Commercial property taxes in Maryland are an important operating expense for property owners, investors and businesses evaluating a commercial real estate purchase.

A property’s current tax bill may look straightforward, but buyers should understand how the assessment was determined, when the property is scheduled for reassessment, what tax rates apply and how future changes could affect operating expenses.

For investment property, property taxes can directly affect Net Operating Income (NOI), capitalization rate analysis and cash flow.

How Commercial Property Taxes Work in Maryland

Maryland’s property tax system involves two major components:

1. The property’s assessment
2. The applicable property tax rates

The Maryland State Department of Assessments and Taxation (SDAT) is responsible for determining real property assessments.

The appropriate governmental jurisdictions establish their respective tax rates.

Those rates are then applied to the taxable assessment to determine the property tax obligation.

Assessment vs. Property Tax Bill

The assessment and the property tax bill are related, but they are not the same thing.

Who Assesses Commercial Property in Maryland?

The Maryland State Department of Assessments and Taxation is responsible for real property valuation and assessment throughout the state.

SDAT estimates the fair market value of real property and certifies assessments to local governments.

The applicable jurisdictions then use those assessments and their tax rates to calculate property taxes.

How Often Is Commercial Property Reassessed in Maryland?

Maryland generally reassesses real property on a three-year cycle.

The state’s property accounts are divided into reassessment groups so that approximately one-third of the properties are reassessed each year.

That means a commercial property will generally receive a new regular reassessment once every three years.

Why Reassessment Matters to Commercial Buyers

A buyer reviewing today’s tax bill should not automatically assume that the same assessment will continue indefinitely.

If the property’s market value has changed substantially since its previous reassessment, a future reassessment could affect its taxable assessment and therefore its property taxes.

This is particularly important when evaluating:

• Long-term investment returns
• Operating budgets
• NOI
• Lease reimbursements
• Cash flow
• Future expenses

Maryland’s Three-Year Phase-In of Assessment Increases

When a property’s reassessed value increases, Maryland generally phases the increase into the taxable assessment in equal increments over the following three years.

This example illustrates the assessment phase-in concept only. Actual tax liability depends on the applicable assessment and tax rates for the property.

What If the Property’s Assessed Value Decreases?

Maryland’s SDAT guidance distinguishes decreases from increases in the phase-in process.

When a property’s reassessed value decreases, SDAT indicates that the phase-in assessment is the same as the current value rather than gradually phasing the decrease over three years.

Does Buying a Commercial Property Automatically Reset Its Assessment to the Purchase Price?

Buyers should not assume that Maryland automatically replaces the property’s assessment with the purchase price simply because ownership changes.

The sales price can provide relevant market information, but Maryland’s assessment system operates through SDAT’s valuation and reassessment process.

The property’s assessment should therefore be investigated independently rather than assuming:

Purchase Price = New Tax Assessment

Maryland Commercial Property Tax Rates

There is no single property tax rate that applies to every commercial property in Maryland.

Tax rates vary by jurisdiction and can change from year to year.

Depending on the property’s location, the tax bill may reflect applicable:

• State property tax
• County property tax
• Baltimore City property tax, when applicable
• Municipal property tax, when applicable
• Other applicable charges or assessments

Why You Should Verify the Current Tax Rate

Property tax rates can change.

Maryland SDAT publishes tax-rate information reported by local governments, including county, municipal and state rates.

When analyzing a commercial acquisition, use the current applicable tax information rather than relying on an old marketing brochure or historical listing.

How to Look Up a Maryland Commercial Property Assessment

Maryland provides an online Real Property Data Search through SDAT.

Depending on the record, buyers can review information such as:

• Property account information
• Owner information
• Assessment information
• Land and improvement values
• Property characteristics
• Transfer information
• Reassessment information

The public property record can be a useful starting point during commercial real estate due diligence.

Do Not Rely on the Listing’s Tax Number Alone

Commercial listings often display annual property taxes.

That information can be useful, but buyers should independently verify it.

Questions to investigate include:

• What tax year does the number represent?
• What is the current assessment?
• What is the current taxable or phase-in assessment?
• When is the next reassessment?
• Are municipal taxes also applicable?
• Are there special charges?
• Is the property currently receiving an exemption or special treatment?

Property Taxes and Net Operating Income

For many investment properties, real estate taxes are a property-level operating expense.

That means changes in property taxes can affect NOI.

That $10,000 increase in taxes reduced NOI by $10,000.

Property Taxes Can Affect Commercial Property Value

Because property taxes can affect NOI, they can also affect income-based valuation.

Consider a simplified direct-capitalization example.

This simplified example demonstrates why investors should pay attention to future operating expenses rather than evaluating only current rental income.

Property Taxes in a Triple Net (NNN) Lease

Property taxes can also be important to commercial tenants.

