
For hotels and resorts, managing property tax is essential to maintain a healthy bottom line. Property taxes, or real estate taxes, are a significant expense for hospitality businesses, yet many are overpaying due to inconsistent and inaccurate assessment practices. Local assessors often evaluate properties based on assumptions that don’t reflect the true market value, and they apply generic commercial real estate formulas using computer models that don’t account for unique hospitality-specific factors.
The result? 90% of the hotels and resorts we come across are paying more than their fair share in property taxes. Correcting these inaccuracies requires a proactive approach to property tax assessments and a well-prepared strategy for appealing overvalued assessments. This guide breaks down the key elements of navigating property tax challenges for hospitality properties and highlights how working with a specialized team can ensure accurate, fair assessments.
Property Tax Challenges Facing the Hospitality Industry
Hotels and resorts aren’t like other types of commercial properties. From seasonal income fluctuations to market-dependent occupancy rates, various factors impact a hospitality property’s value in ways not always recognized by local assessors. Here are a few of the unique challenges that can lead to inflated property assessments in the hospitality sector:
Income Variability
Unlike typical commercial real estate, the value of a hotel or resort is closely tied to its operational success. Seasonal demand, tourism trends, and economic shifts can all affect occupancy rates and, in turn, revenue. Assessors don’t have the time or the tools to factor in these nuances, so they apply standard valuation models that don’t account for fluctuating income.
High Operational Costs
Hotels and resorts have higher operating expenses than most other commercial properties due to staffing, maintenance, and amenities. These costs reduce the net operating income (NOI) which should influence the property’s valuation. If assessors only look at gross income without factoring in these expenses, they may arrive at an inflated value.
Location-Driven Market Conditions
Many hotels rely on local tourism, events, and other location-specific factors that influence value. If assessors use comparable properties in non-tourist areas, they may overvalue or undervalue a property based on irrelevant comps.
Having a team that can help you understand these factors—and communicate them to assessors effectively on your behalf—could be the only way to get a fair assessment.
Steps to Successfully Appeal a Property Assessment for Hotels and Resorts
Appealing an unfair property tax assessment requires strategic planning, supporting documentation, and knowledge of local assessment practices. Here’s how you should approach a property tax appeal in the hospitality industry:
1. Review the Property’s Current Assessment Thoroughly
The first step is to examine your property’s assessment notice. Many hotels discover that their assessments contain errors, such as incorrect square footage, overestimated amenities, or miscalculated income potential. Common errors include:
- Incorrect classifications (e.g., categorizing a mid-tier hotel as a luxury resort).
- Overstated occupancy rates.
- Neglecting seasonal revenue variations.
Reviewing this information carefully can reveal inaccuracies that provide a foundation for your appeal.
2. Gather Evidence that Reflects True Market Conditions
A successful appeal is all about presenting compelling evidence. We start by gathering documentation that reflects the hotel’s actual market value. Key documents include:
- Recent independent appraisals to provide an accurate baseline value.
- Comparable sales data for similar hospitality properties in your area.
- Income and expense reports that reflect operational realities.
For hotels with high seasonal income fluctuations, it’s especially important to provide detailed occupancy and revenue data that demonstrate these variations. This data can show assessors that your property’s value doesn’t align with a typical commercial valuation model.
3. Leverage Industry-Specific Knowledge
Knowing how assessors calculate property values for hospitality properties is essential. For instance, some assessors may use the “cost approach,” which calculates value based on what it would cost to build the property from scratch. While this approach works for new construction, it often inflates values for older hotels. By understanding the methodology your assessor used, you can better identify the flaws in their approach.
4. Work with a Team of Experts
Navigating the appeals process can be complicated, and working with experts who specialize in property tax assessments for hospitality properties makes all the difference. Professionals with deep knowledge of the hospitality sector, like The Brennan Group, can help ensure that every detail is considered. From understanding the nuances of seasonal income to selecting the right comparables, we bring experience that strengthens your case.
5. Prepare a Compelling Case and Present it Effectively
When presenting your case, we communicate why the current assessment does not reflect the property’s actual value. This often involves explaining:
- Operational realities: Illustrate how occupancy rates, seasonal income changes, and high operating costs impact the property’s market value.
- Comparable properties: Show that similar properties are valued differently, particularly if they are in similar market conditions but have lower assessments.
- Alternative valuation methods: Demonstrate how a different approach (such as the income approach rather than the cost approach) provides a more accurate reflection of value.
Assessors may be unfamiliar with the specific challenges and operating dynamics of the hospitality industry, so a well-organized, data-supported presentation can make all the difference in the outcome.
The Long-Term Benefits of Accurate Property Assessments
Achieving a fair property assessment doesn’t just reduce immediate tax burdens—it also sets a precedent for future assessments. Once a lower, accurate value is established, it becomes a benchmark that assessors are more likely to use in the following years. This provides long-term savings and stability for budgeting and forecasting.
Beyond tax savings, accurate assessments help hotels remain competitive by freeing up capital for improvements, renovations, and operational enhancements. Lower tax obligations can also lead to improved profit margins, making the property more attractive to potential buyers or investors.
How The Brennan Group Helps Hospitality Properties Optimize Property Taxes
At The Brennan Group, we’ve seen firsthand how minor assessment errors can lead to major overpayments. With decades of experience in state and local taxes for specialized industries, our team understands the unique dynamics of the hospitality sector. Our process begins with a comprehensive review of your property’s current assessment, identifying inaccuracies and opportunities for reassessment.
Our team brings a detailed, data-driven approach to each appeal. We work closely with clients to gather the right data, select the best comparables, and present a compelling case. From preparing documentation to handling negotiations with assessors, we handle every step of the process, giving you peace of mind that your assessment reflects true market conditions.
Our goal is to help hospitality businesses lower their tax liabilities so they can reinvest in their properties, enhance guest experiences, and drive profitability.
Protect Your Bottom Line Through Strategic Property Tax Management
In the hospitality industry, every dollar counts, and property tax is one area where significant savings are often hiding in plain sight. By proactively reviewing and appealing inaccurate assessments, hotel and resort owners can prevent overpaying, protect their bottom line, and improve their competitive edge.
Navigating property tax challenges (and other state and local taxes) requires expertise, especially in hospitality. Partnering with experienced professionals like The Brennan Group ensures that your assessments are accurate, fair, and reflective of true market conditions. Whether your property faces high operational costs, seasonal income shifts, or other unique factors, a proactive property tax strategy can unlock long-term savings that strengthen your business’s financial health.
Navigating property assessments doesn’t have to be complex. With expert support, you can turn tax liabilities into a strategic advantage, ensuring long-term savings and stability. Connect with one of our experts today for a no-cost consultation.