Roadmap for Property Tax Success

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Caitlin: Hello, everyone, and welcome to today's webinar, "Roadmap for Property Tax Success." My name is Caitlin Alaburda, and I will be your moderator.

Joining us today is Kristen Wilder. Kristen is a director of sales for CSC's property tax solutions. Ms. Wilder joined CSC in 2001 and has spoken at various conferences, luncheons, and trade shows regarding property tax software and automation. Ms. Wilder holds a Bachelor of Science degree from the University of California San Diego. And with that, I'd like to welcome Kristen.

Kristen: So let me give you a little bit of background on CSC. We are a 125-year-old company with over 8,000 employees around the globe, and our company offers a wide variety of corporate services and software, including property tax software, property tax appeal management software, business license management, UCC and annual reports, and more.

On our agenda for today's meeting, we are going to discuss property tax basics, common property tax challenges, the importance of having a strong tax process, and we'll talk about how CSC can help with your property tax compliance. At the end of today's webinar, we'll have a Q&A session where you can ask your questions. Let's go ahead and get started.

First on our agenda is property tax basics. So starting with property tax basics, there are two types of property tax — real property and personal property. Real property is the land and buildings that you pay tax on each year, while personal property is the stuff that you own, like the desks, chairs, computers, etc.

There are two different government branches that manage the property tax process, and in most instances these departments are at a local level, usually county or lower. The branches consist of the assessor, and that's the person who determines the value of your property, and the collector, that's the person who applies a tax rate to your value, who collects the tax.

With real property, the assessor knows what property that you own because that information is recorded and because real property doesn't change very often, so no tax return is usually required. But with personal property the assessor doesn't know what you own, and you're responsible for filing an annual tax return of your property listing. Now today we're going to spend most of our time talking about personal property tax compliance.

Now property tax is a cyclical process each year, comprised of four major steps in the process. The first step is data collection and cleanup, and this process usually begins after the assessment or the lien date for each jurisdiction. For personal property, you only have to file a return for assets that you owned as of a specific point in time, usually January 1st. But there are some states that have a different assessment date from January 1st, such as Connecticut.

During the data collection process, you'll be required to compile a list of all of the assets you owned, and then you have to break down those assets into different categories for return filing. That means that you have to research jurisdictional filing rules and their categories to make sure that your assets are properly grouped on the return. You'll also want to know what kind of assets are taxable and which ones aren't, as well as the types of costs to include in the asset cost. So, for example, let's say that you purchased a computer. Part of that computer's cost might actually be software or sales tax or freight or installation charges, which might not necessarily be taxable. You'll want to make sure you remove those costs before you file the return.

Many jurisdictions also require you to reconcile asset changes from the prior year. That means that you not only have to know what you're going to file for this year, you also have to know what you filed for last year in order to reconcile the changes from the prior year. And that way you need to know things like new acquisitions, disposals, cost changes, and asset transfers.

Now most of this cleanup process has to happen in a very short period of time, typically at the beginning of the year, so that you're ready to file the returns when the returns are due in the spring.

Now return filing is the second step in this compliance process. Now typically, like I said, it happens in the springtime. Here you'll need to figure out what form that you need to file in the county, which requires some research again. Then you have to fill out the form, either a paper form or an online web form, with the asset data that you collected. Now most companies need to get an executive to sign off on the form. And in the case of paper returns, you have to physically mail the return next. You have to do all of this all before the return due date, and you have to determine what the return due date is, so you need to do some more homework there.

Now the third step in the process is assessment tracking. This is when the assessor has received your return and appreciated your assets. The assessor will then report back to you the total taxable value for your property. Now assessment tracking is where most companies miss the boat on ensuring that they're paying the lowest tax on their property.

The fourth and final step in the compliance process is when the collector sends you a tax bill. This process will usually start in the fall or the winter time frames, although some bill due dates stretch into the following year. And remember that's when you're going to be starting your compliance season again with asset cleanup and return filing. So you'll get a bill, and then you'll need to pay it by the due date.

Now I'm going to add two additional steps to this that aren't on this slide, that are outside of the compliance process, but most companies still have to deal with it. And that is they need to manage property tax audits on occasion, and they also need to budget or approve for the annual property taxes.

Now, boy, that's a lot, isn't it, especially if you have a lot of locations or assets that are spread out across the country. So now that we've gone through a basic overview of the property tax compliance process, let's talk about some of the common challenges that corporations face with managing property tax compliance. I know we touched on a lot of these challenges earlier, but let's recap.