Under many triple net lease structures, tenants pay or reimburse some or all of their proportionate share of expenses that may include:

• Property taxes
• Building insurance
• Common area maintenance

The actual lease language controls what a particular tenant must pay.

A tenant comparing commercial spaces should therefore look beyond the quoted base rent.

Gross Lease vs. NNN Lease: Who Pays the Property Taxes?

The answer depends on the lease.

In a triple net structure, the tenant may reimburse property taxes as part of additional rent.

In other lease structures, taxes may be incorporated differently into the rent or expense provisions.

Commercial tenants should review the actual lease rather than relying solely on labels such as “gross,” “modified gross” or “NNN.”

Can a Maryland Commercial Property Assessment Be Appealed?

Yes. Maryland provides a formal assessment appeal process.

A property owner who believes SDAT’s estimate of market value is incorrect may have an opportunity to challenge the assessment.

SDAT identifies several circumstances in which an assessment appeal may be filed, including:

• After receiving a reassessment notice
• Through a petition for review
• In certain circumstances following a purchase

Appealing a Reassessment Notice

When a property owner receives a regular reassessment notice, Maryland generally allows 45 days from the notice date to file an appeal.

The owner should focus on whether the estimated market value is accurate and whether the property information used in the assessment is correct.

Appeal After Purchasing Property

Maryland also provides a specific appeal opportunity for certain purchasers.

According to SDAT, if a property is transferred after January 1 but before July 1, the purchaser may file an appeal within 60 days of the transfer, subject to the state’s requirements.

The deed transferring ownership must be recorded before SDAT can proceed with that appeal.

Maryland’s Assessment Appeal Levels

Maryland’s assessment appeal process can involve several levels.

1. Supervisor’s Level
2. Property Tax Assessment Appeal Board (PTAAB)
3. Maryland Tax Court

Procedural requirements and deadlines apply at each stage.

What Evidence Can Matter in an Assessment Appeal?

An assessment appeal concerns property value, not simply whether the owner believes the resulting tax bill is too high.

Depending on the property and circumstances, relevant information might include:

• Comparable property sales
• Property condition
• Building characteristics
• Income and expense information
• Vacancy
• Lease information
• Physical deficiencies
• Other evidence relevant to market value

Property Taxes and Commercial Due Diligence

Commercial buyers should investigate property taxes before the due diligence period expires.

Consider reviewing:

Property Taxes and Commercial Financing

Lenders also consider property expenses when evaluating commercial real estate.

For income-producing property, higher operating expenses can reduce NOI and therefore affect debt-service coverage.

A buyer should not assume that a lender will underwrite a transaction using only the seller’s historical expenses without considering current or anticipated property costs.

Property Taxes for Owner-Occupied Commercial Buildings

Property taxes matter even when the buyer intends to operate its own business from the property rather than lease it to tenants.

For an owner-user, taxes form part of the ongoing cost of owning the real estate.

A business comparing leasing versus buying should consider:

• Mortgage payments
• Property taxes
• Insurance
• Repairs and maintenance
• Capital improvements
• Utilities
• Other ownership expenses

Comparing rent only with the mortgage payment can therefore produce an incomplete analysis.

Property Taxes and Religious or Nonprofit Property

Certain properties owned and used by qualifying organizations may potentially receive property tax exemptions under Maryland law.

However, exemption should never be assumed simply because the purchaser is a religious, charitable, educational or nonprofit organization.

Eligibility can depend on factors such as ownership, actual use of the property and applicable statutory requirements.

New Construction and Changes to Commercial Property

Commercial owners should also understand that certain property changes can affect assessments outside the ordinary three-year reassessment cycle.

SDAT notes that permitted new construction or a change in the use or character of a property can, in certain circumstances, result in an out-of-cycle assessment.

This can matter when purchasing a property that will undergo:

• Major expansion
• New construction
• Substantial redevelopment
• Material changes in use

Common Commercial Property Tax Mistakes

• Assuming the current tax bill will remain unchanged.
• Confusing assessed value with purchase price.
• Confusing assessed value with appraised value.
• Using an outdated tax rate.
• Ignoring municipal taxes.
• Failing to check the property’s reassessment cycle.
• Ignoring taxes when calculating NOI.
• Failing to review NNN tax reimbursements in a lease.
• Missing an assessment appeal deadline.
• Assuming a nonprofit purchaser automatically receives an exemption.
• Relying solely on tax information contained in a marketing flyer.

Commercial Property Tax Checklist for Maryland Buyers

Commercial Property Tax FAQs

This article is provided for general informational and educational purposes only and does not constitute tax, accounting, legal, appraisal, financial or investment advice. Property assessments, tax rates, exemptions, credits and appeal rights can vary based on the property, jurisdiction and circumstances. Commercial property owners, buyers and investors should verify current information with the Maryland State Department of Assessments and Taxation, the applicable local taxing authority and qualified tax or legal professionals when appropriate.