Today, our guest is Josh Malancuk. Josh is a CPA, among other things, but Josh is a state property tax specialist with significant experience delivering property tax reduction opportunities in the areas of real and personal property tax, reviews, compliance, and economic incentives. That’s a mouthful, but Josh can probably explain that better than I can. Before we let him do that, Josh, welcome to The Unique CPA.

Thanks, Randy. Glad to be here. 

Yeah, I’m glad you’re here as well. So, I, you know, did a quick “hey, this is what he does,” but why don’t you give us a couple minutes explanation of what it means to be a state property tax specialist?

Well, so, you know, being a specialist has some different activities. I mean, there’s no property tax course in any college or university but one, right? And so, most of the people in this field just kind of fall into it, right? And so, in my case, my on-the-job experience started about 28 years ago when I was in public accounting as a board staff auditor. I just needed something different to do than audit financial statements year after year, you know, with this long, grinding busy season. And so the firm that I was working with at the time bought out a boutique consulting firm, they needed someone to kind of try out the position and see if they liked it. So, you know, I was like, what the heck, I’ll give this a shot. And it was really an exciting part of my job to save people money and to help in an area that really businesses have next to no experience in dealing with. And in fact, you know, most of the time I find that businesses, before getting us involved, are just paying the tax bill. And so they have very little to no review process to exact any meaningful change and drive that needle south on what they’re paying year after year. 

And so, you know, Randy, you asked me this question, what does it mean to be a property tax consultant? Well, it really means honing in on where areas of savings might be with a business and bringing transparency to those areas through various means—it could be through a tax appeal, it could be through reviewing their fixed asset records and delivering an amended return and kind of pushing that through the assessor office to a point of agreement. You know, on any given day, it feels like I’m an appraiser, an attorney, and an accountant all in one, right? And not the least of which is I have a team to manage, so there’s the people side of things. 

So, there’s never a dull moment as president of my company. Being in this business for 28 years as a true property tax specialist. You know, on any given day, I might be looking at a number of different property types and we do a lot of work with manufacturers who are tremendously capital intensive—a lot of work with senior care, and they have their own unique business model, hotels, large office property concerns, and those properties have just taken a beating with valuations because of the stay-at-home orders that have happened, and now people working at home left and right, you know, have really impacted valuations. So, our job is to basically bring meaningful market data to light so that our clients and the assessing bodies can make the best decision with quality, credible analysis, and evidence in support that the values should be changed.

Nice. A lot of things that you said there are passions of mine. I started a specialty firm 17 years ago where we deal with specialty tax areas, and we’re always finding tax saving opportunities for clients. And so that’s something I’ve learned to love from almost day one when we started this, and I have this feeling you really enjoy that aspect of bringing tax saving opportunities to clients because it puts a smile on everybody’s face. 

Yep. That’s what gets me out of bed every day, complete with the lunch pail and clock in and clock out. And I do have a tremendous passion for helping people save money and even more so with educating our clients to make the best use of their financial resources and kind of arming them with ways to help them manage their property taxes better than they do currently, which is almost always the case.

Yeah, and there’s probably often not a policy in place to manage your property taxes. So, when you come in, or somebody brings you in, I’m guessing that’s quite a light bulb that goes off, like, wow, we can actually reduce these. We can actually affect the bottom line. We can put more cash back into our business and use that for other portions of what we’re doing. That’s pretty cool. 

So, let’s talk about that because, you know, being The Unique CPA, our audience is, you know, individuals in accounting—you know, bookkeepers, accountants, tax advisors, EAs, CPAs, all of this—and the big push in the profession, obviously, and it has been for a long time, but even companies are changing their names to CPAs and advisors, and they’re looking to be this advisor aspect in everything. And as an advisor, one of the things I look at as an advisor is being proactive, finding, you know, not reporting what happened, but affecting what’s going to happen or what will happen, and this is something you can do with that. You can affect this bill. 

We also host a conference every year and one of the biggest aspects of that conference is collaboration and delegation, you know, finding individuals, finding other teams you can work with to help you as the advisor bring these types of opportunities to your clients, adding value to the services that you’re bringing to your clients. And so, this is a long-winded question, but we will get there! So what I want to do today is talk about what these opportunities are. If I’m a CPA, generalist practice, if I’m a bookkeeper, what do I need to be looking for, what is the type of client, or the situation, or the state they’re in, what do I want, how can you educate me on when there’s an opportunity for me to bring you in to talk to my client about tax saving opportunities with property and real taxes?

