SHE, inspired by Red Roof’s sister program, RIDE with Red Roof, is designed to diversify and expand hotel ownership opportunities for women and underrepresented groups. Two of RIDE with Red Roof’s pillars are providing access to educational resources for current and potential hotel owners and offering the connections to industry partners, vendors and service suppliers necessary for creating successful and sustainable businesses. 

 

One RIDE with Red Roof partner is O’Connor. Founded in 1974, O’Connor is one of the largest property tax consulting firms in the United States, offering an extensive team of experienced professionals dedicated to serving property owners. O’Connor is one of many industry partners connected to RIDE with Red Roof. Learn more about RIDE with Red Roof and Red Roof franchising opportunities at redrooffranchising.com/ride.  

 

Below is an article written by O'Connor, used here with permission.  This is not legal advice, and you should consult with your tax and legal advisors regarding your specific situation. 

 

To prepare for the approaching property tax season, here are four crucial things you need to be aware of… by Andrew Choy, Director of National Hotel Tax Division, O’Connor 

 

Valuation for hotel and lodging properties is both unique and challenging if the purpose of valuation is for ad valorem taxation. Tax assessors rely on mass appraisal methods to estimate property values as if the process is one-size-fits-all. Such concepts have led to most hotel property owners overpaying on their real estate taxes. 

 

Fortunately, the government is aware of the flaws in the system. Officials have incorporated the appeal process to give property owners the opportunity to make proper adjustments. It is of the utmost importance for all property owners to understand and evaluate their property assessment values and file appeals to reduce their taxes.  

 

The property tax appeal process is complicated, especially for hotel properties. However, with a proper approach and comprehension of the process, hoteliers can reduce their property taxes significantly. Property tax is a major component of a hotel’s operating expenses. Reducing property taxes improves a hotel’s bottom-line dollar for dollar which, in turn, boosts the market value for acquisition or financing purposes.  

 

1. Market value is not the same as taxable value 

The market value of a property consists of real property, tangible personal properties and intangible personal properties. Property tax can only be applied to real property and tangible personal property.  

 

What makes hotel properties unique and complicated is the fact that a sizable portion of a hotel’s value lies in its flags. The business value associated with a hotel’s brand includes goodwill, trade name, license, loyalty program, quality control, etc. Such value is defined in the property tax codes as intangible assets, and they are exempt from ad valorem taxation in all 50 states and Canada.  \

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Intangible assets are regarded as something you cannot see, touch or smell but they contribute a significant value to the real property asset. The biggest challenge for property owners, tax consultants, tax attorneys and even tax assessors is how to measure the value of intangible assets? When the nontaxable portion of the market value is properly removed, the taxable value can be significantly lower.    

 

2. Tangible Personal Properties 

While most of the focus for hoteliers is on intangible personal property values, it is important to point out that the tangible personal properties in a hotel, such as furniture, fixtures and equipment, cannot be separated from the income approach valuation. In essence, what would be the value or income of a hotel without furniture? 

 

You can lease an unfurnished apartment, but no hotel room can be rented unfurnished. If a tax assessor assesses a hotel's FF&E separately, that value should be zero or subtracted from the hotel's assessed value to prevent double taxation of FF&E. In addition, the resale value of a hotel’s FF&E is significantly lower than the depreciated value set by the tax assessors. 

 

3. Uniform and Equal Approach     

Most states require properties of similar class and quality in the same market area to be valued uniformly and equally. This may be the most powerful method to make sure your property is being valued fairly. However, to present a strong uniform and equal argument, you must have ample data of comparable properties available so you can select the lower ones to challenge tax assessor’s high value.  

 

4. Market Approach 

Market approach valuation is commonly used by tax assessors to set your assessed value based on recent comparable sales. However, tax assessors are known to select only the high sales to justify a high assessed value. You will need reliable sales data resources to assist you at tax appeal hearings to be successful.    

 

Since hotels are unique and valuation requires expertise, choosing the right tax consultant could mean significant difference in tax savings. Here are some tips on how to evaluate a potential tax consultant: 

1. Data resources: Consultants with massive valuation and sales data resources will provide stronger uniform and equal and market approach arguments. Ask your consultant to show you samples of comparable data or sales for verification.  

2. Experience: How many hotel tax appeals has your consultant done? 

3. Compare results: Consultants are not likely to tell you about their “bad jobs.” Compare results with other hotels in your area. Keep in mind that simply getting a refund is not an indication of success. What if you deserve a much bigger refund? 

4. File an appeal: An expert tax consultant will tell you to always file an appeal before the deadline. If your tax consultant recommends not filing an appeal on any account, stay away. It costs you nothing if there is no tax savings, so there is no reason not to appeal. 

 

Every owner should file a property tax appeal to ensure that they are not overpaying on their taxes. One of your most important rights as a taxpayer is your right to protest to the appraisal review board.  

 

O’Connor provides free seminars and consultation to hoteliers. Contact them at 888-666-1876 or to arrange a meeting at any upcoming hotel conferences. 

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