Intangible assets in hotel property tax assessments
Hotels are complex assets that blend real estate with business value. For property tax purposes, only the real estate is taxable – yet all too often, assessors inadvertently include the hotel's intangible business assets in the assessed value.
Brand value, management contracts, franchise affiliations, and customer relationships can inflate taxable value if not properly removed. On the majority of occasions, upscale, select-service, and extended-stay hotels – particularly those transacted in portfolios – are assessed at values that fail to extract these intangibles.
This article outlines how intangible assets should be removed from hotel property tax assessments, why post-COVID performance data may overstate future income potential, and how the U.S. personal savings rate provides additional insight into broader economic travel behaviour. It also discusses growing momentum in the courts and appraisal community to require more rigorous removal of intangible value for taxation purposes.
Intangible Assets and Hotel Taxable Value Standards
By appraisal standards and law, intangible assets should be excluded from a hotel's taxable property value. A hotel's income derives from a going concern that includes real property, tangible personal property (FF&E), and intangible personal property. Tax assessors, however, are charged with valuing only the real estate component. Accepted practice therefore requires deducting or otherwise isolating the non-taxable intangibles so that only the real estate's value is assessed. Intangible assets commonly found in hotel valuations include:
Brand and franchise affiliation (e.g., reservation systems, loyalty programs, trademarks)
Management and operating agreements
Assembled workforce and customer relationships
Licenses, websites, and goodwill
Under professional appraisal guidelines, only the tangible property—land and improvements (and in some circumstances, personal property)—should remain in the taxable value after intangible assets are removed. This principle is echoed in law: for instance, California law expressly exempts intangible assets from property tax. If an assessor values a hotel by capitalizing the business income or using sales of whole hotel enterprises without adjustments, the result includes non-taxable intangibles and inflates the assessment. In fact, failing to remove intangible value can render an assessment unlawful or subject to reversal on appeal.
KC Conway's Retail Analysis Offers a Blueprint for Hotel Tax Appeal
Recent commentary from economist and valuation expert KC Conway further validates the growing consensus that intangible value must be carefully separated from real estate in property tax assessments. In the drugstore and small-box retail sectors—segments undergoing a structural transformation driven by e-commerce, shrinkage, and rising operating costs—the presence of significant intangible assets has become increasingly evident. Walgreens, for example, reported a $2.0 billion goodwill impairment in 2025, underscoring the extent to which brand value and pharmacy fulfilment contracts drive enterprise value. These same dynamics are mirrored in the hospitality sector, where brand affiliation, management contracts, and franchise systems often contribute substantial intangible value that is unrelated to the underlying real estate. Yet, such intangibles are frequently embedded in assessed values, inflating tax burdens.
Conway's analysis also highlights the importance of lease chronology and investor sentiment; as long-term leases approach expiration or become economically obsolete, the market often reverts to a fee simple valuation approach. Similarly, in the hotel sector, as brand agreements near renewal or termination, investors often reevaluate asset value independent of the brand's influence. This parallels evolving judicial perspectives in tax appeal forums, where courts are showing greater willingness to scrutinize intangible-laden properties—particularly when deferred maintenance, lack of capital expenditures, or declining revenue streams signal an overstated taxable value.
Assessors and appraisers, Conway notes, frequently overlook critical market indicators such as store closing ratios, lease structures, and tenant credit profiles—factors equally relevant to hotels operating under franchise or management agreements. The failure to distinguish between leased-fee and fee simple interests, or to recognize that franchise affiliation and goodwill are non-taxable assets, has led to material overassessments in both retail and hospitality sectors. USPAP and the Appraisal of Real Estate (15th Edition) provide clear guidance on the competency required to analyze these distinctions, yet many assessments rely on investor surveys and leased-fee comparables without proper adjustment.
For hotel portfolios, particularly those transacted as part of REIT acquisitions or brand rollups, this lack of valuation discipline can significantly distort the taxable base. Conway's work reinforces the need for rigorous appraisal methodologies that isolate real property from enterprise value—an approach increasingly echoed by courts and Boards of Assessment Appeals across the country.
Judicial Momentum Toward Comprehensive Intangible Asset Analysis
There is growing momentum within the courts affirming that a complete and deliberate analysis of intangible assets is not only appropriate but required. Historically, many hotel valuations used in tax assessments or appeals have leaned on simplified deductions—typically a franchise fee and a management fee—under the assumption that these adjustments sufficiently remove the business enterprise component of value. However, as the hospitality industry has grown more complex and intangible drivers of hotel performance have become more prominent, courts have begun to push back on this oversimplification.
