Examples of Outsourcing in Commercial Property Tax Management

As I explored earlier in this series, outsourcing should be limited to functions that don’t give away strategy or make up your “secret sauce.”  

But when it comes to commercial property tax, determining what to outsource can be a challenge. That’s because the property tax lifecycle is complex, with diverse stakeholders, dependencies, and significant volumes of data.  

So what are we seeing being outsourced? Are there any notable trends in the industry? I’ll explore this below, along with what we don’t typically see being entrusted with a third party.

Examples of Outsourcing We’re Seeing in Commercial Property Tax

Outsourcing to Multiple Providers

Increasingly, one of the major trends we’re seeing is organizations outsourcing components of their commercial property tax portfolio to multiple third parties, rather than a single national entity. Why is this the case?

Primarily, it has to do with the third parties’ local knowledge of the assessing authority or jurisdiction. For national providers that don’t have local presence, it can be difficult to stay on top of the nuances at the jurisdiction level.  

Local consultants or third parties, on the other hand, can help you take full advantage of benefits built into the local tax code. What's more, they often have relationships with local assessors, and can leverage these when working with you. They’re also more likely to be familiar with local market rates, key deadlines, and local regulations.

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Appeal Assessment Reviews and Identification

The appeal process is perhaps one of the most common outsourcing examples we see in commercial property tax. That's because it typically requires local knowledge and representation and is generally inefficient for property owners or occupiers to manage in house. Third parties can help you answer questions regarding the valuation parameters, legislation, and tax policy in the jurisdiction that drives your property assessment.

Typically, we see components of the following areas being outsourced:

• Reviewing assessments and identifying appeals,  
• Sourcing missing or incomplete data from jurisdictions, such as assessment notices and tax bills, and
• Filing and execution of property tax appeals, including negotiation and litigation

Working with third parties allows you to leverage their existing relationships, quickly ramp up efforts, and wind down the engagement as needed.  

What We’re not Typically Seeing Outsourced

The outsourcing examples provided above have one thing in common: while consultants will make recommendations that impact your business strategy, decision-making and business strategy ultimately stays with you.

While this is partially to ensure you protect confidential or sensitive data, it also ensures key business decisions are made by those that know your portfolio best: you.  

Outside of business strategy, there are some other key areas we don’t typically see being outsourced.

Budgeting, Forecasting, and Accruals

While companies may seek advice and insight on market trends, budgeting and forecasting is almost always completed in house.  

Forecasts and budgets often require inputs from various departments, a task that can be made difficult when managing data permissions, user roles, and relationships between a third party and business departments. Further, there’s often company-specific nuances to take into account, such as fiscal periods, planned acquisitions/dispositions, construction, and development. There can also be highly sensitive data involved that firms want to keep confidential.  

Similarly, accruals are often completed in house, because property tax accruals need to tie back to internal, overall financial accruals and is traditionally an accounting function.  

That said, we do see companies seeking external advice from consultants in the development of their forecasts and budgets. Often, we see examples of this in identifying industry and jurisdictional trends.

Reviewing, Approving, and Paying Tax Bills

While companies may have third parties review or verify tax bills, payments and processing of these bills often remains in house. This allows companies to operate on an “assembly line approach,” in which they’ll run reports, review internally, then request a second opinion from consultants.  

The exception to this is when companies are using a dedicated property tax management software, in which case they may review with their consultants collaboratively.

Payments themselves are typically not outsourced, largely due to cost. Third parties may charge high fees in exchange for shouldering the risk associated with late or incorrect payment penalties. Again, however, there are exceptions to this: there are companies that specialize in tax bill payments, and manage tax bill payment processes for firms.  

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Are you considering outsourcing business activities within your property tax management strategy, but not sure what areas make sense for your company? In the next post, we’ll provide advice and recommendations for optimizing your commercial property tax outsourcing arrangements.  

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SPEAKER BIO

This post is part of Rethink Solutions’ Rethinking Your Property Tax Management Outsourcing Strategy series, where we provide tips and advice for optimizing outsourcing engagements. This series is written by Mordechai Katzman, President of Rethink Solutions. Mordechai has more than 20 years' experience advising firms on property tax management strategy, technology, and processes. He has spoken locally and internationally at events for the International Property Tax Institute (IPTI), Insititute for Professionals in Taxation (IPT), and the Council on State Taxation (COST), to name a few.  

For more posts in this series, or to explore our collection of property tax management resources, visit our blog.