Disney ruling could save hotel companies millions in taxes

Published by: Jason Garcia/Orlando Sun Sentinel
Published date: July 2020

Walt Disney World and the lodging industry lobby just won a sweeping legal victory that could save Disney and other big hotel owners millions of dollars in taxes.

Ruling in a years-long lawsuit between Disney and Orange County Property Appraiser Rick Singh, an appellate court determined that Singh’s office improperly inflated the value of Disney’s Yacht & Beach Club Resort, a luxury hotel with an annual property tax bill of more than $4 million.

But attorneys and appraisers say the decision, which was issued June 19, will reverberate far beyond that one hotel. That’s because the court declared the entire method that Singh had used to appraise the Disney property — a method that is widely used by other property appraisers — is illegal under Florida law.

Now, experts predict that Disney and other hotel companies, whose finances have been crushed by COVID-19, will seize on the ruling and use it to push for lower tax assessments on scores of other properties. Disney alone is already challenging the appraisals for more than 10 other hotels.

Those challenges could save the lodging industry — but cost cities, counties and school districts — millions of dollars a year in property taxes.

“It’s huge,” said Michael McElveen, a commercial appraiser in Tampa. “I would imagine every hotel in the resort area of Orlando will be filing that appeal.”

The Disney case dates back more than five years, when Singh, a Democrat who was first elected property appraiser in 2012, brought in new appraisers to reevaluate different classes of property. They concluded that some of those properties — including resort-style hotels, like the kind found at Disney World and Universal Orlando — had been under-assessed under Singh’s Republican predecessors.

Singh’s staff redid the values for a number of hotel properties using something known as the “Rushmore” method. It’s named after an author of appraisal textbooks and it’s used by many property appraisers around the country — including in many Florida counties — though there can be variations in how and when the technique is applied.

“The majority of counties rely upon some version of it, depending on the type of hotel at issue,” said Loren Levy, an attorney who represents a number of county property appraisers, including Osceola County’s.

Under Singh, the new approach led to some dramatically higher assessments. The assessed value of Disney’s Yacht & Beach Club, for instance, more than doubled, to nearly $340 million.

So Disney sued, arguing that Singh’s office overstated the value of its hotel property by illegally including the value of intangibles, like the Disney brand. Two industry groups that Disney helps fund — the Florida Restaurant & Lodging Association and the Central Florida Hotel & Lodging Association — wrote legal briefs in support of the company.

Though it took years to play out, the Fifth District Court of Appeal ultimately agreed.

But the appellate court went much further than simply addressing Singh’s appraisal of the Yacht & Beach Club. It declared — unequivocally — that the Rushmore method itself illegal.

“Rushmore is essentially dead for use by property appraisers,” said Jennifer Dixon, an appellate attorney at the Lowndes law firm who represented the Central Florida Hotel & Lodging Association in the case.

The ruling has sent shockwaves through appraiser offices. Property taxes are the largest source of revenue for cities, counties and school districts, and hotels are big property taxpayers. Local governments are already struggling with plummeting revenues from other sources, like sales and hotel taxes, because of the COVID-19 pandemic and the recession it has caused.

The Disney opinion will be powerful ammunition for any hotel that challenges its own tax appraisal.

“I would expect that the hotel owners will emphasize the scope of the decision when challenging assessments,” Levy said.

At a minimum, Disney expects to see reductions on its own hotels. “We are pleased that the court concluded that the method used by the property appraiser violated Florida law,” Disney spokeswoman Jacquee Wahler said in a prepared statement. “We look forward to a reassessment of our properties consistent with Florida law and the court of appeal’s ruling.”

The next step is up to Singh. He could ask the appellate court for a rehearing in the hope that it might narrow its decision or try appealing to the Florida Supreme Court, which has become more conservative under recent appointments by Republican Gov. Ron DeSantis.

Beth Watson, a spokeswoman for Singh, declined to say what the agency will do next. She said Singh’s office remains “confident” in its appraisal practices — but acknowledged that it was alarmed by the potential reach of the court’s ruling.

“We are concerned about the broad nature of the ruling on the use of the Rushmore method,” Watson said. “While the DCA may deem it inappropriate for the Disney hotels at issue, their ruling could impact thousands of properties in Florida.”

The Disney ruling comes one year after another big business — Darden Restaurants, the Orlando-based parent company of Olive Garden, LongHorn Steakhouse and other chains — also won a precedent-setting property-tax opinion in a case involving Singh.

In that case — which centered on the value of the computers, furniture and other equipment at Darden’s corporate headquarters — the 5th DCA issued an opinion that limited a property appraiser’s discretion in determining values. Robert Goldman, a corporate tax attorney at the law firm Dean Mead, said at the time that the decision was “a huge win for taxpayers who contest property tax assessments.”

And those rulings follow a years-long effort by Florida’s business lobby to reshape both the laws that govern the state’s property tax system — and the courts that interpret those laws.

In 2009, for instance, in response to lobbying from big-business groups like the Florida Chamber of Commerce and Associated Industries of Florida, the Republican-controlled Florida Legislature passed a law making it easier for businesses to challenge their property tax assessments in court.

At the same time, businesses have been influencing the selection process for judges. Two of the three appellate court judges who decided the Disney case — both of whom were appointed by former Gov. Rick Scott — were nominated by a screening committee whose members included one of Disney World’s top in-house attorneys.