Ad Valorem Taxes
Ad valorem taxes are taxes that are assessed based on the value of the asset or property.
Property taxes and special assessments are two examples of ad valorem taxes. In recent years, the US has seen a significant increase in these taxes. This is a cause for concern for many property owners because of the negative economic impact.
The Impact on Commercial Property Owners
- Increase in Taxes
Commercial property owners are especially affected by the rise in ad valorem taxes. Property taxes increase without a corresponding increase in property operating income.
- Economic Impact
This increase can have a ripple effect throughout the economy, including decreased business investment and deferred maintenance issues.
The Importance of Tax Reproration Agreements
Equitable Distribution of Tax Liability
To avoid overpaying taxes, all commercial real estate transactions should include a tax reproration provision. Tax reproration ensures that both the buyer and seller pay their fair share of property tax
Clear Understanding of Tax Liability
A tax reproration agreement eliminates confusion and potential disputes by specifying the method and factors for calculating the tax liability for each party.
Prevents Disputes
A well thought out tax reproration agreement can prevent serious disputes between the buyer and seller over tax liability.
Benefits of a Standalone Tax Reproration Agreement
Clear and Specific
A standalone tax reproration agreement is the gold standard for detailing the obligations of each party. It clarifies how each party's tax liability will be computed.
Avoid Disputes
Spending the time and expense upfront to draft a robust standalone tax reproration agreement will avoid the risk of a dispute many months or years after the property closing.
What a Tax Reproration Agreement Entails
A tax reproration agreement carefully drafted by the Tax Reproration Law team considers many factors unique to a specific property. Tax reproration is a crucial provision in commercial real estate transactions. It takes into account the assessed value, the tax rate for the property, and many other factors unique to a specific property.
Consequences of Not Having a Tax Reproration Agreement
- Unfair Tax Liability - Without tax reproration, both the buyer and seller could end up paying more than their fair share of property tax. Unfair allocation may leave the burdened party with no recourse.
- Disputes - Disputes can arise if the buyer and seller do not have a clear understanding of the tax liability for each party. Without tax reproration, one party may be shouldering an undue financial burden.
Conclusion - Tax Reproration as a Crucial Provision
Play it Safe
Ad valorem taxes are on the rise in the US, making tax reproration a crucial provision in all commercial real estate transactions.
Avoid Disputes
By including a tax reproration provision, buyers and sellers can ensure a fair, accurate and comprehensive distribution of tax liability.
Fair Distribution
Tax reproration ensures the tax liability is fairly distributed between the buyer and seller based on unique factors of both the property and parties involved.