Well, so Randy, you’d think that would be a complex question, but it’s really quite simple. You know, it starts with how much property tax does the business pay, you know? And so as the accountant, CPA, trusted business advisor, you’re going to see a line item for the property tax accrual, right? And you’ll know if it’s a big number or a small number. So that’s where the discussion starts, right? The second is, you know, what has that company done to try to save money with property taxes? In other words, what’s been their management style? Are they just paying the bill with very little questioning, or are they bringing in a seasoned navigator that has plenty of experience that can actually influence and impact change with what they’re paying on an annual basis? 

And it’s not so much, are they being taken care of with just the return preparation if they’re in a business personal property state, is there someone that is actively challenging, filing protests with appraisal valuation background knowledge like I have, that can actually do something about that bill? Because without those experiences and even in some cases without the credentials, you won’t be able to practice in front of the local or state boards in certain jurisdictions. So it’s always a great idea to bring in someone with that experience so that something unthinkable doesn’t happen, such as “the bill got increased because my client either tried to do it themselves or we just tried to do it because we thought it was the right thing to do as their CPA firm and then we ran into a buzzsaw with the problem,” right? 

So you definitely don’t want to go in without a lot of experience and war stories and credentials so that you end up looking good as their accountant, and that client ends up having their best interests served at the end of the day. So I always say, secondly, bring in the experience, don’t try to go at this area alone or without the necessary background and credentials because there can be some problems that come up that you just couldn’t foresee because you didn’t understand what you’re getting yourself into. So there’s kind of a difference with someone like myself that has 28 years of experience, and what I’ve been able to see throughout the years, and you know, just someone who kind of dabbles in this area. We’re very effective, we can kind of see things before they become a problem, and that will drive the decision tree as to whether to protest and where there might be some risk issues that you might deal with of increases. And as part of our process, we can weed those out and bring those to light and help our client make the best decision for their specific business situation, and namely, you know, drive those opportunities through true relief that perpetuates not only in the initial year that we appeal, but typically for many years. 

So there’s a lot of value that we bring as part of our specialist knowledge, and really that can be monetized for multiple years, even after we’re done with our client engagement. So, it’s tax, spend, experience, and are they in specific states that generally, there are better opportunities, such as states that tax not only the real estate, which would be your building and land, but certain states tax the business personal property—so your manufacturing equipment, your furniture and fixtures, maybe even inventory in some states. And there’s planning opportunities in all of those areas. So, if you’re in Indiana, for instance, in my home state, we tax both real and personal property and the personal property for manufacturers ends up being almost two to three times the real estate tax burden, because of how the calculations work out. And so it doesn’t take a whole lot of property in Indiana, for instance, to generate a pretty big tax bill and also to drive some planning. 

You also look at tax rates. So not every state has a tax rate that is as high as Indiana. In fact, we’re about three times higher than most states. In others, you might be about one third, and like around 1%, you know, and so maybe those states would take a lot more property and generate a big tax bill. So it’s the rate, it’s how much property is there, what type of property is being assessed, how astute the assessing body is within any particular state, and also within each county, because each county is responsible for administering their property tax valuations, and certain counties do it better than others, you know? And so there might be specific counties that are ripe for errors, and, you know, maybe they have a long-standing assessor that’s been a generational problem for that county, right? And so you really have to kind of know the county, know the state, know the process, know what’s being assessed, know the tax rate, and really be able to determine, should I appeal or amend and does it make sense? Well, guess what: If you bring in a firm that has the kind of experience, you’ll be able to figure that out in a hurry if they’re worth their salt and get to the issues very quickly and be able to drive meaningful change.

Yep, did you just say if they’re worth their salt? State and local tax? Alright, nice. 

Figured I’d put a plug in for my brethren, right? 

Alright! Well, so you just kind of solidified what I was saying is, hey, we as advisors can’t be experts at everything and this can get so complicated because it’s not just, hey, I own a building and so I’m paying tax on that building. And in some states it might be. But like you said, in Indiana, they’re going to tax the personal property. Here in Illinois, as far as I know, we do not tax the machinery. I know there’s some states where you mentioned manufacturing. I know there’s some states where there’s exemptions on manufacturing equipment as well. I know there’s some incentives out there. Just to know all of those opportunities is not even possible, at least in my mind, I can’t. I guess the question is, okay, personal property, I need to know what state I’m in. Real property, pretty much everybody’s going to be taxing that, right? 

Yeah, I don’t know of any state that doesn’t tax real estate.

Okay. And so then it’s industries: manufacturers, you mentioned before, was it, healthcare or—

Senior care. 

Senior care. So what makes those two industries pop out in your mind right away? There’s just more incentives available? There’s more taxes on those? If I have those as a client base, what would I need to know about?

