Hotel valuation is a taxing issue

Debate centers on how to account for factors like brand recognition

External Source Are two hotels, comparable in size, location, age and condition, worth the same if one is a Ritz-Carlton and the other is an unbranded unknown?

They should be when it comes to property taxes, the hotel industry says.

Not so fast, says the tax assessor.

Intangibles like brand names can't be taxed. That's cut and dried. But just how to value appraisal deductions for these nonphysical assets is increasingly contentious.

Commercial property owners, led by major hotel companies, are litigating to get lower assessments in mounting numbers.

They contend that traditional valuation methods penalize companies for developing strong name recognition and becoming more profitable.

"This is the central issue of my career," says Mike Hunter, the vice president of property taxes for Irving-based FelCor Lodging Trust who's been waging such battles for 18 years. "If a hotel is renowned for its service, how much of the room rate and hotel income is really attributable to the real estate? Tough question."

Yes, it is, says Ken Nolan, chief tax appraiser for the Dallas Central Appraisal District. "However, we don't believe intangibles are as large a component as they do. We're wary that this is just another scheme to reduce someone's tax liability and shift the burden to homeowners."

Without getting too down and dirty - I promise - there are three general methods for valuing commercial real estate. None is perfect.

Both sides seem to agree that the least troublesome is based on how much money a property generates, but they're widely split on what should be deducted from this income.

Eddie Tantoco, vice president of property tax in for Starwood Hotels and Resorts Worldwide Inc. in Phoenix, is leading what he calls an "education effort" to help taxing authorities better understand the intricacies of intangibles; i.e., reputation for service, name recognition and marketing skills.

Late last year, Mr. Tantoco helped organize a symposium on the topic. The Chicago event drew more than 300 live and Web cast participants, including tax assessors, hotel owners, judges, tax-appeal officials, tax lawyers and consultants.

He sees planning such events as his civic duty.

"Starwood and I view the government as our partner. We don't want to see it waste so much taxpayer money litigating the same issues over and over."

That's a worthy cause, says Mr. Nolan, who's been Dallas' chief appraiser for just under a year and with the district for 25.

"With this appraisal issue - or any other - it's very beneficial to for both sides to sit down and discuss the issue and hopefully arrive at a reasonable methodology that everyone can live with."

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Source - Dallas Morining News

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