Texas

By Oliver Gray, Esq., of Gray Winston & Hart Valuing hotels for property taxation is one of the most complex and contested areas in real estate appraisal. And unfortunately for hotel owners, improper assessment is common and costly. Unlike office buildings or warehouses, hotels are not just physical assets — they are operating businesses. This distinction requires appraisers to carefully separate the taxable real estate, which is land and improvements, from the nontaxable business enterprise and intangible assets. Failing to do so risks unlawfully taxing the business itself, a critical concern for Texas hotel owners and property tax professionals. Texas law mandates that assessors appraise property at its fee-simple market value, excluding exempt intangibles and business value. For hotels, this means appraisers cannot simply capitalize the income of the operating business. Rather, they must make adjustments to remove components tied to franchise affiliation, management expertise, brand recognition and other intangibles. The challenge is clear: How can assessors, taxpayers and their appraisers correctly isolate the real property value from the going concern? What follows are several common approaches and their inherent weaknesses, which can skew an assessor’s conclusions or provide bases to challenge inflated assessments. Management Fee Method One widely used — …