# Olympic and Ga. Partners, LLC v. County of L.A.

> California Supreme Court · August 28, 2025

URL: https://www.frixlaw.com/law-library/cases/11129210

## Case

- **Court:** California Supreme Court
- **Decided:** August 28, 2025
- **Precedential status:** Published
- **Opinion:** Opinion
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE SUPREME COURT OF
CALIFORNIA

OLYMPIC AND GEORGIA PARTNERS, LLC,
Plaintiff and Appellant,
v.
COUNTY OF LOS ANGELES,
Defendant and Appellant.

S280000

Second Appellate District, Division Eight
B312862

Los Angeles County Superior Court
BC707591

August 28, 2025

Justice Groban authored the opinion of the Court, in which
Chief Justice Guerrero and Justices Corrigan and Jenkins
concurred.

Justice Liu filed a concurring and dissenting opinion.

Justice Kruger filed a concurring and dissenting opinion, in
which Justice Evans concurred.
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
S280000

Opinion of the Court by Groban, J.

Hotels are typically assessed for property tax purposes by
estimating the property owner’s future income stream and then
discounting that amount to present value. This income
capitalization method of valuation “is complicated by the
circumstance that . . . assessors may not include the value of
intangible assets and rights in the value of taxable property.”
(Elk Hills Power, LLC v. Board of Equalization (2013)
57 Cal.4th 593, 601 (Elk Hills).) To ensure compliance with this
rule, the assessor must deduct from its income stream analysis
any revenue that is “ ‘ “derived in large part from enterprise
activity . . . . [I]nstead, it is the earnings from the [taxable]
property itself or from the beneficial use thereof which are to be
considered.” ’ ” (Id. at p. 619, italics omitted.)
In this case, property owner Olympic and Georgia
Partners, LLC (Olympic), argues that the Los Angeles County
Assessor (the County or the Assessor) violated these principles
by declining to remove two sources of hotel revenue that derive
from nontaxable intangible assets. The first category of revenue
is a 14 percent nightly occupancy tax that the City of Los
Angeles (the City) agreed to assign to the original hotel
developer as an incentive to construct the hotel. The second
category of revenue is a one-time “key money” payment that the
hotel’s management company, Marriott International, Inc.

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v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

(Marriott), paid to Olympic in exchange for the right to manage
the hotel and brand it as a Marriott-related property for a 50-
year period. Citing our decision in Elk Hills, supra, 57 Cal.4th
593, Olympic argues that both forms of revenue should have
been excluded from the County’s income stream analysis
because they are attributable to intangible assets — contractual
rights — that resulted from the enterprise activity of Olympic
and its predecessor in interest. The County, however, contends
that while the payments flow through intangible contractual
rights, they nonetheless constitute earnings from the use of the
property and were therefore properly included in the valuation.
We agree with the County. Contrary to Olympic’s reading
of the case, our decision in Elk Hills, supra, 57 Cal.4th 593, does
not require the assessor to exclude all revenue that derives from
any conceivable form of intangible asset that is capable of
valuation. Elk Hills’s analysis focused on intangible assets that
relate to the enterprise activity of the business, including “the
goodwill of a business, customer base, and favorable franchise
terms or operating contracts.” (Id. at p. 618.) In summarizing
our holding, we emphasized that revenue “ ‘ “derived in large
part from enterprise activity” ’ ” may not be considered when
assessing the value of commercial property (id. at p. 619);
instead, the assessor may only consider “ ‘ “earnings from the
[taxable] property itself or from the beneficial use thereof” ’ ”
(ibid.). The key inquiry in this case, then, is not merely whether
the occupancy tax and key money payments derive from
intangible assets, but rather whether those forms of revenue
represent income that is primarily attributable to enterprise
activity or whether they constitute “income of the real property
or on account of its beneficial use.” (Olympic & Georgia

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Partners, LLC v. County of Los Angeles (2023) 90 Cal.App.5th
100, 119 (dis. opn. of Grimes, J.) (Olympic).)
Applying those principles here, we conclude that the
Assessor was permitted to include the occupancy tax and key
money payments when assessing the value of the hotel. Unlike
the situation we addressed in Elk Hills, both payments derive
from a type of intangible asset that effectively enable the
property itself — as opposed to the business operating the
property — to generate more revenue. Under the occupancy tax
agreement, the hotel generates an additional 14 percent in
revenue every time a customer rents out a room. This revenue
source will continue regardless of who owns the hotel or how
they run their business. With respect to the key money
payment, the Assessor presented undisputed evidence that
management companies routinely pay owners of hotels that
have certain desirable physical features (such as location, size
or overall quality) key money as a means of securing the right
to manage the property and advertise the hotel under the
management company’s brand. Thus, much like a commercial
lease, key money is a form of revenue that owners of desirable
hotels expect to receive in exchange for assigning a management
company the right to make beneficial use of the property.
Because both the occupancy tax and key money payments
“represent[] income from the use of the taxable property itself”
(Olympic, supra, 90 Cal.App.5th at p. 116 (dis. opn. of Grimes,
J.)) the assessor was permitted to include those payments in
determining the hotel’s assessed value. (See Elk Hills, supra,
57 Cal.4th at p. 619 [“ ‘ “earnings from the . . . property itself or
from the beneficial use thereof . . . are to be considered [in
assessing the value of the property]” ’ ”].)

