On January 5, 2023, Zachary Williams was quoted in an article in the Washington Business Journal regarding how the Federal Deposit Insurance Corp. (FDIC) filed a lawsuit in the U.S. District Court in Alexandria on December 27, 2022, against Arlington County’s Board of Supervisors for a tax refund, alleging the county assessed its Virginia Square office buildings too high during the pandemic.
The complaint alleges that Arlington County over-assessed the FDIC’s buildings' combined value during 2019 and 2020, to the approximate amount of $100 million in aggregate, which the federal agency paid in protest. The FDIC requests to be paid back about $1 million for the amount it paid in excessive tax, including interest and legal costs.
Assumptions about office vacancy are at the center of the FDIC’s allegations. The county based its property evaluation in part on a 5% vacancy rate. The FDIC claims the actual vacancy rates during that period were more than 15%. To assume a lower vacancy rate than what prevails in the comparative market is to overestimate the building’s taxable value, the FDIC’s suit argues.
On the one hand, a million bucks is not a lot of money in the world of commercial real estate and local government coffers. On the other hand, less in the hopes of winning back a relatively small amount from a given year’s bill, owners more often challenge assessments because they fear overvaluation will “continue to happen unless they take a stand,” said Williams. The fear of over-assessments accumulating over time is probably what makes such a case worth it, even though it’s expensive and, if it’s appealed, may go on for years.
While the FDIC’s case sounds fairly unique, Williams said he wouldn’t be surprised to see more such fights in the next couple years as high office vacancies persist.
Click here to access the Washington Business Journal article.