A Q&A with Douglas Dick, Vice President, Escrow Manager
Q. Several years ago, you coined the term “The Cheesehead Challenge” in describing tax processing in Wisconsin? What is it about Wisconsin taxes that make them so complicated?
Some things are just different in Wisconsin. Take the Green Bay Packers, for example. All other National Football League (NFL) teams have an owner or a handful of owners with one owning at least a 30% stake. But not the Packers. The Packers have a grandfathered ownership structure consisting of 360,000 plus stockholders with no individual holding more than 4% of the shares.
Like the Packers, Wisconsin property tax collection policies are also unconventional. State law gives mortgage borrowers with escrow accounts a number of unique options when it comes to paying property taxes. The borrower can change their option each year by providing written notice by December 1.
Q. What kind of options?
There are three primary tax payment options.
- Option 1 instructs the escrow agent, usually the lender or tax service, to send the borrower a check in the amount of funds held in escrow for the payment of property taxes. This check, which must be sent by December 18, is made payable to the borrower and the taxing authority treasurer authorized to collect the tax. The borrower must provide a paid tax receipt by March 31 or they potentially lose this option next year.
- Option 2 has the escrow agent pay property taxes by December 31 if the escrow agent has received a tax statement for that property by December 20. Lenders must treat Wisconsin as a “false year-end state” which means that every reasonable effort must be made to remit tax payments prior to December 31 even though the true annual due date is January 31.
- Option 3 has the escrow agent pay property taxes “when due.” The legislative wording is frustratingly vague and invites interpretation. This one is fun!
Q. How so?
Well, some lenders interpret Option 3’s “when due” wording to mean making a full tax payment in January before the January 31 due date. Other lenders take this to mean making installment payments. We need to accommodate for both.
Q. Does every Wisconsin tax office offer installment payments?
Yes, they do. There are seventy-two counties in Wisconsin with nearly 1,900 cities, towns, and villages. Not every installment frequency or due date is the same. In most cases, the first half tax payment is due by January 31 and is collected at the municipal level. The second half due by July 31 is collected by the county, so lenders need to manage two separate payee tax lines. The two-installment billing structure covers about 90% of all Wisconsin jurisdictions.
Some jurisdictions entrust the county to handle collection of both installments, but that decision rests with each municipal government. The duration and terms of this arrangement are subject to change. Some jurisdictions have used county collection for years with no foreseeable change. Others may use it as a temporary solution and could elect or resume municipal collection in the future.
Still, there are other municipalities that have adopted an ordinance which allows them to bill and collect more than two installments. Most collect three or four installments, but the due dates may vary. Two cities collect more than four installments. Merrill City collects six installments and Milwaukee City collects ten.
Q. It sounds challenging to keep track of everything.
Adding to the level of difficulty, Wisconsin property tax statements are typically mailed mid-December. This can make it a tight timeline for mortgage lenders looking to make year-end tax payment disbursements.
Q. So, how does LERETA approach tax processing in Wisconsin?
We’ve been doing this for a long time and we’re very familiar with the nuances of Wisconsin taxes. We begin by surveying the tax offices to see if there are any significant changes in their collection policies or schedules. We’ll also communicate with our clients before each Wisconsin tax season to make sure we’re properly delivering the correct Payment Option for each loan. If the client needs annual or installment tax values or intends to make payment in January or by year-end, it is critical for LERETA to be on the same page.
For more information contact us at sales@LERETA.com.