The What, the Why, and the When

A corporate tax department’s traditional resources and time are heavily allocated to compliance.  Although timely tax return filing is very important, in reality tax departments have not been appreciably valued within the larger organization for such efforts.  When tax departments are substantially focused on compliance and isolated from the organization’s business and strategic planning, their companies run the risk of lost savings opportunities, reduced cash flow, operating inefficiencies, unwarranted risk and higher tax liability.  Increasingly, tax executives are turning to tax outsourcing to manage and balance the competing demands of ever more burdensome compliance against the time and resources needed for tax planning.

Property tax functions fit well into the outsourcing equation.  The compliance requirement is voluminous, with a recent survey showing that a corporate tax department will, on average, annually prepare over 500 property tax returns.  If the company is geographically diverse, such returns could be filed in numerous jurisdictions of which there are approximately 13,000 across the country.  Although similarities may exist, each such jurisdiction typically imposes its own practices and procedures.  These potentially disparate requirements are often more effectively addressed by local experts who can efficiently leverage their collective knowledge.

At the center of this complex property tax environment are the various methods used in determining assessed value and the procedural requirements for the administration of the tax.  For instance, some jurisdictions apply the tax rate against full market value, while many others reduce the tax base through application of an “assessment ratio,” which can vary between classes of property.  Some jurisdictions assess property annually, while others adopt a different cycle.  Further, forty states tax personal property in addition to real property, and several states and localities require special filings to exclude all or part of resale inventory from assessment.  Last, the various jurisdictions impose unique deadlines for the filing of property renditions, the submission of assessment protests, and the payment of tax.

Other outsourced property tax functions include:

  • Personal property audit management or support;
  • Special and direct assessment reviews;
  • Tax bill administration;
  • Tax bill check writing and payment;
  • Pre-acquisition or pre-development property tax analysis; and
  • Liability reduction through abatements, exemptions and incentives.

The core value propositions associated with outsourcing are:

  • Cost savings,
  • Greater leverage,
  • Improved reporting, and
  • Better results.

Cost savings result from reduced labor costs, reduced overall net process costs, and cash flow improvements.   Greater leverage can be gained by infrastructure sharing (“co-sourcing”), process consolidation and centralization.  A company can improve its reporting with accurate processes and improved automated delivery.  An outsource provider is able to deliver increased reporting speed to allow tax department management to quickly supply budget and liability forecasts that otherwise burden most in-house staff.  Lastly, a tax department can achieve better results through improved management oversight due to greater process transparency.  A company can also benefit from the shifting of dedicated tax department compliance resources to tax planning and development.

Property tax outsourcing often meets cost/benefit thresholds merely through overhead cost (training, space, salary and benefits) and turnover cost analysis.  However, savings benefits also accrue through access to the high quality technology available to outsource providers, as development and finance of similar infrastructure and support internally is often beyond the capacity of normal corporate tax department data processing and headcount budgets.

Besides the immediate tangible cash savings from outsourcing, access to deep knowledge resources on the property tax laws, developments, and practices that impact a company is a sizable intangible benefit.  Companies can also achieve better budgetary results, as the tax department is released from excess payroll costs often absorbed to meet seasonal compliance demand, respond to projected company growth, retain institutional knowledge, and facilitate employee turnover.

When to Consider Outsourcing

As companies grow, there are a number of significant events when review of the outsourcing option is especially appropriate.  A change in Tax Director or CFO, staff turnover, recent corporate restructuring or downsizing, increased competitive pressure, unfavorable property tax audit results, and the impact of legislative or regulatory changes all can provide the impetus to consider outsourcing.

The following tools are helpful to the outsourcing decision.

Outsourcing Decision Assessment Questionnaire

  • Do you perform the property tax or sales and use tax function in-house?
  • Does your company incur serious loss of knowledge upon employee turnover?
  • Would reallocation of current resources upon outsourcing result in a greater benefit?
  • Would outsourcing meet management expectations of cost savings through reduced headcount?
  • Does the expertise exist in the industry with a trusted outsource provider?
  • Does an overwhelming compliance burden make it difficult to justify the tax department as a cost center?
  • Is your ability to meet internal goals undermined by resource and technology constraints?
  • Does “running the numbers” in a Cost/Benefit Analysis (see table below) support outsourcing?

The Outsourcing Cost/Benefit Analysis

Many companies overlook “the total cost” associated with performing functions internally.  In addition to capturing staffing costs (all full/part-time equivalents, salaries, benefits, training, technology, management oversight), companies should consider:

  • Technology costs, including hardware, software and license fees; internal R&D; and maintenance costs.
  • Penalties and interest from a failure to timely report and pay taxes.
  • Missed savings opportunities, through abatements, credits, and refunds.
  • Overpayments from an inability to monitor double taxation, existence of “ghost assets,” or overlooked favorable statutory changes.
  • Intangible costs, such as the turnover costs of loss of knowledge, replacement, and re-training.

Candidly put, outsourcing the property tax function can provide cost savings, resource relief, and a competitive advantage.  The outsourcing advantage is a vital component of the strategies a tax department can employ to leverage itself to better results.

Silver Oak Advisors’ founders bring over 40 years of Big 4 and Industry property tax experience.  Silver Oak was formed to provide taxpayers in need of State and Local Tax (SALT) assistance, former Big 4 and industry experienced professionals with specific industry and/or property expertise in addition to working knowledge and relationships with the specific taxing jurisdictions.

Most firms have to use firm personnel for all engagements regardless if use of the professional is in the best interest of the client.  Silver Oak gives you the same central point of contact acting as the conduit to seek, find and manage the use of the best SALT consultants with expertise in your industry and in the markets throughout the U.S. where you need the assistance the most.

Today, the most sought after professionals in our business work for themselves in smaller practices and boutique law firms.  Silver Oak engages these firms to supplement our professional’s expertise in order to provide our client’s with the “best in class” at hourly and contingency fees that are traditionally lower than the national firms.

We are working Directors with no overhead costs allowing us to provide a higher level of service at a cost effective rate, passing on the savings to you.