Deciding to Appeal a Hospitality Assessment Is Just the Beginning
By David Chitlik Vice President, Atlus Hospitality Tax Group | February 18, 2018
Deciding to appeal seems straightforward, but before the decision is made, the hotelier needs to understand that appealing a property assessment can be more art than science. It’s not just the facts and figures to consider. These have a supporting role, but an appeal puts them in context with other data to persuade an appeals board and, perhaps eventually, a judge that a property assessor with years in the business has made a mistake. It’s showing convincingly that an appellant’s opinion of value outweighs that of a professional assessor who works under strict laws, rules, regulations, guidelines and interpretations, many of them nuanced by the tax jurisdiction. Assessors can also benefit from a greater understanding of the appeal process than the appellant.
These elements of law and judicial culture are practices under which members of an appeals board and, if the case reaches that level, a judge will operate. In most jurisdictions, the assessor is considered correct until the appellant proves otherwise.
First, the hotelier has the right to handle the appeal alone. Realistically, though, it’s best to limit those efforts to small jurisdictions to which the hotelier is local, and where familiar players can be easily approached, often informally. Perhaps there is an easily remedied mistake: Assessment working papers say the hotel has 250 rooms, but there are only 225. Maybe there has been extensive remodeling that has been done in stages, necessitating taking rooms out of service for a considerable time. A fire closed 25 rooms or the events ballroom for most of a tax year. Those are errors that might merely require an assessor correct the work papers.
When the appeal involves more than simple factual errors, an appeals board will generally become involved. At that level, the appeal can become more complicated. Take, for example, a hotel that was refinanced during the past year at a greater amount than the property tax assessment. If a member of the board asks to see the appraisal supporting the refinance, the appellant’s case could become harder to prove. Though the facts and figures of a mortgage are generally not applicable to an assessment, an appellant might well provide that information. A lawyer or tax consultant, knowing that the mortgage amount should not be part of an appeal, could claim no knowledge of that amount.
Pride in the property, however justifiable, can work against an appellant if a board member challenges the basis for an appeal. It can be difficult for an owner to argue for lowering an assessment on property in which he or she has invested considerable money and time.
There are limits in which a layman can be effective in an appeal, and hoteliers’ time is usually best spent in managing the business operation of the hotels. Also, occasional legal landmines in a property assessment appeal require specialized expertise to defuse. Options for such help generally include a lawyer, an accountant or a tax consultant – or any combination of the three. Each has positives and negatives, and there can be quirks in the process of choosing any.
Sometimes, though, you don’t have a choice. In Ohio, for example, the law requires a lawyer to shepherd the appeal at every point in the process.
In most tax jurisdictions, each step of an appeal begins from a clean sheet, and each creates its own record. But in California, where the Board of Equalization is the lowest-level appeals body, a record begins there that follows an appeal through every subsequent step, creating a foundation on which the rest of an appeal is built. In California, it might be wise to hire a tax consultant or lawyer from the beginning of the appeals process.
In other jurisdictions, there are reasons to hire lawyers right from the beginning – and potential reasons to avoid hiring them. Relief sought may be so great that, before deciding to appeal, a hotelier anticipates having to go all the way to court. Or issues supporting the appeal are so complex that they indicate a judge will have to decide on their merits. A decision to appeal an assessment that is made with the belief that the eventual remedy will require a judge should drive the decision of hiring an expert to help the case through the appeals system.
However, beware of hiring a lawyer just for the title. If you are going to retain an attorney, make certain he or she has the necessary real estate tax experience. It’s a specialty that involves complex issues, including both the law and valuation process. An appeals board that perceives that a lawyer does not know both can work against an appellant. Often attorneys go into a case and argue the law, when in fact the basis of the appeal is the market itself. Also, it is common for the fee rate to increase as an appeal moves through the levels towards court, a comfortable playing field for lawyers. This can lead to negative motivation to settle an appeal quickly.
In addition, going to court requires more supporting evidence, time and money. An appeal can drag through the judicial process, taking so long that next year’s tax assessment might warrant an appeal before this year’s is resolved. That kind of vicious circle can get timely and expensive. Remember, too, a hospitality owner’s time has value, and time spent testifying is time not spent managing the business.
Accountants are another issue to manage. They are rarely the person of choice in an assessment appeal because valuation and financial accounting are different disciplines. While accountants frequently are valuable in support of an appeal, they don’t tend to speak the language of valuation or know the laws and rules of assessment. However, having an accountant on your side may be necessary is some jurisdictions. For example, in South Carolina the tax payer must be represented by a CPA, licensed appraiser, or attorney if not representing themselves.
Consultants –usually work on a contingency basis.
A tax consultant’s contingency percentage generally is lower than that of a lawyer, and the consultant usually prefers to get the case won at the earliest point on the appeal continuum, which is ultimately an advantage to you.
When you hire a tax consultant, you’re getting a specialist who knows property tax in the area, knows the law as applied, knows the nuances of the tax jurisdiction and has experience with the players involved. All of these attributes can work to your advantage.
Sometimes an appeal merits a team that can be comprised of all three: consultant, lawyer and accountant. That often happens in jurisdictions where property taxes are high. Occasionally, the appeal can best be handled by adding team members along the way: a consultant at the administrative level, then a lawyer for court work. Perhaps an independent appraiser could be retained to support both.
Often, too, a tax consultant can help an appellant decide whether a team is needed, and help with hiring the players. In any case, the appellant is seeking a professional, and should seek references and other indications of success before making a decision on hiring.
All of these variables should guide the first decision of whether to appeal at all. Evaluate all the particulars before embarking on an appeal. The next step is determining if it’s worth it?
Sometimes, the answer is “yes.” Appeals have lowered property assessments by millions of dollars. The Mountain Shadows Marriott resort got an Arizona court to lower a $25 million assessment to $7 million. A Pennsylvania court lowered a $34 million assessment of a brewery in Lehigh to $9.5 million. An Oregon court ruled property with no immediate market should be valued at a price that would compensate an owner for its loss.
However, appellants don’t always win. Their cases might just not be strong enough. After reviewing the basis for appealing a hotel assessment, a good consultant will draw on both information and experience and advise whether or not success is likely before embarking on the process.
It’s advice that can save both time and money.
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