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| Hotels: Assessment vs. Market Value -
The Missing Link |
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It is a misnomer to think that
the assessment of a lodging facility is to be at market
value! Assessment in Alberta should never be at the
market value for hotels, motels and the like. Market
value includes non-assessable items and it does a
disservice to both the assessment community and the
property owners to not make this
distinction.
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Well what is the amount of the
difference between the two? Depending on the
size of the facility the difference between assessment
and market value could range from 15% to 50%.
| Example Data Only |
| Market
Value |
Assessment |
Non
Assessable |
% |
| $1,000,000 |
$850,000 |
$150,000 |
15% |
| $1,274,275 |
$1,053,302 |
$220,973 |
17% |
| $1,623,777 |
$1,305,228 |
$318,548 |
20% |
| $2,069,138 |
$1,617,411 |
$451,727 |
22% |
| $2,636,651 |
$2,004,260 |
$632,390 |
24% |
| $3,359,818 |
$2,483,636 |
$876,182 |
26% |
| $4,281,332 |
$3,077,668 |
$1,203,664 |
28% |
| $5,455,595 |
$3,813,780 |
$1,641,815 |
30% |
| $6,951,928 |
$4,725,953 |
$2,225,975 |
32% |
| $8,858,668 |
$5,856,299 |
$3,002,369 |
34% |
| $11,288,379 |
$7,256,998 |
$4,031,381 |
36% |
| $14,384,499 |
$8,992,715 |
$5,391,784 |
37% |
| $18,329,807 |
$11,143,578 |
$7,186,229 |
39% |
| $23,357,215 |
$13,808,880 |
$9,548,335 |
41% |
| $29,763,514 |
$17,111,665 |
$12,651,849 |
43% |
| $37,926,902 |
$21,204,404 |
$16,722,498 |
44% |
| $48,329,302 |
$26,276,038 |
$22,053,264 |
46% |
| $61,584,821 |
$32,560,697 |
$29,024,124 |
47% |
| $78,475,997 |
$40,348,511 |
$38,127,486 |
49% |
| $99,999,000 |
$49,999,000 |
$50,000,000 |
50% |
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How would the average taxpayer make
this calculation to determine if the assessment is
fair? A loose approximation can be obtained
from the above chart but it is an example only. More
research into the size and number of allowances used by
the city to deduct for non-assessables is required.
What
allowances should be made? The Alberta Hotel
Association published a tax guide in which are listed
items that should be taken into account in a proper
assessment. Studies done by other organizations have
added further items to the list. A sample of the items
that are not subject to taxation (i.e. non-real estate)
include:
| Non Real Estate Income
Centres |
| (should be excluded from net income) |
| - Profit centre income including commissions
from: |
| 1) Video lottery terminals |
| 2) Movie rentals |
| 3) Vending machine revenues: pop, cigarettes,
and other dispensers |
| 4) Guest laundry |
| 5) Bus agency, guest transportation |
| 6) Lotto administration |
| 7) External catering |
| 8) Mini bar |
| 9) Telephone/communications |
| - Working capital |
| - Skilled and trained workforce |
| - Name/reputation of hotel (flag value) |
| - License/permits (other than
intangibles) |
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What
different method should be employed? The
assessor has pre-determined categories and allowances
within which all assessments deductions are made. By
comparing the range of deductions for the established
method of assessment with the requested allowances of
the property owner, the magnitude of the impact can be
understood. If for example the difference in percentage
deductions for non-assessables was 10% or an extra
$150,000 in cash flow, the difference in estimated value
and then property taxes would be:
($150,000�(15%=) $1,000,000 and
($1,000,000x2%=) $20,000.00.
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How do we
promote more appropriate assessment? Form a
committee involving representatives from the assessment
department, Alberta Hotel & Lodging Association and
Alberta Municipal Affairs to further refine the methods
used in the province to create fairness and equity in
assessment.
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| Property
Owner
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Industry Experience
Range of Allowances |
City |
Stated
Assessment Allowance |
| % of Net Income |
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% of Net Income |
|
| Furniture |
|
Furniture |
up to 15% |
| Fixtures |
10 - 20% |
Fixtures |
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| Equipment |
|
Equipment |
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| Intangibles |
1 - 3% |
Intangibles |
up to 1.5% |
| |
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| % of Total Income |
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% of Total Income |
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| Management |
5 - 10% |
Management |
up to 5% |
| Capital Cost |
3 - 9% |
Capital Cost Allowance |
up to 3% |
| (reserves for replacement) |
|
(reserves for replacement) |
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Steven D. Rickard
B.A., FRI, AACI, CPL, PLE, Chartered
Arbitrator
President, Rickard
Realty Advisors Inc. |
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