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v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

The County raises a separate claim regarding the
valuation of various “enterprise assets” that derive from its
management agreement with Marriott, including the customer
goodwill associated with the Marriott brand, the value of the
hotel’s food and beverage operations and an assembled, stable
workforce. Unlike the two revenue streams described above, the
County does not dispute that these three enterprise assets are
nontaxable and that their value must therefore be excluded from
the assessment. The County argues, however, that the Assessor
properly accounted for the value of those assets by deducting the
management fees that Olympic pays to Marriott. Olympic
disagrees, contending that the County produced insufficient
evidence to support its claim that the management fees
captured the entire value of the three enterprise assets. The
trial court and Court of Appeal agreed with Olympic and
remanded the matter to the County’s assessment appeals board
(Board) for further proceedings regarding the valuation of these
three assets. We affirm the lower courts’ findings on this issue.
I. BACKGROUND
A. The Occupancy Tax Agreement and the Key
Money Payment
The hotel at issue in this case was developed pursuant to
a series of contracts between the City and the original developer,
L.A. Arena Land Company (L.A. Arena). Those contracts
include the hotel development agreement (the HDA), which is
effectively the master development agreement, the “Occupancy
Tax Agreement”1 and the “Room Block Agreement.” Under the

1
The parties’ contracts refer to the Occupancy Tax
Agreement as the “Funding Agreement.”

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Opinion of the Court by Groban, J.

Occupancy Tax Agreement, the City agreed to assign L.A.
Arena, during the first 25 years of the hotel’s operation, a 14
percent occupancy tax that the City imposes on nightly hotel
room charges, subject to a cap of $246 million. After the first 25
years, the City and L.A. Arena would split the occupancy tax up
to an additional $24 million cap (meaning a total cap of $270
million). For the purposes of this appeal, the parties agree that
the Assessor properly assessed the present value of the
Occupancy Tax Agreement at $80 million.
The HDA states that the Occupancy Tax Agreement was
offered to L.A. Arena as an inducement to construct a hotel that
would service the Los Angeles Convention Center. Although the
project was expected to generate significant revenue for the
City, the HDA explains that the cost of building and operating
a convention center hotel would “not justify private development
. . . without some level of public support.” The HDA further
explains that “in consideration of the development of the
[hotel],” the parties had entered into a separate agreement —
the Occupancy Tax Agreement — “to provide . . . financial
assistance to the Developer.” The Occupancy Tax Agreement
includes similar language.
As a condition of receiving the occupancy tax payments,
L.A. Arena agreed to construct the property and maintain it as
a hotel for a period of 30 years. It also agreed to comply with
the Room Block Agreement, which guaranteed that the hotel
would make available up to 750 rooms for conventioneers for a
period of 30 years. The Room Block Agreement was intended to
“ensure that the Convention Center has adequate hotel capacity
for future conventions and trade shows.” Under the HDA, a

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v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

breach of the Room Block Agreement provided the City grounds
to terminate the Occupancy Tax Agreement.
Prior to the completion and opening of the hotel, L.A.
Arena conveyed the property to Olympic, a newly formed entity
affiliated with L.A. Arena. As part of the sale, L.A. Arena
assigned Olympic its rights under the Occupancy Tax
Agreement. Olympic thereafter entered into a management
agreement with Marriott that gave two Marriott-related
entities, Ritz-Carlton and JW Marriott, the right to manage
different sections of the hotel, which included the right to brand
the hotel as a Marriott-related property. In exchange for the
management services, Olympic was to pay a management fee of
approximately three percent of gross revenues, plus certain
performance-based incentives. The management agreement
further provided that to secure the right to manage the property
for a period of 50 years, Marriott agreed to pay Olympic a one-
time $36 million key money payment. In the event the
management agreement was terminated, Marriott was entitled
to a pro rata refund of the payment.
B. Procedural History
1. Proceedings before the Board
a. Parties’ contentions
After the County issued an assessment on the newly
constructed hotel, Olympic filed a tax challenge that was
initially heard by the Board. Citing Elk Hills, supra, 57 Cal.4th
593, Olympic argued that the Occupancy Tax Agreement should
be excluded from assessment because it was an “intangible
contractual” asset with an “identifiable income stream [that

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Opinion of the Court by Groban, J.

