Roadmap for Property Tax Success

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Annie: Hello, everyone, and welcome to today's webinar, "Roadmap for Property Tax Success." My name is Annie Triboletti, and I will be your moderator for today. So joining us today are Vince Laurelli from Canon Financial Services and Kristen Wilder from CSC. And with that, I'd like to welcome Vince and Kristen.

Vince: Hi, everybody. I am Vince Laurelli, tax supervisor at Canon Financial Services. We are a leasing company for the wholly owned subsidiary . . . We're a wholly owned subsidiary of Canon USA. We support the Canon brand. And I have been here for 15 years. We have over probably 2,000 assets that we handle in our portfolio and file probably at least 3,000 to 4,000 returns annually. So we're a little busy.

Kristen: Excellent. And I'm Kristen Wilder with CSC. I've been with the company for 22 years. And we'll be walking you through the presentation today.

Let me give you a little bit of background on CSC. CSC has been the partner of choice for companies around the globe, trusted to handle everything from incorporating a company through maintaining compliance to corporate transaction work, protecting digital assets from the threat of the online world, and everything in between. We offer the solutions and technology that keep businesses running in the background, allowing clients to focus on the important work of growing their business. A little bit about us.

For the agenda for today's session, the first thing we're going to talk about are some property tax basics. What is property tax? What does the cycle look like? We'll also talk about property tax challenges that are encountered by a lot of companies. And then we'll talk about the importance of a strong tax process. Finally, at the end, we'll talk about how CSC can help with those property tax challenges, and as Annie mentioned, we'll have a Q&A at the very end of the session. So make sure you stick around.

So without further ado, let's talk about some property tax basics. Okay. So there's two types of property tax, right? There's real property, and there's personal property. Real property is the land and the buildings that you pay tax on each year, while personal property tax is the stuff that you own, like the desks and the chairs and the computers.

In terms of who manages that, there are two different government branches that manage the property tax process, and in most instances those departments are at a local level. So it's a local tax and it's county or sometimes lower. Now the branches consist of the assessor, that's the person who determines the value of your property, and the collector, that's the person who applies the tax rate to your value and who collects the tax.

With real property, the assessor knows what property that you own because the information is recorded and because real property doesn't really change all that often. So no tax return is usually required. Now with personal property, the assessor doesn't know what you own because those assets can be transitory, right? You might not have them one year to the next. So you're going to be responsible for filing an annual return manual list of your property. Today we're going to spend most of our time talking about personal property tax compliance.

Let's talk about the cycle. Property tax is a very cyclical process. It's really comprised of four major steps. The first step is data collection and cleanup. Now this process usually begins right after the assessment or the lien date for each jurisdiction. So 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 or somewhere around there. There are some states that have a different assessment date, like Connecticut. But most of the time it's January 1st.

Now during the data collection process you'll be required to compile a list of all the assets that you owned as of January 1st, and then you have to break down those assets into different classes for the return filing. So that means you have to research jurisdictional filing rules and the categories to make sure that your assets are properly grouped on the return.

You'll also want to know what kinds of assets are taxable and which ones aren't, as well as which types of costs that need to be included or backed out of an asset cost. So for example, I don't know, let's say you purchased a computer. Part of that computer's cost might actually be software or sales tax or freight or installation or training, which may not necessarily be taxable. So you'll want to make sure that you remove those costs before you file the return.

Many jurisdictions also require you to reconcile asset changes from the prior year. So that means that not only do you have to know what you're going to file on this year's return, but you also have to know what you filed on last year's return in order to note changes. And the changes would be things like new acquisitions and disposals and cost changes and asset transfers. And most of this cleanup process has to happen in a very short period of time, typically the beginning of the year so that you're ready to file the returns when they're due.

Now return filing is the second step. This usually happens in the springtime. Here you need to figure out what form that you need to file in the county, and you need to figure out what county that you're in so you know who you're filing to, which again requires some research. Then you have to fill out the forms, either a paper form or an online web form, with the asset data that you've collected. Then most companies need to get an executive to sign off on the form. And in the case of paper returns, then you have to physically mail the form. You have to do all of this before the due date, and you have to determine the due date, so you need to do some homework again. Again, hopefully you're noticing that there's a lot of homework in here.

The third step in the process is assessment tracking. Now this is when the assessor has received your return, they've depreciated your assets, and then they're going to send you a report back with the total taxable value for your property. Assessment tracking is actually 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 assessor sends you a bill. So this process will usually start in the fall or the winter time frame, although some bill due dates can even stretch into the following year. And remember, that's when you're going to be busy doing the other first and second steps, filing returns and cleaning up assets. So you've got a lot of moving parts that you have to pay attention to. So you get the bill, and then you need to pay it by the due date.

