Commercial Tax Administration Is Different.

Tax administration is an area that must be professionally managed by all servicers, whether their portfolios are residential, commercial, or both. But for lenders and servicers contemplating a first time move into the commercial arena, tax administration is a little....different. To say the least.

First of all, commercial tax risk can be tremendous. Missed payments can mean penalties ranging from 1.5% to 10%, depending on the jurisdiction. For a $10 million property with a $100,000 tax, that means a missed tax payment could cost a servicer between $1,000 and $10,000.

Also, to get a commercial property set up properly, servicers can run into nagging difficulties trying to get correct or updated legal descriptions, especially for larger commercial properties. Further complicating matters, land and buildings may be subject to multi-year tax abatement programs, special assessments or other governmental programs. Just tracking year after year changes associated with these programs can be a challenge.

Customer service demands are also more intense with commercial property owners. They are often required to present evidence of tax payments to tenants who contractually pay a percentage of the bill. Or to investors as part of financial reporting requirements. They have more detailed questions about tax issues, need receipts and other kinds of documentation more often, and are more likely to require research and additional follow up tasks than residential property owners.

Fortunately, there are sophisticated tools and tax administration professionals available to help servicers manage the special requirements of their commercial portfolio. Whether they elect to establish their own internal tax administration team, or outsource tax management to outside experts, servicers must recognize and evaluate the following critical factors.

Technology is Essential

Regardless of whether tax administration is managed internally or outsourced to a tax management partner, a robust technology solution is essential to any commercial servicing operation. Automated systems can reach out to taxing authorities and 'grab' information, making data readily available to clients. They can automatically track payment requirements by jurisdiction, using business rules and calculation engines to determine the impact of tax liability.