Blake Oliver

80% of Businesses Overpay Property Taxes by 20%: Here’s How to Fix It

Blake Oliver · September 10, 2024 ·

What if I told you that your business could be overpaying millions in property taxes? It’s not just possible—it’s probable, according to property tax expert Josh Malancuk, President of JM Tax Advocates. In a recent episode of the Earmark podcast, Josh, drawing on his 28 years of experience in the field, reveals a startling statistic: about 80% of the commercial properties his firm evaluates are overvalued by 20% or more.

Uncovering these overpayments isn’t as simple as glancing at a tax bill. It requires an approach that most businesses—and even many tax professionals—overlook. “Most of the time, county and state assessors are kind of flying blind with their assessments, which is why we see about 80% of the time, large commercial properties are overvalued by 20%,” Josh explains.

During the podcast, Josh outlined the flaws of commercial property assessments, explained the property tax appeal process, and shared a real-world case study in which his firm slashed a $25 million assessment down to $9 million, saving the client over seven figures in taxes.

The Hidden Flaws in Commercial Property Assessment

The stark differences between residential and commercial property assessments create a perfect storm for overvaluation. For residential properties, assessors have a wealth of comparable sales data. Josh explains, “With certain property types, like a home, you’re going to have lots and lots of sales, probably sales right across the street, so it’s relatively easy to predict what your home value should be on a per-bedroom or per-square-foot basis.”

Commercial properties, however, present a unique challenge. Consider a 1,000,000-square-foot manufacturing facility in a small town. Josh says, “You’re lucky to see sales of any sort within three years.” This scarcity of comparable sales data forces assessors to rely on mass appraisal models.

As Josh describes, these models are “a one-size-fits-all” approach. They are typically based on reproduction cost or construction cost trends, with little consideration for the specific characteristics and market conditions of individual properties.

Josh’s firm uses comprehensive databases and sophisticated market analysis to combat these inaccuracies. They expand their search for comparable transactions to a regional or even national level, mirroring what a typical market participant would consider when evaluating a property.

The capability gap is significant. Josh notes, “99% of the time your county and your state assessors do not have that same capability.”

Navigating the Property Tax Appeal Process

Discovering an overvaluation is just the first step. Navigating the appeal process requires careful attention to varying deadlines and jurisdictional rules. Josh explains, “Each jurisdiction has its own period to appeal the property assessment. So once you get the notice, the appeal deadline can be as short as ten days or 30 days, or there may be no notice at all.”

The appeal process can involve multiple stages, from informal discussions with the assessor to county board hearings and, in some cases, escalating to state-level appeals or litigation. Each step requires a deep understanding of procedural rules to avoid disqualification.

Successful appeals rely on customized analysis, taking into account factors such as:

Age and condition of the property
Size and layout
Specific use and any functional obsolescence
Land size and characteristics
Truly comparable properties in the area or region

“Once we figure out the best approach, we build our market data and bring that into an organized message to the assessor to basically support our contention that the market value is different than their assessment,” Josh says.

Case Study: Uncovering Millions in Savings for a Food Processing Plant

Picture a sprawling food processing plant, its buildings a patchwork of structures dating back to the early 1900s. Josh’s team tackled this real case, starting with a staggering $25 million assessment and a tax bill of around $1 million annually.

Their approach? A month-long deep dive into every nook and cranny of the facility. “I spent about a month hiking around this manufacturing plant, discovering all of the nuances and all of the ages and the sizes and ceiling heights and the like.”

Donning hard hats, safety glasses, and brightly colored vests, the team pored over dusty blueprints, traced the facility’s tangled construction history, and scrutinized every square foot of the million-plus square-foot complex.

Their approach unearthed a treasure trove of assessment inaccuracies:

Entire sections of demolished buildings are still being taxed.
Incorrectly recorded ages of structures.
Outdated layouts and obsolete features are impacting market value.

The result? “We filed a protest, and in the end, we took that assessment down from $25 million to $9 million,” Josh proudly states. “It ended up saving the company seven digits over the years that we appealed.”

Impressed by the millions saved, the client entrusted Josh’s firm with reviewing their properties across an entire state—some 30 additional sites.

