It's no surprise that in a weak economy, the first thing to go is leisure spending. Take the golf industry, for example. Since about 2000, various socio-cultural and economic forces have conspired to negatively impact both the game of golf and golf course development. Fewer players, fewer rounds played, and a decrease in the number of golf courses have taken their toll on a previously thriving leisure industry. Add to that the fact that golf course overbuilding in the 1990s produced an abundance of now underutilized golf courses and you have the perfect storm. According to the National Golf Foundation the sport has lost five million players in the U.S. over the last decade.

When times were good, and business was strong, it made sense to value a golf course property at its maximum potential. But now in leaner times, that inflated real estate tax valuation is not only mismatched to the property, it's likely eating away at your bottom line. In fact, many golf course assessors seem to want to drive up assessments by using the cost approach to valuation while happily ignoring the fact that investors look at daily fee and semi-private golf courses (public courses that also offer memberships) by the income they produce.

I've spoken to owners of both for-profit daily fee and of semi-private golf courses who agree. They have come to believe that municipal assessments on their courses have become so onerous that they are the tipping point in the economic sustainability of the golf course.

Because real estate taxes go directly to the bottom line, they can hinder management's ability to meet the needs of its customers, i.e., providing a golfing experience that is affordable and enjoyable for the average golfer. And it is cost of play that has been identified as one of the top three barriers to golf participation, according to the National Golf Foundation. Most daily fee and semi-private courses satisfy the other requirements-difficulty and time it takes to play-for the average handicap golfers. Cost, however, remains the major barrier.

But it doesn't have to be. Renegotiating the real estate taxes can make the difference.  Prudent golf course owners schedule annual property tax management reviews to determine whether a tax appeal is warranted.

Real estate tax appeals remain one of the few and necessary vehicles the golf course owners have to control their costs and thus make their courses more affordable to drive business. But golf course real estate tax appeals are unique in many respects compared to other investment properties and require a certain level of expertise to effectively prosecute.

For example, the type of property appraisal could affect the outcome.  Golf courses could be evaluated through sales comparisons of similar properties in the vicinity. Or they could be assessed in terms of how much they would cost to replace. Finally, golf courses could be appraised using the income approach, which is the potential for income based on the market value. The good news is that, if you're able to secure a reduction in real estate taxes, that number stays frozen for three years.

While clients have a right to retain their attorneys on an hourly rate irrespective of the results achieved, many clients prefer to engage their attorneys on a contingent fee basis. That's where attorney fees are paid out of the tax refund. Make sure that any law firm you contact for a real estate tax appeal will work on this type of case on a contingency basis.

In New Jersey, the Freeze Act, with limited exceptions, prevents an assessor from increasing the assessment for two years after the year in which a reduction in the assessment was entered.  A contingent fee arrangement should not take any fees for the savings realized in the Freeze Act years; in my view, these savings belong to the taxpayer.  Make sure your attorney only gets paid for the years in which a reduction was achieved by way of judgment or agreement with the assessor.

Re-evaluating your real estate taxes should be part of your continuing business operations. Check with your attorney for annual filing deadlines. If your tax appeal is successful, you can reap the rewards for years to come.

 

To read about an important case on this topic click here.