Hotels and other properties in the hospitality industry are valued differently than any other type of commercial property. This often makes it difficult to secure commercial property tax savings.
With the burden of proof on you as the taxpayer, there’s even more pressure to understand how your property is valued and whether or not that valuation is fair. Find out four tax savings tips specific to the hospitality industry and learn how to apply them to your business.
4 Tax Savings Tips For The Hospitality Industry
- Know How Your Jurisdiction Values Property. The valuation of properties is determined in state legislation and adopted as law, but is executed at the local level. This leads to a number of issues with how legislation is executed. Every taxing authority has differences in funding, experience and execution of property tax legislation. These variances in how the law is interpreted could lead to over-assessment of your property.
Pay attention to what your state says about property valuation and taxes. Then identify how your jurisdiction assesses hotels and other properties in the hospitality industry, based on that legislation. Understanding how your property will be assessed helps you prepare a case in the event of an appeal.
- Pay Attention To Metrics. To get a real understanding of your fair share in property taxes, you have to compare your property to your competition. Evaluate the market. The metrics to look at include your competitors’ occupancy, ADR, RevPar, the market values of their properties and the amounts they pay in property taxes. These numbers are not readily available, so you’ll have to do some legwork and utilize the reports you likely are already subscribing to, such as Smith Travel Research.
If you assess these metrics and your property doesn’t align, you’re likely paying more than your fair share, based on the market. In that case, you should consider pursuing a commercial property tax appeal for increased tax savings.
- Separate Taxable From Non-Taxable Property. If you buy a hotel and pay $20 million, the transaction is recorded at $20 million. When an assessor sees this, there’s a chance your property’s assessed value is simply set at $20 million. What the assessor doesn’t know is how much of that $20 million is for the value of the real estate (taxable), and how much was for the value of intangibles, like existing workforce, brand/flag, and so forth (non-taxable).
It’s imperative that when you purchase a property in the hospitality industry, you document and separate the value of the non-taxable intangibles from the value of the taxable property. Your assessor will not have access to the documentation of intangible property value unless you provide it, so having this documentation helps you both at the initial assessment and in the future. Don’t forget to update the documentation as the values change, so you’re ready for future assessments.
- Get Expert Advice. Ultimately, the best way to save on your hotel’s property taxes is to consult an expert. With so many challenges specific to the hospitality industry, it’s important to have an expert eye on the management of your taxes. Turn to property tax experts for insight into the industry. They know all the strategies and tactics for developing a case for lowering your assessment and conducting a successful appeal.
To increase your chance at reducing your hotel’s property taxes, you have to know and understand your industry and how your jurisdiction values properties in it. With research, documentation and due diligence, you’ll be on your way to securing savings.
Learn how to tell if you’re overpaying your commercial property taxes by reading our free whitepaper.