Well, with the manufacturing operation, you’re going to have a lot of capital investment, especially for the value-added manufacturers, and so it’s going to be harder to administer their fixed asset records, and then ultimately harder for them to determine whether they have an appeal opportunity or whether they’re overpaying in their business personal property taxes. So if you’re missing the mark on either of those, you’re going to feel it. And you may not know that you’re feeling it, but you are, because you’re overpaying and that could be a really big number, maybe in the six or seven-digit number every year, right? That every year phenomenon, that’s not going away until you have someone that is an expert who can fix the problem. And so that’s where that comes into play. So the capital-intensive nature is a big deal for manufacturers. The other thing you can kind of come into play is the more unique and larger the property that a manufacturer has, the harder it is for an assessor to correctly value that property, because the complex ones really almost require a national expert in that property type to do a credible appraisal for assessment purposes. And most assessors really can’t do justice to that type of review and analysis and support. So, that company should be relying on someone with that industry background for their property type that can bring in that credible support. So that’s what comes into play with manufacturers. 

And as you were saying, Randy, there are a number of special classifications or exemptions or even incentives that can also apply if you know where to look and know what rocks to uncover to see what crawls out, right? There are a lot of those, depending on the state. You may also have unique classification adjustments that should be reviewed, and if you miss those, you might be double taxing the same property, right? Paying the taxes once is painful enough, but paying it twice, you know, that really gets out of hand. So, the classification issues can come into play, especially for more of the specialty purpose properties like food processors, for instance, there’s a lot that crosses the line in classification, and unless you know what you’re looking at, it’s really hard to know for sure whether you’re taxing that property twice. So that’s the manufacturers. 

On the senior care and hotels, I kind of group those together. If you ever see a sale of one of those, it’s always a business sale. In other words, you’re never just selling the shell building without something in place as an ongoing business. As a business sale, you’ve got other elements of value other than real estate, you know, such as the furniture and fixtures and equipment that transacted, maybe the intangible flag. There may be influence there for selling a Hilton flag because of the customer loyalty program that you’d have in place that you wouldn’t see for maybe an independent flag. There’s value to that, and that value can’t be taxed. So unless you’re unbundling those elements of value, you’re going to overtax that property by as much as 30 to 50% because of those non-realty elements that transact at the sale. 

So that’s our job, to unbundle those items and bring those to light to the assessor as part of the protest process. But that’s a very complex analysis that your typical CPA would not be able to tackle on their own without that experience. Those going-concern properties are really challenging for any assessor. Quite honestly, it would be a challenge for your typical accountant to try to tackle without that modeling when you’re an expert in those areas.

It’s almost like you’re doing a cost segregation study on a transaction to figure out what costs involved are considered taxable real or personal property and what costs are maybe more in intangible property, goodwill property, you know, something other than taxable property.

It kind of becomes almost like a mini appraisal, which essentially is what we look at. Besides being a CPA, Randy, I didn’t mention to you, but I’m also a certified general real estate appraiser, so that kind of gave me that background to be able to really look at all these unique valuation elements, to review appraisal reports, if we need to go out and hire a third party to do an independent opinion as part of our advocacy, you know, we can review reports and appraisals and, you know, bring that quality of evidence element to really bolster our chances of success with any protest. So it’s a very valuable background and knowledge to have, especially in this field where valuation really becomes the central theme and basis for any tax appeal.

Alright. I think that’s great information. I want to clarify one thing right before we move on, or maybe just understand in my mind: So when we’re talking real property, you know, I always think “assessor.” They’re going to go out, they’re going to assess it. When we’re talking personal property, aren’t there some states where you’re self-reporting that, and are there some states where your personal property is going through an assessor’s office? How does that normally work?

Yeah, so most of your states tax business personal property in various degrees, which requires a return to be filed. Some states do not, as we mentioned, but for the states that do subject taxpayers to business personal property, the process always starts with a return. Some states call it a rendition. That’s a self-reporting. Well, certain states and most states then take that information and apply multipliers to approximate fair market value for the equipment value. So there’s a portion of this that is the business’s or their CPA’s responsibility. After they send the return in, the assessor kind of completes the remaining part of the equation for the assessment. Typically, that will involve an assessment notice—that notice starts a protest window that you have to either act on or forever hold your peace on the assessment for that year. So the assessment notice is really important to understand for that process and when the appeal window is, but also the calculations that are derived by the assessor, because many times they’re not correct. You can’t just file a return and then wait for the bill that happens, maybe it’s a year later, and hope for the best, and not expect that your client is not going to overpay at the end of the day because of the limited review or no review process that you had once that return hits the assessor’s office.

So from your standpoint, getting involved, is it normally at that appeal side, or do you get involved in the actual tax return reporting side as well?

So it just depends, right? It depends on when our client hires us and it also depends on where we are relative to the protest window. In some cases, we literally get involved with days to go. That’s not ideal to do that, but we’ve been known to file protective appeals to kind of keep the window open during heavy protest periods. But the ideal situation, especially with a business personal property review, is to be involved with the return preparation process, or at least from a review capacity, so that the return is filed with the best information as the first step. And then we’re kind of monitoring what the assessor does with their depreciation multipliers to determine whether we need to file an appeal from there. So that’s kind of the ideal state.

