Reprinted from Advanstar Hotel & Motel Management Magazine

These economic times require a review of every item of a property's income and expenses. Most operators do a decent job of monitoring their operating businesses. However, two expenses often ignored as areas of potential savings are real-estate and personal property taxes.

It is often quite possible to appeal both informally and formally to taxing authorities for temporary or permanent reductions in assessed valuations based on current cash-flows or market value of the hotel.

Understanding the appeals process; gathering complete, relevant facts that will be effective in making your case; and working through professionals familiar with the "tax certiorari" process are basic to your potential for success.

Necessary Information

Recently, I was contacted by a firm that specializes in ad valorem tax-reduction work. They indicated that to be sufficiently knowledgeable and prepared to plead the case for a hotel tax reduction, it would be wise to be armed with the following information:

Real Estate-

1. Certified survey or plot plan;
   
2. Legal description showing metes and boundaries;
   
3. Copies of latest tax bills;
   
4. 1985 and 1986 average vacancy and rental rates;
   
5. 1985 and 1986 year-ending operating statements;
   
6. Age of improvements;
   
7. Copy of any recent appraisal;
   
8. Descriptions and costs of any additions, deletions or renovations to real estate;
   
9. Any comments as to physical, functional or economic problems with the property;
   
10. Gross potential that could have been realized if all units had been occupied the previous year;
11. Details of latest transfer of property ownership, including the amount of any mortgages, interest rates, and terms, cash or other compensation downpayment, and resulting total price involved.

Personal Property

1. Inventory as of January 1, 1986;
   
2. Itemized schedule of fixed assets as of January 1, 1986, showing cost by year of acquisition;
   
3. Copies of any prior year's Business Personal Property Tax returns you may have filed with the taxing jurisdictions.

There are real forces at work that open up an opportunity for the property owner to succeed in a tax-reduction appeal.

For instance, overbuilding of commercial real estate and the residential construction boomlet throughout the country have actually broadened the property-tax base in most communities. This opens up the potential for government agencies to be flexible.

Cash-Flow Reductions

Also, there's been a general reduction in hotel cash-flows because of economic slowdown and competition that is undeniable and provable. Correspondingly, there's been a general reduction in the market value of most hotel property due to overbuilding, economic slow-down and skyrocketing insurance premiums. All of these factors can be documented easily.

Finally, the 1986 Tax Reform Act is widely acknowledged to be unfavorable, in the short run, to real estate, and to be contributory to depressed market values. Simply stated, real estate has significantly less immediate value after tax reform than it did before.

You would be wise to utilize the services of a professional firm whose specialization is tax certiorari activity. Usually, such a firm's fee is a percentage of the reduced tax bill for a specific period of time, often ranging from one-third to one-half the savings for the current tax year. The tax savings is based on the difference between the proposed current year assessment and the final current year assessment.

Good luck in realizing savings through the tax-reduction process.