Hotel Job Resource - American Property Tax Counsel Hotel News

Few tax authorities have fully recognized the decline in hotel values across the United States. It’s no wonder then that growing numbers of hotel owners and operators are giving more serious thought to contesting or appealing their hotel property tax values.

The first step a real estate appraiser must take before valuing a property is to identify its highest and best use (HBU). Indeed, it is a truism that everything in an appraisal flows from this determination.

A key question remains: do the added start-up costs of going 'green' translate into higher property taxes for hotels? The answer is they can and here's how you can prevent it.

Every year, most assessors across the nation face the daunting task of determining market value for every property in their jurisdiction. By virtue of necessity, they are required to use 'mass appraisal' techniques to value thousands of properties within a very short time frame.

Assessors all too often base their hotel property tax assessments on the revenues derived from a hotel's total assets, wildly exceeding the appropriate amount for just the 'taxable' real property. This occurs because the assessor fails to separate the real property from the total assets of the business.

A two step process has become the most common method used to value a hotel for property tax purposes. The first step calls for applying the income approach, which values the total assets of a hotel's business. The next step requires an allocation of the total assets of the business to segregate the real property, personal property and business enterprise components.

Disputes over hotel property taxes continue to mount all across the country and basically for one reason. Taxing authorities attempt to include both the real estate and the non-real estate values in developing their tax assessments when the law states that property taxes can be levied against only the real estate.

The valuation of hotels for property taxes has always been a difficult process. The increasing sales prices of hotel properties and increasing hotel REVPARs over the past several years have made the process even more difficult. The tax assessor response to these increases has resulted in ever increasing value for property taxes purposes and, thus, ever increasing tax bills.

Many tax assessors value hotels employing an income approach developed by using direct capitalization. This method converts an estimate of one year's net operating income for the real property into an indication of market value by dividing the income by an overall capitalization rate.

The strong hotel market has resulted in a significant number of hotel sales at levels much higher than in recent memory. These high sales prices dramatically affected property tax officials, encouraging them to raise hotel assessments to ever increasing levels.