It is crucial to fully understand and properly manage your property tax obligations. By understanding the amount of property taxes you are paying and what you should actually be paying you can reduce your company’s expenses. By reducing expenses, you can increase revenue.
“The amount of property tax paid by a company directly impacts their financial bottom line,” says Derk Beckerleg, executive partner at Secrest Wardle.
Smart Business spoke with Beckerleg about valuation methods, how to minimize property tax expenses and the importance of keeping thorough documentation.
How can a company most effectively manage property tax?
The best way to manage property taxes is to either hire someone in-house or retain a property tax consultant. A property tax consultant can be an attorney or there are professionals that do nothing but property tax consulting. Either way, you should have a professional who can analyze the amount of taxes that your company is paying and how much tax you really should be paying.
What are the dangers associated with failing to consider county and state tax requirements?
When you fail to properly consider and understand county and state tax requirements or any municipal tax requirements for that matter it’s going to have an impact on your company’s bottom line. By failing to pay attention to the requirements, you could possibly pay taxes that you don’t really owe.
What methods are used to determine the value of a property?
There are three methods of valuation: cost approach, sales comparison approach and income approach. The cost approach is essentially what it costs to build a building on a piece of property. With the sales comparison approach, you compare the property that you have with other similar properties that have sold. The income approach primarily applies to investment and rental properties. If a company owns an investment or rental property, it is generally valued by projecting the amount of future income the property will produce. It’s important to know the kind of property you have and the appropriate method to value that property because if you ever get into a dispute as to what your property is worth it generally falls into being valued in one of these three categories.
How can future property tax expenses be minimized?
The amount of property taxes that a company pays with respect to any piece of property is based on the value of the property. Therefore, if your property has been overvalued by the municipality that serves you, then you may be paying more property taxes than you should.
The only way to determine whether your property is overvalued is by hiring a property tax consultant who can analyze the kind of property you have, determine whether it’s properly valued and as a result determine if the property is being overtaxed. In the event that the property is being overtaxed you can contact the municipality’s assessing department and try to informally work out an agreement to reduce the property taxes. In failing that, oftentimes, you will need to file an appropriate lawsuit claiming that your property is being overtaxed.
In what ways can an expert help a company manage property tax compliance?
An expert can help a company determine if its property is properly valued and is therefore paying the right amount of taxes. If it appears that the municipality did not use the correct method of valuing the property, the expert might indicate it would be appropriate to hire an appraiser. It’s been my experience that the cost of an appraiser is almost always justified because municipal assessors give a lot of credence to formal appraisals as a method to properly establish what a property’s value should be. Retaining an appraiser can help a company reduce its property taxes.
How important is to keep thorough property tax records?
It is absolutely crucial to keep proper and thorough records with respect to your property taxes. It amazes me how many large companies don’t have a current running list of when they bought a piece of property, what they paid for it and when they got rid of it. They’re being taxed on property that they may no longer own, which certainly negatively impacts them.
With respect to investment property it’s important to know what the property’s vacancy rate is, what you’re renting the property for and what other properties in the area are renting out for so if you get into a dispute over property value you will have complete documentation for the assessors. Recordkeeping should be done on a regular basis and checked on a regular basis to make sure what you are being taxed for is what you have.
DERK BECKERLEG is an executive partner at Secrest Wardle. Reach him at (248) 539-2808 or firstname.lastname@example.org.