Boston Commercial Property Owners Face Rising Taxes After Appeals

News Summary

Commercial property owners in Boston are encountering unexpected tax increases after filing for tax abatements, a trend highlighting rising assessed values contrary to their expectations for tax relief. This situation, analyzed by tax consultant Daniel Swift, suggests the city is adjusting assessed values upward during appeals, causing confusion and financial strain on property owners. As office property assessments reach $33 billion, the implications of these policies raise concerns about over-taxation and the stability of the commercial real estate market amid changing economic conditions.

Boston—Commercial property owners in Boston are facing a “hidden penalty” that leads to increased taxes after they file for tax abatements, a situation that has garnered attention from various stakeholders in the real estate market. This increase in assessed values, contrary to the traditional hope of securing tax relief, has emerged as a troubling trend within the city.

Daniel Swift, a tax consultant from the firm Ryan, has analyzed the situation after receiving numerous reports of concern from his clients. His investigations revealed that as property owners appeal to the state’s appellate tax board, the city appears to be adjusting assessed property values upward. This practice has not been seen previously in Massachusetts and is alarming to many within the commercial real estate sector.

The city has reportedly been classifying these additional assessed values as “ATB disputes,” which has resulted in considerable tax increases for property owners. In some instances, this can lead to hundreds of thousands of dollars in additional tax liabilities. The lack of communication from the city regarding this issue has left many property owners confused about how to manage and monitor the rising costs associated with their tax abatements.

The Impact of Increased Assessments

Notably, a Seaport office property experienced an astounding increase of $14.4 million in assessed value following an appeal, resulting in an additional tax bill of $374,129. The penalties appear to impact primarily properties that are declining in value, as owners of these properties contest higher assessments they feel do not accurately reflect current market conditions.

Swift noted that for fiscal year 2025, the city has adjusted tax assessments downward for office properties: approximately 4.5% for Class A properties and a more drastic 12.8% for Class B and C properties. Despite these adjustments, the average property tax assessments in Boston exceed actual sale prices by a staggering 37%, indicating a widespread issue of overvaluation.

Financial Implications for the City

Overall, office property assessments in Boston for fiscal year 2025 have reached approximately $33 billion, which is projected to generate around $865 million in revenue for the city. Swift’s analysis indicates that this may translate to over-taxation of more than $200 million, raising concerns about potential violations of constitutional and due process rights as many taxpayers remain uninformed about the ramifications of abatement appeals.

The commercial real estate market in Boston is currently experiencing a downturn, exacerbated by shifts in workplace dynamics following the pandemic. As vacancies rise and property values continue to fall, the Boston Policy Institute reports that office values could drop by 35-45% over the next five years. This decline could lead to a significant budget shortfall, projected at $1.7 billion.

City Officials’ Stance

Mayor Michelle Wu has been addressing the need to shift tax burdens from residential to commercial properties to mitigate the effects of declining commercial values on the city’s finances. However, her office disputes Swift’s findings, asserting that all property assessments are lawful and based on market conditions, not solely sales prices.

A collaborative agreement has been reached to prevent significant tax increases affecting homeowners, with planned adjustments aimed specifically at the commercial tax rate. Boston’s budget significantly relies on property taxes, with businesses contributing 58% to this revenue stream, while residential properties account for 42%. A report by Pew Charitable Trusts highlighted that Boston maintained the highest dependence on property taxes among major U.S. cities in 2020, at 67%.

As the commercial property market navigates through these challenging times, the interplay of tax assessments, appeals, and rising costs remains a critical focus for owners and city officials alike. The evolving landscape will continue to present both challenges and opportunities as stakeholders work to address the financial implications of these policies.

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Additional Resources

• Axios: Boston Commercial Real Estate Report
• Wikipedia: Commercial Real Estate
• Boston Herald: Commercial Properties Hit with Hidden Tax Spikes
• Bloomberg: Tax Hit from Office Market Slump
• Wall Street Journal: Boston Commercial Property Taxes
• Google Search: Boston Commercial Real Estate