Recent rulings, particularly in states like California and Florida, demonstrate a clear judicial expectation: assessors and appraisers must undertake a thorough and specific allocation of intangible assets, rather than relying on industry rules of thumb. The courts have recognized that a hotel's flag, reputation, digital infrastructure, workforce, customer relationships, and operational systems all contribute significantly to income—and that failing to isolate and remove the value of these elements results in overassessment.
Decisions such as SHC Half Moon Bay v. County of San Mateo underscore that the legal system is becoming more sophisticated in its understanding of hotel economics. The court in that case criticized the use of formulaic deductions as insufficient, noting that they did not meet the statutory requirement to exclude intangibles. The implication is clear: appraisal reports used for tax purposes must demonstrate a defensible, segmented approach.
This evolving judicial stance reflects a broader shift in how tax tribunals and assessors evaluate hospitality assets. As hospitality continues to evolve and brand power, asset-light strategies, and technology platforms become increasingly central to hotel operations, valuation methods must adapt to extract non-taxable value accordingly.
Post-COVID 'Revenge Travel' and Inflated Performance Bounces
In the wake of COVID-19, hotel operating performance has swung dramatically. After travel demand collapsed in 2020, many markets saw an aggressive rebound in 2021–2022 driven by 'revenge travel'—a surge of pent-up demand as soon as vaccines and lifted restrictions enabled people to take the trips they had deferred. Occupancy levels and average daily rates (ADR) in 2021–2022 often jumped well above the prior year's figures, and in some cases even surpassed 2019 levels on a nominal basis.
On the surface, these rebounding metrics paint a picture of robust growth. But current performance must be approached with caution. High occupancy and revenue figures are being measured off abnormally depressed base-year comparables. When 2020 is the benchmark, even a partial recovery yields eye-popping growth rates. For example, U.S. RevPAR plummeted nearly 85% year-over-year at the worst point of the pandemic, and a year later showed a 250%+ increase—driven largely by the low starting point.
'Revenge travel' was a temporary boost fueled in part by unusual consumer savings and stimulus. Households emerged from lockdowns with excess savings and a yearning to spend on travel. That led to a transient period in 2021–2022 where hotel demand outpaced normal economic growth. However, by 2023 those trends began to ebb. As excess savings dwindled and broader economic softening took hold, travel demand growth moderated.
For tax valuation, this context is critical. Assessors who capitalize a single year of inflated post-COVID income or use recent growth rates in their projections risk overestimating a hotel's long-term sustainable value. A proper appraisal should consider normalized occupancy and earnings over a multi-year period, adjusted to account for the temporary nature of pandemic recovery.
Hotel Recovery vs. U.S. Personal Savings Trends
The U.S. personal saving rate offers a macroeconomic lens to evaluate hotel demand. In April 2020, the personal saving rate hit a historic high of ~32% as consumers stayed home and curtailed spending. That same month, national hotel occupancy fell to around 24.5%. As travel resumed, Americans drew down their savings and spent on travel at extraordinary levels. By March 2022, the saving rate had dropped to just 2.7%, a multi-decade low.
This inverse relationship—between saving and hotel spending—highlights how excess liquidity drove much of the hotel industry's short-term performance gains. Today, however, the trend is normalizing. Personal savings have returned to mid-single digits, and discretionary travel spend is starting to reflect broader economic conditions, including inflation, credit tightening, and income pressure.
Hotel valuation should incorporate this broader context. If recent performance is artificially high due to one-time economic behaviours, it should not serve as the sole basis for capitalized income or forecasted growth.
Legal Precedent: Intangibles in Hotel Tax Appeals (California Example)
Courts have reinforced the principle that intangible assets must be excluded from property tax assessments. A landmark example is SHC Half Moon Bay v. County of San Mateo (2014), which involved the Ritz-Carlton Half Moon Bay. The court rejected the county's use of the Rushmore Method, finding that deducting management and franchise fees alone failed to adequately remove intangible value.
The decision emphasized that brand, customer relationships, workforce, and other business components are not part of the real estate and must be addressed separately. The result was a significant downward revision in the hotel's assessed value and a strong precedent for future tax appeals. Similar rulings have followed in Florida and other jurisdictions.
