Income tax laws contradict real estate tax rules

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State and federal tax laws do not treat coronavirus payments as taxable income, but the state has instructed appraisers to treat payments as income when calculating a business’s real estate tax liability.

The controversy played out Thursday in front of the Garland County Equalization Board, a commission of appointed officials who make decisions on property tax appeals. Parth Patel, president of development for VIPA Hospitality Management, asked the board of directors to cut property taxes on two sites that house four of the company’s hotels, arguing that the county’s contracting appraisal firm should not have included payments for coronavirus relief in your hotel calculations. net operating income.

“This is actually not real cash flow revenue,” he told the board of directors, explaining that the company paid compensation for keeping employees on payroll when hotels closed last year due to public health directives restricting travel and trade.

“The bottom line is that we are still losing money at the end of the year. If we didn’t receive (help), we would be even worse off than we were, ”Patel said. turn it on, but it’s just a one-time thing. We will not get it either next year or in 2023. ”

He said 2020 room revenues at Quality Inn & Suites Hot Springs, Country Inn & Suites by Radisson and La Quinta Inn & Suites by Wyndham fell more than a third from 2019. last year, he said.

Arkansas CAMA Technology, the appraisal firm that awarded the county a $ 710,000 annual contract, told the board that even if the aid payments were excluded from the hotels’ net operating income, Patel’s operating report does not guarantee a decline in the market value of the property. …

The Board agreed, confirming ACT’s assessments. According to his ruling, property taxes due in 2021 on a 4-acre site in the 4,000th block of Central Avenue remained at $ 79,000 – money that will primarily benefit the Hot Springs School District. Property taxes on the 1.64-acre estate that houses Home2Suites by Hilton on St. John’s Island will remain at $ 43,583, money that will benefit the Lakeside School District in the first place.

Tax invoices for 2021 will be issued in February and payment due in October next year. The site on Central Avenue was valued at $ 8,643,950 and the St. John’s Island site at $ 4,810,500. Twenty percent of the market value of a property is taxed at the rate set by the Garland County quorum court for the various county tax authorities.

Patel can appeal the board’s decision to the District Court, chaired by District Judge Darryl Mahoney.

Barbie Weatherford, ACT’s chief commercial appraiser, told Patel that his property was undervalued.

“You are one of the most polite and courteous property owners in all of Garland County,” she said. “You are a wonderful person to meet in our community. You always deliberately support nonprofits and all. If there was someone to whom I personally, as an appraiser, could make a discount, Mr. Patel would be on the list. …

“When I looked at his raw net operating income data, I found that real estate was a little undervalued. You came and discussed your income. Didn’t I tell you every time that we lower the value of your property based on the market price of the property based on your operating records. I cannot make a discount on real estate, because I have it understated. “

Patel’s accountants told the board of directors that the preferential payments represent compensation for withholding employees when hotels were closed or not operating at full capacity, noting that the Legislature amended the state tax code earlier this year to exclude payments from taxable income and allow expenses. an allowance paid to deduct from the taxable income of the business.

Weatherford cited a directive issued by the State Revenue Agency’s Appraisal Coordination Unit that sets out rules for real estate appraisal for tax purposes.

“While the Arkansas statutes have removed the tax status of income from (benefits), they do not exclude it from the definition of income for property,” she said. “In typical appraisal practice, it would be appropriate to consider this grant or loan as income for the appraisal practice.”

Next year, the district will begin a five-year revaluation cycle. The new property value will be reflected in tax invoices for 2022, which will be issued in February 2023 and due in October 2023.

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