Shifting consumer tastes in wine can result in the economic obsolescence of winery property and assets, leading to a decline in property value (real and personal) that remains for many years. Fortunately, Section 51 of the California Revenue and Taxation Code allows the Assessor to temporarily reduce the assessed value (and property tax) when the current market value of the property falls below its assessed value.
We were able to reduce the property tax bill of a Monterey winery by 25%, saving it thousands of dollars per year in property tax. This winery was adversely affected by the change in consumer tastes away from bulk wines to specialty wines, leaving it with excess tank capacity (too large for specialty use), excess or unusable bottling lines and underutilization of barrel and production warehousing. By preparing a well-supported appeal based on economic obsolescence, we were able to substantially reduce the assessed value of the winery’s property for a number of years.
RT&C Sec. 51 allows for a temporary reduction in the assessed value of real and personal property caused by external, non-controllable economic factors. Losses in value attributable to economic obsolescence are usually beyond the power of any single property owner to influence and cannot be cured by making changes to the real and personal property affected. If the taxpayer can provide sufficient evidence to prove that the assessed value is greater than the current market value as of the January 1 lien date, we can request the Assessor to grant allowances for economic obsolescence when preparing and filing annual property tax returns.
It requires a well-crafted strategy to gain this relief. In order to win approval of a reduction in assessed values and taxes for any given year, we will need to provide the Assessor with a comparative analysis by year and by business unit, as well as well-documented support for the underlying economic or business conditions that led to the decline, for use in our negotiations with the Assessor. A successful negotiation will result in a temporary reduction in value, which is reviewed annually by the Assessor to determine if a reduction is still warranted; however, in most situations the adverse conditions tend to last for multiple years.
In my experience, the adjustment process often requires substantial effort to provide the needed support and can take quite some time to complete the negotiation (reducing taxes is not a priority for Assessors!) but the effort is justified by significant tax savings from the reduction in assessed value, and that relief can be extended for many years. Economic obsolescence relief is potentially available to any type of business. We have reduced property taxes for a number of manufacturing and extraction businesses by 25% to 50%, saving each tens of thousands of dollars per year in property taxes.