Legal Victories Unleash Potential to Cut Property Taxes - Impact on Hospitality and more

By: Taro Chellaram /Real Estate Articles/Nov 15, 2023

Legal Victories Unleash Potential to Cut Property Taxes - Impact on Hospitality and more

Recent court rulings open doors to lower property taxes on hospitality and industrial real estate. The focus is on intangible assets, often overlooked in assessments. Despite efforts to deduct associated expenses, the flaw persists. Removing only costs neglects the profit property owners gain from intangibles. Courts stress the necessity of returns on both investment and assets. This affects a range of businesses, from complex operations to smaller enterprises like restaurants. Assessments need adjustment to account only for taxable, tangible property values, excluding the enterprise value of intangible assets for fair property tax calculations

Two recent court decisions have opened opportunities to reduce property taxes on hospitality real estate and offer potential benefits to other commercial and industrial property owners looking to lower their assessments. The central issue in these rulings is the treatment of intangible assets for property tax purposes. While California and many other US states consider intangible assets non-taxable, efforts by county assessors to remove them from assessments often fall short, leaving the full value of intangibles unaddressed. The flaw in the system, recognized by appraisers, tax advisors, and attorneys, has seldom been discussed in court opinions until now. Assessors typically deduct expenses associated with non-taxable intangibles but fail to account for the return on investment, specifically the profit gained by property owners in obtaining these intangibles. The court emphasizes that property owners will only utilize non-taxable intangible assets if they receive both a 'return of' their investment and a 'return on' the investment, referring to the profit increment gained through employing the intangible.

  • Two recent court decisions create opportunities to lower property taxes on hospitality real estate and benefit other commercial and industrial property owners.
  • The focus of these rulings is the property tax treatment of intangible assets.
  • California and most US states exempt or exclude intangible assets from taxation as they are considered non-taxable.
  • County assessors attempt to remove intangible assets from assessments, but their efforts often fall short of eliminating the full value of these assets.
  • The flaw in the system, recognized by appraisers, tax advisors, and attorneys, has rarely been discussed in court opinions until now.
  • Assessors deduct expenses associated with non-taxable intangibles but fail to consider the return on investment or profit gained by property owners.
  • Removing only the expenses eliminates part of the intangibles' value, namely the cost to the property owner or the investment amount.
  • The court emphasizes that property owners will only use non-taxable intangible assets if they receive both a 'return of' and a 'return on' their investment.
  • Commercial and industrial assets utilizing non-taxable intangible assets in operations may involve contractual arrangements, intellectual property, permits, customer lists, and other essential assets.
  • The complexity of assets correlates with a higher likelihood of involving non-taxable intangibles.
  • Smaller businesses within the property, such as restaurants or service providers, may also have intangible assets, and their enterprise value must be removed from assessments for property tax purposes.


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