When it comes to calculating property taxes on hotels, few taxing jurisdictions fairly distinguish the taxable value of the real estate from FF&E and good will. Consequently, hotels can be paying significantly more in hotel property tax than what is fair. Appearing on a panel at the BISNOW Hospitality Investment, Development & Management Summit in New York City in early January 2020, David Wolfe, managing partner of the Property Tax division of Skoloff & Wolfe, joined a panel to discuss how property tax appeal savings can help New York City hotel operators stay competitive in the city’s hyper-competitive hospitality market.
Why are hotel property tax valuations so much more difficult to calculate?
“There’s a variability with hotels that is unlike other property classes. With hotels, your rates can change dramatically within a year, as can cap rates. So it continuously requires assessors and local jurisdictions to be 100% up to date in market activity. Unlike an office building where you’re leasing space and the landlord is collecting a rental stream, the tenants’ income is not part of how you value the business. For a hotel, however, you have guests staying there spending on the hotel as well as the real estate, which combined is the business income of the property. But the taxing authorities only have the right to tax you on the real estate, so you have to extrapolate the property from the experience of staying at the hotel. And that makes it a much more difficult valuation assignment. For example, if I’m paying $400 a night, which portion of that is actually for the real estate? Which portion is the personal property? Which portion is the goodwill? Which portion is the business value?