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How small and midsize businesses are managing property tax

Do small businesses have an easier time managing property tax than large enterprise companies? You may think so since they generally have fewer assets to manage. However, small companies also tend to have small teams and are less likely to have a dedicated tax team with property tax expertise to help comply with a complex process. And those companies with dedicated tax teams often focus on other tax compliance tasks like excise or sales and use tax management. In this post, we’ll break down some of the challenges that small and midsize businesses face with property tax compliance and how having a dedicated software solution can help.

Property tax is complex regardless of size

Even small businesses can face huge property tax challenges. Real property tax — on land, buildings, and fixtures permanently attached to the property — is relatively straightforward. It applies in all 50 states, and the records you need to maintain for it are easily accessible. An assessor will evaluate your property and mail you a bill when it’s due a few times a year.

Personal property tax is where it gets tricky. Personal property includes things your business owns, like office supplies, furniture, computers and electronics, and heavy machinery. While not all states tax personal property, 37 states require local companies to file yearly property tax returns. This means your business is responsible for determining the value of your assets, determining their asset class and taxability, determining depreciation, and calculating their final value. Your company must keep good accounting records for this process; the better you organize your fixed assets and the paperwork detailing how much you paid, when you bought them, and what they are, the easier it is to file. 

And the process isn’t over when you file a return — an assessor will estimate the fair market value of your personal property. Most of the time, the assessor won’t account for abnormal obsolescence your assets may be experiencing.

If you feel your real or personal property has been assessed unfairly, you can submit an appeal. This process takes time and effort; a small tax team might need more resources or expertise to complete it.

How and when you pay your property tax bill can increase the level of complexity

Only some states have a straightforward process for managing property tax compliance. Personal property tax in some states can be downright mind-boggling. Some states don’t have a standardized return and depreciation form; some let you e-file or require paper returns; some even sprinkle due dates throughout the year or require more than one form to file. If your business has personal property in various states, like warehouses full of machinery in Michigan and offices with electronic equipment in Oregon, your tax compliance just got much more complicated.

Again, a small or midsize business may need more time to track all the return dates and requirements. The time to file property tax returns  only comes around once or twice a year, and it’s not always an ideal time to dedicate extra resources.

A dedicated property tax team may not make sense for your business

Many larger companies have a dedicated team or person to manage property taxes, but that’s not always feasible for small and midsize organizations. Even if you have a dedicated tax person, they’re probably busy handling sales and use tax, communications tax, and other industry-specific taxes. This can spread resources thin.

Many businesses outsource property tax tasks to an accounting team or professional services. This can get costly, and anyone who has tried to get a CPA in March knows that good teams get busy during peak times.

Some businesses take a DIY approach. Since this process only happens a few times a year, their teams might have to reacquaint themselves with it every time, and hope they’re getting it right. Property tax mistakes can be costly. Missed deadlines can result in penalties, and if you miss your window to appeal an unfair assessment, you can leave money on the table.

Either way, property taxes usually mean your business gets a big bill every year or a few times a year. It can be a hit to your budget if you need to set funds aside to deal with them.

Your company might find that an automated software solution makes property tax management a little more … manageable. Depending on your solution, you can get guidance on which returns to file, which forms to use, and what is and isn’t taxable in your state, cutting down hours your team might otherwise spend researching taxability rules and digging through files for old receipts. In addition, a software solution can reduce the risk of human error, giving you peace of mind that your returns and bills are more accurate, saving you money in the long and short term.

A property tax compliance solution

Avalara Property Tax can help your business simplify real and personal property tax management with automated workflows that make returns more accurate and less labor-intensive, as well as a calendar to help your team track returns, appeals, and bill deadlines. 

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