Commercial property owners in Boston are expressing concerns over a “hidden penalty” that seems to be impacting their tax assessments after filing property abatements with the city.
Daniel Swift, a principal at Ryan, a global tax consulting firm, recently completed an analysis pointing out a troubling trend affecting commercial property owners amid a downturn in the city’s commercial real estate market.
According to Swift, owners who have filed for tax relief due to higher than fair market value assessments are noticing that the city is instead increasing the assessed value of their properties.
Swift stated, “It’s very unusual. I’ve never seen it anywhere else in Massachusetts. I hadn’t seen it in Boston up until fiscal ‘24. They’re now penalizing you for filing an appeal on your subsequent year’s assessment.”
The term “hidden tax” refers to what is recorded as an “ATB dispute” on property record cards. Swift indicated that this has added significant amounts to property taxes after owners file appeals with the state’s appellate tax board.
For different commercial properties, the added assessed value ranges from a few hundred dollars to nearly $400,000, according to Swift’s findings.
“There’s been no notice of this,” Swift commented. “I’m looking for notice. I’ve asked for it. I have found nothing. There’s no policy out there about how this all operates.”
The only way a taxpayer becomes aware of this penalty, Swift explains, is by visiting City Hall to check their property card for a section that indicates an ATB dispute override — particularly relevant for those who previously filed for an abatement in the context of declining property values.
An example Swift provided involved a Seaport office property that saw an increase in assessed value by $14.4 million after the owner filed an appeal. This adjustment raised the property’s total assessed value to $482.1 million, leading to an added $374,129 in property taxes for fiscal year 2025, stemming from the owner’s fiscal year 2024 appeal.
These penalties appear to be affecting properties experiencing a decline in value, causing confusion and frustration among owners who believe their properties to be valued too high compared to current market trends.
Swift emphasized, “There’s no comprehension of how they’re calculating these penalties,” noting that properties facing these assessments are effectively punished for challenging their valuations.
For fiscal year 2025, the city adjusted assessments for office properties, decreasing Class A office properties by about 4.5% and Class B/C office properties by approximately 12.8% on average.
Nevertheless, Swift’s analysis of downtown office transactions over the last two years reveals that property tax assessments have consistently exceeded sales prices by an average of 37%.
These adjustments, encompassing roughly $33 billion in total assessments for office properties, are projected to yield around $865 million in property tax revenue for the city.
Applying the average over-assessment rate of 37% across all office properties indicates an overvaluation of approximately $9 billion, contributing to a potential over-taxation of more than $200 million, as per Swift’s computations.
Swift referred to the Massachusetts state law, which mandates that assessments should reflect the fair cash value from the preceding January 1. He criticized the practice of adding substantial sums to assessments purely based on the act of filing an appeal, raising constitutional and due process concerns.
According to Swift, “There’s nothing that allows assessors to add on millions of dollars in assessment directly because an appeal is filed.” He pointed out the ongoing uncertainty surrounding the implications for property owners considering future abatements.
This situation arises at a challenging time for Boston’s commercial real estate market, grappling with increasing vacancies and declining property values largely influenced by changes in work patterns following the COVID-19 pandemic.
The Boston Policy Institute also reported a sharper decline in office values, estimating a drop of 35-45% compared to previous projections of 20-30% over the next five years.
These shifts could exacerbate the city’s budgetary shortfall, escalating it to $1.7 billion over the next five years, a sizable increase from last year’s projections of $1.2-$1.5 billion.
Amidst this dynamic, Mayor Michelle Wu has been advocating for changes in state law to redistribute the tax burden from residential properties to commercial entities, in response to the budgetary impacts of declining commercial values.
However, discussions surrounding this proposed tax shift have been met with resistance from the commercial sector and other officials, some of whom advocate for budget cuts instead of increased taxation.
Swift pointed out that the way property tax adjustments have been carried out mathematically increases the tax burden on commercial properties while lessening the burden on residential properties, opposing the intent behind Wu’s tax proposal.
“I have no idea what the intent is,” Swift remarked regarding the hidden penalty. “Mathematically, because you’re adding these artificial assessed values due purely to appeals… you are increasing the commercial allocation and shift of taxes, and decreasing the residential as a result.”
In response to these claims, the Wu administration countered, asserting that Swift’s assertions either misunderstand or disregard the city’s compliance with state tax law regarding property assessments.
A spokesperson for the city noted that the Department of Revenue certifies all property values and emphasized that assessments adhere to market rate considerations.
The spokesperson cited a prior ruling from the Massachusetts Supreme Court, which mandates that assessors determine a fair cash value for property as if there were no leases in effect.
“Because of state law,” the mayor’s office stated, “values are determined using market rate leases, market rate expenses and market rate capitalization rates, not sales for office buildings.”
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