The presentation will be limited to property taxes for commercial premises as they are susceptible to the most important optimizations. The method for living quarters, however, is quite similar.
Brief Reminder of the Property Tax Calculation Method
The amount of the property tax appearing on the tax notice results from the following product: Cadastral rental value x Tax rate. Taxpayers have little control over tax rates, efforts must therefore be made to reduce the cadastral rental value (known as “VLC”) in order to reduce the property tax.
The VLC represents the rental value that the taxpayer’s property could have if it were rented out. If this basis of calculation might seem logical, in practice we realize that this value is completely disconnected from reality because it is based on an evaluation dating from 1970.
Its method of calculation is determined by the General Tax Code and has in practice nothing to do with the price of a rental on the market. The administration fixes this VLC once and for all and does not spontaneously carry out any revision, even if the property changes ownership, assignment, amenities, or if the quality of the district in which it is located evolves unfavorably.
This VLC can be updated, however, if the owner has thought of submitting the correct declaration after the completion of an extension or in the event of changes in the interior fittings or the activity of the tenants. In practice, no one thinks of doing this or files incorrectly completed declarations. For California business property taxes these are essential.
How to Reduce VLC
This famous VLC which is the cornerstone of the property tax is the product of two factors: Total weighted area x Price per square meter. Ultimately, optimizing the tax therefore necessarily involves optimizing these two parameters.
At first glance, it may be surprising to take an interest in this parameter since the property tax office knows the surface area of your property. There are mainly two reasons why the area of your property is not correctly taken into account for the calculation of your tax:
The first is that it is not the gross area that matters but the area weighted using a palette of coefficients, which depend on the assignment of each part. These coefficients make it possible to weight, in other words to reduce the area retained for the calculation of the VLC.
However, the allocation of rooms varies according to the succession of occupants, their respective activities, the arrangements made, and the use of the rooms. the administration does not come to note these evolutions and after a few years, the evaluation can be found without any correlation with reality.
The second reason is that it happens that new constructions are declared to the property tax center as soon as they are completed, but before the interior fittings are carried out. Thus, no weighting coefficient has been applied and the entire surface is retained. It is therefore the correct weighting of the parts that will allow the tax to be optimized.
This weighting coefficient, which is applied to the real surface area of the different parts of the premises, is intended to translate, on the one hand, the use value, on the other hand, the commercial value of the location of each part of the local in relation to the whole.
Concretely, it is necessary successively:
- Measure the area of each part.
- Note the use of each room: office, toilets, clearances, storage, pantry, finished basement, back room
- Apply the appropriate weighting coefficient to the surface of each part (BOI 6C-2332).
- The addition of the areas previously recorded and weighted using the adapted coefficient gives the total weighted area which is therefore the first criterion for determining the VLC
Changes within the property can significantly impact the property tax.