Lodge Properties, Inc. v. Eagle County Board of Equalization.
2020 COA 138. No. 19CA0266. Property Taxation—Intangible Asset—Condominium Net Income.
September 17, 2020
Lodge Properties, Inc. (Lodge) is a subsidiary of Vail Resorts, Inc. (Vail Resorts) and owns the Lodge at Vail Resort and Hotel (LAV). The LAV is located at the base of Vail’s ski area and has approximately 160 guest rooms, including 80 that are owned by Lodge and 74 that are privately owned residential condominium units. The condo units are physically connected to and integrated with the LAV property, so LAV regularly uses them as hotel rooms.
RockResorts International LLC (RockResorts) is another subsidiary of Vail Resorts and manages LAV’s hotel operations and homeowner’s association. RockResorts and another Vail Resorts subsidiary, Vail/Beaver Creek Resort Properties, Inc. (VBC), provide rental management services to more than two-thirds of LAV’s condo owners. VBC contracts with condo owners to rent their condos to transient guests, and RockResorts manages the LAV rental program under which condos are managed and operated as rental units within the hotel. VBC retains 40% of gross rental proceeds from condos it manages. Neither RockResorts nor VBC maintains separate financial statements for the condo operations at LAV, and the revenues from Lodge, RockResorts, and VBC all flow into Vail Resorts’ net income.
For tax year 2017, Eagle County (County) assessed LAV’s taxable real property at $41,104,470. The County included VBC’s net operating income from the rental management services it provides to the LAV condos (condo net income). Lodge contested the assessment, and the Eagle County Board of Equalization (BOE) denied its petition. The Board of Assessment Appeals (BAA) then determined that condo net income should not be included for valuation purposes because it is an intangible asset that must be excluded from the calculation of LAV’s actual value. The BAA ordered the BOE to reduce the 2017 actual value of LAV to $26,245,000.
On appeal, the BOE contended that the BAA erred in determining that a real property’s actual value is different from its market value for tax valuation purposes. Property valuations for tax assessment are based on the property’s actual value, which is synonymous with market value. Here, condo net income provides an income stream to VBC, and ultimately to Vail Resorts, that can transfer with a sale of the LAV property. Thus, the market value necessarily includes the condo net income, which should be included in LAV’s actual/market value for property tax calculations. Accordingly, the BAA erred.
The BOE also contended that the BAA erred in classifying condo net income as an intangible asset. Condo net income is an identifiable, measurable, and continual source of revenue, so it is not an intangible asset and the BAA should not have excluded it from the actual value determination.
The BOE further argued that the BAA erred by excluding hotel resort fees from its valuation. The evidence clearly showed that hotel resort fees are a revenue stream directly generated by LAV and should therefore be included under the income approach to LAV’s valuation. Therefore, the BAA erred.
The order was vacated and the case was remanded for further proceedings.
Property Taxation Intangible Asset Condominium Net Income