Now I'm actually going to add two more additional steps that are not on this slide. They're outside of the compliance process, but most companies have to deal with these issues. And that is they need to manage audits when those occasionally pop up, and a lot of times they need to budget or accrue for the annual taxes. So that'll be kind of laying on top of all of this.

It's a lot. I mean, it's a lot especially if you have a lot of locations or assets spread across the country.

So let's look at some common property tax challenges, and I'm going to do this based on cycle. So remember how we said step one was data collection. Okay. So one of the big issues is figuring out what you own and what the cost was.

Now that data is usually coming from another source system, like a fixed asset software or a lease management software. But many of you probably track assets that you lease and don't own outside of the fixed asset system, maybe in a spreadsheet. Those have to be filed for even though you don't pay tax on them. You might have expensed assets tracked externally as well. So you'll need to merge together all of your various asset sources before you can properly file.

You also need to make sure that you're reporting the assets properly. That means you have to go to each assessor's website and get the filing requirements. Then you have to break the assets into the county's categories, which might be very different than the categories that your company tracks on the asset. You need to know what's taxable, what costs have to be included, and which ones can be removed. And that's a lot of work that you need to do manually on each asset record. I mean, I just imagine with Vince having 200,000 assets, it would be nearly impossible to go through those 200,000 to note changes because it does need to be tracked asset by asset.

You also need to know what changes happened in the prior year. Did the assets move? Did they drop off the return from last year? How do I know what changed? The only way to know is if you manually compare each asset against the assets listed on the prior year return. So it's a lot of manual work.

All right. So what are some issues with return filing? So I've cleaned up my assets. I've removed the non-taxable costs, and I've categorized the assets based on the county's requirements. Now I get to put all that data onto a form, onto a return. So here are some of the bigger challenges.

The first is I need to know when it's due. For that, I have to go and research, right? I have to go to the county's website, or I have to call them and figure out when I have to file this by. I need to know what form to file. Same thing, I either research on the web, or I call the county.

Now the other thing that you need to figure out is how do they want you to file, and what I mean by that is some industries you can file one return for the whole county for all of the assets. Sometimes they want one return for each location. Sometimes it's arbitrary, and they have an account number that they've assigned to your property. And again, all of this is research and communication with the assessors.

Finally I have to fill out the piece of paper, and I have to do it correctly and I have to do it by the due date. 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 is very long hours of working to make sure that you meet the deadline in that really short window of time. And some companies don't have the bandwidth to do all of that plus like the rest of their job duties, maybe income tax or sales and use tax, and they can't do it all at the same time. So if your company is strapped for time, many will resort to filing either inaccurate returns or not backing out the non- taxable items, which in turn costs the company money down the line.

Now the next biggest issue is actually with assessments. So the assessor sends you their notice of value. Now a lot of companies will take that little piece of paper that they get, they'll simply look at the notice, and maybe they'll compare it against last year's number, and then they throw that piece of paper into a filing cabinet. Sounds pretty simple, right?

But what if the assessor's value is too high? How would you know if the value was too high or a mistake was made? The only way to know that is you actually have to depreciate the assets. So you have to know what your asset values are because if you bought a computer five years ago for $1,000, it's no longer worth $1,000. Here's the problem though. Each county can have their own depreciation factors for the same type of equipment. So I might have one factor on computers in Dallas County, and right up the street in Tarrant I might have a totally different factor that applies to the same asset. But again, the only way to know if the assessor is valuing the property appropriately is to do this calculation. So again, 200,000 assets like Vince has, that takes a while and especially the research with the depreciation schedules.

Let's pretend that there was a mistake. Well, what do I do now? I need to appeal the value, which requires even more research into what appeal forms do I need, what appeal deadlines do I have so that I can protest that value. And here's the thing with appeal deadlines. They're usually really short, like you might have 30 days to evaluate and appeal your assessment. And 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 a lot of people skip this step, and instead they just do a quick which way is the wind blowing, is it spot check to see if it's roughly the same, and then they won't appeal.

Now with tax bills and payments, you actually get the bill from the county that you need to pay to the collector, and you need to pay it by the due date. But that's not all that you're doing at this stage when you get a bill. I mean, yes, you get the bill, but you need to validate that everything on that bill is correct and that it ties to the assessment that you received, that you just don't maybe even own the property, and that the tax rate was correctly applied to the bill.

You also want to make sure that you've received all of your bills for the property and that you didn't miss one. Maybe the bill was lost in the mail. Maybe it was sent to the field location instead of the corporate office. You're still responsible for paying a bill even if you didn't get it, and you need to make sure you pay it before the due date. If you don't, then you're going to 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.