Unlocking Hidden Value in Property Tax Assessments

This examination of the intricacies of property tax assessment reveals a surprising truth: significant savings are hiding in plain sight, waiting to be uncovered by those willing to look closely enough.

Let’s recap the key insights:

Mass appraisal models often lead to widespread overvaluation of commercial properties.
Customized, property-by-property evaluation can reveal substantial inaccuracies.
Navigating the appeal process requires expertise and attention to detail.
On-site inspections can lead to millions in savings.

For businesses, these insights represent an opportunity to free up capital for growth and innovation. For tax professionals, it’s a chance to deliver immense value to your clients, potentially saving them millions of dollars.

Some jurisdictions even allow for retroactive relief, potentially multiplying the savings across previous tax years.

To gain even more insights that could revolutionize how you approach property tax assessments, listen to the full Earmark podcast episode featuring Josh Malancuk.

Then ask yourself: How much-hidden value might be lurking in your property tax assessments? The answer could be worth millions. Isn’t it time you took a closer look?

California’s Bold Move to Solve the CPA Crisis: A Blueprint for Public Protection

Blake Oliver · August 30, 2024 ·

Is your financial security at risk due to a shortage of accountants? It might be. The CPA profession faces a talent crisis that threatens both balance sheets and public safety. With fewer than 1% of accounting firms saying they can find enough staff, we’re seeing the fallout in the form of financial misstatements and eroded public trust.

But there’s hope on the horizon. The California Board of Accountancy is taking bold steps to address this crisis, authorizing the staff to draft potentially groundbreaking legislation to streamline licensure requirements and grant automatic mobility for CPAs.

In a recent episode of The Accounting Podcast, we discussed this development with Amber Setter, Chief Enlightenment Officer for Conscious Public Accountants.

The CPA Shortage: A Looming Threat to Public Safety

The CPA shortage isn’t just an industry problem—it’s a public safety crisis. Amber argues that this talent drought directly threatens the core mission of the accounting profession: protecting the public interest.

“We are living in an era where it’s not like this pipeline issue is going to happen. We’re living it,” Setter emphasizes. The consequences are already visible and alarming. With insufficient staff, firms struggle to maintain adequate levels of review, a crucial safeguard against errors and fraud. This shortage compromises the very foundation of financial integrity that the public relies on.

State boards of accountancy, tasked with protecting the public, find themselves in a difficult position. How can they fulfill their mandate when there aren’t enough qualified professionals to do the work? As Setter points out, “Right now, the public’s not being protected without an adequate amount of people to do the work.”

California Leads the Charge: A Blueprint for Reform

The California Board of Accountancy (CBA) is taking bold steps that could revolutionize CPA licensure. Their order to draft legislation addresses the shortage head-on while maintaining the profession’s high standards and prioritizing public protection.

The CBA’s proposal includes several potentially groundbreaking changes:

Eliminating the 150-hour education requirement
Streamlining the initial licensure process
Granting automatic mobility for CPAs from other states

These changes represent a significant shift from the status quo. By removing barriers to entry while maintaining rigorous standards, the CBA aims to expand the pool of qualified CPAs without compromising quality.

The action has garnered overwhelming support. A recent CBA survey with over 7,000 responses found that 89% of respondents agreed that a bachelor’s degree in accounting should fully meet the educational requirements for licensure. This level of consensus is rare and speaks to the situation’s urgency.

Commenting on the significance of this move, Amber said, “This is a huge domino. I would hope other states are already calling California up saying, ‘Hey, what are you doing? We want to do this too.'” Her enthusiasm underscores the potential for California’s actions to catalyze nationwide change.

The automatic mobility provision is particularly crucial for public protection. By allowing qualified CPAs from other states to practice in California without additional hurdles, it ensures that businesses and individuals have access to a larger pool of professionals.

Has the AICPA Lost Sight of Public Interest?

While states like California take decisive action, national organizations are dragging their feet. The contrast is stark and concerning, raising questions about whether the profession’s leadership has lost sight of its primary duty: protecting the public interest.