could] easily be segregated from the [hotel’s] operational
revenues.”
Olympic presented similar arguments regarding the key
money payment, contending that “since the . . . Key Money was
paid for . . . [the] contractual right to manage the Hotel,” it was
“not related to taxable real property rights, but to a non-taxable
intangible, namely the right to manage/operate [the property].”
Olympic further argued that because key money is “never paid
when a management agreement is already in place,” and “it was
unlikely that the Hotel’s owners would terminate the
Management Agreement . . . in the foreseeable future, to obtain
a Key Money payment from another hotel management
agreement, the Assessor’s inclusion of the Key Money was not
proper.”
Finally, Olympic identified three “enterprise assets” that
should be valued and removed from the assessment, all of which
were related to the benefits Olympic enjoyed under its
management agreement with Marriott: (1) the “Flag and
Franchise” value of its association with Marriott entities Ritz-
Carlton and JW Marriott (i.e., customer goodwill, marketing
ability, etc., valued by Olympic at $17 million); (2) food and
beverage operations, meaning the enterprise value of the
management company’s restaurant operations (valued at $13
million); and (3) the value of an assembled, stable workforce
(valued at $4 million). In support of these valuations, Olympic
presented the reports and testimony of an expert appraiser
specializing in business valuation.
In response, the County argued that the proceeds of the
Occupancy Tax Agreement were properly included in the
valuation of the hotel because the payments “go[] to the
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v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

landowner and follows the land.” The County also asserted that
the funds were provided to the hotel owner as an inducement
“not just to develop the [hotel], but to continue its operation in
conformity with the [Room Block Agreement],” which required
the hotel to reserve a certain number of rooms for use by
conventioneers. The County argued the key money payment
was likewise assessable because it was revenue that Olympic
received from a third party (Marriott) in exchange for certain
rights in the property, namely “the right to manage the
property.” The Assessor testified that if the current
management agreement was terminated, it was “highly likely
that other operators would compete for the same opportunity
and would pay this same contribution.”
Regarding the enterprise assets, although the County
agreed that the value associated with the flag and franchise and
the assembled workforce could not be considered in the
assessment, it argued that the Assessor had fully accounted for
these assets by deducting the amount that Olympic had paid to
Marriott under the terms of the management agreement. In
support, it relied on an article written by Stephen Rushmore
that advocates for the “Rushmore Approach” of hotel valuation
(which Stephen Rushmore created). Under that approach, the
assessor accounts for the “business component of a hotel’s
income” — i.e., the portion of income generated through the
enterprise activity of the hotel rather than the property itself —
by deducting the costs due under the management agreement.
The County did not specifically address the value of the food and
beverage operations.

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Opinion of the Court by Groban, J.

b. The Board’s ruling
The Board ruled in favor of the County on all three issues.
The Board found that the occupancy tax payments were
assessable because they represented “income to the property
and related to real property.” Distinguishing Elk Hills, supra,
57 Cal.4th 593, the Board explained that the intangible rights
at issue in that case had not been related to real property, while
the Occupancy Tax Agreement is “an intangible asset of real
property that runs with the land.” The Board also agreed with
the County that the Occupancy Tax Agreement was related “not
just to the development of the Hotel but to its continued
operation.” The Board explained that the tax payments were
predicated on compliance with the Room Block Agreement,
which required the hotel to set aside a certain number of
“[g]roup rate” rooms for conference attendees that generally had
lower rates than standard nongroup rates. Thus, the Occupancy
Tax Agreement not only incentivized the construction of the
hotel but also benefitted the City by guaranteeing that
conference goers would receive group booking rates.
The Board also concluded the key money payment was
properly included in the assessment because it was a payment
“received in exchange for a tangible right in real property,”
namely the “right to manage the hotel.” The Board rejected
Olympic’s argument that the key money could not be considered
income because it “was paid prior to the opening of the Hotel,”
explaining: “If this property was not encumbered by the
Management Contract, the Hotel owner would have the ability
to enter into another Management Contract [after opening the
hotel] and receive a similar payment.”

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Finally, regarding the enterprise assets, the Board did not
directly address the County’s argument that the value of the
hotel’s enterprise assets had been accounted for by deducting
the total amount of management fees Olympic had paid to
Marriott. Instead, the Board ruled that it was “not persuaded
by [Olympic’s] valuation of these intangibles . . . and believes
there is no compelling evidence to isolate [their value] from the
real estate value.”
2. Proceedings in the trial court and the Court of
Appeal
Following the Board’s ruling, Olympic filed a complaint in
Los Angeles County Superior Court for refund of property taxes.
At the conclusion of a bench trial, the court entered a judgment
concluding that the proceeds from the Occupancy Tax
Agreement and the key money payment were “income from the
property and [were] properly included in the assessed value of
the property.” Regarding the enterprise assets, however, the
trial court remanded the matter to the Board with directions “to
determine the value of the Flag and Franchise, Workforce in
Place, and Food and Beverage Income and to deduct that value
from the assessed value of the Property.” Although the court did
not issue a statement of decision, its judgment suggests that it
rejected the County’s argument that the evidence established
these nontaxable enterprise assets had been fully accounted for
through the deduction of the management fees that Olympic
paid to Marriott.
In a split decision, the Court of Appeal reversed the trial
court on the first two issues and unanimously affirmed on the
third. Citing Elk Hills, supra, 57 Cal.4th 593, the majority
concluded that assessors must exclude the value of any

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Opinion of the Court by Groban, J.

