Transaction Price Segregation (TPS) is a Tool for Managing Real Property Tax, Realty Transfer Tax and Business Personal Property Tax Costs relating to the acquisition of Hotels and Resorts.

Paradigm Tax Group’s TPS allocates the components of value in the acquisition of a hotel or resort property proactively for State & Local Tax purposes. The value of these business assets is referred to in the accounting world as a “going concern and/or business enterprise value.”

There are three individual components that we examine:

Real Estate – tangible property that makes up the structural component of the purchase. Real estate would include pools, landscaping, conference rooms, guest suites, kitchens, exercise facilities, and etc.

Personal Property – tangible property consists of the objects within the real estate required to operate the business such as office equipment, kitchen appliances, linen, furniture, fitness equipment, security systems, and etc.

Intangible Assets – personal property that has no physical presence, such as franchise value, workforce in place, start‐up costs, trade secrets, copyrights, name of the business, and reputation.

The advantages of employing TPS as a methodology of valuation are as follow:

 Qualified Property Tax Due Diligence

– Our due diligence is based on a defensible real estate tax component as opposed to an arbitrary percentage of the sales price – The real estate component is identified early in the process so the seller and closing attorneys can be made aware of the numbers well in advance of closing

 Reduced real estate tax exposure

– The assessors WILL use the reported real estate component for future assessments when it works to their advantage and WILL have to consider recorded real estate numbers when they reflect a lower fair market value relative to the current assessment

 Reduced transfer/recordation tax liability

– Transfer and Recordation tax are to be based on “fair market value” of the real estate as recorded – If REIT considerations are driving recorded values, we have experience in mitigating those challenges

 Refund of realty transfer tax when total sales price is recorded

– PTG has conducted a complete nationwide research program for transfer and recordation tax refund statutes – PTG has the capability to represent you anywhere in the US on these appeals

 Reduced cost on property tax litigation / appeals

– Anyone who has been through the last up cycle knows how difficult and costly it is to “un‐ring the bell” with respect to how un‐allocated or under‐allocated BEV purchase prices have affected the property tax structure – When recorded correctly, closing documents and purchase prices are the best ammunition in fighting attempts to increase values that don’t recognize a business value component

 Tangible personal property inventory and fixed asset reconciliations

– Most purchasers of hotels and resorts end up with fixed asset listing from prior owners that are misleading at best and often times incorrect – PTG has developed a very basic and effective solution to this problem in the form of a basic inventory of the assets furniture, fixture and equipment

Quantitative Example of TPS Benefits

Allocated Unallocated / Under Allocated

Purchase Price $50,000,000 $50,000,000

Real Estate Component $35,000,000 $45,000,000

Tangible Personal Property $5,000,000 $5,000,000

Intangible Personal Property $10,000,000 $0

Transfer Taxes $700,000 $900,000

Real Estate Tax Basis Per Deed $35,000,000 $45,000,000

Initial transfer tax savings of $200,000 and the basis for future real estate taxes results in $200,000 less in real estate taxes per year. *Transfer and property tax rate employed for these calculations is 2%

In addition to providing the allocation, we work with your closing attorneys to make sure the “correct” values are recorded within the scope of the local jurisdictions’ required documentation. Getting the numbers done correctly on the front end can save significant time, money and frustration going forward.

We have been involved in billions of dollars of hotel and resort acquisitions and have saved over a hundred million in real estate transfer tax, real property tax and business personal property tax through the implementation of these tools.

Client experience includes AHT REIT, ING Clarion, Interstate Hotels and Resorts Company, Intervest, Sage Hospitality Resources, Crescent Hotels and Resorts, Cornerstone Advisers, Deutsche Bank, hotelAVE and others.

For more information on Paradigm Tax Group, please visit www.paradigmtax.com.