The AICPA’s National Pipeline Advisory Group recently issued a report on addressing the CPA pipeline problem. However, the report lacks specific, immediate recommendations for change, which is troubling. While research and stakeholder input are valuable, the urgency of the current crisis demands immediate, substantive steps.

The consequences of this inaction could be severe. As the shortage persists, the risk of financial misstatements, undetected fraud, and erosion of public trust in financial reporting increases.

The inaction at the national level underscores the importance of state-led initiatives like California’s. State boards of accountancy, being closer to the ground and more directly accountable to the public, seem better positioned to address the crisis effectively.

Rethinking Accounting Education: A Call for Radical Reform

The CPA shortage crisis isn’t just about licensure requirements—it’s also an indictment of our current approach to accounting education. The disconnect between education and practical skills is a major contributor to the current crisis. Many accounting graduates struggle with basic tasks despite excelling in theoretical coursework. This gap between academic success and practical competence directly impacts public protection as new CPAs enter the field ill-equipped to catch errors or identify potential fraud.

We need a radical overhaul of accounting education to address the shortage while maintaining high standards. One bold proposal is to require only a bachelor’s degree in any subject to sit for the CPA exam rather than mandating specific accounting courses or degrees. This approach would force accounting programs to compete for students by offering valuable, practical education that prepares them for the CPA exam and real-world challenges.

Critics may argue this would lower standards, but the opposite could be true. By exposing accounting programs to market forces, we could drive innovation and improvement in curricula, ultimately producing more qualified and practically skilled CPAs.

Implementing such changes would face challenges, particularly from entrenched interests in academia. Many states would need to change legislation to enable these reforms. However, as California’s example shows, bold action is possible when public protection is prioritized.

The CPA profession stands at a critical juncture. The shortage of qualified accountants isn’t just an industry problem—it’s a clear and present danger to public safety and financial integrity. This crisis demands urgent, bold action to fulfill our profession’s core mission: protecting the public interest.

To gain a deeper understanding of these critical issues shaping the future of accounting, listen to the full episode of The Accounting Podcast, then reach out to your state board of accountancy. Express your urgent concern about the CPA shortage and its implications for public protection. Urge them to consider bold reforms like those proposed in California. Let’s act now to ensure a robust, capable, and trusted accounting profession for generations.

Why Tax Incentives Hurt More Than Help

Blake Oliver · August 29, 2024 ·

What if that mortgage interest deduction you’ve been counting on is actually making your dream home more expensive? Or if the tax credit for your child’s college tuition is secretly inflating their education costs? Welcome to the paradoxical world of well-intentioned tax policies, where good ideas often lead to unintended—and costly—consequences.

In a recent episode of The Earmark Podcast, I explored this issue with Scott Hodge, President Emeritus and Senior Policy Advisor at the Tax Foundation, a leading independent tax policy think tank.

Our conversation revealed how tax policy has a huge impact on everyone – both as professionals and as taxpayers. As Scott put it, “In so many ways our daily lives are ruled by taxes, whether it’s how we get our health care to the kind of house or car we buy, so many elements of our daily lives are wrapped up in taxes, whether we know it or not.”

As accounting and tax professionals, we must be aware of the hidden costs of well-intentioned tax policies in healthcare, housing, and education, where tax incentives can paradoxically drive up prices, ultimately harming the consumers they aim to help. This isn’t just an academic exercise—it’s a call to action for our profession.

The Paradox of Well-Intentioned Tax Policies

Let’s look at three areas where well-meaning tax incentives have led to unexpected and often counterproductive outcomes.

Consider the healthcare system. The way it operates today, with the majority of Americans receiving health insurance through their employers, stems from tax policies dating back to World War II. During this time, individual income taxes were very high. Employers found offering health benefits, which were not taxed, to be a more competitive way to compensate their employees. This paved the way for what is known as a “third-party payer system,” where healthcare providers are more answerable to insurance companies and employers rather than patients. The outcome? A disconnect between consumers and the actual cost of healthcare leads to a rise in medical expenses.

We see a similar paradox in the housing market with the mortgage interest deduction. Designed to make homeownership more accessible, it often has the opposite effect. Scott noted, “A lot of economic research shows that the mortgage interest deduction is built into the price of homes.” In competitive markets like Washington, New York, and California, this can make housing less affordable—the exact opposite of its intended purpose.

