CapEx, Taxes, and the Assessor's Perspective
By David Chitlik Vice President - Hospitality Tax, Altus Group | November 11, 2018
Co-authored by Renea Linton, Director - Hospitality Tax, Altus Group
In the hotel industry, capital expenses (CapEx) projects are driven by numerous factors, such as improving, maintaining, or repairing a property, or fulfilling the requirements of brand standards. For owners, CapEx are necessary to preserve the property's competitive edge. But assessors often misunderstand the function of CapEx and see reserves and CapEx as interchangeable when applying adjustments to assessed value.
In the June 10, 2018 edition of the Hotel Business Review, we explored the relationship between CapEx and tax assessments from the owner's perspective. In this article, we'll focus on the assessor's point of view. Understanding both perspectives is the first step toward reaching consensus on the role of CapEx in valuations and assessments.
Permits, Property Valuations, and Supplemental Assessments
As a hotel owner or manager, you will have a multiple year plan to spend CapEx on property renovations, repairs, or improvements. In contrast, assessors learn about the scope and cost of your project at the time of the project or even after through one of several means, such as the annual income and expense questionnaires required by jurisdictions, articles in the media, or construction equipment onsite.
However, the most common way assessors are notified is when a building permit is issued for renovations or improvements. The permit process is similar in each of the 8,000 taxing jurisdictions nationwide, but how and when the assessment will be impacted can be vastly different. Assessments of two comparable properties in two jurisdictions only a few miles apart can differ by thousands of dollars, and taxes by as much. So, before you get the permit, make sure you understand the tax implications.