In Washington, D.C., real estate tax payments for hotel properties are due semiannually on March 31 and September 15. If real estate taxes are not paid on or before these two deadlines, penalty and interest charges will be added. The penalty for late payment of real property tax is 10% of the entire tax due, and the interest for late payment is 1.5% per month.1
Because of COVID-19, there have been unprecedented disruptions to hotel cash flows nationally. The real estate management company CBRE anticipates a 52% decline in average revenue per available room for U.S. hotels this year. It anticipates average occupancy of just 41%, down from 66% in 2019.2 These declines in hotel demand are coupled with a rise in corporate travel restrictions and a number of large conferences being cancelled.3 A return to a historic, robust demand for hotels appears problematic in both the business and leisure traveler categories. The DC hotel market has been one of the worst because of government shutdowns and the resulting crushing decline in demand for hotel rooms for both business, government, and leisure travelers.
Such low occupancy levels mean that hotel owners and operators have a cash shortfall. Many are unable to pay their fixed expenses such as real estate taxes. This is especially true if a property is currently closed or unable to reach a minimum threshold of profitability.
In recognition of these issues, DC’s Office of Tax and Revenue (OTR) has announced some relief as set forth in OTR Form ASD-201, the Real Property Penalty and Interest Waiver Application. This form, if filed timely and accepted by OTR, will allow for impacted hotels to request a waiver of late fees that would otherwise be imposed if they paid their taxes after the September 15 deadline.
The form sets forth 11 scenarios for requesting a waiver, with one of those being “COVID-19-related hardship.” OTR will not consider a late fee waiver request unless this form is fully completed, signed, and sent to OTR with supporting documentation (e.g., monthly profit and loss statements). While there is no deadline to submit Form ASD-201, the request could take up to six weeks to process.
At Ryan, our local team of real property tax specialists are hotel experts and can advise you on the timely filing of these applications as well as other COVID-19-related strategies for the management and mitigation of your real and personal property taxes for DC hotels. Additionally, we can recommend proactive strategies for next year’s (tax year 2022) assessments.
Note A: For clients where we are appealing the tax year 2020 case to court, it is imperative to be aware that taxpayers will be disqualified from appealing to court if they don’t pay in full by the deadline.
Note B: Affected taxpayers can only request a penalty and interest (P&I) waiver after the principal amount is paid.
Note C: There is no deadline to submit Form ASD-201. The only time the OTR will not accept a request is when its system is preparing to generate real property tax bills. The request could take up to six weeks to process.
1 Real Property Tax Rates and Billing FAQs, Office of Tax and Revenue, 2020.
2 Fung, Esther: “Hotels Hurry to Raise Cash as Federal Aid Could End,” The Wall Street Journal, Dow Jones & Company, 28 July 2020.
3 Grant, Peter: “Summer Rise in Covid-19 Hot Spots Derailing Hotel Recovery,” The Wall Street Journal, Dow Jones & Company, 21 July 2020.
TECHNICAL INFORMATION CONTACTS:
Michael Allen
Principal
Ryan
571.481.9400
michael.allen@ryan.com
Cutchin Powell
Principal
Ryan
202.470.3094
cutchin.powell@ryan.com
Steve Thompson
Principal
Ryan
202.470.3102
steve.thompson@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.