Personal Property Tax Administrative Fee This is basically an interview with Scott Strauss, Executive Vice President, Tax Compliance, Inc. Tax Compliance, Inc. (TCI) of San Diego, California is a software firm with a large national footprint and only one product: PTMS – the initials for its Property Tax Management System. PTMS handles all aspects of the property tax needs of lessors, such as banks, leasing companies, finance companies, and other corporations with personal and real property located throughout the United States. Scott Strauss, TCI Executive Vice President, says, “approximately 95% of lessors that use a commercially available software system in-house for their personal property tax use PTMS. PTMS is also available to lessors through more than 40 outsource service providers licensed to use PTMS. PTMS interfaces seamlessly with all lease management and fixed asset software systems to produce personal property tax returns and pay the resulting tax bills. Since the lessor is the legal owner of its leased assets, the tax collector almost always looks to the lessor for payment of any personal property taxes levied on those assets.” “Most equipment leases stipulate that the lessor shall pay such personal property taxes and that the lessee shall reimburse the lessor for such tax payment promptly upon request (invoicing) by the lessor. Some leases also stipulate that the lessor shall be entitled to a "tax administration fee" - in addition to reimbursement of the full amount of the property tax itself - to cover administrative and other costs associated with filing tax returns and paying tax bills on the leased assets. A tax administrative fee can offset inevitable losses sustained by the lessor as a result of lessee defaults and inability to collect taxes owed on terminated leases.” “For those lessors that elect to charge a tax administration fee, TCI's PTMS offers the option to charge: (1) a flat fee per asset or per lease; or (2) a lessor-defined percentage of the tax amount, with the further option of imposing a minimum and maximum fee limit. Once the parameters are set, this fee is automatically applied and billed to the lessee as part of the tax reimbursement process." Leasing News asked Mr. Strauss how this worked: "In those instances in which the lessor is reluctant to apply such a fee without express contractual authority, it is suggested one or two lines be added to the lease agreement stipulating that the lessor shall be entitled to a specified fee (in addition to reimbursement for taxes advanced) to cover its cost of administering and advancing payment of personal property taxes on behalf of the lessee for the leased assets.” "The process of obtaining the lessee's approval for the fee should be included in the signing of the lease contract itself. We recommend a short paragraph detailing the many complex steps involved in the filing and payment of personal property taxes, together with a brief explanation of possible penalties for non-compliance, followed by an offer from the lessor's agent to undertake the responsibility for tax compliance in return for the payment of a modest (specified) annual fee to be apportioned monthly on the lessee's rental invoice.” "The applicant can then be given the option to ‘check this box if you wish to be responsible for this task yourself'. Properly presented with a truly modest fee, the overwhelming majority of lease applicants will opt to compensate the lessor for handling the property tax compliance on their leased assets. Those few lessees that might balk at signing, can be individually flagged as exempt from such fee in our software." "The tax administration fee along with the estimated property tax (both calculated by PTMS) can be divided into 12 installments and billed monthly on the lessee's rental invoice. Monthly payments of estimated tax and the tax administration fee can be impounded by the lessor pending receipt of the next tax bill. A true-up of each tax estimate can be made when the actual property tax bill is received with an adjustment applied to the lessee's account. Interest earned on impounded funds could be allocated as determined by the lessor." Strauss added in closing, “Such a graduated method of invoicing for the property tax and the tax administration fee has the added benefit for the lessor of avoiding the ‘sticker shock effect' for the lessee associated with receipt of the annual tax bill and tax administration fee in one lump sum.” Scott Strauss |
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