Hotel Real Estate Tax

The New York Sun recently had a report on a new method adopted by New York City’s Department of Finance to arrive at valuations for the city’s hotels. The supposedly simpler method, a rooms revenue “multiplier” resulted in lowered valuations for less than 10% of the population, including some prominent hotels such as the Grand Hyatt, the Hilton and the Sheraton New York while others such as the Waldorf Astoria and the Millenium Broadway saw significant increases.

The Chief-Leader, a local weekly newspaper, hinted at disagreements between the Finance department and its Assessors and Sun’s article quoted an economist from the Fiscal Policy Institute who wondered, somewhat disingenuosly, how assessment methodology can result in tax credits. Regardless, of the merits, if any, of the controversy, New York City’s assessment methodology was in need of repair. That unfortunately also is the case for many jurisdictions across the country when it comes to hotel assessments. But despite the arbitrariness and even opaque nature of the process, most hotel companies fail to prepare proactively when it comes to property tax. Too often that results in a fait-accompli and hotels get stuck with a burdensome tax bill.

Hotels (and other commercial property) often get socked when local governments face budgetary pressures. On average, nearly 70% of their tax dollars come from real estate with most of that from commercial properties as residential taxes are always a political hot potato. Incredibly, several counties use a non-income approach to arriving at their valuations. A good primer on valuation methods can be found on Hospitality Valuation Services‘ article. Jurisdictions are notoriously immune to change when it comes to methodology and hotel associations are rarely able to influence the process. But recourse from protests to a request for arbitration can and should be actively sought by hotels. The new method instituted in New York does nothing to stop hotels from continuing to appeal unfairly high tax bills.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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