Property Tax Risks In The Hospitality Industry And How To Mitigate Them

Posted by Anne Sheehan on Aug 18, 2016

Discover how to prevent property tax overassessment in the hospitality industry.Many industries face risks associated with property taxes. If your assessment increases from one year to the next, your commercial property taxes would skyrocket. The majority of companies make the mistake of accepting these taxes as a fixed cost.

The hospitality industry is no different. Explore the risks and challenges specific to property taxes in the hospitality industry, and discover the secret to mitigating them.

Taxable Vs. Non-Taxable Property: What’s The Difference

Arguably the greatest property tax risk for the hospitality industry is over-taxation caused by a failure to separate taxable property from intangible (non-taxable) property. Intangible property includes a number of assets that add value to your property, such as:

  • Workforce
  • Brand/Flag (franchise fee)
  • Agreements and/or leases with vendors within your property (e.g., a spa in a hotel)
  • Management fees
  • Non-compete agreements for hotel executives

Hotels or other businesses in the hospitality industry encounter problems when intangibles such as these are not properly separated from actual taxable property, such as your real estate, site improvements, land and FF&E (furniture, fixtures and equipment). If these intangibles are assessed with your actual property, it could result in  higher property taxes.

So what’s the solution? To cut down on the risk of overassessment, you have to separate the value of your intangible and tangible property. One way to proactively approach this task is by making allocation a priority during your acquisition and due diligence process.   

Another area where you may be vulnerable to property tax risks is your reserves for replacement. These funds are set aside for the ongoing replacement of furniture and equipment to your property that are treated as an above the line operational expense. Watch this figure carefully to be sure it is not placed below the line, where it would add to the value of your property, thus increasing your property taxes.

Review your previous assessments and determine if your actual property value aligns with the value determined by your jurisdiction. If it isn’t, you have a case for appeal. And with a successful appeal, you have the opportunity to decrease your commercial property taxes.

The Secret To Mitigating Your Property Tax Risks

Discover how to mitigate your own property taxes.Because commercial property taxes have such a heavy impact on your operational costs, and because tax management requires time and resources you may not have available, consider turning to property tax experts to help you. With real estate knowledge specific to the hospitality industry, they understand the complexities of your needs and the number of challenges you face. They’ll be able to effectively separate your tangible property from your intangible property, helping you securing savings along the way.

Your time is better spent managing your property and focusing on providing your guests with a positive experience. Consider turning to property tax experts so you can return your attention to your business.

Learn more about ways to mitigate the risks of commercial property taxes through effective property tax management.

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