So you validated the bill, and everything looks correct. The next thing that you need to do is fill out a check request. Now most companies require vendor information for the collectors in order to process the check request. So that means that you're going to be looking up your vendor code and applying it to the check request before you can send it over to accounts payable. You'll also need to look up things like the tax account for the property. Do I need a cost center or other accounting codes in order to issue the check? So now you have to look those up too. Then you need to walk the check request and a copy of the bill probably down the hall to get an approval before you can submit it. And finally, when everything is submitted correctly, you'll get the check back. Then you'll mail that to the collector, and you need to do it before the due date.

But imagine if you were like Vince and you had hundreds or thousands of tax bills, how time consuming that 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 each file electronically in order to store it not paper? All of these steps are very, very labor intensive.

Now that fifth and final piece, again not really related to compliance, but most companies have to deal with budgets, right? You have to budget for property taxes. And if you're responsible for doing something like an accrual and then queuing up the accrual, with all those little changes that could happen throughout the year, it's a lot of work to account for all of those changes.

But let's kind of start with step one. I need to estimate tax for next year. Why is that so hard? Well, with most companies, you're estimating the tax before you know what you own in the following year, right? I don't know what assets that I have. I only know what I had last year. And what about depreciation? The asset that I know I have is going to be a year older next year, so it's worth less. What about tax rates? Are those going to be the same next year? There's lots of scenarios that you could encounter. Maybe you're opening up a brand-new location. How do you estimate tax in a jurisdiction you've never been in before?

These issues lead a lot of companies to simply take . . . a lot of them take last year's tax bill amount and then they increase it slightly. Not super accurate, but it's too hard to account for all of the individual variables.

Okay. So let's say that you've created your tax estimate. Now I need to accrue for that tax. So I take last year's bill, bump it up by 2%, then divide by 12. But what if you do 4-4-5 accounting? Or what if you accrue on the taxing district's fiscal year? That requires more research to have to figure out what the taxing district's fiscal years are. And now the math isn't quite so easy.

But the hardest part of doing the accrual is when something changes. Maybe you got the bill and it was more than what you expected. Now you have to true up the accrual to account for the difference. Maybe you put the entire difference into a journal entry, so that's one more step. I have to create the journal entry. Or maybe you spread the difference over the open periods. Okay, well, that's math. So now I have to go back and I have to recalculate. It's just one of many changes that could have occurred that month. Maybe you bought a new facility and you need to add it to your accrual. Maybe the assessment was less than expected. Well, that's great news, but you need to have that reflected in your accrual. Multiply this by hundreds or thousands of accounts, and it's a lot of data collection and a lot of math.

I'll bet that some of these issues sound familiar to at least a few of you. And what we've discussed are kind of the general issues that companies can encounter with property taxes. Some industries have their own much more significant challenges. For example, maybe your company has oil pipeline. Well, that's one asset. Maybe it's 700 miles long, and it needs to be broken up into the various counties so that you can file appropriately. And maybe you have to file a special return for your industry, like airlines do.

Or maybe you're like Vince, in the equipment leasing industry, and you have your own challenges that are unique to leasing. Vince, do you want to talk about your biggest issue?

Vince: Sure. Thanks, Kristen. So being a leasing company and, as I mentioned before, having over 200,000 assets has its own challenges. First off, how do I identify jurisdictions for a high volume of new addresses, especially in states like Texas? Some states out there you can file by county. That's somewhat easy. It's usually easy to identify what county an address is in. But some states out there require you to file to the city or even the township. That makes it a little more difficult to identify. What comes to mind is the state of Indiana. They require you to file by township, and that information is not easily found. You can manually look stuff up on the internet. It's time consuming. And the information, is the information available?

Next how do I accurately bill back tax to my customers? Being a lessor, we pass the property tax that we pay on to our customers, and we need to accurately bill that amount back to the customer. But with all those assets, we have thousands and thousands of customers and along with all those assets, that's a lot per jurisdiction. I mean, some jurisdictions, we may have two assets. Others, like Los Angeles County, we may have tens of thousands of assets.

Kristen: And the issue there, Vince, right, is that you're only getting one assessment for that county? You don't know how much each asset is worth, right?

Vince: Right. And spreadsheets are helpful, but they're bulky and time consuming. And like Kristen said, sometimes you get an assessment back for a thousand assets that's just one amount. How do you figure out what to allocate to each asset so that you can accurately bill to each customer?

And how do you efficiently prepare your returns and pay your bills? With thousands of returns, we probably file close to 4,000 or so returns, and all those bills. I mean, it's a lot to do, and manually doing it is very time consuming.

Another item that's not mentioned here is how do you track all your data? With filing returns and paying bills, you can do what I used to do back in the day and make copies. Then you've got to put all those copies in folders in file cabinets, and that takes up a lot of room. Especially these days, how many people are having big offices anymore? Some are cutting back because people are working from home.

