Should You Contest Your Hotel Property Taxes? - By Melissa Ramirez, Esq.

Yet the prospect of preparing and mounting an appeal may appear daunting, particularly to those without an in-house tax manager or who have little experience or familiarity with the process.
 
Here are some fundamental considerations that will make it easier to decide whether or not to seek an adjustment.
 
Practical Aspects of an Appeal
 
First, an owner or operator should consult with a property tax lawyer or property tax consultant in the state in which the hotel is located. Consider whether appeals in the area are generally worthwhile.
 

Expertise at the local level is essential because the property tax appeal process varies greatly from state to state. Some states have favorable taxpayer remedies, while others have unfavorable remedies or offer limited opportunities for success or relief. Local or state property tax professionals should have knowledge of and experience with particular procedures and remedies.
 
For each jurisdiction, it helps to know both the hotel valuation methodology that assessors employ as well as the legal principles applicable to the property tax system. Specifically, an owner needs to weigh the potential tax savings against the potential costs to achieve that savings. Further, an owner needs to consider the time required to prepare and follow through with an appeal.
 
Pay particular attention to whether there is a risk of an increase in value after an appeal, which is the case in some states. Evaluate these practical aspects concerning the time, money and risks associated with an appeal for the specific location of the property.
 
Review Property Specifics
 
As part of the evaluation, weigh the substantive aspects of your case in the proper context and against comparable properties. Owners should consider that a hotel’s market value for purposes of an investment is determined differently than its market value for property tax purposes.
 
An investment market value includes the value for the total assets of the hotel business, including the real estate, personal property and intangible property. Property tax assessors should exclude the value of intangible property, such as brand influence, assembled work force and contracts in place.
 
That means that appraisals performed for financing or due diligence before an acquisition or sale differ significantly from those performed for property taxes. Even when an owner possesses an appraisal that on first review seems to corroborate the assessor’s value, there may be strong grounds for a reduction. The appraisal must be reviewed in the property tax context with the appropriate assets being included in the appraisal.
 
A review of the tax values on competing properties may be useful as well. Some good metrics for comparison are the value per key and a room revenue multiplier, if room revenue information is available. Many states have statutes that set appropriate methods for value comparisons with comparable properties.
 
Hospitality property valuation is a complicated field, but knowledge of what to look for and what questions to ask can help property owners gather information and decide whether to appeal their hotel’s assessment.
 
 
Melissa Ramirez is an associate with the Austin, Texas, law firm of Popp, Gray & Hutcheson LLP. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of American Property Tax Counsel. Ramirez may be contacted at melissa.ramirez@property-tax.com.
 

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