By David Wolfe, Co-Managing Partner, and Vincent Ferrer, Associate, at Skoloff & Wolfe, P.C. (Livingston, N.J.)
For golf courses and country clubs, property taxes can end up being one of their largest annual expenses. Many have begun considering a challenge to their tax assessments, especially now—in the age of COVID—when revenue from events, member fees, and other sources may have been impacted.
However, just as in golf, there are multitude ways things can go wrong. Here’s what every golf course owner and their membership need to examine before taking a swing at their property tax appeal.
Teeing Off: How is your golf course zoned?
The most important issue in any challenge to the property tax assessment of a golf course is identifying and understanding the club’s zoning.
Many courses are zoned for recreational use, which includes “golf use” and “open spaces.” Apart from being used for a golf course, the property zoned for recreational use can only be used for open space—which has limited property value. Other courses may be zoned for residential use. This zoning type, in theory, means that if the course is not successful, the property could be sold for future development as single-family homes. Generally, the value of property zoned for residential use will be significantly higher than if it is zoned simply for recreational use. Once you understand your course’s zoning, you can determine whether your tax assessment is in or out of line.
In terms of assessment reduction strategies, you should consider the property’s current use, potential current use, whether it’s worth filing a zoning application to try and change the use, or if there is a deed restriction. You must also understand your tax assessment history. Importantly, just because you pay a lot of money in taxes doesn’t necessarily mean that your course is over-assessed.
Identify your course’s zoning history, current and potential uses, and your tax assessment history so you can understand whether or not you will have a basis for challenging your tax assessment.
The Approach Shot: Choose the correct golf course valuation.
When it comes to valuing golf courses, there are essentially three approaches: the cost approach, the income approach, and the sales comparison approach. Different jurisdictions prefer different approaches to valuation. Some jurisdictions only accept the cost approach, which calls for assessing value based on how much it would cost to repurpose the property for construction. Recently, the Appraisal Institute, the leading authority on appraisal theory in the U.S., has embraced the income approach to value. The income approach looks at the revenue the club is generating and values the property based on the emerging market that exists for the purchase and sale of golf courses. Thus, some jurisdictions will accept, or will be more likely to accept, the income approach to value. The third, less common approach is the sales comparison approach, which focuses on comparable sales.
Choosing the correct approach (or approaches) can be the difference between thousands of dollars saved or lost. For example, when courses have restaurants or hotels attached to them, a cost approach considers how much it would cost to build that portion of the club. Conversely, an income approach considers how much those parts of the business are generating in terms of ancillary income or additional non-golf revenue. Golf courses also tend to host banquets, weddings and other events, all of which need to be accounted for in the income approach.
Your attorney and appraiser should examine these issues together before any tax challenge is made. Every course is unique and situations arise where additional calculations should be anticipated. If the golf course appraiser believes that the income approach is the appropriate approach, but the jurisdiction—for property tax purposes—only considers the sales comparison approach, you need the appraiser to conduct an analysis of the sales comparison approach.
Respect the Course: Keep an open dialogue with local taxing authorities.
To achieve a satisfactory result, it can be helpful if golf course owners engage in an open dialogue with their taxing authorities. The settlement of golf course cases works best when the golf course partners are frank with their local jurisdiction about the course or club’s ongoing financial challenges or concerns. Many officials recognize that golf courses provide unique benefits to the local community. And most local communities do not want to see their golf courses fade from existence.
While COVID-19 continues to present challenges to every area of municipal finances, what golf courses are primarily seeking is to lower their taxes on an ongoing basis. By taking a long-term view of your course’s property tax reassessment, you might expect above par results and savings.
The Winning Foursome: Choosing the right professionals for your golf course property tax appeal.
There is a big difference between a seasonal golfer and a PGA professional. The same holds true for attorneys. Many golf course memberships are stocked with capable attorneys. However, not all possess significant experience in handling property tax challenges, let alone assessment challenges specific to a golf course.
The same holds true for choosing an appraiser. Your appraiser needs to have a thorough understanding of the current economics of golf courses. That includes costs associated with operating a golf course, replacing portions of the course or club, and all of the other economic factors in the market, such as if there are any current revenue multipliers being paid in the market.
The attorney must work closely with the appraiser to provide them with guidance as to what is the accepted valuation methodology in that jurisdiction for the valuation of golf courses for tax appeal purposes. Your attorney will need a firm grasp of the applicable case law in your specific jurisdiction. Because of these intricacies, you will be best served by choosing professionals with a history of appraising and appealing golf courses and property tax challenges.
Read the Green: Know your local filing deadline.
Deadlines for filing property tax appeals vary widely throughout the country. Moreover, they are strictly enforced. Failing to file in time will result in your course missing out on an entire year’s worth of appeals.
Because COVID-19 arose after January 1, 2020, its impact on a property tax challenge in almost every jurisdiction will be applicable to the upcoming tax year. The 2020/21 tax year will be the first year in which there is a post-COVID valuation date. Municipalities will be forced to recognize the pandemic’s effect on land value. How golf course owners and leadership prepare for that impact could mean the difference between substantial added costs in the years ahead.
Now is the time for golf courses to be lining up their professionals and getting their authority from within the club to pursue the challenge, and prepare to pursue their tax appeals for 2020 to 2021.
About Skoloff & Wolfe, P.C.
Skoloff & Wolfe, P.C. is an extremely experienced New Jersey law firm focused on real estate property tax appeals, matrimonial law, and commercial litigation. Our team of skilled attorneys includes nationally-recognized, established veterans of their practice areas.
