Understanding Property Taxes on Commercial Real Estate in Massachusetts

Massachusetts has an intricate system for property taxation, especially when it comes to commercial real estate. Understanding this system is crucial for any commercial property owner or potential investor in the state. Let’s look at the mechanisms of property tax assessment and payments for commercial properties in Massachusetts.

The Basics of Commercial Property Taxation in Massachusetts

In Massachusetts, like in many other states, property taxes are a significant source of revenue for municipalities. They fund essential local services, such as public education, public safety, and infrastructure maintenance.¹ The property tax rate, often referred to as the “mill rate,” is set annually by local city or town governments.

Commercial property taxes differ from residential property taxes in their assessment ratios and sometimes their rates. In Massachusetts, the Department of Revenue’s Division of Local Services oversees property tax administration, ensuring municipalities assess and collect these taxes according to state laws.²

How Commercial Properties are Assessed

Fair Market Value: One of the foundational principles of property tax in Massachusetts is the fair market value. The assessed value of a property is typically its estimated market value on a specific date. Local assessors use various methods, including sales data, replacement costs, and income potential, to determine this value.³
Revaluation: In Massachusetts, properties must undergo a complete revaluation every five years, although interim adjustments might occur based on market trends.³ This ensures that the assessed values remain close to market values over time.
Classification: Massachusetts permits municipalities to shift the tax burden between property classes. This means commercial properties might bear a larger share of the tax burden than residential properties in some locales.4 Therefore, understanding the classification rate in your municipality is crucial for commercial property owners.

Tax Rate and Payments

Once the property’s assessed value is determined, it’s multiplied by the tax rate to calculate the tax bill. For example, if a property in Boston has an assessed value of $1,000,000 and the commercial tax rate is $25 per $1,000 of value, the property tax would be $25,000.⁵

It’s also worth noting that property tax rates can vary significantly from one municipality to another, depending on local budgets and the total value of taxable property. As such, commercial property investors should be aware of these variations when considering investments in different areas of the state.

Property tax bills are typically sent out annually, and payments are split into two or more installments, depending on the municipality. Late payments might incur interest or penalties, so it’s essential to be prompt.

Tax Exemptions and Abatements

Massachusetts offers some tax exemptions and abatements for commercial properties under specific conditions. For instance, properties used for religious, educational, or charitable purposes might qualify for exemptions. Also, new constructions or significant renovations in designated areas might be eligible for tax abatements, encouraging development in those zones.

Property owners who believe their commercial property is over-assessed or misclassified can apply for an abatement through the Appellate Tax Board. If granted, this reduces their tax liability. However, there’s a strict timeline for filing these applications, typically within a month of receiving the tax bill.

Navigating the complexities of commercial property taxes in Massachusetts can be challenging, but a thorough understanding of the assessment and payment processes can significantly aid property owners and investors. Always consider consulting with a local tax advisor or attorney who specializes in Massachusetts’ commercial real estate to ensure you’re adequately informed and can make the best financial decisions.

This article is a general overview and not an exhaustive or up-to-date source on the subject. Commercial real estate owners and investors should always seek advice from professionals for their specific situations. The professionals of the Jay Nuss Realty Group are here to help. Contact us at 781.848.9400.

Sources

Massachusetts Department of Revenue (https://www.mass.gov/orgs/massachusetts-department-of-revenue)
Division of Local Services (https://www.mass.gov/orgs/division-of-local-services)
Massachusetts General Laws Chapter 59 (https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter59)
Massachusetts Property Tax Classification (https://www.mass.gov/guides/property-tax-classification)
City of Boston Tax Rates (https://www.boston.gov/departments/assessing/property-tax-rates)