Similarly, in Olympic and Georgia Partners, LLC v. County of Los Angeles, the California Supreme Court explicitly held that 'intangible assets like the goodwill of a business, customer base, and favourable franchise terms or operating contracts all make a direct contribution to the going concern value of the business,' which is necessarily reflected in the property's income stream. Hence, to comply with Section 110(d)(1)'s mandate that 'intangible assets and rights relating to the going concern value… shall not enhance or be reflected in the value of the taxable property,' the portion of the income stream directly attributable to these intangible enterprise assets must be quantified and deducted. Failure to quantify the fair market value of intangibles that directly enhance that income stream, and to exclude this value prior to assessment, results in those enterprise assets being 'improperly subsumed' in the valuation, in violation of Sections 110(d)(1) and 212(c).
Upscale, Luxury, and Portfolio-Traded Select-Service and Extended-Stay Hotels
Hotels in the upscale, upper-upscale, and luxury classes—as well as select-service and extended-stay hotels that are commonly transacted in portfolios—are particularly susceptible to the inclusion of intangible assets in property tax assessments. These assets often derive significant value from brand affiliation, loyalty programs, centralized reservation systems, and the operational efficiencies of national management platforms.
This exposure is especially evident in portfolio transactions, where properties are sold as part of a larger, branded group. In such deals, buyers are not just acquiring physical real estate—they are investing in the enterprise value of the portfolio, including intangible elements such as brand strength, bundled services, and multi-property synergies.
These hotel types have become favoured by REITs and institutional investors due to their consistent cash flows and lean operating models. However, because a material portion of their value is tied to franchise systems and broader brand infrastructure, they present a heightened risk of overassessment if those non-taxable components are not properly identified and removed in the appraisal process.
The Appraisal Advantage in Tax Appeals
In tax appeals, properly prepared hotel appraisals that isolate real estate value from intangibles offer one of the most compelling tools available. They combine legal precedent with rigorous valuation analysis and can often reveal 15–30% overstatement in assessed value.
A segmented valuation identifies the income attributable to real estate only, subtracts intangible components like franchise and management systems, and presents a stabilized, market-supported estimate. These reports often carry significant weight before tribunals and can drive meaningful tax reductions.
Conclusion
Hotels are frequently over-assessed for property tax because assessors and mass appraisal models often overlook the intangible components of value. The post-COVID volatility in hotel financials further complicates matters, as unusually high recent incomes may overstate a property's long-term capacity.
By removing the pent-up-demand effect through income stabilization and subtracting intangible business assets, a credible appraisal can present a more accurate value for the taxable real estate. This approach is backed by case law, appraisal theory, and macroeconomic trends—a compelling combination for effective tax appeals.
The hospitality and valuation industries increasingly agree: hotels must be assessed like real estate, not operating businesses. Only then can assessments be fair, defensible, and in line with statutory intent.
Bibliography
Olympic and Georgia Partners, LLC. Application for Leave to File Amicus Curiae Brief and Amicus Curiae Brief of Council on State Taxation in Support of Olympic and Georgia Partners, LLC, Supreme Court of the State of California, Case No. S280000. SHC Half Moon Bay, LLC v. County of San Mateo, 226 Cal. App. 4th 471 (Cal. Ct. App. 2014). Appraisal Institute. Valuation of Hotels and Motels, 2nd Edition. Chicago: Appraisal Institute, 2010. Rushmore, Stephen. 'Hotel Value and Property Tax Assessments: The Rushmore Approach.' The Appraisal Journal, Summer 2002. California Revenue and Taxation Code § 110 and § 212(c) – Intangible Assets and Rights Exemption. Florida Department of Revenue v. Singh, 65 So.3d 61 (Fla. Dist. Ct. App. 2011). Federal Reserve Bank of St. Louis (FRED). Personal Saving Rate [PSAVERT]. U.S. Bureau of Economic Analysis. Accessed 2025. https://fred.stlouisfed.org/series/PSAVERT STR, Inc. Hotel Industry Performance Reports, 2020–2024. CoStar Group, Inc. JLL Hotels & Hospitality Group. Select-Service and Extended-Stay Hotel Outlook, Q1 2025. Choice Hotels International. Investor Presentations and SEC Filings, 2023–2024. Skift Research. 'The End of Revenge Travel?' Skift Megatrends 2024. KC Conway. 'The Impact of Capital Markets and Economic Conditions on Hospitality Real Estate.' Presentation at the Appraisers' Summit, March 2025. S. Bureau of Labor Statistics. Consumer Expenditure Surveys and CPI-U, 2020–2024. Moody's Analytics. U.S. Economic Outlook: Consumer Spending Trends, February 2025. Hotel Investment and Capital Markets Mid-Year Update, 2024.
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