intangible asset that is necessary to put the property to
productive use and is capable of valuation. Applying that test,
the majority explained that the occupancy tax payment was
“intangible” (insofar as it derives from a development contract
between the City and the original contractor), “capable of
valuation” (as both parties agree it provides revenue valued at
$80 million) and was “necessary because without it the hotel
would not have been built.” (Olympic, supra, 90 Cal.App.5th at
p. 109.) Regarding the key money, the majority characterized
this one-time payment as “a price break the managers gave the
hotel on payments from the hotel.” (Id. at p. 110.) In the court’s
view, because the payment was not “income” to Olympic, but
rather a “discount” on management fees, it was not taxable.
(Ibid.)
Finally, with respect to the Board’s treatment of the
enterprise assets, the majority concluded that Olympic’s expert
witnesses had “proposed credible values for all three” categories
of assets “and backed up [the] estimates with . . . analysis and
exhibits.” (Olympic, supra, 90 Cal.App.5th at p. 111.) The court
explained that “[w]hen the taxpayer offers an apparently
credible valuation of the intangibles, as here, the assessor and
Board must diligently grapple with this substance.” (Id. at
pp. 111–112.) The court rejected the County’s assertion that the
deduction of the management fees had “completely account[ed]
for the value” of the enterprise assets. (Id. at p. 112.) The court
explained that the only evidence the County had cited in support
of that argument was “an article by Stephen Rushmore . . . , but
this article contains no empirical support for the illogical
premise that every franchise fee wipes out all intangible benefits
a franchise agreement might offer a hotel owner.” (Ibid.)

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Justice Grimes dissented in part, concluding that the
occupancy tax and key money payments were both properly
included in the hotel’s valuation. The dissent believed that the
analysis in Elk Hills, supra, 57 Cal.4th 593, was focused on
intangible assets that “ ‘make a direct contribution to the . . .
value of the business,’ ” such as “ ‘the goodwill of a business,
customer base, and favorable franchise terms or operating
contracts.’ ” (Olympic, supra, 90 Cal.App.5th at p. 115 (dis. opn.
of Grimes, J.).) In contrast, the occupancy tax and key money
payments “derive[] directly from Olympic’s use of its taxable
property, much like lease payments from a tenant to the
landlord derive from the use of the property, not just from the
lease agreement. While [the occupancy tax and key money
payments] flow[] through a contract that the parties agree is an
intangible asset, the value of [those payments] derive[] directly
from the use of the property as a hotel.” (Ibid.) In the dissent’s
view, Elk Hills had simply not addressed “an income-producing
intangible asset that derives its value from taxable property.”
(Ibid.)
II. DISCUSSION
A. Standard of Review
“The proper scope of review of assessment decisions is well
established. [Citation.] ‘When the assessor utilizes an approved
valuation method, [its] factual findings and determinations of
value based upon the appropriate assessment method are
presumed to be correct and will be sustained if supported by
substantial evidence.’ [Citation.] However, where the taxpayer
attacks the validity of the valuation method itself, the issue
becomes a question of law subject to de novo review.” (Elk Hills,
supra, 57 Cal.4th at p. 606.) Whether the assessor’s valuation

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Opinion of the Court by Groban, J.

improperly subsumed the value of nontaxable intangible
property generally “ ‘presents a question of valuation
methodology, which is a legal issue subject to . . . independent
review.’ ” (SHC Half Moon Bay, LLC v. County of San Mateo
(2014) 226 Cal.App.4th 471, 486 (SHC Half Moon Bay); see Elk
Hills, supra, 57 Cal.4th at p. 606 [plaintiff’s claim that assessor
failed to exclude the value of an intangible asset “is a question
of law”]; GTE Sprint Communications Corp. v. County of
Alameda (1994) 26 Cal.App.4th 992, 1001 (GTE Sprint).)
As the County correctly notes, however, to the extent the
Board’s conclusions regarding such assets require the resolution
of disputed questions of fact about the nature or characteristics
of the assets in question, the Board’s factual findings on those
issues are generally subject to the substantial evidence
standard. (Compare SHR St. Francis, LLC v. City and County
of San Francisco (2023) 94 Cal.App.5th 622, 632 (SHR St.
Francis) [substantial evidence standard applies where tax
“challenge ‘ “present[s] a question about the facts specific to
[the] plaintiffs’ case or the data to insert when calculating the
value of the property” ’ ”] with Union Pacific Railroad Co. v.
State Bd. of Equalization (1991) 231 Cal.App.3d 983, 992
[“where the claim is that, due to the basic undisputed
characteristics shared by an entire class of properties, the
challenged method will produce systematic errors if applied to
properties in that class, the issue is not factual but legal”].)
B. Legal Background Regarding Taxation of
Intangible Assets
We begin with a review of general principles governing the
taxation of intangible assets.

