Monday, January 11, 2010

Could Taxes Sink Your business?

Tough Times for Lenders blog posted Ticking Sound: Will the Current Tax Valuation Drag You Down?. Which brought back to mind this headline: State sets sights on back taxes. This comes from that Muncie Star-Pess article:

Sometimes the taxes owed are in dispute. Ed Faulkner Jr. of Faulkner Mortuary, which is included on the list, says he's "been battling with the state for the last 20 years to get our sales tax issues resolved." Faulkner said the amount he owes is less than $10,000 compared to a one-time bill of $160,000.

McFarland noted that some might assume the businesses owing back taxes are all small, "mom and pop" operations, but that isn't the case.
Tough Times has this in its post:
So, my suggestion simply is to add this topic to your workout check list, and include the following as tasks directed at this ticking sound:

* What taxes or assessments cover or encumber the collaterals? Governmental (per a current search of applicable governmental taxing offices)? Private (per a current title report)?
* What valuation has been given to the collateral? (Is it high?)
* How is valuation determined?
* What are the key dates (Due dates? Appeal dates? Etc.)
* Has the owner\borrower contested the valuation? Are written agreements covering valuation in place?
* Is it possible to file a “late” appeal? Are there special conditions for filing a late appeal?
* What input or role does the lender\servicer have in the valuation determination or appeal process? (Under applicable law or regulations? Under the loan documents?)

Todd Franks (with The Cantrell Company) tells me that they have recovered over $100,000 in overpaid property taxes for one loan servicer, after a borrower failed to timely protest their 2008 property tax valuation (in a situation involving Texas real property collateral). His experience is that if the current owner is unsophisticated and\or unfamiliar with the property valuation process, then when the owner is struggling to keep the property and to avoid a loan default or a foreclosure, many owners simply give up on contesting property valuations handed out by taxing authorities. (The result: it is a problem discovered by you AFTER you take title.)