In David Chitlik’s most recently published article in Hotel Executive Magazine, he explores the assessor’s point of view when it comes to reaching consensus on the role of CapEx in valuations and assessments. The article was co-authored with Renea Linton, Director, Altus Hospitality Tax Group.
“In the hotel industry, capital expenses (CapEx) projects are driven by numerous factors, such as improving, maintaining, or repairing a property, or fulfilling the requirements of brand standards. For owners, CapEx are necessary to preserve the property’s competitive edge. But assessors often misunderstand the function of CapEx and see reserves and CapEx as interchangeable when applying adjustments to assessed value,” writes David Chitlik, Altus Group’s Vice President, Property Tax, Hospitality.
“As a hotel owner or manager, you will have a multiple year plan to spend CapEx on property renovations, repairs, or improvements. In contrast, assessors learn about the scope and cost of your project at the time of the project or even after through one of several means, such as the annual income and expense questionnaires required by jurisdictions, articles in the media, or construction equipment onsite.”
The most common way assessors are notified is when a building permit is issued for renovations or improvements. The permit process is similar in each of the 8,000 taxing jurisdictions nationwide, but how and when the assessment will be impacted can be vastly different.
The reality is that assessments of two comparable properties in two jurisdictions only a few miles apart can differ by thousands of dollars, and taxes by as much. For building owners, it is vital to understand their tax implications before getting the permit.
The article also highlights the prevalence of assessors ignoring brand standards, leading to tax assessments that are driven by misconceptions and assumptions that are not grounded in trust.
As a takeaway for owners, the article discusses why equalization should be considered and why it’s important to help assessors truly understand their CapEx. Ultimately, when the owners are proactive, they can help assessors determine fair market value and reduce appeals, which is the ultimate goal for everyone involved.
Read the full article here. This is the eighth in David’s series on hospitality property tax issues published by Hotel Executive Magazine.