Hotel assets are a complex mix of real estate and 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.
If not removed properly, brand value, management contracts and franchise affiliations can increase taxable value. 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 describes how intangibles should be removed when assessing hotel property taxes, why COVID data can overstate the future income potential and how U.S. individual savings rates provide further insight into travel behaviour in general. The article also discusses the growing trend in courts and appraisers to remove intangible values for taxation.
Hotel Taxable Value Standards and Intangible Assets
According to appraisal standards and the law, intangibles should be excluded when calculating 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 must, however, value only the real property component. As a result, accepted practice requires that non-taxable intangibles be deducted or isolated so that the real estate value can only be assessed. The following are examples of intangible assets that are commonly included in hotel valuations:
- Brand and franchise affiliation
- Management and Operating Agreements
- Assembled staff and customer relationships
- Goodwill, licensing, websites and licenses
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. California law, for example, exempts tangible assets from taxation. When an assessor uses sales or capitalization of business income to value a hotel, it includes intangibles that are not taxable and increases the assessment. Failing to remove intangible values can make an assessment unconstitutional or subject to being reversed on appeal.
KC Conway’s Retail Analysis Provides a Blueprint For Hotel Tax Appeal
Recent comments from valuation expert and economist KC Conway confirm the growing consensus among property tax assessors that intangible values must be separated carefully from real estate. 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 $2.0billion impairment of goodwill in 2025. It shows how much enterprise value is driven by brand value, pharmacy fulfilment contracts, and management contracts. The same dynamics can be seen in the hospitality industry where management contracts, franchises and brand affiliations often add substantial intangible value, which is not related to the real estate. Intangibles like these are often included in assessed values and increase tax burdens.
Conway’s analysis highlights the importance both of the lease chronology as well as investor sentiment. When long-term contracts are nearing expiration, or when they become economically obsolete the market tends to return to fee-simple valuation. In the hotel industry, when brand agreements are nearing renewal or termination investors will often reevaluate the asset value without regard to the influence of the brand. 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. Failure to differentiate between leased-fee interests and fee-simple interests, or to acknowledge that franchise affiliations and goodwill are not taxable assets has led to overassessments both in the retail and hospitality sector. USPAP, the Appraisal for Real Estate (15th Edition), and other publications provide guidance on the skills required to make this distinction. However, many assessments still rely on investor survey data and leased fee comparables.
This lack of valuation discipline, especially for portfolios of hotels acquired as part of REITs or brand rollups can distort the tax 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 for Comprehensive Intangible Asset Analysis
The courts are increasingly stating that it is necessary to conduct a thorough and deliberate evaluation of intangibles. 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. In recent years, the courts have started to challenge this oversimplification as the industry has become increasingly complex.
Recent rulings in California and Florida demonstrate that a judicial expectation is clear: appraisers and assessors are expected to allocate intangible assets in a detailed and specific manner, and not rely on industry-standard rules. 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.
SHC Half Moon Bay, v. County of San Mateo, shows that the legal profession is becoming increasingly sophisticated in its understanding of economics. In this case, the court found that formulaic deductions were not sufficient and did not comply with the statute’s requirement to exclude intangibles. The implications are clear: appraisals used for taxation purposes must be based on a segmented, defensible approach.
This evolving judicial approach reflects an overall shift in how tax assessors and tribunals evaluate hospitality assets. In an era where brand power, asset light strategies and technology platforms are becoming increasingly important to hotel operations and as hospitality continues to develop, it is essential that valuation methods adapt in order to extract non-taxable values.
Post-COVID “Revenge Travel” and Inflated performance Bounces
After COVID-19 the hotel industry has seen a dramatic change in performance. 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.
These rebounding metrics appear to indicate a robust increase. It is important to be cautious when assessing the current performance. In order to measure high occupancy and revenues, we use comparators from a base year that is abnormally low. If 2020 is used as the benchmark, a partial recover yields staggering 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 boom fueled, in part, by unusual consumer savings. The households emerged from the lockdown with an excess of savings, and a desire to spend money on travel. That led to a transient period in 2021–2022 where hotel demand outpaced normal economic growth. These trends began to change by 2023. Travel demand growth slowed as excess savings decreased and the economy grew more tame.
This context is important for tax valuation. Assessors that use recent growth rates or capitalize one year’s inflated income post-COVID in their projections run the risk of overestimating a hotel’s sustainable long-term value. An accurate appraisal will consider the normalized occupancy rates and earnings for a period of several years, adjusting them to reflect the temporary nature pandemic recovery.
