In a decision that will potentially have far-reaching implications in the property tax world, Florida’s Fifth District Court of Appeal issued an opinion today in Singh vs. Walt Disney Parks and Resorts, a tax appeal involving the 2015 assessment of Disney’s Yacht & Beach Club property. Although the appellate court technically reversed the lower court’s assessment of property value based on a lack of evidence, it ultimately agreed with Disney and the lower court and absolutely repudiated the challenged assessment methods previously employed by the Orange County Property Appraiser (OCPA) in its valuation of resort hotel properties.
Specifically, the appellate court concluded that the method used by the OCPA (the so-called Rushmore method) "violates Florida law because it does not remove the nontaxable, intangible business value from an assessment." The controversial Rushmore method has been used throughout the country by a number of assessor’s offices, but has been judicially rejected in other states, including California. Today’s decision establishes the demise of the Rushmore method in the State of Florida.
In a time of great upheaval for the hospitality industry due to the financial impacts felt by the pandemic, this decision may bring welcome relief for those experiencing heavy property tax burdens that are in part based on intangible business value.
The OCPA has been instructed by the appellate court to revise its assessment on the Yacht & Beach Club (and, ultimately, for all hotels that have significant ancillary income) by using an income approach to value that compares rental rates for similarly-situated properties. For example, income from a restaurant or retail site on a hotel’s property should not be attributable to the net operating income of the hotel for property tax purposes. Instead a rental rate that would be attributable to that restaurant or retail space does contribute to the overall net operating income for the hotel.
In almost all circumstances, this rental rate revenue will significantly lower the net operating income used in such an income approach to value.
The full 19-page decision can be found here.
