Owners of hotels know that Flags bring value to the real estate and they know that different Flags bring different value. The difficulty is that owners generally lack evidence of the effect of Flags on hotels. As a result, they often believe that it may be difficult to convince tax authorities of what they know.
When valuing a hotel for property tax purposes, most assessors will attempt to utilize the income approach: They simply deduct the expenses from the hotel’s revenue and divide the resulting net operating income by a capitalization rate, just as they would if appraising an office building or an apartment complex. The resulting value is meant to mirror what the property would sell for under prevailing market conditions. The problem with this analysis, of course, is that it fails to recognize the significant portion of hotel income that flows from non-taxable intangible assets. These non-taxable assets are present in nearly every hotel transaction, but should not be incorporated into a property tax assessment.