One of the bigger challenges is figuring out at the very beginning of the year what you own and what the cost was. Now a lot of that information is coming from a fixed asset system or a lease management system. But many of you probably track assets that you lease and don't own outside of the fixed asset system, or maybe your expense or capitalized assets are outside of the fixed asset system. Those assets do have to be filed for even if you don't pay tax on them. So you'll need to make sure that you're merging together all of your various asset sources before you can properly file.

So again, to recap, I need to know what's taxable and where I have a filing requirement. I also need to make sure that I'm reporting my assets properly. That means I have to go to each assessor's website to get the filing requirement. Then I have to break my assets into the county's categories, which might be very different than the categories that my companies track on each asset. I need to know what's taxable, what costs have to be included in an asset, and what can be removed. Now that's a lot of work to do manually on each asset record.

I also have to make sure I know what changed from the prior year. Did the assets move, or were they completely disposed from the prior year? Now how do I know what changed unless I manually compare each asset record against the asset listed on the prior return? I mean, imagine how long that could take if you have tens of thousands of assets. And again, I have to do this every single year.

Now some data collection issues are very unique to certain industries or certain jurisdictions. Some states have jurisdictional information that's more accessible than others. But others might not even have a website for me to research. Some industries, such as industries with mobile equipment, can be difficult to understand where the property is located. Some of you might keep your data in paper folders in filing cabinets, which obviously makes it very difficult to collect and compile your property information. And many of you have to rely on other departments or sometimes even external companies to provide you with information or clarification on your data for filing. Imagine being a consulting company and having to file returns on behalf of all of your clients across the country because you have to collect data from all of them and then you have to understand what each category means for each client. That is a lot of work.

Okay, so I've cleaned up, removed non-taxable costs, and categorized my assets. Now I need to put that information onto a return. Now here are some of the bigger challenges with return filing.

First I have to figure out when the return is due. For that, I need to research by looking at the assessor's website or calling the county. Next I have to figure out what form I have to use. Same thing, I have to either research on the web, or I have to call the jurisdiction. The next thing I have to figure out is how the assessor wants me to file. Does he want one return for the whole county for all of the assets in the county? Does he want one return for the assets at each location? Do I have to file based on an account number? And do I know what assets fall into which account? Again, all of this is research and conversations with the jurisdiction.

Then I have to fill out all of the forms correctly by the due date. Now most returns across the U.S. are due within a three and a half month window. So if you have a lot of assets or a lot of locations, that's a lot of long hours working to meet deadlines in a very short window of time. And some companies don't have the bandwidth to do all of that plus the rest of their job duties, like maybe income tax or sales and use tax at the same time. And if your company is strapped for time, many will resort to filing inaccurate returns or not removing the non- taxable costs, which in turn costs the company money down the line.

And finally, most companies' bigger challenges is making sure that they did everything they were supposed to do to stay compliant. Did I file all of my returns on time? Did I file them accurately? So not only do I have to research the right form to use and correctly file and classify my property on the form, I also have to make sure that I know when all of my returns are due so I can submit them on time. Plus many counties have specific rules on how to file the return. Do I have to file it electronically? Do I have to use paper? Do I have to use that jurisdiction's paper that they sent me? Do I need to send the return certified or postmarked by a certain day? Or does the form actually have to be in the assessor's hands by a specific day? It's obviously a lot to keep track of when you have a lot of properties.

Next let's talk about some of the bigger issues with assessment notice tracking. So the assessor sends me a notice of value. Typically that happens in the summer. A lot of companies, when they get that notice, will simply look at the notice, maybe compare the value against last year's number, and then throw that notice into a filing cabinet. Sounds simple enough, right? But what if the assessor's value is too high? How would you know if that value was too high or a mistake was made?

First, it means that you have to know what your asset values are because if I bought a computer 5 years ago for $1,000, it's no longer worth $1,000, and that's where depreciation comes in. The problem is that each county can have their own depreciation factors for the same type of equipment. That means that not only do I have to research the form I need to file, it also means I have to research and apply each county's depreciation schedules to each asset in order to make sure that the assessor didn't make a mistake.

And what if there was a mistake? Then I need to figure out how to appeal the value, which requires even more research into appeal forms and appeal deadlines so I can protest. And the appeal deadlines are usually really short. Like I might have 30 days to evaluate and appeal an assessment.