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1. Relevant provisions of the Constitution
“[T]he California Constitution requires generally the
assessment of property at ‘fair market value.’ . . . .” “[A]ssessors
have a constitutional mandate to tax all property at fair market
value if not exempt under federal or state law.” (Elk Hills, supra,
57 Cal.4th at pp. 606, 607.) Although earlier versions of the
California Constitution allowed for the taxation of intangible
property, former section 14 of article XIII (which now appears in
substantially the same form in § 2 of art. XIII) was amended in
1933 to permit the Legislature “to tax, or to exempt from
taxation, certain forms of intangible property,” including
(among other things) “notes, debentures, capital stock, and
bonds.” (Elk Hills, at p. 607.)
In Roehm v. County of Orange (1948) 32 Cal.2d 280
(Roehm), we “found that the effect of the 1933 amendments” was
to exempt all forms of intangible property except those expressly
listed in article XIII, former section 14 (now art. XIII, § 2) of the
California Constitution. (Elk Hills, supra, 57 Cal.4th at p. 607;
see Roehm, at p. 285 [art. XIII, former § 14 “does not grant
power to provide for the taxation of intangible assets other than
those listed”].) At issue in Roehm was a property tax assessment
that had been levied against a liquor license. We held that
because the license did not fall within any of the categories of
intangible property enumerated in the 1933 amendment, the
county had no authority to directly tax the asset. Significantly,
however, Roehm clarified that “[i]ntangible values . . . that
cannot be separately taxed as property may [nonetheless] be
reflected in the valuation of taxable property. Thus, in
determining the value of property, assessing authorities may
take into consideration earnings derived therefrom, which may

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depend upon the possession of intangible rights and privileges
that are not themselves regarded as a separate class of taxable
property.” (Roehm, at p. 285.) As stated by one court, under the
principles of Roehm, “intangibles associated with the realty,
such as zoning, permits, and licenses, are not real property and
may not be taxed as such. However, insofar as such intangibles
affect the real property’s value, for example by enabling its
profitable use, they may properly contribute to an assessment of
fair market value.” (American Sheds, Inc. v. County of Los
Angeles (1998) 66 Cal.App.4th 384, 392 (American Sheds).)
2. Statutory provisions governing the taxation of
intangible assets
Revenue and Taxation Code sections 110 and 2122
implement article XIII, sections 1 and 2 of the California
Constitution, as we interpreted those provisions in Roehm. (See
Elk Hills, supra, 57 Cal.4th at pp. 610–612.)
Section 110, subdivision (a) defines the term “ ‘fair market
value’ ” to mean “the amount of cash or its equivalent that
property would bring if exposed for sale in the open market
under conditions in which neither buyer nor seller could take
advantage of the exigencies of the other. . . .” For purposes of
valuing hotels, “fair market value” is typically determined using
the income capitalization method, which is a form of unit
valuation.3 (See, e.g., California Portland Cement Co. v. State

2
Unless otherwise noted, all further statutory citations are
to the Revenue and Taxation Code.
3
“ ‘The essence of the unitary valuation concept is the
determination of the value of an enterprise as a whole without

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Bd. of Equalization (1967) 67 Cal.2d 578, 583–584 (California
Portland Cement) [“the capitalization of income method is a
generally accepted method of valuing property from which
income is or may be derived”]; see also Cal. Code Regs., tit. 18, §
8, subd. (a); Rev. & Tax. Code, § 723 [authorizing and defining
unit valuation].) “ ‘ “Under the income method the assessor
capitalizes the sum of future income attributable to the
property, less an allowance for the risk of partial or no receipt of
income [citation]. The income method rests upon the
assumption that in an open market a willing buyer of the
property would pay a willing seller an amount approximately
equal to the present value of the future income to be derived
from the property.” ’ ” (SHC Half Moon Bay, supra,
226 Cal.App.4th at p. 486; see American Airlines, supra,
12 Cal.4th at p. 226.)
However, when conducting a unit valuation, assessors
must deduct revenue that derives from the enterprise activity of
the business, such as customer goodwill or beneficial operating
contracts, which are generally deemed to be forms of nontaxable
intangible assets. To that end, as explained in Elk Hills, section
110, subdivision (d) (section 110(d)) “prevents the direct
taxation of intangible rights and assets when assessors use
methods of unit valuation. Section 110(d)(1) prevents tax

regard to the value of the individual assets making up the
enterprise.’ [Citation.] The value of such property ‘depends on
the interrelation and operation of the entire utility as a unit.
Many of the separate assets would be practically valueless
without the rest of the system.” (American Airlines, Inc. v.
County of San Mateo (1996) 12 Cal.4th 1110, 1125 (American
Airlines); see Elk Hills, supra, 57 Cal.4th at p. 604.)

