May
30

The Value Of Intangibles Addressed In CA Property Tax Appeal

The Court of Appeal of California recently found that the assessor’s valuation of the Ritz Carlton Half Moon Bay Hotel failed to deduct the entire amount of value attributable to intangible assets when establishing the hotel’s assessment. The appellant, SHC Half Moon Bay LLC appealed the 2004 base year value established by San Mateo county, claiming the county’s value was inflated due to the inclusion of nontaxable intangible assets, including the hotel’s workforce, the leasehold interest in an employee parking lot, an agreement with the golf course operator and goodwill, totaling $16,850,000. The county valued the hotel utilizing the income approach. The county’s postion was that since they deducted the management fee and franchise fee from the income stream prior to capitalization, the value excluded the majority of value attributable to intangible assets. However, at the Assessment Appeals Board hearing the county’s expert indicated that certain other assets should be deducted, including the hotel’s workforce, the leasehold interest in the employee parking lot, and the agreement with the golf course operator. These assets accounted for $2.7 million of the $16,850,000 that SHC claimed should be deducted from the assessment. He also claimed that an additional amount of $1 million should be deducted for labor in place, but that there shouldn’t be a deduction for goodwill. Although the county conceded that certain nontaxable items were included in the assessment the AAB upheld the assessment. The trial court affirmed The Board’s findings. The Court of Appeal, however, partially disagreed and decided that the above-mentioned assets (with the exception of goodwill) should be excluded from the assessment. The case was remanded with instructions to correct the assessment. There are a few other twists to this case that can be found in the 25 page decision. You can read it here.
By Brett Harrington

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