But like I said earlier, this is where most people miss the boat. It's too laborious to research and calculate the assessor's value to compare against the notice. It just takes too much time, so most people skip this step. Instead they'll look at last year's value and if it's roughly the same, they won't appeal.

And some industries have even more complex issues related to assessment tracking. Take leasing companies for example. They will usually bill back the property tax liability to their customers, which sounds easy, right? I just send my customers a bill. Well, not exactly.

When you're provided an assessment by the county, you're usually given one value for everything that you filed onto a return. Now for a leasing company, that return includes multiple assets across multiple clients and multiple leases all across that county. Now some bills are sent the same way. So how are they supposed to know how much to bill back to each one of their customers if they're getting a summary value in a summary bill? They can't just take that tax bill and divide it evenly among each client. Some clients might have 10 times more assets on that return. Some clients might have really old assets that are still on lease that aren't worth very much. See the issue?

So billing back the clients actually starts when the assessment notice is received. Those companies have to figure out the exact taxable value for each asset that's on that return, either by knowing what percentage of the assessment belongs to each asset or by contacting the county and requesting the assessment be broken out by asset. And think about having to manually track the value of each asset. And you guys thought you had it rough, right?

But honestly that situation, albeit on a smaller scale, might still apply to you even if you're not a leasing company. Maybe you have to bill back an internal department for their share of the tax liability. Maybe it goes to the R&D cost center that I have to bill back. It's really the same issue. You have to figure out how much of the bill should go to each department or cost center, which I can't do with a high degree of accuracy unless I know the value of each asset.

So let's continue with that same example of a leasing company. So by this point in the process, the leasing company has figured out the value for each asset, either by allocating the summarized assessment or by contacting the county to get a detailed breakdown. Now the tax bill comes in, but it isn't always a one-to-one relationship between how many returns I filed and how many bills I get back. So take Texas for example. I could get one bill from the school district, one from the city, and one from the county, all for a single asset or a return. So how do I figure out what assets are on which bill? Well, I also have to know what taxing districts each asset is in so I can correctly apportion the tax amount to each customer. That's a lot.

Now most of you aren't leasing companies and you don't have to deal with quite this level of complexity when paying bills. But that doesn't mean that the tax bill process is easy. Yes, you get a bill, but then you need to validate that everything on the bill is correct, that it ties to the assessment notice that you received, that you still own the property in question, and that the tax rate was correctly applied to the bill. You also want to make sure that you've received all the bills to your property and that you don't miss one. Maybe the bill was lost in the mail, or maybe it was sent to the location instead of to the corporate office. You're still responsible for paying that bill even if you didn't receive it before the due date. And if you don't, you can incur interest and penalties or worse. I've heard horror stories of companies not paying their tax bills only to have the property sold at auction or the bad publicity that goes along with non-payment of tax.

Now once you've received the bill and validated the information on the bill, you now need to issue payment. Now are you paying by check? Are you doing an EFT, paying by credit card? You might have different payment method criteria for different counties or different dollar thresholds.

Now let's say that you decide to pay by check. First you have to fill out your accounts payable check request form. Now most companies require the check request be submitted in a particular format on a particular piece of paper or Excel spreadsheet. But regardless, you'll need a vendor code for your accounts payable system to tie to a collector before issuing the check. You'll also need other things like the tax account, the GL account for the property, the cost center, or other accounting codes to issue the check. Now you have to look those up too. Then you need to walk the check request down the hall and maybe even a copy of the tax bill down the hall to get approval before you can submit the check request.

Some companies also require extensive approval processes for their payments. You have to make sure that you get the right signoff. Maybe multiple people have to sign off on your check request before the payment can be issued. And then, when everything is submitted correctly, you'll get a check back, and then you'll mail that check to the collector before the due date.

But imagine if you have hundreds or even thousands of tax bills. Did you pay all your bills on time? Did you have to send certain bills through certified mail? Did you save the proof of mailing? Just imagine how time consuming this tax payment process could be. Plus you're dealing with a lot of paper. You have to decide what to do with the paper. Do you file the bill away in a filing cabinet? Do you have to scan and name and electronically file that document away? And all of those steps obviously are very labor intensive. And finally, back to that poor tax person in the leasing company, that person now has the added bonus of having to submit an invoice to the client, usually through an accounts receivable process. So that means even more paperwork.

