With franchise properties, whether it be hotels, restaurants, self-storage facilities, department stores, etc., the value of the franchise is an intangible that should not be taxed. Although appraisal districts accept the existence of this intangible value for the franchise, some districts discount the property’s franchise value by claiming that the property expenses account for this intangible value. Most notably, appraisal districts have argued that since royalty fees are included as an expense, the value of the franchise is already assumed into an income capitalization workup. However, this argument is flawed. Royalty expenses account for the cost of a franchise, not the value. The value that the franchise brings to the property must be more than the royalty costs, otherwise the property would not have its flag in the first place. Property owners have realized that the value of flags are above the fees paid to the franchisor and therefore take on those expenses. Still though, the problem becomes how to calculate the amount of the value above the royalty fees. Although there is no doubt that the value is greater than the cost, the difficulty is in determining how much greater is the value over the cost. In addition, since no two properties are alike, determining this additional value requires a case-by-case review.
Feel free to contact me for more information on this issue.
Niral Gandhi
A recent opinion in the Texarkana Court of Appeals reminds us that legal procedure can be very tedious, but critical, even in the field of property tax law. In Robertson v. Gregg County, No. 06-09-00062-CV, 2009 WL 2971763 (Tex. App.—Texarkana, Sept. 18, 2009) (memo op.), the Court of Appeals affirmed a personal judgment of over $6,000, even though the petition sought under $400 in damages, solely because the taxpayer failed to bring up that fact in his motion for new trial. The appellate court admitted that an error occurred, but claimed that it did not have jurisdiction to fix the error because the taxpayer, without legal representation, failed to follow the proper procedure to appeal the issue.
Please feel free to contact me for more information on this issue or if you would like to discuss this opinion further.
Niral Gandhi
The Texas Tax Code provides an exclusive remedy for both the taxpayer and the appraisal district. According to a recent decision from the Austin Court of Appeals, the court reaffirmed that Appraisal Districts cannot “re-notice” property after a board order rules in favor of the property owner. (See Travis Cent. Appraisal Dist. v. Marshall Ford Marina, Inc., No. 03-05-00784-CV, 2009 WL 2900743 (Tex. App.—Austin, Sept. 9, 2009), memo op.) Thus, the Appraisal District’s only recourse would be to challenge the Appraisal Review Board ruling in District Court—which is the same exclusive recourse for taxpayers as well.
Please feel free to contact me if you would like to discuss this opinion further.
Niral Gandhi
Every franchise hotel owner will agree that a large portion of their revenue is due to the flag under which they operate. Whether it be because of people booking reservations on the flag’s home website, franchise award programs, franchise brand marketing, or just people staying at the hotel because of the certainty the flag provides to its clients, clients look for brand names they can trust. This added value is an intangible that increases the revenue produced by the franchise hotel compared to a comparable independent hotel. Texas law does not allow the appraisal districts to include the valuation of intangibles in the total market value. Therefore, this intangible franchise value must be reduced from the total market value of the hotel itself. A major issue has been how to calculate this value. In my experience in the hospitality market and just driving up and down any major corridor, it is obvious that independent hotels are becoming a thing of the past. There are fewer quality, independent hotels across the state and nationally. This problem adds to the difficulty in calculating the franchise value, but at the same time, proves that this intangible value does exist.
Please feel free to contact me if you would like to discuss this or any other property tax issue.
Niral Gandhi
Most property owners would love to see an end to property taxes in Texas, but no one can agree on what should replace it. While waiting to testify at the House Ways & Means Committee hearing last night, I got to hear testimony on HB 508 authored by Representative Lois Kolkhorst (R-Brenham). HB 508 would direct the comptroller to conduct a study examining the implementation of a transaction tax in Texas.
Some major appraisal districts across the state have already sent notices of appraised value, but we have not yet seen any from Dallas. Last week, Ken Nolan, Chief Appraiser of Dallas Central Appraisal District, participated in a panel discussion at the State Bar of Texas Property Tax Section Annual Meeting in Austin. While most of the conversation dealt with other issues facing appraisal districts, Mr. Nolan did address, in very general terms, the values we will see on notices of appraised value coming out this week.
The bad news: For many school districts experiencing heavy capital investments in wind energy, the additional tax money would be sent to the state under the Robin Hood plan. Rather than seeing the money sent away, many districts are entering into abatement agreements with the producers and then immediately agreeing to Payment in Lieu of Tax (PILOT) agreements. The cumulative effect? So far 44 school districts have granted $700 million in abatements and will receive back $248 million over the next ten years.
Is this a good thing? That probably depends on your perspective. You can read the full Associated Press article by Danny Robbins here.
Among other proposals, the House Select Committee on Property Tax Relief and Appraisal Reform will recommend changes that make the Appraisal Review Board more independent from the appraisal district. During the meetings held across the state this summer, the Committee recognized the biggest complaint to be the lack of independence of the Appraisal Review Board. Quite simply, many taxpayers testified the Appraisal Review Board hearing is a kangaroo court that does not give proper consideration to protests. One proposed change will be to remove the hearings from the same building as the appraisal district and make the Appraisal Review Board a distinct governmental entity whose administration is totally separate from the appraisal district. Legislators would like to create a positive impression of the Appraisal Review Board because they believe property owners will file fewer appeals if those owners feel like the board gave fair consideration to the protest, regardless of the actual outcome. Fewer appeals would make appraisal districts very happy as well.
Josh Estes
Owners of commercial property portfolios with heavy emphasis on retail space are starting to feel the effects of the credit crunch that their retailer tenants have been struggling with for months. General Growth Properties may be facing bankruptcy as a result of high debt they took on in 2004 (full story here.) As retailers continue to see sales and revenue plummet, can the decline in property valuations of mall and shopping center properties be far behind?
John Brusniak, Jr.