Perhaps most surprising is how tax incentives affect higher education. Those tuition tax credits we often recommend to clients? They might be padding university coffers more than easing student debt. Scott used a vivid analogy to illustrate.

“Imagine going to Best Buy to buy a television set,” Scott says. “And the sales clerk knows everything about your finances—how much your parents make, how much your house is worth, etc. They can price that television based on your finances, and you wouldn’t have a whole lot of negotiating power, would you?” This is essentially what happens when students apply to universities with tax credits in hand.

The Economic Theory Behind Tax Effects

Scott laid out a fundamental principle that explains why many tax incentives fall short: “If government’s trying to subsidize something or incentivize it, it’s the sellers of the good that tend to capture the value of that credit or deduction.”

Consider the electric vehicle tax credit, a hot topic in many client conversations. As Scott pointed out, “Obviously the automakers know what the value of that $7,500 credit is. And so they’re going to bake that into the price.” When advising clients on the potential savings of purchasing an electric vehicle, we need to consider that the sticker price may already reflect much of the tax credit’s value.

Conversely, when it comes to tax increases or tariffs, the burden typically falls on consumers. Scott explained, “Let’s say we were going to try to disincentivize imports so we increase tariffs by 10% across the board. Well, that’s going to get passed on to consumers through a 10% increase in prices across the board.” The takeaway? We need to be careful about using the tax code to incentivize and discourage behaviors because either way, we can see some unintended consequences.

Challenges of Tax Reform and the Role of Education

Given the paradoxes and economic principles we discussed, it’s clear that our current tax system often falls short of its intended goals. However, as Scott emphasized, “In order to get to tax reform, we’re going to have to do a lot of educating on the unintended consequences of these things.”

Scott outlined three key attitude changes needed for successful tax reform:

Taxpayers must be willing to give up credits and deductions for a simpler, more effective system.
Corporations should stop viewing tax departments as profit centers.
Lawmakers need to find better ways to deliver benefits than through the tax code.

These mindset shifts are challenging because they often go against ingrained habits and perceptions. Many struggle to understand the trade-off between higher tax rates with more deductions versus lower tax rates with fewer deductions. As Scott explained using the mortgage interest deduction example, “That mortgage interest deduction is a great thing for me. But I understand that it actually makes housing less affordable and less available for everyone. So maybe if we phased it out, we’d all be better off.”

This is where our role as educators becomes crucial. When a client comes to us excited about a new tax credit, we need to help them see the bigger picture. By consistently providing this kind of nuanced advice, we’re not just helping our clients make better decisions; we’re contributing to a more informed public discourse on tax policy.

By explaining how a seemingly beneficial tax credit might be “baked into the price” of goods or services, we can help shift the conversation toward more effective policy solutions.

The challenges of tax reform are significant, but so is our potential impact. We need to arm ourselves with in-depth knowledge and fresh perspectives to lead in this arena. That’s why I encourage you to listen to the full episode of the Earmark Podcast featuring Scott Hodge. You’ll gain valuable insights into the economic principles driving tax effects and practical strategies for advising clients on these complex issues.

The Hidden Cost of Big Four Hiring Bias

Blake Oliver · August 15, 2024 ·

Imagine being told your 20 years of diverse accounting experience don’t qualify you for a job because you never worked at a Big Four firm. This is absurd, and it happens every day in our profession.

In a recent episode of The Accounting Podcast, we examined the hiring bias that is creating an artificial barrier in our field. It’s not just a minor inconvenience – it’s limiting diversity, overlooking valuable talent, and perpetuating a dangerously narrow view of what constitutes “success” in accounting.

A Barrier to Diversity and Talent

Scroll through job postings for corporate accounting roles, and you’ll quickly notice a pattern: “Big Four experience required” or “Big Four experience preferred.” This requirement is so commonplace that many in our profession barely question it. But we should.

Why should one to three years of experience on a resume dictate your entire career trajectory? Demanding Big Four experience in job postings is lazy, and it borders on discrimination and classism.