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assessors from including the value of intangible assets that
relate to the going concern value of a business[ — i.e., enterprise
activity4 —] within the unit value of property prior to
assessment. Section 110(d)(2) requires taxing authorities to
value intangible assets and actively remove that value from a
unit’s taxable base value, so that the intangibles are not directly
taxed.” (Elk Hills, supra, 57 Cal.4th at p. 608.)
Consistent with Roehm, however, section 110, subdivision
(e) (section 110(e)) further provides that despite section 110(d)’s
directive to remove the value of nontaxable, intangible assets or
rights, “[t]axable property may [nonetheless] be assessed and
valued by assuming the presence of intangible assets or rights
necessary to put the taxable property to beneficial or productive
use.” (§ 110(e).) Section 212, subdivision (c) provides similar
guidance, stating: “Intangible assets and rights are exempt
from taxation and, except as otherwise provided in the following
sentence, the value of intangible assets and rights shall not
enhance or be reflected in the value of taxable property. Taxable
property may be assessed and valued by assuming the presence
of intangible assets or rights necessary to put the taxable
property to beneficial or productive use.”
3. Elk Hills
In Elk Hills, supra, 57 Cal.4th 593, we considered how
sections 110 and 212 applied to emission reduction credits

4
“The going concern value of a business means ‘[t]he value
of a commercial enterprise’s assets or of the enterprise itself as
an active business with future earning power, as opposed to the
liquidation value of the business or of its assets.’ ” (Elk Hills,
supra, 57 Cal.4th at p. 608, quoting Black’s Law Dict. (abridged
8th ed. 2005) p. 1294.)

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

(ERCs) that a powerplant owner was required to purchase as a
condition of constructing and operating a new powerplant. In a
tax assessment challenge, the owner argued that the assessor
had erred by failing to “attribute a portion of the plant’s income
stream to the ERCs” — valued at $11 million — “and deduct
that value from the plant’s projected income stream prior to
taxation.” (Id. at p. 605.)
As part of our analysis, we set out to harmonize section
110(d)’s requirement that assessors remove the value of
intangible rights when conducting a unit valuation, and section
110(e)’s provision allowing assessors to “assum[e] the presence
of intangible assets or rights necessary to put the taxable
property to beneficial or productive use.” The Court of Appeal
in Elk Hills interpreted section 110(e) to mean that whenever
an intangible asset is necessary to put the property to its
productive use, the value of that asset should always be included
in the valuation. Applying that interpretation, the court
concluded that because the ERCs were necessary to put the
powerplant to beneficial use — indeed, the powerplant could not
be legally operated without them — their value did not need to
be removed.
Although we agreed with the Court of Appeal’s conclusion
that no deduction was necessary for the ERCs, we disagreed
with its interpretation of the governing statutes. After
reviewing Roehm and the legislative history of sections 110(d)
and (e) and 212, subdivision (c) (all of which effectively codified
Roehm), we concluded that “several points emerge.” (Elk Hills,
supra, 57 Cal.4th at p. 614.) First, an intangible asset cannot
be “directly taxed” even when it is “ ‘necessary to put the taxable
property to beneficial or productive use.’ ” (Ibid., quoting § 212,

18
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

subd. (c).) For example, while a liquor license is necessary to
put property to beneficial use as a bar, the assessor cannot
include the actual price of a liquor license in the valuation of the
property. The assessor may, however, “ ‘assume the presence of
a license so that a bar’s taxable property may be taxed as a bar
and not at salvage value (i.e., as a warehouse).’ ” (American
Sheds, supra, 66 Cal.App.4th at p. 393 [discussing example from
legislative history]; see Roehm, supra, 32 Cal.2d at p. 285.)
Second, “if the assessor assumes the presence of an
intangible asset necessary to put taxable property to beneficial
use . . ., and does no more than this, then by definition the
assessor has not violated . . . [section 110](d)(1). . . . But there
is no reason why an intangible asset cannot enhance both
taxable property and the going concern value of the business on
which the property resides. The case law recognizes that
assessors, if they are valuing taxable property according to the
income produced, may have to apportion income between
enterprise activity and the property itself.” (Elk Hills, supra,
57 Cal.4th at p. 614.)
Third, assessors must “remove intangible assets that are
improperly included in the unitary value of property prior to
assessment. [Citation.] Thus, even when an intangible asset
enhances the value of taxable property . . . , to the extent that
the unitary valuation reflects a direct valuation of the asset
itself, or includes income appropriately attributed to enterprise
value, section 110(d)(2) requires the removal of such values.”
(Elk Hills, supra, 57 Cal.4th at p. 615.)
We then went on to apply that framework to determine
whether the assessor should have deducted the value of the
ERCs when calculating the applicable income of the property.
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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

We explained that there were “two lines of income capitalization
cases that illustrate when a section 110(d)(2) deduction is and is
not required.” (Elk Hills, supra, 57 Cal.4th at p. 617.) In the
first line of authority, “courts have upheld income-based
assessments that properly assumed the presence of intangible
assets necessary to the productive use of taxable property
without deducting a value for intangible assets.” (Id. at p. 618.)
As an example, we discussed American Sheds, supra,
66 Cal.App.4th 384, which involved the valuation of a landfill.
Several years after the owner had acquired the landfill, the
government restricted the landfill’s use permit “to about 10
percent of its previous capacity,” which caused the owner’s tax
assessment to drop 90 percent compared to previous
assessments. (Elk Hills, at p. 618.) The owner challenged the
assessments that had been imposed prior to the permit’s
amendment, arguing that the 90 percent assessment reduction
demonstrated that the assessor’s earlier valuations had
improperly subsumed intangible “permit[]” rights to operate as
a landfill. (American Sheds, at pp. 389, 392.) The Court of
Appeal disagreed, reasoning that the assessment “was
‘consistent with treating the intangibles as nontaxable, while
recognizing the impact of their presence or absence on the
beneficial use of the property, and consequently the amount of
income it could yield.’ ” (Elk Hills, at p. 618, quoting American
Sheds, at p. 395.) In other words, the court found that the
assessor had not directly assessed the value of the use permit
but rather had properly assumed the presence of the permit for
purposes of putting the property to its beneficial use.
We contrasted American Sheds with a second line of cases
that had “disapproved assessments that failed to attribute a

