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Tax assessment valuation is generally fair market value of a property based on its highest and best use. This judgment, called Value-in-Exchange, holds in more than 90 percent of commercial and residential real estate valuations.

Exceptions, though, offer opportunities for real property tax savings.

For example, what if the value of the property can be established by its current use, rather than by some possibility of higher value alternative?

In Hotel Executive Magazine, David Chitlik, Altus Group Vice President, Property Tax, Hospitality, discusses corporations taking advantage of just that opportunity. David is a member of the publication’s editorial board and writes on hospitality property taxation.

In “Tax Assessment Based on Value in Use or Value in Exchange – Know Your Tax Jurisdiction,” David provides the example of the Shadow Mountain Resort in Phoenix. Maricopa County assessed the 43-acre parcel at $25 million, based on its potential value if carved into prime real estate lots.

Marriott countered that the property should be valued at $7 million, based on the deteriorating hotel and golf course that occupied the site. This Value-in-Use claim was upheld by an Arizona state court, and the hotel chain realized significant tax savings by recognizing an exception in tax jurisdiction procedures.

In another case, an Oregon court ruled “if a property has no immediate market value, its real market value is the amount of money that would justly compensate the owner for loss of the property.” In other words, Value-in-Use, rather than Value-in-Exchange.

Conversely, a Pennsylvania court ruled that a brewery in Lehigh, Pa., was worth $9.5 million on the open market, as the brewer claimed, rather than the $34 million the local tax jurisdiction assessed as the value of the property as used by the brewer. In this case, Value-in-Exchange, rather than Value-in-Use.

The key in each case is that companies need to know the laws specific to each taxing jurisdiction they operate in, as each will have different regulations and traditions impacting whether a tax-saving opportunities exist. It’s the best way you can be certain your properties are being treated fairly.

Read the full article here. This is the third in David’s series on hospitality property tax issues published by Hotel Executive Magazine.

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