Now the final thing that most companies do with property tax is to calculate their tax estimate for the following year and maybe do an accrual. If you're responsible for truing up the accrual, well, you know just how much work it is to account for all the changes that could happen during that period of time. But let's start with step one.

The first thing I need to do is generate the estimated tax for next year. Now why is that so hard for a lot of companies? Well, most companies are estimating tax before they know what they're actually going to own in the following year. And what about depreciation? That asset is actually going to be older next year and therefore worth less than it was this year. And what about tax rates? Are those going to be the same next year? Are they going to be different? And what if I open up a brand-new location? How do I estimate tax in a jurisdiction that I've never been in before? Now these issues lead a lot of companies to simply take last year's bill amount and increase it slightly. Not exactly accurate, but it's too hard to account for all of the variables when generating the estimate when you're doing it manually.

But let's say that you've created your tax estimate. Well, now what? Now I might need to accrue for that tax amount. So I take last year's bill, I bump it up by 2%, and then I maybe divide it by 12. Easy, right? But what if I have a different accounting period than calendar year or a different divisor than 12? What if I accrue on the taxing district's fiscal year? Now the math isn't quite so easy.

But the hardest part of accruing is actually when something changes. Maybe I got the bill and it was more than what was expected. Now I have to true up the accrual to account for the difference. Maybe I put the entire difference into a journal entry. Well, that's easy. Maybe I spread the difference over the open periods. And that's just one of the many changes that could have occurred that month. Maybe I bought a new facility and I need to add it to my accrual. Maybe the assessment was less than expected when it came out, and that's great news. But now I need to reflect that lower anticipated tax bill in my accrual. You multiply all of these steps over hundreds or thousands of changes and that many properties, all of those things that could occur during the year, well, that's a lot of data collection and a lot of math that I have to keep track of during that period.

Any of these issues sound familiar to you? What we've discussed are the general issues that companies can encounter with property tax. But some industries have their own more significant challenges. For example, maybe your company has oil pipelines. Well, that's one asset that might need to be broken up into the various counties that the pipeline process so I can file appropriately. Maybe I have to file to the state as opposed to filing to each county. Maybe I have to file a special return for my industry, like airlines do. Or maybe you're in the equipment leasing business and you have your own challenges, obviously, that are unique to leasing.

So we've talked about all of the challenges that a company can encounter during the compliance process. But let's next talk about the importance of a strong tax management process. I've had companies ask me in the past, "If all of this property tax compliance is so difficult, why do I have to do it at all?"

Well, we've talked about some of the consequences of not filing returns or paying taxes. At minimum, you're going to incur fines and penalties. But it's not just about the fines. Think about where the property taxes go. It's a local tax, which means it's one of the biggest sources of revenue to support things like public schools and roads and other county infrastructure needs.

So if you work for a big corporation and you're not paying your property tax, imagine all the bad publicity that's going to go along with that. And with personal property tax, it's not as easy for a county to foreclose on the property to force things like a tax sale to recoup the taxes like they can with real property. So instead many counties resort to taking out ads in local newspapers to announce companies that don't pay their taxes. I had a client who had a news article published in the local paper about how the company was stealing from the school children by not paying back property taxes. Obviously not the kind of publicity that that company wanted.

Or worse, maybe you have an office or a store in that county and the local sheriff rolls in and closes your location for non-payment of tax. Now I can't even do business at all. You might have your property sold at auction, or you could be the subject of a lawsuit.

So while most of us look at property tax as a bit of a nuisance tax, especially when it comes to personal property and all the filing requirements that go along with it, you have to remember that the local governments fund most of their programs and pay for their public schools through property taxes, and no one wants to take money away from the school kids. Usually issues with property tax are an oversight. Maybe the bill was sent to the wrong place or because nobody at the company knew they had to file for property taxes.

Okay, so we talked about the worst-case scenario where you don't pay your taxes at all. But like I said, most companies aren't trying to avoid paying their taxes, but because property tax is again looked at as a nuisance tax, many companies don't prioritize having a good compliance process in place. So what happens when you pay your taxes but you have a bad process for property tax?

Now most bad processes have a few things in common. The first is that they start with staff who don't know the rules for how property tax should work or where to get the information on how to file returns. For most of you in this boat, I highly suggest looking into IPT. It's the Institute for Professionals in Taxation. It's the leading property tax school in the country and will help those of you who are new to property tax to understand the tax law.

