In Further Defense of the "Rushmore Approach" to Account For Intangible Property in Real Property Assessments

Michael Slattery¹

Michael Slattery is Of Counsel to Lamb & Kawakami LLP in downtown Los Angeles where he practices property tax law, municipal law, bankruptcy law, and general civil litigation. Over a 37-year career, he has represented both property owners and municipalities in property tax disputes and has worked in both private and governmental law offices. Mike is a past Chair of the Business Law Section Financial Institutions Committee.

California assessors cannot directly tax intangible assets, but may assume the presence of intangibles assets that are necessary to put taxable property to its highest and best use.² For larger hotel properties, the necessary intangible assets are a franchise agreement and a management agreement and the workforce, trade names, reservation system, and advertising that come with those agreements. Assessors often value hotel properties by capitalizing the net income which they can produce under competent management. But some of that income is produced by the hotel’s intangible assets. So, the valuation exercise and focus of this article is how best to account for and remove the value attributable to these intangible assets. Two opposing approaches have emerged—the "Rushmore approach" and the "business enterprise approach." This article argues that the Rushmore approach is the better method. The title of this article borrows from Stephen Rushmore’s article, In Defense of the ‘Rushmore Approach’ for Valuing the Real Property Component of a Hotel ("Rushmore").³

I. SUMMARY OF THE COMPETING APPROACHES