The perceived similarity between condominiums and timeshare projects often leads tax assessors to treat those properties as identical. “If it looks like a duck, quacks like a duck and walks like a duck, then it probably is a duck,” right?
But when it comes to property assessments for taxation, looks can be deceiving. Fundamental differences between timeshares and condominiums can lead to significantly divergent value calculations. All too often, it falls to the taxpayer to see that the assessor acknowledges and accounts for those factors in order to accurately assess timeshare properties.
In 2015, an assessor increased the assessment for a timeshare project at a Utah ski resort by 10 percent from the previous year. The property owner appealed the assessment and provided evidence of the project’s fair market value. The assessor challenged that evidence, however, based in part on an increase in sale prices for condominiums during previous years.
Under Utah law, the value of a wholly-owned condominium does not provide a meaningful comparison to the value of a timeshare project for several reasons. First, such a comparison assumes that units within a timeshare project could be resold as wholly-owned condominiums. This is impossible, given the legal structure of timeshare properties. Once a timeshare project is put into place, it cannot be altered. Unlike condominiums, individual units can never be sold.
Although the Utah assessor identified a 30 percent increase in per-unit condominium sale prices near the project, there was not a similar 30 percent increase in timeshare sales. The only consistent figure shared by timeshares and condominiums each year is the number of units subject to foreclosure.
Second, treating timeshares like condominiums fails to take into account the costs associated with operating a timeshare project. Utah law recognizes that timeshares are significantly different from condominiums and requires assessors to exclude costs that are unique to timeshare properties.
Specifically, those factors include any intangible property and rights associated with the acquisition, operation, ownership and use of the timeshare interest or timeshare estate. The assessor must also exclude fees and costs associated with the sale of timeshare interests and timeshare estates that exceed those fees and costs normally incurred in the sale of other similar properties. Other excluded costs include the operation, ownership and use of timeshare interests and timeshare estates, vacation exchange rights, vacation conveniences and services, club memberships and any other intangible rights and benefits available to a timeshare unit owner.
Sales commissions for timeshares are typically about 18 percent, whereas sales commissions for condominiums are closer to 6 percent. Because the law requires an adjustment for costs and fees which “exceed those fees and costs normally incurred in the sale of other similar properties,” the property owner is entitled to remove the excess 12 percent portion of commissions.
There are other fees and costs for operating a timeshare that, by law, may be deducted from the value. Those fees and costs may be difficult to identify or to allocate to individual units, but would include fees and costs for customer service, management costs necessitated by the existence of numerous owners, accounting and similar expenses.
A third distinction is that the assessor may need to make a personal property adjustment for timeshare property. In Utah, the personal property of timeshares is separately assessed and, to avoid double taxation, must be excluded from the real property assessment. In the pending Utah appeal, the assessing county challenged the property owner’s proposed personal property adjustment because it exceeded the reported value for the project’s personal property tax assessment.
In Utah, personal property assessments reflect depreciation schedules, which are rough estimates of the depreciated value of certain classes of personal property. When those schedule-based values diverge from fair market value, an adjustment removing the fair market value of that property (for purposes of the real property assessment) will not perfectly correspond to the personal property tax assessment. Nevertheless, a fair market value assessment of the timeshare property should include an appropriate adjustment for personal property which is otherwise taxable.
Timeshare units are simply incomparable to wholly-owned condominiums. Under Utah law, the most appropriate way to value timeshare units is to look at sales of similar timeshare units, making adjustments consistent with the tax code. Laws in other states may require similar adjustments.
When reviewing local assessments of timeshare properties for comparison, be aware of the distinctions between condominiums and timeshares, and ensure that proper adjustments were made in each. If those timeshare assessments are comparable to assessed values of condominiums, then the assessor likely neglected to account for the unique characteristics and expenses associated with timeshares.
Pamela B. Hunsaker serves as counsel in the Salt Lake City office of law firm Holland & Hart and is a Montana, New Mexico, Utah and Wyoming member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at [email protected]