The irony is that property tax – one of the largest areas of tax exposure for many companies – is often one of the least visible components of the tax function.  This is changing.

Tax authorities are closely scrutinizing real and personal property.  They are assessing higher and higher taxes, with larger penalty and interest amounts for late payments.

As an above-the-line tax, property tax also should be a key area of interest for senior executives.  It is one area in which you can find significant opportunities to reduce costs – savings that go straight to the bottom line and add to shareholder value.

Consider these issues:

  • Constantly changing nature of the property tax.  The factors affecting the value of real and personal property are constantly changing.  For example:

o   Whenever the production capacity of a manufacturer’s plant changes, so does the value of the facility and all equipment in it.

o   Whenever occupancy rates change in an apartment complex or commercial office building, the value of that property changes, thereby affecting its tax appraisal.

In these and many other instances, the value of real and personal property needs to be re-appraised annually to ensure that you aren’t overpaying property taxes.

  • Geographic coverage.  If your headquarters are in New York and you have plants across the United States, your tax staff may understand in general the nuances of each jurisdiction.  But is that enough?  In most cases, it is not.
  • Compliance.  If you have hundreds, thousands or even tens of thousands of pieces of property, how do you make sure the returns are prepared correctly and filed on time to avoid paying penalties and interest?  Are you confident that tax bills and assessment notices are obtained and processed appropriately?  That properties are reviewed correctly and in a timely manner?  With fixed asset returns, does your staff simply file what is on the return, and in doing so miss “ghost assets” (assets that should have been retired) and categorization issues (not understanding that the asset can go off the books much quicker)?
  • Property tax is very unforgiving.  The value of real estate keeps rising.  Companies are being taxed at ever-higher rates.  Miss a payment deadline and the consequences are dire.
  • Added scrutiny.  Many state are beefing up their review and audit processes.  They are hiring new auditors.  The likelihood is increasing that your company will undergo an examination.  Several states even have instituted mandatory audits.  With more states claiming audit rights and going back as much as four years in their reviews, the risk of additional tax obligations is high if your company has filed inappropriately or too aggressively.
  • Financial reporting.  In the current regulatory environment, especially the new financial reporting requirements imposed under Sarbanes-Oxley Act, property tax liability for many companies, if they aren’t diligent about meeting compliance deadlines, can involve amounts that may be material enough to affect financial reporting and risk management.
  • Human resources.  The property tax function can be very people-intensive, especially if your company files thousands of returns.  The problem comes when you need to redeploy people after the returns are filed.  This is especially true with professionals who have specialized tax knowledge.  Their skills aren’t readily transferable to other area.
  • Special expertise.  Can your company afford staff with specific types of expertise, such as: analysis, environmental and pollution control, property valuation and appraisals, local jurisdictional knowledge?  Most companies cannot, so they simply pay whatever tax that assessors demand, thereby missing many opportunities to challenge assessed amounts and receive tax reductions. 

 

Given these issues, many companies are recognizing that the property tax component of the tax function is not their core competence.  So they are looking to a third party provider to take over all or part of that property tax component.  Look for an Advisor, not a Consultant that has 1) reasonable fees ($150-250/hr), 2) industry expertise, not a jack of all trades and master of none and 3) your best interest at hand.

When you engage Silver Oak Advisors you are guaranteed lower fees, higher customer service and greater property tax savings.

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