Who's Running the Show? Implementing Centralized Management of Property Taxes for a Global Portfolio
Wilkes, David C., Real Estate Issues
MANY PROPERTY TAX AND ASSET MANAGERS who oversee a global portfolio of real estate would be hard pressed to answer the seemingly simple question: "How much does our company pay in annual property taxes?" This reality may come as a surprise to many senior finance and facilities executives. Global property tax managers frequently don't know the answer to this and an array of more particular questions concerning tax liability for the company's overseas facilities, and it's not because they lack intelligence, competence or initiative.
Often, large global portfolios are poorly understood because overseas properties and businesses may have been acquired with existing local managers in place, and sharing data with the home office can be a complicated task. Overseas facilities managers commonly store data in multiple formats, systems, languages and currencies, and those systems usually aren't designed for property tax and valuation analysis. Likewise, if the company has invested in property tax-specific technology at all, management is likely using a system designed for compliance purposes in the U.S., such as the completion and filing of tax forms required by the local jurisdiction--not for global management and valuation.
As a result, the home office may virtually ignore properties in other countries, leaving them to the attention--or lack thereof--of local regional managers over whom the so-called global tax manager may have little control. For example, most large U.S.-based multinational owners will have a fair or solid understanding of U.S.-based facilities and the local tax regimes that apply, even across many states that may include real and personal property taxes.
But they will have little hands-on information about properties located outside the U.S., relying almost entirely on local site managers and external tax appeals providers to tell the home office what to do with regard to local taxes.
Data management is a key component in maintaining an effective ongoing strategy for managing taxes for a large, global portfolio of fixed assets. Unfortunately, even when a company uses anything more than a common spreadsheet-based program to track global tax data ad hoc, these tax-specific database systems typically are the product of consulting firms that specialize in tax-appeal services rather than management services.
Thus, the systems provide little in the way of analytical tools, such as valuation analysis, because those who offer the systems seek to perform the analysis--and consequently drive the determination of which properties to appeal, what the parameters for success are and whether the results are laudable. In short, most technology serving the industry is not created with the interests of the client, the property owner or tenant in mind.
Worse yet, in many instances these database systems are highly labor intensive and cumbersome to use, leaving tax managers to resort to copying the data back into jury-rigged Excel spreadsheets to perform the analyses and benchmarking they require to manage the portfolio rather than simply administer it.
BOTTOM-UP VS. TOP-DOWN
Much of this plays into the common perception that it is easier and more cost effective for a real estate owner to control property tax costs almost entirely through an appeals-based, bottom-up approach instead of a centralized tax management strategy from which the tax manager retains principle decision-making power. The bottom-up approach, which relies on outside providers to highlight and pursue problem areas, is based on the illusory premise that the owner incurs no costs unless he or she realizes a savings, mainly the result of the common contingency fee-based arrangement for services.
This fully decentralized approach delegates far too much decision-making power to external providers and compromises cost transparency and strategy at the home office. It also provides little ability at the top level of management to understand the costs of the portfolio as a whole, consider which and why properties to appeal and how aggressively and efficiently to pursue those appeals, and seek tax relief prospectively instead of retrospectively. …