20
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

portion of a business’s income stream to the enterprise activity
that was directly attributable to the value of intangible assets
and deduct that value prior to assessment.” (Elk Hills, supra,
57 Cal.4th at p. 618.) We noted that in those cases “intangible
assets like the goodwill of a business, customer base, and
favorable franchise terms or operating contracts all make a
direct contribution to the going concern value of the business as
reflected in an income stream analysis.” (Ibid.; see id. at p. 619,
citing, e.g., GTE Sprint, supra, 26 Cal.App.4th 992.) We
contrasted these types of enterprise assets with “intangible
rights . . . [that] merely allow for the taxable property to
generate income when put to its beneficial or productive use.”
(Elk Hills, at p. 618.) Summarizing these two lines of cases, we
explained that “ ‘ “[i]ncome derived in large part from enterprise
activity,” ’ ” such as customer goodwill and favorable franchise
terms, is deemed to be a form of intangible asset that must be
excluded from the valuation. (Id. at p. 619, italics omitted.) In
contrast, “ ‘ “the earnings from the [taxable] property itself or
from the beneficial use thereof,” ’ ” including items such as the
rental income of a commercial building or nightly room fees in
the case of a hotel, are deemed to derive from tangible property
and is thus taxable. (Ibid.)
Applying those rules to the case before us, we concluded
that the board had not erred in declining to remove the value of
the ERCs, explaining that “the sole purpose” of the credits was
to “enable the taxable property in question to function and
produce income as a powerplant, thereby enhancing the value of
that property.” (Elk Hills, supra, 57 Cal.4th at p. 619.) We
emphasized that the owner of the powerplant had made “no
credible showing that there is a separate stream of income

21
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

related to enterprise activity or even a separate stream of
income at all that is attributable to the ERCs.” (Id. at p. 602;
see id. at p. 619.)
C. The Board Did Not Err in Including the Value of
the Occupancy Tax Agreement
Olympic’s initial claim in this tax challenge is that the
Board erred in declining to remove the value of the Occupancy
Tax Agreement ($80 million) from the hotel’s projected income
stream. Adopting the reasoning of the Court of Appeal, Olympic
argues that Elk Hills requires that the assessor’s income stream
analysis must exclude all revenue that derives from any form of
intangible asset that is capable of valuation. Olympic further
contends that those elements are satisfied here because the
Occupancy Tax Agreement is a form of intangible asset, namely
contractual rights, that is capable of valuation insofar as it
generates a separate stream of revenue.
The County, however, argues that we should follow the
analysis in the dissent below, which reasoned that “Elk Hills’s
discussion about adjustments for intangible asset income”
(Olympic, supra, 90 Cal.App.5th at p. 114 (dis. opn. of Grimes,
J.)) is of limited relevance here because that case did not address
“an income-producing intangible asset that derives its value
from taxable property” (id. at p. 115). According to the dissent,
unlike the types of intangible assets discussed in Elk Hills,
which related to the enterprise activity of the business using the
property, the proceeds of the Occupancy Tax Agreement are
assessable because they “represent[] income from the use of the
taxable property itself.” (Id. at p. 116.)

22
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

1. The Assessor properly considered revenue from the
Occupancy Tax Agreement
We agree with the County that Elk Hills does not establish
a broad, categorical rule compelling the assessor to exclude
revenue that derives from any type of intangible asset that is
capable of valuation. We also agree that Elk Hills does not
dictate the result for evaluating the proper tax treatment of the
type of asset here, which effectively enables the property
itself — as opposed to the enterprise operating the property —
to generate more revenue.
As noted above, our discussion and analysis in Elk Hills
focused primarily on assets that increase the “going concern
value” of the business that operates on the property being
assessed, including items such as the goodwill of a business or
favorable franchise terms. (Elk Hills, supra, 57 Cal.4th at
p. 618 [“intangible assets like the goodwill of a business,
customer base, and favorable franchise terms or operating
contracts all make a direct contribution to the going concern
value of the business as reflected in an income stream
analysis”].) The shared characteristic of the types of assets
discussed in Elk Hills is that they increase the value of the
business operating on the taxable property without necessarily
increasing the amount of income that the property itself is
capable of generating.
A paradigmatic example of such an asset is franchise
rights. As explained in the State Board of Equalization’s

