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 [email protected].
