Property Tax Liability

    What You Need To Know

    Property taxes are a significant part of any hotel’s overall tax liability. Studies show that property taxes account for 37% of all state and local business taxes; this is as much as sales/use, state corporate income taxes, and excise taxes combined.

    Property tax rates in California have been fixed at 1% of assessed value since the passage of Proposition 13 in 1978. A property’s assessed value is determined by the sale price in the year in which the property was last sold, that sales date becomes the property’s “base year” for assessed value. By law, the value of a property increases by only 2% annually, regardless of market conditions.

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    Hotels that were last sold in the 1990s or early 2000s often have defacto tax rates well below 1% of market value, whereas buildings sold during the market boom of the past five to ten years are often saddled with tax burdens well into the millions. Due to the sudden decline in occupancy rates associated with the COVID-19 pandemic, opportunities for tax relief are currently available for the 2021–2022 tax year in California pursuant to CA Revenue and Taxation Code 51(a)(2). Known also as Proposition 8, this amendment to Article XIIIA of the state constitution allows a temporary reduction in assessed value when real property suffers a decline in value. A decline in value occurs when the current market value of real property is less than the current assessed value.

    Taxpayers now have the chance to work proactively with California County Assessors toward a reduced value for their 2021 assessment prior to the roll being closed for the 1/1/2021 lien date. A successful proactive approach results in a lower assessed value being issued for 2021 and a corresponding lower tax bill. The alternative, which is to wait until the value is issued and then file a formal appeal, can result in up to a two-year process to obtain refunds after taxes are paid in the full amount.

    It is critical to put the right information in the hands of the county assessor and negotiate for a lower value by 5/31/2021. The right information consists of summarized property data in a clear, detailed, and concise manner. Additionally, market sales, paired sales, competitive net income analysis, and cap rate information can all help support your case. The correct packaging of information is key to increasing the probability of an optimal result.

    Paradigm Tax Group has the experience, expertise and working relationships to maximize your chances of achieving a reduced assessment on your property for the 2021 tax year. Contact Paradigm Tax Group for more information at or by calling 972.759.9600.

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