In today’s cost conscience business environment, the owners and developers of hotels and motels (“hotels”) are always looking for ways to gain a competitive advantage. Those in the hospitality industry may not be aware that they may have significant savings available. Sadly, most are not taking advantage and that money could be lost. The following programs are just an example of some of the savings programs available to the industry: engineering-based property cost allocation; Energy EPAct/179d; property tax reduction; and energy auctions. Our experience has shown that hotels can see a savings on average of $240,000.
Engineering-based Cost Allocation
Engineering-based cost allocation identifies opportunities for federal, and in some cases, state tax advantages to owners of commercial and industrial real estate. Taxpayers are typically correct in depreciating personal property such as equipment and furniture over five or seven years, but they often neglect available federal and state tax benefits by erroneously depreciating their entire investment in constructing or acquiring a building over 39 years. To do this correctly, one must hire an experienced engineer with a thorough understanding of construction finance. The engineer will review all blueprints, architectural drawings, and electrical plans to isolate structural and mechanical components from those that are considered personal property in addition to identifying architectural and engineering fees that can be segregated. The resulting cost allocation report will allow a taxpayer to:
• Control the timing of deductions, thus maximizing tax savings;
• Create a complete audit trail to resolve any IRS inquiries;
• Capture immediate retroactive savings on qualifying properties; and
• Reduce real estate tax liabilities significantly.
According to the IRS, “Cost Segregation studies should be performed by qualified individuals or firms such as those employing personnel competent in design, construction, auditing and estimating procedures relating to building construction.”
Energy EPAct/179
Another program often missed by those in this Industry is Energy EPAct/179d. This is a federal deduction available for energy efficient items placed in service after January 1, 2006. If you upgraded lighting, HVAC, or any part of the building envelope with energy efficient items you are likely eligible for a deduction of up to $1.80/square foot. (Lighting $.30-.60/square foot.; HVAC $.60/square foot.; and Building Envelope $.60/square foot.) Therefore depending on the size of your property, the savings can be significant.
If you have a newly constructed building with at least 50,000 square feet or a renovation project (particularly lighting ) or are a regional or national chain with multiple locations, you should consider applying for an EPAct 179D deduction.
We recently completed a project on a 65,000 square foot Holiday Inn Express and were able to assist in capturing $1.20 per square foot. This resulted in a $78,000 federal deduction for the owner of the property.
Property Tax Reduction
Probably the most frustrating bill that comes each year (or in some cases, twice each year) is the property tax bill. As of this writing, our studies indicate the average hotel in the United States is being overcharged by 15 percent on their property taxes. There are many reasons hotels are overcharged but mainly it is the result of improper assessments by the municipality. Hotel owners paying over $50,000 in property taxes per year should have a review completed on their facility. Reductions in this area are direct to the bottom line.
Deregulated States Energy Auction
If your property is located in a state under deregulation for electricity, you should consider an energy auction. For many years the electric utility industry was regulated. Each electric utility served a franchise territory and provided all three components of electric service: generation, transmission, and distribution. Customers could only purchase electricity from the electric utility serving their area (monopoly). The price at which each utility charged its customers for electricity was regulated by the Public Service Commission.
The problem with selling energy today is that it is a cumbersome process. Also, most larger customers are under contract and the supplier must fight to retain the customer at every renewal. And, since it is price driven, this highly competitive market is not process driven.
The problems for a customer with procurement is that the procurement process for companies is painful and extremely time consuming. Bidding is not done in an open format. The customer does not know if it is getting the lowest price and large companies generally need procurement to meet strict standards.
There has to be a better way for the consumer. What if there were a definite auction date, where you could log in to a five to 15 minute live auction, where you observe and see each supplier’s bid in real time, and in the last minute, you will see suppliers even outbid themselves, as the last minute is run “blind”, to give each supplier one last chance to win your business. The result—the true rock bottom price.
Immediately after the auction is completed, a post-auction results report is generated. Together with your auction manager, you review the report, the winning bid, and the contract details that you specified. Since you dictate the contract terms, and set the parameters before the auction event, most contracts are executed within an hour of the completed auction. The process is fast, simple, and straight-forward.
Benefits of Energy Auction
• You set contract terms (total control).
• There is a competitive bidding platform.
• It is an open/objective/transparent process/no RFP (request for proposal).
• It keeps suppliers honest/forced to compete.
• There is no preference toward one supplier.
• It gives you leverage.
• The process is efficient/less time consuming and gives you time that can be used for more strategic initiatives.
• There are bid reports.
• You can solidify relationships because there is an even playing field.
• It drives pricing to levels that cannot be achieved in one on one negotiations.
• There is 10 to 20 percent savings above the direct supplier’s pricing.
If you have not had a thorough review of your facility, especially as it relates to the areas of Property Cost Allocation, Energy EPAct, Property Tax Reduction or Energy Auctions, you are likely losing money that should remain in your pocket.
Florida Business Advisory (FBA), LLC is a nationwide Tax & Expense Recovery firm, with a team of industry experts, engineers, IP attorneys, senior tax consultants and service specialists who have recovered over $300 million for American businesses nationwide. The company conducts a 15 minute business assessment to determine if a business qualifies for any of its programs. Based on those programs one qualifies for, FBA will guide and show one the monetary benefits one may be entitled to receive. According to FBA, if it does not find any savings, it does not get paid. Call (954) 369-1363 or e-mail Larry Isaacson at LIsaacson@FloridaBA.com for more information.
