Using Property Tax Savings To Fund Capital Expenditures

Posted by Anne Sheehan on Feb 26, 2015

Funding Capital Expenditures Wouldn’t it be nice to take money you’d normally use for paying commercial property taxes and put it toward funding capital expenditures instead?

When commercial property owners treat property taxes like a variable business cost rather than an unwavering expense, the scenario above is possible.

Even though property taxes are the largest cost of corporate occupancy, many property owners don’t realize that some of their annual tax expenditures could be diverted. Plus, when a business suddenly has a windfall of “found money” in the form of property tax savings, it’s easier to fund capital expenditures.

Finding Money In Your Commercial Property Taxes
Many businesses delay capital improvement projects due to insufficient funds even though more than 90 percent of companies have untapped potential savings within their commercial property taxes. These tax savings can be significant at around 31 percent on average.

Let’s say your operating budget is $1 million and you plan to spend $150,000 on taxes. If proactively managing your property taxes helps to cut that figure in half, you have $75,000 of “found money” to use for funding capital expenditures.

While every business prioritizes capital expenditures differently, some common investments funded through hidden tax savings include buying new machinery and equipment or making property upgrades, such as widening a parking lot or repaving a loading dock.

Of course, you’re not restricted to using this found money for funding capital expenditures. You could use the cash windfall to pay off debts, give raises, invest in a new health care plan or anything else on your wish list.

Commercial Property Tax Refunds Versus Implied Savings
When commercial property tax savings aren’t implied (in the form of spending less than you budgeted for), the savings come in the form of a refund check or a reduced tax bill. 

Tax refunds arrive when you win an appeal and are issued a refund check for the amount you’ve overpaid. For example, California issues many tax refund checks because the state operates on a two-year differential, meaning an appeal waged in 2015 isn’t addressed by the jurisdiction until 2017.

Reduced tax bills are sometimes issued when an appeal case is settled before the tax due date. In these cases, a property owner sees implied tax savings in the form of a lower tax bill rather than a refund check.

While receiving a big refund check in the mail feels great, there’s no reason not to celebrate implied tax savings. Either way, the hidden tax savings you uncover in your commercial property portfolio represent an excellent opportunity for funding capital expenditures or making investments in your company.

If you’ve forgone capital improvement projects because of insufficient funds, you owe it to yourself (and your business) to investigate the hidden tax savings within your commercial property portfolio.

Download RPTA’s free whitepaper, “7 Signs You Might Be Overpaying Your Commercial Property Taxes" for more insights into the commercial property market and to learn how to uncover hidden property tax savings.

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