On the real estate side, we’re getting involved, if possible, at least 60 days before the appeal deadline because there’s some diligence that we need to undertake so that we know that our client has a case before filing the appeal. In some cases, we actually have to provide our analysis as part of the appeal, and so that gives us plenty of time to complete our initial diligence so that we’re putting our best foot forward for our client’s behalf as part of the protest process.

Okay, alright. That helped me. I just wasn’t sure, I probably, you know, mainly, the reporting side, some getting prepared, but on the appeal side, but it sounds like both areas are areas that you get involved in. So I think, you know, from this discussion, obviously very complex, bringing in an expert, you can show the value of the savings that you’ve brought, and I think being able to value these types of opportunities is huge. And as the advisor, being able to show the value that they brought in by getting you involved in this, I think is huge as well. Before we wrap up, any final words on this section before I ask you two more questions?

Absolutely. So, if you’re a CPA or you’re a controller, a client, you know, who’s looking at their tax bill, you know, they’re probably wondering, what can I do about this, right? Well, chances are you can do a lot. You just don’t know how to hit the locomotive to get it to move forward. So about 80 percent of the time, we find savings of, on average, 20 percent across the board with any property type that we review. So this is a high-value area. Don’t fall asleep at the switch and just forget to look at property tax, because if you see the bill, it’s likely too late to do anything about it. So you have to appeal during the protest period, the assessed value. You cannot appeal the property tax itself—the property tax cannot be appealed, just whether your assessment is correct. And that’s kind of the misnomer that I typically see out there, some misperception in the marketplace, you know, people think, well, I’m challenging my taxes. Well, really you’re not. You’re challenging your assessment, which then becomes the basis for your tax bill. Right? You can’t appeal the rate, and you really cannot appeal the bill for the most part under rare occasions; it’s the assessment. So getting ahead of when the assessment notice comes out is really key in timing that. 

Because a lot of the assessment notices are coming out actually as early as this month, and then that notice process will continue through probably the end of the second quarter is when most of the appeal deadlines kind of come and go. But once you miss that notice, you’re done for the year, and then you’re reviewing the following year. So, you’ve got to get ahead of that. It’s really important. You know, it’s a big burden for capital intensive businesses. So hopefully the big takeaway that I would give to any accounting firm, their trusted business advisor or the company itself, is property tax is a big burden, it’s an important area, and it’s also an area more so that can generate some significant savings where you can take that same money and put it back into the business for hiring and other strategic uses other than overpaying the government. So don’t fall asleep at the switch. You’ve got to pay attention to property tax because it’s a big burden area and it’s important.

Yep. And it’s an area we may not be thinking about as much as the income tax and payroll tax and sales tax and everything else. So, I think that’s great advice. 

So a couple last things then before we wrap up. Everybody gets this question: So, you know, we’ve been talking property tax, we’ve been talking real tax, we’ve been talking all this personal property, which is great, it’s fun, and you’re passionate about it, but I’m also concerned with what your outside-of-work passions are. What do you like to do when you’re not doing tax appeals and saving companies money? What’s the fun part of your non-work life?

Well, so, for the past 40 years, I’ve been taking professional voice lessons, and so I’ve sung professionally before. So, singing is a big passion of mine. 

Wow!

When I was studying accounting at Indiana University for that degree, I was also in the music school and studying voice as well. It was kind of a safer passion than playing football in high school. You know, the Big Ten is not for the faint of heart with football playing, so I decided to end my football career and go the singing route, a little safer. 

But also, last year, my family chose to adopt a teenager. So, we’ve been a foster family now for about four years. And so we’ve helped teenagers out. We’ve had five foster daughters in our home to kind of extend the empty nesting that would have occurred when my son went to Indiana University for his accounting degree. So, he’s a freshman there, but yeah, so we’ve got all kinds of daughter drama at home now.

Well, that’s nice! I love that. The singing, well both parts of it, that’s pretty cool. And then last thing then, if anybody wants to hear more or find out what you do or see if you can help their clients, where would they reach out to you?

Yeah, so probably the best way is through my email, which is joshua@jmtaxadvocates.com. Another way is to just pick up the phone and call my direct dial at 317-674-8390, and I’m at extension 100. And if you forget all of that, just look up our website, www.jmtaxadvocates.com, and you’ll find a way to contact me through the website. 

Well, great, Josh. Thanks for being here today. I think we did some education. I think some people learned some things today, and that’s one of the two goals of the show, so I appreciate you being on.

Yeah, thanks, Randy. Here to help. Appreciate the opportunity.