This hiring bias creates an artificial barrier that significantly narrows the talent pool. It overlooks the wealth of experience and skills accountants gain in smaller firms, industry roles, or alternative career paths.

Consider the CPA who wrote to us. (Listen to the episode for details.) They have two decades of diverse experience across multiple industries, including exciting projects with buyouts and public company purchases. Despite this rich background, they are potentially disqualified from roles simply because they never worked at a Big Four firm.

The impact of this bias extends beyond individual careers. It homogenizes our profession, limiting the diversity of thought, background, and experience crucial for innovation and problem-solving. This practice also disproportionately affects professionals from underrepresented groups who may have had fewer opportunities to enter Big Four firms early in their careers.

Big Four Experience vs. Operational Expertise

The emphasis on Big Four experience stems from a perception that it provides a unique skill set essential for success in corporate accounting roles. But does this perception align with reality?

Our listener’s feedback paints a different picture: “I have worked with employees of Big Four firms during audits, and frankly, they are disconnected from the reality of operational accounting.” The listener continues, “They can review the heck out of internal control issues, but none of them ever worked with a badly implemented ERP system with an AR module failing and unable to reconcile cash for eight months because of poor IT support.”

As our listener points out, the skills honed in Big Four firms, while valuable, don’t necessarily translate directly to the day-to-day challenges of operational accounting. Audit experience focuses heavily on reviewing past transactions and assessing controls. But operational accounting requires implementing and managing systems, solving real-time problems, and navigating the complexities of business operations.

If you require experience from the Big Four, you might be overlooking candidates with hands-on experience in favor of a resume line item that may not indicate readiness for the role.

Moving Towards a More Inclusive Hiring Approach

Our profession needs to broaden its definition of what makes a successful accountant. We must move beyond the Big Four checkbox and adopt a more holistic view of professional qualifications that values diverse backgrounds, operational expertise, and adaptability.

What might this look like in practice? We should emphasize problem-solving skills and adaptability over pedigree, value diverse experiences and skill sets, consider candidates’ proficiency with various accounting systems and technologies, and assess their ability to handle operational challenges.

By adopting this more inclusive approach, we’ll tap into a broader talent pool, bring more diverse perspectives into our teams, and build teams better equipped to handle complex, multifaceted challenges.

Professional organizations like the AICPA and state societies could play a crucial role in this shift by discouraging the practice of requiring Big Four experience in job postings and promoting more inclusive hiring practices.

Embracing a New Era in Accounting Recruitment

The Big Four bias in hiring isn’t just a topic for academic debate – it’s a real issue affecting careers and shaping the future of our profession.

This shift isn’t just about fairness. In a rapidly evolving business landscape, we need accountants with varied experiences and skill sets to drive innovation and tackle new challenges.

The accounting profession must embrace a more inclusive approach that values diverse backgrounds, operational expertise, and adaptability.

Listen to the full episode of The Accounting Podcast, where we explore the hidden costs of hiring biases, share more real-world examples, and discuss practical strategies for implementing more inclusive hiring practices. Whether you’re a hiring manager, a job seeker, or simply passionate about the future of accounting, this episode offers valuable insights to help reshape our profession.

It’s time to redefine what success looks like in accounting – and it starts with how we hire. Join the conversation and be part of the solution.

The 40% Solution: Reclaiming Your Time as an Accounting Firm Owner

Blake Oliver · August 11, 2024 ·

As accountants, we’re no strangers to long hours and busy seasons. But what if there was a way to reclaim a significant chunk of your time without sacrificing the quality of your work?

I recently sat down with Kwame Agyei, founder and CEO of Appoynt, on The Accounting Podcast to discuss just that. Kwame, a former accountant himself, shared his idea of the “bottom 40%” solution, which could offer a new perspective on managing our firms.

Understanding the “Bottom 40%” Concept

The bottom 40% refers to the tasks that, while necessary, don’t directly contribute to your core services or business growth. These might be administrative duties, data entry, basic bookkeeping tasks, or even managing your calendar and inbox. The key is to identify those tasks that:

Take up a significant amount of your time
Don’t require your specific expertise
Feel like they’re “dragging you down” or preventing you from focusing on more important work

By pinpointing these tasks, you’re not just identifying time-wasters – you’re uncovering opportunities to delegate, outsource, and ultimately reclaim your time to focus on what matters most in your firm.

