SK commercial property taxes skyrocket this year
By JEFF RHODES
Port Orchard Independent Editor
February 18, 2011 · Updated 11:23 AM
It wasn’t a box of chocolates that came addressed to Bay Street business owners on Valentine’s Day. For many, it was a jaw-dropping property tax assessment that seems more appropriate for April Fool’s Day.
“When I got my property tax bill this year, I went up to the Assessor’s Office and asked, ‘What are you guys smoking?’” said Fred Karakas, who owns Olympic Enterprises Bike and Skate on Bay Street.
For the three downtown properties he owns — a total of around 6,500 square feet — Karakas said his property tax bill last year was around $2,000.
This year, his bill is in excess of $4,000 on a total assessed valuation of $400,000.
“My valuation doubled,” he said, “and my property tax more than doubled. It went totally crazy this year, and I’m obviously not the only one in this situation. A lot of us down here are pretty upset about it and we’re thinking about going and talking with the county commissioners to see what can be done.”
“It’s a convoluted mess,” agreed Ron Rider, who owns the 3,200-square-foot property on which the Moondogs Too bar sits. “In some cases, the value of people’s land went up while the value of the building went down. In other cases it was just the opposite.
“There doesn’t seem to be any rhyme or reason to it,” he said. “Maybe if it were more logical, people wouldn’t be so mad about it.”
Rider said his overall tax revaluation was 25 percent higher than the previous year when he received it last September. And like Karakas, he appealed the amount to the county Assessor’s Office.
Unlike Karakas, when his appeal was turned down at that level, he didn’t take it to the Kitsap Board of Equalization, which is the court of last resort in such matters.
“My lawyer told me it would cost more to appeal than it would just to pay the higher rate,” Rider said.
“Times are tough for everyone,” Karakas said, “but it seems like they’re trying to balance the budget on the backs of businesses, and that doesn’t seem fair.”
Contrary to appearances, however, business owners aren’t being singled out for pain, said Kitsap County Assessor Jim Avery.
In fact, rather than lamenting how high their bill was this year, he said, they should be grateful it wasn’t higher in previous years.
“It’s a sad fact that people were under-assessed for several years leading up to this one,” he said. “No one likes to admit it, but it’s statistically true.”
Avery said property taxes in Kitsap County are determined using one of three methods. They include:
• the sales comparison approach, which uses sales to provide estimates of value for similar properties;
• the cost approach, which considers what it would cost to replace an existing structure with a similar one that serves the same purpose; and,
• the income approach, which is used primarily to value business property where the property tends to be worth its income-producing potential.
Avery said an extensive survey was sent to business owners a year ago to determine their rental rates, expenses and vacancies in order to determine tax rates for the coming year.
More importantly, all real property in Kitsap County is visually inspected only once every six years for tax purposes. In other years, the rate is calculated by a formula.
“The problem is, formulas are based on market performance,” Avery said. “We have a pretty good handle on home values because there’s enough volume in the home-sales market to figure out what a home is worth when it’s compared to a similar home that sold in the same community.”
Unfortunately, there’s been virtually no commercial real estate activity during the past six years. Consequently, assessments every year since then were based on 2006 market conditions.
“We try to err on the conservative side,” Avery said. “But when we do that, we typically fall behind. That’s why commercial property tax rates have stayed relatively low for the past few years.”
This year, however, was Port Orchard’s year to be physically inspected. And with that came higher rates.
“Over time, Port Orchard’s property taxes — particularly for commercial property — got out of balance with the rest of the county,” Avery said. “When that happens, there has to be an adjustment. It’s painful, and no one wants to do it. But it has to be done.
“The alternative,” he said, “is to raise property taxes by a larger amount every year so people don’t get sticker shock every six years. But I don’t think they’d be happy with that, either.”