Understanding business property tax discounts and penalties

Property tax compliance requires managing a slew of paperwork, including returns, assessment notices, and bills with varying due dates. Many businesses lose track of deadlines or misplace important documents and end up paying more property tax than they would have if they’d paid on time.

A 2022 survey by Potentiate and Avalara found widespread penalties for compliance errors:

• For real property tax, 41% of respondents owe penalties 25% of the time
• For personal property tax, 51% of respondents owe penalties more than 25% of the time 

The cost of these penalties can be substantial:

• 61% of respondents are penalized from 5% to 15% on real property tax bills
• 62% of respondents are penalized from 5% to 20% on personal property tax bills

You may be more at risk if you manage property tax manually. A wall calendar is only reliable if you check it regularly and correctly enter due dates. Otherwise, it becomes a liability, leading to late and sometimes legal fees, especially if you file returns in many jurisdictions. Penalties can even be worse than liens.

Property tax is more complicated if your business has offices, stores, or warehouses in multiple jurisdictions. Each county sets its own filing deadlines for personal property tax returns. You’re responsible for ensuring you list all assets on your personal property tax returns and submit them on time.

Most penalties related to property tax returns are due to businesses making one of four mistakes:

• Failing to file a property tax return
• Filing a property tax return late
• Filling out the return incorrectly or using the wrong form
• Sending the return to the wrong address, resulting in a delay

If you forget to file your return altogether, the assessor will typically estimate a high value for your property. In that case, you’ll pay a higher tax amount and likely incur penalties. 

Staying organized is the key to making sure your returns get to the right place at the right time. An automated property tax compliance solution makes it easy to track deadlines, maintain contact information, prepare returns using current forms, and retrieve data from documents when you need it.

One way your business can save money is by appealing property tax assessments that you believe are inaccurate or unfair. There are many reasons to file an appeal, such as when an assessor under-depreciates your assets or if your valuation includes business personal property you no longer own. 

You typically only have 30 to 45 days after receiving your assessment notice to appeal. If you miss that deadline, you lose the right to contest the assessor’s property valuation. So be sure to notify the jurisdiction quickly of your intention to appeal. Submit a notice of appeal, then use the time before your hearing to gather your facts and prepare your case.

States have different requirements around what documentation you must provide. California requires businesses to list all the reasons for appealing the assessment and explain their rationale in their application to appeal. Anything not mentioned in advance can’t be brought up during the hearing.

You should pay tax based on the higher valuation to avoid penalties and late fees while you wait for a decision. In that case, you’ll be reimbursed if the appeal is approved.

By now, you’ve probably realized that you could be penalized for failing to pay your property tax bill on time. Unfortunately, even if a bill accidentally slips behind a desk or gets lost in the mail before it ever reaches you, it’s your responsibility to meet the deadline.

When it comes time to pay, you might just pop your check in the mail and assume you’re safe. While some jurisdictions accept payments postmarked by the deadline, others require your payment to be delivered to the assessor’s office by the due date. Not all jurisdictions accept metered mail.

If you’re in a rush, you can send your bill by overnight delivery. For more assurance around delivery, you can send it certified. However, the longer you take to meet your obligations, the more you may owe.

Software like Avalara Property Tax can help identify bills that have yet to be received and provide an interactive tax calendar to help meet compliance deadlines.

It’s essential to pay precisely what you owe. The assessor can tack on a penalty if you pay the wrong amount of tax — even if it’s just one penny less.

Mistakes can happen if your calculations are off. In this situation, your best recourse is often to ask for forgiveness. Maintaining good communication with the assessor or collector can help you determine if it’s best to send a second check for the remaining balance or if your business must also pay a fine.

Many jurisdictions reward businesses with a discount for paying their property tax bills early. However, deciding whether an incentive is the best option for your business depends on various factors.

Suppose you file property taxes in Oregon. Oregon allows businesses to pay tax in one lump sum or three equal installments with due dates of November 15, February 15, and May 15. The state provides a 3% discount for paying property tax in full by November 15 and a 2% discount for paying two-thirds of the tax by November 15.

Let’s say you qualify for Oregon’s 3% discount and pay your tax in one payment versus three installments. That’s more than a 12% annual return on your money and may be beneficial when compared against other risk-free returns.

Another example is if you file in a state offering a 1% discount and choose to pay your bill six months in advance. Since that’s only a 2% return on your money, you might instead decide to keep those funds in an account with a higher interest rate.

Or, say you have a small business, and your cost of capital is higher. Perhaps you’re paying your bills with your credit card. You may decide to pay later to avoid credit card fees.

Avalara Property Tax helps reduce the likelihood of penalties by simplifying real and personal property tax compliance across bills, returns, assessments, and appeals. The solution makes it easier to determine which bills to pay now to take advantage of business property tax discounts that fit within your capital strategy. By staying organized, you can focus on business priorities that drive profits.