Once you’ve freed up this time, you have two options: take on more work to grow your business or use that time to improve your work-life balance. The choice is yours, but addressing your bottom 40% creates the opportunity to make that choice in the first place.

Common Tasks to Consider Outsourcing

Now that we understand the concept of the bottom 40% let’s explore some specific tasks that many accounting firm owners might consider outsourcing. Outsourcing can often provide significant time savings and efficiency gains in these areas, allowing you to focus on higher-value activities.

Virtual Assistant (VA) Services

A virtual assistant can handle a variety of tasks, including:

Email management
Calendar scheduling
Travel arrangements
Basic data entry
Document preparation

The beauty of a VA is that their role can be tailored to your specific needs. At about $1,000 per month for 20 hours a week, it’s a cost-effective solution for many small firms.

Accounts Receivable Management

With the right service, you can automate the process of chasing invoices, using customized workflows based on your preferences. This could include sending reminder emails, making phone calls, or even adjusting the approach based on your relationship with each client.

The potential impact is significant. For example, Kwame says that one firm increased its collection effectiveness from 63% to 78% and reduced its Days Sales Outstanding (DSO) from 23 days to just 12 days. This not only improved cash flow but also enhanced client relationships by ensuring consistent and professional follow-up on outstanding invoices.

Overcoming Hesitations About Outsourcing

Outsourcing can feel like a big leap, especially for accounting firm owners used to handling everything in-house. However, many of the common concerns about outsourcing can be addressed with proper planning and due diligence. Let’s into some of the most frequently cited hesitations and how you can overcome them, according to Kwame.

Security Concerns

As accountants, we deal with sensitive financial information daily. Reputable outsourcing companies address this by using virtual machines with data servers local to the client’s location. This means your data is kept on secure servers in your country, adhering to local data protection laws.

Trust Issues

Building trust with an outsourced team takes time. Start small and gradually increase responsibilities as you build confidence. Communication is key, especially in the early stages. Share your thoughts and concerns freely to help your outsourced team understand your preferences and work style.

The Long-Term Impact of Outsourcing

As you become more comfortable with outsourcing, you’ll likely find more tasks you can delegate. What starts as offloading a few simple tasks can snowball into a significant transformation of your workday. You might start by having a VA manage your calendar, then progress to letting them manage your email inbox, and eventually have them draft responses to routine client inquiries.

This evolution allows you to shift your role as a firm owner. Instead of getting bogged down in day-to-day tasks, you can focus more on strategy, client relationships, and business growth. Alternatively, you can use that reclaimed time to improve your work-life balance.

Practical Steps to Get Started

Here’s how you can get started:

Identify Your Bottom 40%: Log your activities for a week. What tasks are eating up your time but don’t require your specific expertise?
Start Small: Begin with something simple like having a VA manage your calendar or upload expense receipts.
Choose a Reputable Provider: Look for an outsourcing company that understands the unique needs of accounting firms and has robust security measures.
Communicate Clearly: Over-communicate early to help your outsourced team understand your preferences and work style.
Be Patient: Give the process time to work. Significant improvements often become apparent after about three months.
Gradually Increase Responsibilities: As you become more comfortable, start delegating more tasks.
Monitor and Adjust: Regularly review the performance of your outsourced tasks and make adjustments as needed.

The 40% solution isn’t a magic bullet. But it is a powerful tool that can help transform your accounting practice. By identifying and outsourcing the tasks that are dragging you down, you can free up time to focus on what matters – whether that’s growing your business, improving your services, or simply enjoying a better work-life balance.

So, take a hard look at your daily tasks. What’s in your bottom 40%? And more importantly, what could you achieve if you reclaimed that time? The answer might just revolutionize your practice – and your life.

Want to explore this topic further and hear more insights from Kwame Agyei? Listen to the full episode of Th e Accounting Podcast, where we explore these ideas in greater detail. You’ll gain even more practical tips on implementing the 40% solution in your firm and hear real-world examples of how outsourcing can transform your practice.