Is outsourcing property tax compliance right for you?

There's a natural desire by CFOs and other real estate executives to maintain strict internal controls over every aspect of their financial system. After all, allowing a third party, however trusted, to process invoices or issue payments on the company's behalf is tantamount to handing over the keys to the corporate vault.

And yet, Business Process Outsourcing (BPO) is a growing trend in American business that grows no signs of abating. In fact, as real estate investors experience increasingly positive results from engaging third-party experts to handle selected non-core tasks, the search for similar returns from other areas intensifies. As one executive recently told us,

"We develop, manage and lease office space. If we are doing something internally that does not directly contribute to improving the NOI, I am going to find a way to outsource it."

The term "outsourcing" has been hijacked by politicians and the media to the point that it has become nearly taboo in today's politically-correct environment.

Though it has been misconstrued as being synonymous with lay-offs and the export of high-paying American jobs to India, Mexico and other third-world countries, true outsourcing is no more than the shifting of one company's non-core functions to a third party that makes those functions its core competency and can deliver economies of scale.

It does not always mean a net loss of American jobs. In fact, it often leads to employment increases on the domestic front.

For example, how many real estate investors--regardless of size--employ their own janitorial staff? The answer is virtually none, because companies long ago realized that hiring outside contractors to clean their offices was more cost-effective and, since the competitive marketplace was brought to bear, quality improvements could likewise be achieved. Initial concerns over outsiders' access to confidential files and other corporate materials were addressed by the bonding of contractors and the institution of commonsense security precautions. No American jobs were shipped to Asia in the process. To the contrary, a thriving new commercial cleaning industry was created in the U.S.

Fast forward several years, and few real estate owners and managers even think twice about engaging third-party contractors to manage their payroll, though they'd be hard-pressed to identify internal data more sensitive and proprietary than employee compensation and related personnel information.

So why should property tax compliance be any different? In fact, it isn't, as more and more American investors are discovering every day.

Property tax compliance represents an ideal opportunity for Business Process Outsourcing for several important reasons:

1. It is complex. With more than 10,000 state and local taxing jurisdictions scattered across the country, no corporate tax department, regardless of size, could be expected to optimally analyze the data, research tax laws and rulings and effectively negotiate with so many governmental bodies to minimize their property tax burden.

2. It is voluminous. The sheer volume of tax bills, renditions, filings and non-uniform deadlines is virtually impossible to track with complete accuracy by corporate tax departments.

3. It is repetitive. Successful property tax compliance requires following the same processes over and over hundreds, often thousands, of times each month. As with most repetitive tasks, the best solution is an automated one. Many real estate owners and managers have chosen an in-house technology application, such as Burr Wolff's market-leading PTS Corporate[R] software, to manage their compliance process in-house. While this is a perfectly sound approach, it stops short of the full value of a BPO solution.

4. The costs are significant. Most major real estate investors spend millions each year on property taxes. The vast majority overpay these taxes by 5 to 20 percent, or more. Add in penalties and interest when returns are filed incorrectly or tax bills are paid late, and costs can quickly spiral out of control.

5. The risks are substantial. Not only do companies risk incurring P&I for compliance errors, but processes that lack the required transparency into every facet of the compliance function can put corporate executives at risk of personal liability by failing to comply with Sarbanes-Oxley regulations.

6. It is a non-core function. Unless you are in the tax business, property tax compliance is not a core function for your company. Your tax department staff could be more effectively deployed to strategically-significant, value-added functions if they were freed from the burden of such complex, high-volume, highly-repetitive tasks.

What's more, by outsourcing property tax compliance, you no longer face the on-going costs and risks associated with staff attrition, training and investment in technology, since that burden is shifted to a third-party provider.

Outsourcing your property tax function to an outside expert like Burr Wolff addresses each of these factors with a world-class solution.

JOHN M. DYSLIN,

CHIEF MARKETING OFFICER, BURR WOLFF L.P.