Real Estate Tax Valuation under the Federal Model: No Constitutional Concerns — What Companies Need to Know

Overview of the Cologne Fiscal Court Decision

In its ruling of September 19, 2024, the Cologne Fiscal Court (Finanzgericht Köln) held that the determination of real estate tax values under the Federal Model — as applied in North Rhine-Westphalia — is constitutional (Case No. 4 K 2189/23; appeal pending before the Federal Fiscal Court, Case No. II R 25/24). For companies holding real estate, this decision has direct implications for strategic planning and cost management.

The court found no constitutional objections to the valuation of real estate under the Federal Model. In particular, it deemed the reform objective of replacing outdated unitary values, which had been in place for decades, with current market-based values to be constitutionally legitimate. The court also considered the methodological details of the valuation process — such as the use of standardized parameters — to be permissible.

Companies must therefore assume that real estate tax values determined as of January 1, 2022, will generally remain valid, even though the Federal Fiscal Court’s final decision is still pending.

Analysis: What does this mean for companies?

1. Anticipate higher tax burdens: Depending on location and property type, companies may face significant tax increases. Early liquidity planning and the creation of reserves are advisable.
2. Review assessments carefully: Despite the overall constitutionality, valuation errors may occur in individual cases. Companies should therefore thoroughly review all real estate tax assessments — legal challenges remain possible if concrete errors can be demonstrated.
3. Adjust real estate strategy: The prospect of higher tax burdens may influence investment decisions. Especially for small and mid-sized companies, it may be worthwhile to reassess property portfolios and consider alternative ownership or location models (e.g., sale-and-lease-back structures).

Practical recommendations

• Review assessments: Within the statutory appeal deadlines, examine real estate tax assessments for potential valuation errors or incorrect assumptions.
• Adjust liquidity management: Plan ahead for increased tax payments to secure sufficient liquidity.
• Make strategic location decisions: Analyze property portfolios for economic viability under the new tax framework.

Conclusion: The Cologne Fiscal Court confirmed the constitutionality of real estate tax valuations under the Federal Model. For companies, this means higher tax burdens are likely. Strategic adjustments in liquidity planning and real estate management are now essential.