How to uncover property tax savings opportunities.

• Author: Moore, Jeff

Despite assurances that an economic recovery is underway, corporate tax departments are searching for ways to lower their companies' tax expense and to operate more efficiently. A poll in May 2010 by the Tax & Accounting business of Thomson Reuters revealed that more than half of respondents expect their companies' property tax burden either to remain the same or to increase compared to last year. The survey results reflect an overall sentiment that property tax no longer offers a big opportunity for savings. What many companies may not realize, however, is that since property tax is based on value at a specific point in time, there remain significant tax savings opportunities, especially in areas were property values have declined.

Don't Expect Your Taxing Jurisdiction to Inform You of Tax Breaks

Despite some business property tax reductions in recent years, property tax is still a top tax revenue generator for states, generating $168 billion collectively in the fourth quarter of 2009. (U.S. Census Bureau, "Quarterly Summary of State and Local Government Tax Revenue," December 2009). Keep in mind that 48 states are still facing budget deficits--which have a trickle-down effect on local government--and all indications are that they will face shortfalls as big as or bigger than they faced this year in the 2011 fiscal year. Accordingly, it is not surprising that taxing jurisdictions are not actively promoting how companies can lower their property tax liability. This means that it is up to individual companies to seek out available exemption and reduction opportunities.

Property Tax Complexity

With more than 13,000 taxing jurisdiction in the United States, each with varying rules and methodologies on how property is taxed, managing a company's property tax burden can be a cumbersome process.

If a company only has a few assets in a few jurisdictions, the process is manageable. For larger companies with hundreds or thousands of assets spread across multiple locations, however, cost effectively managing property tax compliance in-house can be extremely difficult. There are myriad differences among taxing jurisdictions in terms of their taxable property and exemptions, the calendar of deadlines for reports and payments, and the timing and process for negotiating and appealing assessed value. These factors all contribute to the complexity and risk of managing a property tax function, in addition, misconceptions about valuation methodologies and the appropriate adjustments for underperforming properties compound the confusion.

Property Tax Opportunities

Property assessment is based on market value at a specific point in time (January 1 in most states), so even though the economy is improving overall in many regions and industry sectors, the values for current year property tax purposes are typically based on market conditions existing months ago on the assessment date.

With this knowledge in hand, the next step is to educate company's management on the various factors that can affect property tax assessments for both real and personal property. As a general rule of thumb, the more assets a company owns, the higher the degree of complexity and the more education needed to realize maximum benefits. Even without knowing the specifics of various tax laws in a particular region, however, there are steps that can be taken to save a...