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Why your hotel assessment
should always be less
than market value.
Property tax caps do not work.
Do post-tension structures experience stigma?
To one-owner rental condominium apartment projects.
Hotels: Assessment vs. Market Value - The Missing Link

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.

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%

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)


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.

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.

Property Owner Industry Experience
Range of Allowances
City Stated Assessment Allowance
% of Net Income   % of Net Income  
Furniture   Furniture up to 15%
Fixtures 10 - 20% Fixtures  
Equipment   Equipment  
Intangibles 1 - 3% Intangibles up to 1.5%
       
% of Total Income   % of Total Income  
Management 5 - 10% Management up to 5%
Capital Cost 3 - 9% Capital Cost Allowance up to 3%
(reserves for replacement)   (reserves for replacement)  

Steven D. Rickard
B.A., FRI, AACI, CPL, PLE, Chartered Arbitrator
President, Rickard Realty Advisors Inc.

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