"Before undertaking an appeal based on uniformity or equal protection requirements, owners should consult with their property tax representative for guidance regarding the relative benefits and costs of pursuing this type of appeal."
Property taxes usually comprise one of the largest single expense items on any hotel owner's P & L. With so much at stake, it becomes critical for owners to understand those issues that allow them to successfully protest excessive property taxes. This article provides an overview of those issues. The process of reducing property taxes works on the government's timetable, not one the taxpayer sets. Every jurisdiction establishes strict procedures for appealing property tax assessments. One missed step in the process can prohibit an appeal to the next level. For example, if an owner fails to protest an assessment at the local review board, many states prohibit an appeal to the state tax court or board. Most of these local review boards meet very soon after annual assessment notices are sent to taxpayers. This allows the hotel owner very little time to decide whether to file an appeal. However, failure to act timely can leave the owner with no appeal options.
Knowing the deadlines for filing appeals is essential to preserving appeal rights. In some jurisdictions, meeting with assessing authorities very early, even before the deadline for appeal, may be beneficial. Experienced property tax counsel can provide guidance as to the best strategy for obtaining a successful outcome based on a property's situation and the particular jurisdiction involved.
Where no basis exists for property tax exemption, do not relent. Instead, determine whether the government's valuation of the property falls in line with other similar properties and with the applicable value standard, usually a fair market value standard (although sometimes labeled fair value, cash value, true value or usual selling price).
In most jurisdictions, a hotel assessed at a higher valuation than other similar properties may bear a very heavy burden of proof in a tax appeal. Such proof requires evidence far more than just comparing the hotel's per room assessment to the assessments of one or two others in the jurisdiction. Before undertaking an appeal based on uniformity or equal protection requirements, owners should consult with their property tax representative for guidance regarding the relative benefits and costs of pursuing this type of appeal.
While assessment reductions based on a property's value are often more simple to achieve than a uniformity appeal, valuation appeals still involve a myriad of issues. Those issues can involve the cost approach to value, which can be especially important to assessing officials where construction is recent, as well as the sales comparison approach. Of course, the income approach is usually the most significant indicator of value for a hotel. Unlike some properties leased on a net-basis, where the property's stabilized net income is obvious and capitalization rates are well known, using the income approach to value a hotel is much more complicated because of the many variables that impact a hotel's value. The following points illustrate a few of the most significant variables facing hotel owners in a valuation appeal where the income approach to value is the crux of the dispute:
Unfortunately, unless taxpayers take action, many taxing jurisdictions will collect and retain property taxes based on unlawful, excessive valuations. Now for the good news: when unlawfully excessive valuations are imposed and appeals timely filed, tax savings are often achieved. Of course, the odds of a successful outcome increase with the sophistication, knowledge, and ability of those involved in the property tax appeal.