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2009 Property Tax Strategy And Recommendations: Legal and Valuation

2009 Property Tax Strategy And Recommendations: Legal and Valuation. Presented to: Academy of Hospitality Industry Attorneys Presented by: Mark Ong, Principal Independent Tax Representatives, LLC Marty Dakessian Akerman Senterfitt April 24, 2009 ● Four Seasons ● San Francisco.

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2009 Property Tax Strategy And Recommendations: Legal and Valuation

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  1. 2009 Property Tax Strategy And Recommendations: Legal and Valuation Presented to: Academy of Hospitality Industry Attorneys Presented by: Mark Ong, Principal Independent Tax Representatives, LLC Marty Dakessian Akerman Senterfitt April 24, 2009 ● Four Seasons ● San Francisco

  2. Goals of Today’s Presentation Increase your knowledge in property taxation (with emphasis in California) Learn how you can add value to the organization through effective management of property taxes

  3. Table of Contents Property Taxation – an overview Legal Aspects of Property Taxation Valuation Aspects of Property Taxation 2009 Strategy Recommendations Resources Q&A

  4. Property Taxation A major funding source of state and local government A significant item in the undistributed operating expense category Assessment is typically based on fair market value Base year (CA, OR) or cyclical re-appraisal system (rest of the country) Tax rates vary greatly between states

  5. Overview of California Property Taxation System Government Agencies State Board of Equalization Counties Assessor Assessment Appeals Board Tax Collector Authorities California Constitution Statutes Regulations Court decisions Guidance

  6. Proposition 13 (Cal. Const. Art. XIIIA) Changed California to acquisition value property tax system Real property assessment shall not increase by more than 2% per year unless change in ownership or new construction Tax rate fixed at 1% per year plus local spending measures that require 2/3 voter approval

  7. Exemptions and Exclusions Exemption (constitutional provision): Welfare and religious Inventory and application software Manufacturing Exclusion (from otherwise taxable property): Active solar systems ADA, fires/safety/seismic

  8. Other Legal Issues in Taxation Properties subject to legal restrictions Rent control Open space Appraisal Unit Whole sale vs. retail Separately parceled mixed used property Taxation of intangibles Franchise Assembled workforce Value related to percentage rent

  9. Special Issues Under Proposition 13 Hotel stays in the same legal entity (>50% Rule (Rev. & Tax. Code Sec. 64(c)) Partnership buy-out Family wealth planning Hotel transfers between entities (change ownership % before and after (Rev. & Tax. Code Sec. 62(a)(2)) Recapitalization Sales and Leaseback Reorganization

  10. Change in Ownership Rules and Tax Minimization On the date of change of ownership, the taxable value of hotels changes permanently When property market is healthy, avoid a change in ownership When property market is challenging, a change in ownership is highly desirable to permanent lock in lower value

  11. Valuation Aspects of Taxation Issue concerning in-house counsel: Review appraisals 2009 annual appeals Acquisition related tax strategies Allocation of purchase price Taxation of intangible values

  12. 2009 Valuation Challenges Lack of capital, transaction, market data Discrepancy between owner and operators re: direction of the market Discrepancy between buyers and seller re: cap rate, ADR, RevPar Discrepancy between owner and assessor re: valuation Remember valuation date is January 1

  13. 2009 Annual Appeals Informal appeal (B/T 4/1 and 6/15) in CA) Prepare appraisal before tax roll closes Negotiate a lower value without appeal Formal appeal (B/T 7/2 and 9/15 in CA) File Timely Appeals Negotiation continues Remedy: superior court Hearing (January +, statute of limitation 2 years) Claim for refunds: within 4 years of paying taxes Superior court: 6 mo from denial of claim for refunds

  14. Acquisition Strategies and Procedures Two (sometimes conflicting) definitions of fair market value When it is advantageous to use the sale price as the new base year value: Send Preliminary Change of Ownership Report (PCOR) to Assessor at recording Report all relevant facts to prove arms length transaction When sales price does not reflect fair market value: File a PCOR at a later date Produce a study to support allocated purchase price

  15. Allocation of Purchase Price Strategies

  16. Taxation of Intangibles Concession and franchise, are items of intangible property which shall not enhance the value of real property Intangible attributes are characters of real property that are taxable Property can be assessed by assuming the presence of intangible assets to put the taxable property to beneficial or productive use

  17. Resources IAAO: http://www.iaao.org IPT: http://www.ipt.org/learncenter.asp?id=178410 SBE: http://www.boe.ca.gov/proptaxes/proptax.htm Video:http://www.boe.ca.gov/info/AssessmentVideo/AppealAssessmentIndex.htmlSBE LA Co. Assessor: ://assessor.lacounty.gov/extranet/default.aspx SF Co. AAB: http://www.sfgov.org/site/assessment_index.asp Santa Clara Co. Tax Collector: http://www.sccgov.org/portal/site/tax/ Presenter’s Contact Information: markong@itrsf.com Presenter’s Contact information: marty.dakessian@akerman.com

  18. Q & A

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