But let's say that you're no stranger to property tax. Now the next most common cause of a bad process is that the process isn't automated. You're dealing with paper. You're dealing with a lengthy and cumbersome data collection and cleanup process, and you're trying to keep your head above water quite frankly. That leads to a lot of worker burnout. And property tax in particular is susceptible to this because of the timing of the compliance requirements. The vast majority of those returns are due in the first or the second quarter of the year, and that means that you're scrambling to complete the data collection, cleanup, and return filing process all in the first like four months of the year. Plus property tax isn't usually that person's full-time job. They tend to have other job responsibilities that they have to keep up with during that period of time. So it's enough to make anyone very overwhelmed. It's a lot of long hours with stacks of paper and Excel spreadsheets.

Another common consequence of a bad process is the inability to accurately budget or accrue for property tax. That's because your data is all over the place, right? You don't have time to do all the research that you need for accuracy, so the best you can do oftentimes is to take last year's bill and increase it by a percentage. Obviously there are better and more accurate ways of estimating, and the same goes for accruals. If your data is all over the place and you're constantly getting new information related to your properties, well, it's a bit like drinking from a fire hose. It's too much information and not enough time to do anything useful with the information.

And the most important consequence of a bad process is actually overpayment of tax. If you don't have time to fully analyze your property tax information, you won't know if you're paying the same bill twice, or if you were over assessed, or if you missed a bill or a filing deadline and now you've got to pay penalties. You're simply stuck paying the bills you receive and hoping that you paid everything and the amounts are correct.

So we've talked about all of the issues with property tax. But how can we better address the property tax compliance process, and how can CSC help with that? PTMS is our property tax software that automates the entire compliance process from return filing to bill payment to property tax accruals and everything in between. It works to manage real and personal property tax compliance across the United States and Canada. It creates returns for virtually every industry from big accounting firms doing compliance on behalf of their clients to airlines, leasing companies, and everything in between. PTMS is the most widely used property tax software in North America, with over 70% of the companies who use software using PTMS.

Now you might be wondering why so many companies are using PTMS. Well, quite frankly, it allows you to take back control of your property tax, so you spend less time on compliance and you spend more time on the work that actually saves your company money. PTMS leverages work completed in prior years to eliminate the need to reclass assets to eliminate the need to clean up data or remove non-taxable costs and even fill out the returns. It automates all of that. So it really learns from what you've done in the past so you don't have to do it again the following year. It includes returns and depreciation schedules and tax rates from across the U.S., eliminating the need for you to research filing requirements. And it improves the accuracy, obviously, of your forecasting and your accruals.

So how does PTMS make you more efficient? Well, in a nutshell, it streamlines the process and saves you time. It makes it easy when you have to deal with large volumes of data. It allows you to automate both the paper and electronic filing of your tax returns, and returns are automatically generated and stored, which removes the time involved for copying the returns for backup. The AP integration takes away having to do manual check requests. It also removes time for the AP staff having to manually enter in check requests into the accounts payable software because we can integrate. The integration results in less errors, right, because a person isn't manually touching every point in that transaction.

And for large tax bill payers, leveraging OCR technology makes the manual data entry off of bills and assessments kind of a thing of the past. Instead I just scan my notices and bills, and PTMS extracts and validates the data from those documents. So I'm not really touching the documents at all.

It really allows me to focus more of my time on the analysis and the decision-making part of my job by automating the processes that I have to perform every year, such as the cleanup and the return filing pieces. It kind of puts me back into the driver's seat, and I put the most important work first now.

And quite frankly the most important part of a software is the support, and that's why PTMS has a client retention rate of over 96%. We have an extensive tenure in our support staff. The average tenure in our support department is over nine years, and with that, the tenure brings knowledge of not only PTMS and how the software works, but also a deep knowledge of property tax and the critical challenges faced by our clients.

We customize the implementation of PTMS for each customer. We scope out your goals at the beginning of implementation, whether that goal is to file returns faster or maybe even to improve the ability to accrue. And we'll work with you to design a business process to accomplish that goal.

We also provide our clients with access to property tax information, including tax return filing requirements, jurisdictional contact information, due dates, unique calculation methods that are used by each county, and a comprehensive list of tax rates across the country. So we're doing all that research for you.

But most important is the people. While our clients love our software, they actually love our support more. Our average NPS score is 98%. Anything over 80% in the software industry is unheard of. Our people are what make our more than 700 clients successful.