Understanding taxes: Tips for hoteliers

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by Susanna Daniel

The more Craig Cardella, CEO of Property Tax Eagle, a property tax consultancy in southwestern Georgia, learns about property taxes, the more he realizes he doesn’t yet know.

“And things change every day,” Cardella says in an interview. “By and large, property taxes are determined by local policy, much of which can tend toward bias, which means the learning curve is a steep one.”

Some hoteliers make the mistake of assuming the local tax assessor knows every code that affects their property.

“It’s not their fault that they don’t know it all,” says Cardella. “Hotels are very unusual in terms of how the money works. They rent rooms, sure, but they also sell brands and reservation systems, and there are many other intangibles that get lumped together when they shouldn’t be. The better a hotelier understands asset segregation, the better off he’ll be in an appeal.”

The tax assessor, generally speaking, makes the best valuation he can with the information he has. It’s up to the hoteliers to consult experts and do their due diligence – and that includes learning about incentives, like wind or solar energy, that could reduce the energy bill.

“I’ve never seen a hotel property that was accurately assessed,” says Cardella, who estimates that 60 percent of properties are overvalued by 25 percent. “That’s conservative.”

And yet most hoteliers either don’t bother to appeal their taxes, or they don’t succeed because they go about it the wrong way. The first step in the process, which can be downright finicky, is to get the tax assessor’s office on the phone – which is easier said than done.

“Most of these offices have slashed budgets and under-trained staff. You need to call back and keep calling. And you need to have all your information at the ready, including tax ID numbers and exemptions.”

The bottom line, says Cardella, is that if you don’t know what questions you need to ask, you’re not likely to learn them from the assessor.

After sending an appeal, the hotelier must specify where the appeal will be heard, describe the nature of the valuation appeal, state the value and explain why, cite the law in evidence, and prove the case is legally strong. This is where an expert’s advice can be invaluable.

But not all tax experts are created equal. Your income tax consultant doesn’t necessarily know more about property taxes than you do.

“Income taxes are heavily reliant on software. Your income tax guy plugs in your numbers, and that’s that,” says Cardella. “Property taxes aren’t profitable to big tax firms because it takes way too long to get up to speed. A hotelier needs someone with boots on the ground, someone who isn’t focused on making his money from doing income taxes.”

The tax assessor might have the right valuation based on what they know of the law, even if it’s the wrong valuation overall. If you can provide different information, the valuation might change without much struggle.

The challenge, explains Cardella, is to build up a relationship with the assessor’s office, which increases the motivation to take a closer look at a property’s assessment. Given that hotels are particularly complex properties, and given slashed budgets and the thankless nature of the tax assessor’s job, the responsibility falls to the hotelier to research and present the information as clearly and concisely as possible.

“Instead of arguing or blaming, become a resource for the assessor. Ask him, ‘What can I do to make your job easier?’” shares Cardella. “If a hotelier gets a reputation in the tax assessor’s office for presenting data that makes it easier for the assessor to do his job, then everyone wins.”

This is a revolutionary approach, says Cardella, because typically people who come into an assessor’s office are angry and looking to fight. Building the relationships can take a year or two, he said. It’s a long-term investment.

“Most tax assessors are pretty good folks. If you make it easy for them to do a good job, by golly they will,” he says.

Some hoteliers, Cardella believes, don’t appeal their property tax assessment because of fear of retaliation. His relationship-first approach keeps things civil, even friendly.

“It can be hard for a hotelier to know who to trust. The guy who owns six hotels isn’t going to get the same service from a big accounting firm as the guy who owns forty. They need to have someone who really knows the lay of the land.”

In addition to building a productive and reciprocal relationship with your local tax assessor’s office and enlisting a property tax expert to get you up to speed, Cardella has another tip: Join forces. Many hands make lighter work.

Cardella cited a group of hotels in Savannah, Georgia, as an example. “Savannah has a deep water port and an international airport and it’s going to grow. So the only way the hoteliers there are going to win in the property tax game is to get together and go down and appeal as a group, at the same time. That’s how they’ll get attention, especially if they have an expert to help them get their facts straight, and a good attorney.”

As for leveraging assets, the most successful hoteliers are the ones who are “absolutely candid” and don’t play games.

“If you’re doing a renovation and hiring employees and looking for a tax break, make sure all your paperwork is in order,” advises Cardella. “Get the engineering firm’s study data, take photos, and make sure you can explain your plans clearly. Your goal is for them to be on your side. They’re not the enemy. You can differentiate yourself by following the rules and being courteous and highly organized.”

Cardella says some of his favorite moments at work are when he looks at a potential client’s assessment, and realizes his advice isn’t needed.

“If I can’t save my client four times my fee, then I haven’t done my job,” he says.

And what if you’ve gotten your ducks in a row, built a relationship with the local tax assessor’s office, educated yourself, hired an expert, and laid out your case clearly and concisely – and you still get turned down?

“A rising tide lifts all boats, but it can also sink them” Cardella shares. “Don’t go to court automatically, or you might see widespread retaliation down the line. Instead, return the following year, but bring a different face, someone who might more closely match the assessor’s attitude.”

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