Landlords may save $36M in SF property taxes after appeals

Commercial landlords across San Francisco will pay $36 million less in expected property taxes this year, largely because of last-minute tax appeals.

The City Controller’s Office expects to rake in $2.49 billion in commercial property revenues for 2023 through 2024, $36 million less than the $2.53 billion it forecast in December, the San Francisco Chronicle reported.

It blamed the reduction on a wave of last-minute commercial property tax appeals in September.

“The thing is, property taxes so rarely decline,” Michelle Alllersma, director of the controller’s budget and analysis division, told the Chronicle. “We are very accustomed to it growing by a couple percentage points every year. Even when it’s just flat, it’s very painful to the budget.”

The office also dropped its expected revenues from business, sales and hotel taxes since the December forecast. It claims an improvement in city-department operations more than offset those declines.

The San Francisco Controller projects a $459.7 million ending balance in the city’s General Fund in the current fiscal year, $34.5 million more than the $425.3 million projected in December, according to the Controller’s six-month budget status report.

Allersma is concerned about long-term revenue risks from sectors “we don’t control” – such as declining property tax revenues.

With the price of office and other commercial buildings falling, a property bought near the peak of the market may be worth less than its assessed value.

In that case, the tax assessor must reduce the assessed value to the market value, until the market value has recovered to where it would have been without the temporary reduction, according to the Chronicle.

A landlord can then request a temporary reduction in their tax assessment by asking their county assessor for an informal review, or by filing a formal appeal with their county Assessment Appeals Board.

In San Francisco, property owners could file a formal appeal for their regular 2023 through 2024 taxes between July 2 and September 15. 

Between July 1 and September 30 last year, the city appeals board received 7,508 new applications, compared to 2,577 a year earlier, according to the appeals board.

When the Controller’s Office was preparing its December estimate, it didn’t include appeals close to the mid-September deadline. Office buildings made up most of the commercial appeals, which included shops, hotels, entertainment, industrial and mixed-use properties. 

Although the board received far more residential than commercial appeals, commercial buildings have much higher value. 

“We are pricing in bigger declines (in market value) in commercial than we are in residential,” Allersma told the newspaper.

Property taxes “are carrying a lot of weight,” especially since hotel taxes haven’t come back amid a slump in business and convention traffic, she added. The city is also facing significant ongoing and new litigation from businesses around the gross receipts tax.

“You expect property tax to be like a rock. It’s the bulwark,” Allersma told the Chronicle. “It’s not falling off a cliff, but compared to how we are used to it behaving, this is different.”

San Francisco’s budget deficit is expected to exceed $800 million over the next two years, according to the San Francisco Examiner.

— Dana Bartholomew

Read more

San Francisco

Pleas for lower property taxes surge in San Francisco

San Francisco

Judge OKs challenge to San Francisco’s empty homes tax 

San Francisco

SF considers tax overhaul to cut rates for commercial tenants