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May 1, 2021

The Property Tax Lifecycle and Outsourcing Challenges

A high volume of data, diverse stakeholders, and dependencies make outsourcing difficult. Learn more about the lifecycle and the top outsourcing challenges.

As I explored in my last post, companies often outsource business processes where they can reduce costs, acquire skills, or improve efficiency. But when it comes to something as complex as property tax management, challenges in outsourcing quickly become clear.  

If you’re thinking about outsourcing some components of your property tax processes, it’s important to first understand the property tax lifecycle.

What is the property tax lifecycle?

The property tax lifecycle is a continuous process that is repeated annually and requires close attention throughout the year. While the dates and timelines  vary between jurisdictions, the lifecycle can generally be broken down into four key stages.  

Stage 1. Values/assessment management

To identify assessment inequities and determining what to appeal, tracking and reviewing the assessed values of your properties is essential. Your review may include an analysis of:

  • Value trends and comparable properties (both within and outside your portfolio),
  • Sales, cost and income data,
  • An examination of current incentives/abatements you may already be receiving, and
  • A detailed analysis of the assessment records/file.

Stage 2. Appeals and tax savings management

After determining which property values to dispute and filing your appeals, you’ll need a system for managing them through to resolution. This stage requires close attention to detail, and includes such tasks as:

  • Tracking dates and deadlines for events related to each appeal (e.g. hearing dates, meetings, settlement conferences, etc.)
  • Documenting refunds and offsets associated with each appeal, and
  • Managing any fees you incur as part of this process

Stage 3. Taxes

Of course, tax bills themselves must be paid. While it may sound simple enough, it’s important to first review and analyze your tax bills to ensure you pay the right amount. At this stage, it’s useful to ask questions such as, “How do tax bills compare to prior years?” and  “What about budgets and projections?”

If you secured any savings or offsets, you also need to ensure they are reflected in your tax bill(s). Finally, once the tax bills are reviewed, they typically undergo an approval process before being submitted for payment.  

Stage 4. Forecasts and budgets

Towards the end of the lifecycle or beginning of the next one, forecasting and budgeting becomes the primary activity. Most, if not all, companies are required to forecast their  future property tax liabilities as accurately as possible. This is necessary to generate accruals for accounting and finance.  

Forecasting and budgeting is incredibly complex, requiring data and inputs from each of the three previous stages. What’s more, it typically involves a high number of internal and external stakeholders and operates under time constraints.  

Without complete data or a holistic view of the property tax lifecycle and strategy, finance teams can struggle to produce timely, accurate forecasts.

property tax professional sitting on gears working on a laptop

The challenges of outsourcing in property tax

Clearly, the property tax lifecycle is a complex process with a high volume of data inputs and requirements, stakeholders, and dependencies. How does this make it challenging to outsource?  

1. High volume of data

In the U.S. alone, there are more than 17,000 taxing jurisdictions. If you’re part of a property tax team, you’re receiving data from jurisdictions, tenants, landlords, attorneys, and third-party advisors, to name a few. On average, you can expect to receive about 100 pieces of data per parcel.  

The volume combined with variety of data makes it difficult to outsource. Of course, a shared database can simplify things, but ensuring data is up to date and managing user access still requires close attention. Who has access to what data? Are stakeholders aware of new information or upcoming deadlines? This can be hard to manage if you’re working with a number of third parties.  

2. Internal and external dependencies

Many components within the property tax lifecycle depend on each other. For example, you can’t complete budgets or forecasts without accurate data of the refunds/offsets secured during the appeal process.  

Outside of the lifecycle, there are other factors within your organization that influence the strategy and objectives: things like acquisitions and new constructions have implications for property tax, for example.  

It’s no question that these dependencies make it difficult to hand over to a third party, who won’t have a complete view of your strategy and may lack access to critical information to make effective recommendations.  

Many stakeholders and collaborators

At each stage, various internal departments will be involved, including finance/accounting, property tax, and IT. What’s more, there are external stakeholders to consider as well, such as lawyers, consultants, and advisors.  

Each department and stakeholder will have various objectives, inputs, and requirements, all of which must be considered as part of the larger strategy. Similar to the previous point, any third parties may lack a holistic view necessary to make the right decisions for your business.  

Is outsourcing possible in property tax management?

Clearly, the property tax lifecycle is complex. However, that isn’t to say no part of it can be outsourced. Rather, components of each stage can benefit from engaging third parties for review, support, or a second opinion.  

So what areas of the property tax lifecycle can and should be outsourced? I’ll cover that in the next blog. To make sure you don’t miss a post, make sure to subscribe to our newsletter.

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.

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© 2023 Rethink Solutions. All Rights Reserved