Now if I were a salesman by trade (and aren’t we all, really?), I would say that contracting a property tax consultant is making an investment.  And like most investments, deciphering the fine print can be maddening, especially when you’re dealing with fee structures.  But it doesn’t have to be.

To make your venture easier, you need to know what you’re in the market for.   Start out by making a shopping list of the services you want.  Don’t make the mistake of limiting your decision to “finding someone who can lower my taxes.”  Some of the things you may want to add to your shopping list of deliverables might include detailed documentation, audit representation, project management, physical inspections, disposed assets listings for fixed asset write-off, savings reports, calendar reports, accrual estimates—the list goes on.

Many of these additional service elements can make your job of managing property taxes easier and more fun (Okay, at least it will be easier).  Once you have a clear idea what you want to invest in, the next question is not merely how much, but “how”?

Consider the number of available fee structures: contingency, flat fee, hourly, pro bono, or a combination of any of the above.  Your best choice may depend on how much you think might be saved at the location to be reviewed. The more certain you are, the better it is to move toward a flat fee because the one factor most people forget when reviewing fee structures is the selling of the risk factor. The higher the risk of no savings, the greater need for a contingency fee structure.

As a child you may not have dreamed of some day becoming a property tax collector, but that’s because you weren’t born in Ancient Egypt.  In Ancient Egypt only about one in a hundred citizens were literate.  Among those were the tax collectors of the day, also known as scribes.

Scribes were used to keep records of property holdings, including crops, cattle and slaves.  Because of their ability to read (and collect property tax revenue), scribes were highly valued and admired in Ancient Egypt.  Scribes to Pharaoh could own property and become rich.  They were generally exempt from manual labor.

Archeologist have discovered monuments and richly adorned tombs for some of the most loved scribes of Egypt and Persia.  When the Pharaoh died, scribes were the only people in his service that were spared from being buried alongside him.  All things considered, if I had to choose, the scribe route sounds like the way to go.

Property tax negotiations are based on relationships.  The keys to a quality relationship are communication, honesty and realistic claims supportable by proper documentation.

Taxpayers often resent having to justify the details of their returns, while assessors may be irritated if they feel their authority is being challenged.  Appealing to the next level without discussing the appeal with the assessor first is an example. Either way, emotions can trigger a hasty and sometimes damaging response.  Face-to-face communication between the taxpayer and the assessor up front may alleviate many potential problems down the road. Bringing in an impartial expert can also prevent emotional reactions from occurring and can cool tensions before they have a chance to boil over.

Is outsourcing property taxes the best way to go?  While the predictable answer from a consultant might be “absolutely”.  I am going with “it depends”.  The real question is not “should we outsource?” but rather “what is the most effective way to manage property tax compliance and pursue savings opportunities?”  When considering whether to outsource or manage property taxes internally consider the following factors:

·        Complexity – There are an estimated 12,000 taxing jurisdictions.  Is your corporate tax department equipped to manage the numerous tax laws and rulings, renditions, factor tables, exemptions, abatements, tax bills, deadlines and valuation methodologies?  Are the outsource providers you might be considering equipped to do the same?

·        Staffing – Most property tax returns are due between January and May.  Are you appropriately staffed to accomplish the filings?  Can your tax department staff be more effectively deployed to strategic, value-adding initiatives?

·        Expertise – Does significant property tax knowledge reside within your tax department?  Do you want to build property tax knowledge into it?

·        Costs – Have you considered all of the costs to manage the property tax function internally?  How about all of the costs to outsource?

Considering these factors within the context of the goals/focus of your company (and your tax department) will help you determine if outsourcing is right for you.  And here’s another thought… Outsourcing doesn’t have to be an all or nothing decision.  You might just find a partial outsource to be the right decision.

Upon concluding a reverse audit, we determined the value of the personal property at a glass container facility to be $10 million.  We sent a report detailing our findings to the client, who in turn sent a completed return to the assessor.  When assessment notices came out, however, the assessor had reported a value of approximately $12 million.

When questioned by the taxpayer about his rational for the $12 million value, he responded that he was “tired of the personal property value going down” and decided to keep the value the same as it had been for the previous owners the year before.  Unbeknownst to the taxpayer, the assessor and the previous owners of the plant had a rocky relationship, and the assessor decided to continue this adversarial relationship even though the plant had been sold to new owners.

After talking with the assessor, it appeared he was not interested in the facts nor in establishing a good relationship with the new owners. Since the assessor failed to present any logical evidence for maintaining the previous year’s assessment, the company decided to appeal.  Little did they know that what began as a straightforward appeal was soon to resemble a Grisham novel. They had come face-to-face with . . . The Runaway Assessor.

Who is the Runaway Assessor?  Sorry, we can’t reveal names. But generally speaking, Runaway Assessors are the great nemeses of corporate tax professionals; they dig in and fight for unrealistic values, even when faced with overwhelming evidence.  When they are opposed, Runaway Assessors have been known to inflate already unrealistic values.  They often develop a strong dislike for a particular taxpayer or taxpayers in general and take a punitive approach when making their assessments.  While the great majority of assessors work cooperatively and fairly with taxpayers, the Runaway Assessor can cause a taxpayer to lose sleep.

In this saga, the Runaway Assessor disputed the appeal.  He admitted his original value on the personal property was miscalculated—miscalculated too low that is!  On revision he claimed it should have been almost 50% higher—an ­increase from $12 million to approximately $17 million for that tax year!  A second appeal (to court) resulted in yet another tax hike.  The more the taxpayer appealed and presented information, the more the assessor resisted and raised the values.  The single-year appeal snowballed into a multi-year appeal, with the assessor ultimately hiking the value by nearly 5 times in the process.

Unfortunately for the Runaway Assessor, his arguments did not prevail in court.  In the end the taxpayer prevailed, getting their $10 million value.