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March 2, 2003Audits may hold key to more revenueBusinesses wary of using 'bounty hunters' to find missed property taxesByRecord-Eagle staff writer TRAVERSE CITY - Local governments could increase tax revenues by hundreds of thousands of dollars by hiring personal property auditing firms that some business groups say are no better than "bounty hunters." Grand Traverse county officials are negotiating with a North Carolina company to conduct more than 1,100 personal property audits on businesses worth $50,000 or more over the next three years. Tax Management Associates, which has worked for more than 200 local taxing units across the country, estimates that more than $3.8 million in additional property tax revenue could be raised within the county by auditing the personal property statements of local businesses. "There's a lot of property out there that may be missed in taxes," said Roger Ellis of Tax Management Associates. "Most jurisdictions just seem to let that personal property go." Business interests, however, are wary of such audit programs. Rich Studley, senior vice-president of government relations for the Michigan Chamber of Commerce, called such efforts "bounty-hunting" and said officials should look elsewhere to improve local tax administration. "The problem with the personal property tax is that it is very difficult and burdensome to comply with," Studley said. "There are some real challenges both for the assessors and taxpayers." Businesses are required to file personal property tax returns as of Dec. 31 each year. Unlike real property valuations, which are determined by township and city property assessors, personal property statements are self-reported by businesses. That information is rarely verified by local assessors. As a result, local tax officials say, some businesses are underestimating those personal property assets. "I don't need an audit to know there are problems out there," said Laurie Spencer, the equalization director for Grand Traverse County. "If you allow self-reporting, you know there's going to be problems if you never check it." Tax Management Associates says it has done more than 47,000 audits over the past 15 years and has found that, historically, up to a third are either inaccurate or incomplete. The audits are performed through on-site inspections of the businesses and by comparing their personal property statements to their financial accounting records. Businesses sometimes try to cut corners on their tax bill, officials said, but in other cases the discrepancies are created by unfamiliarity with property tax laws. "You'll find a fair number of those taxpayers just made an honest mistake," said Bob Vandermark, a former chairman of the state Tax Commission who works for the company. Studley said local governments risk alienating their business community by bringing in what he termed "out-of-state head-hunters" to inspect their tax records. He says there are more-pressing tax administration problems facing local governments. "There are still many communities in northern Michigan where assessors are still having trouble preparing a timely and accurate property tax roll," he said. "That would seem like more of a priority to me." Local tax officials say it's an "equity" issue and argue that it's unfair to the companies who file accurate records to allow others not to. "If you're filing an accurate personal property statement, you shouldn't have anything to worry about," city assessor Debra Chavez said. Although the county is investigating the audit program, such an effort would have to be approved by the townships and the city since they are ultimately responsible under state law for determining property assessments. "If we're going to do this, it only makes sense to do it on a countywide basis," county administrator Dennis Aloia said. Tax Management Associates "conservatively" estimates it could find as much as $160 million in unreported personal property assets, an amount that could generate upwards of $3.8 million in local tax revenue. Much of that revenue would end up in the state's school aid fund, although the county could pick up more than $430,000 in additional yearly annual revenue. Other taxing units, such as cities and townships and Northwestern Michigan College, would also benefit. The company has a sliding fee scale of $700 to $6,000 per audit depending on the size of a business. Officials with the city of Dearborn said they've been pleased with their audit program, which began last summer. Assessor Robert Brandmier said the company has completed about 450 personal property audits for the city and found 136 cases - just over 30 percent - where personal property assets were underreported. The city has so far realized an extra $1.3 million in new property value and there are still about 2,000 audits to complete. "We're about $80,000 to the positive so far in terms of city tax dollars," said Brandmier. "It's working out real well for us."
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