REPORT FROM THE U.S.—In this tumultuous economy, hoteliers need all the help they can get. They are, or at least they should be, looking at everything and anything to improve the balance sheet. Taxes—specifically with regard to property reassessment, cost segregation and historic building renovation—is one area where hoteliers can save.

Hoteliers are focusing on payroll and other operational aspects above the gross operating profit line, but property taxes are below that line, said Peter Tyson, vice president of PKF Consulting in Philadelphia, Pennsylvania.

Peter Tyson

But many hotel owners aren’t savvy when it comes to taxes, said Don Landry, owner of Top Ten, an independent hospitality industry advisory company in Slidell, Louisiana.

“Hoteliers are either totally unaware, don’t have complete knowledge about or are intimidated by the tax-credit process,” Landry said. “As a whole, the industry needs to be better educated in this area.

“There are tax credits and basically free money out there,” he added, citing an example in which Carlson Hotels Worldwide captured US$2 million in tax credits for renovating a historic building in New Orleans into a Country Inn & Suites.

Larry Berretta, a property tax manager for Property Tax Management/Thompson Dunavant in Memphis, Tennessee, reviews property assessments for tax purposes and for appeals, comparing the assessments with reasonable tax value, which tax assessors try to increase.

“I’m not an appraiser,” Berretta said. “I’m a consultant. My background is as an assessor, so I know what assessors are looking for. I come up with values, using data from STR and PKF, to challenge the assessment. But not every property can challenge.”

An appraisal is the study of a property’s value, and an assessment is the ratio or percentage of what an hotelier’s taxes are based on.

When Berretta worked for Holiday Inn from 1983 to 1990, he said he was one of five employees in its tax department who helped save the company US$2.5 million to US$8 million a year.

Assessors aren’t in the business to raise taxes; they’re just there to attach taxes to the property, Berretta said.

“That’s what they tell you, anyway,” he said. “It’s political. A lot of assessors are elected, and they have constituents to deal with. They have to do mass reappraisals, and that’s where they miss the boat.”

Assessors have a big responsibility, dealing with two-, four- and six-year tax cycles. But when a hotel owner receives an assessment, which is time sensitive, it has to be read carefully, Berretta said.

“Don’t just look at the number and say, ‘My value went up or stayed the same,’” he said. “It needs to be analyzed. There’s nothing standard about property taxes. Everyone has their own jurisdictions and runs it the way they want.”

Berretta suggests hotel owners talk to assessors about their tax assessments.

“But you need to be prepared with income data,” he said. “You don’t have to give them anything. It’s an informal meeting, but you should bring the data. Sometimes they can reduce the assessment at that level, and sometimes you have to go to the next level, which is the local board of jurisdiction, and fill out an abatement form. This level is more formal, but there’s no need for an attorney.”

Almost every property is appraised at 100 percent of market value, and then assessed a percentage for taxes. That percentage can vary. For example, in Shelby County, Tennessee, it’s 40 percent for commercial properties. So if a property is valued at US$1 million, US$400,000 is multiplied by the tax rate (7 percent), which equals the tax assessment.

In Tennessee, properties in the big counties are assessed every four years. In Texas and Georgia, assessments are every year, so increases aren’t substantial, Berretta said, citing three options for an assessment: Taxes will stay the same, increase or decrease. In North Carolina, assessments are every 10 years. Arizona has more than 200 tax rates. Some states conduct a ratio study.

“That’s why it’s confusing to many hoteliers,” he says. “They should get a second objective opinion.”

If a property has been renovated, the value, as well as the tax, can increase; and the tax will last the entire appraisal cycle, which is different everywhere.

Income is the primary factor used to argue a tax increase, Berretta said, adding the assessor is assumed correct.

“Make sure you don’t have a frivolous appeal,” he said. “You can’t appeal by saying, ‘My taxes are too high,’ or ‘I can’t pay my taxes.’”