And how do you track did you file all your returns for all your states, and were all your bills paid? Did you make sure that you got all the bills that you were expecting? Without having a way to have all that information, it's a lot trying to track all that.

Kristen: So let's talk now about the importance of having a strong compliance process. But first let's talk about the downside. What are the consequences of not complying?

Well, we talked about a few of them, as we kind of went through the presentation, of not filing a return or paying your bills. At minimum, you're going to incur fines and penalties, and you're going to pay a lot more when you get caught. Or worse the sheriff rolls in and closes your location, and you can't do business at all. You might have a property sold at auction. Or you could be the subject of a lawsuit.

Now, Vince, you've been in property tax a long time. What's the worst horror story that you've heard?

Vince: Well, probably one that comes to mind would be a situation we had, I want to say, a few months ago. It happened in the state of Texas. Our legal team was looking to repossess some equipment because the company was going out of business. And they happened to go down to the office they were at, and they happened to try to repossess the equipment. Well, their to their dismay, the doors were closed, and neither the customer nor Canon could get into the building. But it turned out that what had happened was the customer didn't pay their own property taxes, so the jurisdiction wound up locking them out of their building.

Kristen: Wow, so they couldn't even do business, and you couldn't recover your assets. That is pretty bad.

Vince: Yeah.

Kristen: Now most companies don't have quite that stark of an issue. Most companies are compliant, meaning they tend to file their returns and they tend to pay their bills. But they might have not the most optimal process in place when it comes to compliance. So having a bad process, that leads to its own downsides as well. Vince, what are some of your experiences with a bad process?

Vince: So with having a good process, I mean prior to having property tax software, everything was done manually. Whether you were getting returns from the jurisdictions, filling them out manually, photocopying them, it's very time consuming. And in regards to copying all those returns for your own purposes, it's not very environmentally friendly. You're wasting a lot of paper just to keep copies of stuff, which you do need, but it can be a lot, especially with filing thousands of returns.

Kristen: Sure. I bet. So the next thing we're going to talk about is how CSC can help. PTMS is our property tax software that automates the entire compliance process, from return filing to bill payment, property tax accruals, and then everything in between. It works to manage real and personal property tax compliance across the United States and Canada. And it creates returns for virtually every industry, from the big accounting firms doing compliance on behalf of their clients to airlines to like, Vince, equipment leasing companies. PTMS is the most widely used property tax software in North America. With over 70% of the companies who use software, they use PTMS.

Some of the benefits of PTMS, the big one is that it just allows you to take back control of your property tax so you spend less time on you filling out a form and collecting data. So you can spend more time instead on work that directly saves your company money. PTMS leverages work that you completed in prior years to eliminate the need to do things like reclass assets or clean up the data every year or remove non-taxable costs every year. It even helps to fill out the forms. You only have to really do that once, and then all of those form questions are remembered from the prior year. So it learns from what you've been doing so you don't have to do it again and again and again. It includes returns and depreciation tables and tax rates from across the U.S., so that eliminates the need for you to research filing requirements.

Now, Vince, you've used PTMS for a long time. What are the biggest benefits that Canon has seen over the years?

Vince: Well, PTMS streamlines the whole process and saves you time. With the large volume that we deal with, it makes it easy to manipulate and handle all that data. It also allows you to create files for eFiling. And it also allows you to save the returns and removes the time involve copying returns for backups.

The other thing I probably should mention too is the fact that PTMS is very friendly when it comes to and compatible with using Excel. So it makes it great for being able to either bring things in from Excel or take things out of PTMS into Excel, manipulate it, and then bring it back.

The AP integration takes away having to do manual check requests and also removes the time for AP staff entering check requests manually. So there's less errors. Also the AR integration also makes client bill backs a breeze. I heard you guys are even releasing a new API that can calculate the amount of taxes there at the beginning or end of the lease right from my lease management software. That sounds pretty cool.

Kristen: Yeah, you heard right. We just released that. So yeah, you can you can calculate the tax from within another software, which is pretty cool, especially for leasing companies that have to bill back at the end of a lease and you may not have the bill yet, right? So it helps with all of that.

All right. And, Vince, this is my last question for you. Why have you been a PTMS customer for so long? I mean, there's lots of other property tax software systems out there. What would you say makes PTMS and CSC different?

Vince: Well, all through my career I've worked mostly for leasing companies. One company that I did work for we did check out other leasing software, but I personally found that PTMS seemed to be the best out of what was available. It's not perfect. No software is perfect. But working with CSC, even if you do have any problems, they're right there. They're right there to fix anything. They're right there to support you. The staff is great. I've been using PTMS, as it was probably mentioned before, since 1999. The people and staff are literally like a family to me anymore, and I can't say enough about how great the software is and how easy it is to use. It makes your life so much easier than doing it the old-fashioned way.

Kristen: That's great. I'm glad you had such a good experience.