How hotel owners can shrink their property tax bills

This Hotel News Now article highlights some important steps to consider for hotel property tax appeals. Having a plan in place can save money down the road. H&LA specializes in tax appeal appraisals for hotels and resorts. We have assisted many hotel owners in their tax appeal process. For more information on our tax appeal appraisals, give us a call @ 216-228-7000.

By: Brendan Manly/Hotel News Now
Published: July 2016

Hoteliers stand to gain considerably from adopting a proactive approach to property tax assessments. While assessments are generally lowered or remain the same after the appeal process, reviewing tax assessments on a regular basis is a low-risk, high-reward proposition, sources said.

Still, it’s not always a high priority for owners without a current plan in place. Sources said that can be a very costly mistake, especially since about 40% of a hotel’s cost of occupancy reportedly comes from property taxes.

“A lot of owners have a mentality of managing that expense after the fact, so they wait to get a notice of assessment, then decide if it’s too high or low,” said Bernice Dowell, president of Cynsur, a hotel property and transfer tax consultancy. “But the one thing I would emphasize is to think in terms of the line item on your (profit-and-loss statement) as something that can be managed more proactively to figure out what you can do as an owner to put yourself in a situation where you get good assessments to start with.”

The need to be proactive
It’s an uphill, but necessary, battle from the start. Commercial property taxes normally fall under state law and are administered at the county level, and sources said there is a wide range of methods, personnel and professional vigor employed by local assessors.

In many cases, assessors are overburdened with properties to appraise and aren’t particularly experienced in hotel assets, so it is critical to ensure that a hotel’s official tax value is accurate and remains that way.

“Generally the people making the assessments are all career administrators who really aren’t passionate about it,” said Doug Collins, president of DC Hospitality. “There’s a lot of turnover, and they have a lot of big properties to assess, so they have their template, they put in the numbers, and it’s kind of an impassionate thing. Many times they don’t take the time to dig deeper to get to the proper evaluation. They’re not going to be as passionate about your property as you are.”

There is also good reason to question the core assessment methodology being used, which can vary between a comp-based mass appraisal approach and a pure income method, or in the best-case scenario, an analysis that considers income yet makes appropriate adjustments for crucial hotel factors like expenses and both tangible and intangible assets. It’s not a task hoteliers are often able to easily do themselves, either.

“When you look at a hotel from a property tax perspective, if somebody paid $20 million as a transaction price and they bought the hotel lock, stock and barrel and (are) operating and in place, you cannot assume that $20 million is the value of the real estate, because there are all these other things that go into making a hotel a hotel,” said Anne Sheehan, CEO of Real Property Tax Advisors. “You have to be knowledgeable, and you have to know how to segregate out these intangible components from the taxable real estate and the taxable personal property. That’s not something the CFO of a hotel company can pull out of his books.”

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