Hotel Recovery in the U.S. Personal Savings Trends
Hotel demand can be evaluated using the U.S. personal savings rate. Personal saving rates reached a record high in April 2020 of 32%, as consumers curbed spending and stayed at home. In the same month, hotel occupancy in the United States fell to 24.5%. Americans spent a lot of money on travel as travel resumed. By March 2022 the savings rate had fallen to 2.7%. This was a record low.
This inverse relationship—between saving and hotel spending—highlights how excess liquidity drove much of the hotel industry’s short-term performance gains. The trend has normalized today. Personal savings are back to single digits and discretionary travel spending is beginning to reflect the broader economic situation, such as inflation, credit tightening and income pressure.
This broader context should be incorporated into hotel valuation. If the recent performance of a hotel is artificially high because of one-time economic behavior, this should not be used as the only basis for capitalizing income or forecasting growth.
Legal Precedent: Intangibles and Hotel Tax Appeals in California
The courts have reaffirmed the principle that tangible assets should not be included in property tax assessments. SHC Half Moon Bay V. County of San Mateo, 2014 is a landmark example. It involved the RitzCarlton Half Moon Bay. The court rejected county’s Rushmore Method as it was found that only deducting the management and franchise fees would not be enough to remove the intangible value.
The decision stressed that brand, customer relations, workforce and other business elements are not real estate, and must be addressed separately. This resulted in a substantial reduction of the assessed value of the hotel and set a precedent that would be followed by future tax appeals. Other jurisdictions, including Florida, have made similar rulings.
In Olympic and Georgia Partners, LLC v. County Los Angeles, the California Supreme Court held explicitly that “intangibles like goodwill, favourable terms of franchise or operating contracts, and customer base all contribute directly to the value of a going concern business,” and this is reflected in the income stream of the property. 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. If the fair market value for intangibles directly enhancing that income stream is not quantified and excluded prior to assessment, then those enterprise assets will be “improperly included” in the valuation. This violates Sections 110d)(1) and (c).
Hotel Portfolios, Upscale Luxury and Select-Service 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. Brand affiliation, loyalty systems, centralized reservations systems, and operational efficiency of national management platforms are often the major contributors to these assets’ value.
This is particularly evident in portfolio deals, where properties are purchased as part of an overall, 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.
The consistent cash flow and lean operation models of these hotel types has made them popular with REITs. They are at risk of being overvalued because they have a significant portion of value tied to franchises and other brand infrastructure.
Appraisal as a tool for tax appeals
Properly prepared hotel appraisals which separate real estate values from intangibles are one of the strongest tools for tax appeals. They combine legal precedent with rigorous valuation analysis and can often reveal 15–30% overstatement in assessed value.
Segmented valuations identify the income that is attributable only to real estate, remove intangible components such as franchises and management systems and present a stabilised, market-supported estimation. These reports can be used as evidence in court and lead to tax savings.
You can also read our conclusion.
Intangible elements of value are often ignored by assessors or mass appraisal models, which can lead to over-assessment. After COVID, the volatility of hotel financials is a further problem. Unusually high recent revenues may overstate an asset’s long-term potential.
Credible appraisals can be more accurate by eliminating the pent up demand effect via income stabilization. They also subtract intangible business assets. This approach is backed by case law, appraisal theory, and macroeconomic trends—a compelling combination for effective tax appeals.
Hospitality and valuation industry professionals agree that hotels should be evaluated like real estate rather than operating businesses. Only then will assessments be fair, defendable, and in accordance with the statutory intent.
Bibliography
- Olympic and Georgia Partners, LLC. Olympic and Georgia Partners LLC. S280000.
- SHC Half Moon Bay, LLC. County of San Mateo, 226, Cal. App. 4th 471 (Cal. Ct. App. 2014).
- Appraisal Institute. Second Edition of Valuation for Hotels and Motels. Chicago: Appraisal Institution, 2010.
- Rushmore, Stephen. Rushmore, Stephen. The Appraisal Journal Summer 2002.
- California Revenue and Taxation Code § 110 and § 212(c) – Intangible Assets and Rights Exemption.
- Florida Department of Revenue (Revenue) v. Singh 65 So.3d. 61 (Fla. Dist. Ct. App. 2011).
- Federal Reserve Bank of St. Louis FRED Personal Savings 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. Hotel Outlook for Select-Service Hotels and Extended Stays, Q1 2020.
- Choice Hotels International. Investor Presentations and SEC Filings, 2023–2024.
- Skift Research. “The End of Revenge Travel?” Skift Megatrends for 2024.
- KC Conway. The Impact of Capital Markets 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 Patterns, February 2025.
- Hotel Investment and Capital Markets: Mid-Year update, 2024
Bryan Younge
Managing Partners
+1-888-800-7258
Horwath
