment. Contact your local tax assessor or tax board and ask them what the procedure is. Before doing that, you might consider checking with other businesses nearby to see what they are paying. The more information you arm yourself with beforehand, the easier it will be to have the assessment changed.

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