It doesn’t matter whether your facility is daily fee, private, semi-private or a resort – in current market conditions, if you run a golf course, it’s imperative to control costs in all areas. And that includes property tax.
Property tax is a significant expense for golf courses – but in many cases, courses can be overvalued. Since golf courses are classified as “special use” properties, it is often difficult for tax districts to appraise them at a realistic value.
There are three methods of appraisal used by tax districts:
- the cost approach,
- the comparable sales approach and
- the income approach.
Most tax districts use the cost approachwhen appraising special use properties. However, the issue with this approach is that in most cases, the replacement cost has little to do with the economic value of the property. Golf courses are often built as an amenity to aid in the sale of lots in a development. The lots along the course generally sell for 30-60 percent more. This value transfer can be considered a component of external obsolescence and can run into the millions of dollars.
In the rare instance that a tax district uses the comparable sales approach, it raises two important questions. First, are the sales comparable? Transactions involving the sale of a golf course are complex and have varying components. Second, does the assessment consider that a portion of the sales price represents tangible personal property (furniture, fixtures and equipment) and intangible personal property (business value)? These answers are often no.
The true economic value of a golf course is its ability to generate income. This leads us to the third method of appraisal, the income approach. When using the income approach, the net operating income of a facility is what determines its value. This is the method lenders use when attempting to determine a value for a golf course and the owner’s ability to repay a loan. Additionally, much of the income of a golf course comes from the use of personal property such as golf cart rentals and sales. Income can also be derived from business value, such as management and membership. These income streams are not related to the use of real estate and should not be valued as such.
If you help educate your golf course’s appraisal district, you have a much better chance of receiving an accurate valuation. If appraisers have the facts, they will be able to determine the true economic value of the facility and the portion of that value which is taxable. While this is often a time-consuming and complex undertaking, it can allow you to enjoy tax savings for years to come.