Property Tax Potential

The collapse of the housing market has created an opportunity for clubs to reduce operating expenses through the careful management of real estate taxes.

There is no question that private golf courses and country clubs must be creative in adapting and evolving to survive the current economic downturn.  As clubs review their operations and budgets for the upcoming year, property taxes must be considered as a potential source of savings.  This is particularly true for those facilities that have not recently challenged their property tax assessment.  The same unique factors that make golf courses and country clubs vulnerable in times of recession also make them prime candidates for successful property tax appeals.  As clubs are exploring creative means to manage costs and, in some cases, are forced to make hard decisions in terms of allocating resources, pursuing a tax appeal where appropriate is quite simply a cost-cutting measure that club owners and operators cannot afford to ignore.

When the Time is Right

Property taxes can be one of the largest expenses incurred by clubs on an annual basis.  In this environment it is imperative that club operators review their property assessment and seek counsel in determining whether a property tax appeal is warranted.  Since property assessments are typically calculated based on a ratio or percentage of the implied or perceived fair market value of a property, it is very likely that the assessment no longer correlates with the current fair market value of the property.  As real estate values have declined significantly over the past few years, seeking an adjustment of the property’s assessment and the underlying tax bill could have a positive impact on a club’s annual cash flow.

In many cases, the valuation of country clubs is typically arrived at by a review of sales of comparable properties, or based on the income generated by the property.  Due to the severe decline in property values and club income, a properly filed and prosecuted appeal could result in significant tax savings.  For instance, in a recently resolved tax appeal for a country club in New Jersey, annual real estate taxes were reduced by approximately 50%.

When Woods Are Helpful

Additionally, beyond making a case for a tax reduction based on valuation alone, due to the unique topography and design of golf clubs and country clubs, there may be other factors to consider in order to reduce the property assessment and real estate taxes.  In many jurisdictions, preferential tax treatment is afforded to property owners who maintain open space, farmland or woodland.  Since many clubs have wooded or open areas in place as buffers between their property and the neighboring properties or public roads, it is very possible that the opportunity is already there to take advantage of the tax benefits reserved for users of property who comply with the strict requirements of statutes that afford preferential tax treatment.  Depending on the jurisdiction, the statutory value assigned to the wooded or farmed area may be significantly reduced and, therefore, may also result in a substantial tax reduction.

By way of example, in New Jersey, the value assigned to a particular parcel of land utilized for woodlands could be as low as $500 per acre.  The savings resulting from reassessing a portion of a club’s property to this nominal value, as opposed to full value that otherwise is being assigned to the golf course, clubhouse and other facilities, can have a profound impact on the overall tax bill.

Beyond seeking preferential tax treatment by utilizing open or wooded areas in compliance with special tax statutes designed to encourage a certain use, club operators need to be cognizant of whether any portion of the property suffers from environmental constraints such as wetlands or steep slopes, which would diminish the overall value of the property.  In some cases, large portions of a particular property could be in line for an adjustment in value simply as the result of conditions that already exist.  In the event the property is constrained by environmental conditions, the property owner needs to take steps to insure that the assessment properly accounts for this reality and potential diminution in value.

Tags: property tax Real Estate Tax Tax