23
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

Assessors’ Handbook, 5 franchise rights “represent[] an economic
contribution by the owner, who generally has paid a substantial
sum as consideration for the franchise contract” and thus
“relate[] primarily to the business entity’s enterprise-related
activities. Thus, [franchise rights] are examples of intangible
rights whose primary purpose is not to authorize a more
productive use of taxable property, but rather to authorize the
use of a trade name . . . or the right to conduct a specified
business operation, in the conduct of a business entity’s
enterprise-related activities.” (Bd. of Equalization, Assessors’
Handbook, § 502, Advanced Appraisal (reprinted Jan. 2015)
p. 155 (Assessors’ Handbook).) For example, the mere fact that
a McDonalds franchise can generate a certain amount of income
does not mean that a restaurant operating on the same property
without such franchise rights could generate the same amount
of income. In that situation, an assessor valuing the property
under the income method would have to make an adjustment
representing the additional revenue the restaurant was able to
generate because of the franchise rights. Stated differently, if
the franchise rights allow the owner to generate more revenue
from operating a business on the property than it otherwise
would, then those franchise rights are a nontaxable intangible
asset and any additional income flowing from them should not

5
“Tax assessors use the Assessors’ Handbook ‘as a basic
guide.’ [Citation.] ‘[A]ssessors’ handbooks are not regulations
and do not possess the force of law . . .,’ but ‘they serve as a
primary reference and basic guide for assessors, and have been
relied upon and accorded great weight in interpreting valuation
questions.’ ” (SHC Half Moon Bay, supra, 226 Cal.App.4th at
p. 485.)

24
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

be included in determining a property’s assessed value under
the income approach.
Applying that framework in Elk Hills, we concluded that
the assessor was not required to make an adjustment for the
powerplant owner’s ERCs, which were valued at $11 million,
because there was no showing that those credits had increased
the business’s income stream. Rather, we likened the ERCs to
a license that simply allowed for the property to be put to use as
a powerplant. (See Elk Hills, supra, 57 Cal.4th at p. 619 [“the
sole purpose of the surrendered ERCs is to enable the taxable
property in question to function and produce income as a
powerplant”].) Because there had been no showing that the
ERCs increased the income stream of the business, there was no
basis to deduct their value in assessing the overall income value
of the property.
As Justices Grimes noted in her dissent, the “intangible
asset” at issue here — and the revenue stream that it
generates — differs in important ways from the types of assets
we discussed in Elk Hills. Unlike franchise rights or customer
goodwill, the Occupancy Tax Agreement is, in effect, “an income-
producing intangible asset that derives its value from [the use
of ] taxable property.” (Olympic, supra, 90 Cal.App.5th at p. 115
(dis. opn. of Grimes, J.).) Stated differently, the agreement
increases the amount of revenue generated by the use of the
property as distinguished from that generated by operating a
business on the property: Each time a guest stays at the hotel,
the property will generate additional revenue in an amount that
is equal to 14 percent of the nightly rental rate. The hotel will
continue to generate that revenue for the property owner
regardless of what business is operating the hotel or how well or

25
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

poorly the business is being run. That is substantially different
than an asset like customer goodwill, which allows the entity
that is operating the property to generate more business (and
more income) for reasons that are unrelated to the property
itself.
Moreover, while Elk Hills did not require us to consider
the tax treatment of revenue that derives from contractual
rights that enable the property itself to generate additional
income, some of our discussion supports the County’s view that
such proceeds are taxable. We explained, for example, that
when using the income stream approach, “ ‘ “it is the earnings
from the [taxable] property itself or from the beneficial use
thereof which are to be considered.” ’ ” (Elk Hills, supra,
57 Cal.4th at p. 619.) We likewise approved the analysis in
American Sheds, supra, 66 Cal.App.4th 384, which concluded
that the assessor had not erred in valuing “ ‘the impact’ ” that
intangible rights — namely the operating capacity limits set
forth in a landfill permit — had “ ‘on the beneficial use of the
property, and consequently the amount of income it could
yield.’ ” (Elk Hills, at p. 618.) That analysis is in clear tension
with Olympic’s contention that Elk Hills created a categorical
rule requiring that an assessor deduct all forms of revenue that
derive from intangible contractual rights that are capable of
valuation.
Consistent with the approach in American Sheds, supra,
66 Cal.App.4th 384, other cases support the view that, at least
under some circumstances, an assessor may properly consider
revenue derived from intangible contractual rights that increase
the amount of income that a property can yield. For example,
in De Luz Homes v. County of San Diego (1955) 45 Cal.2d 546

26
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

(De Luz Homes), we addressed the valuation of leasehold
interests in property owned by the federal government.6 The
plaintiff, De Luz Homes, entered into an agreement to lease the
property at a nominal fee ($100 per annum) for a period of 75
years. It further agreed to construct a housing project on the
property and then lease the units to military personnel at a
guaranteed rental rate.
In addressing whether the leasehold interests could be
valued using the guaranteed rental rates set forth in the
development agreement we acknowledged that an assessor
must generally estimate income based on the rental value that
the property could generate on the open market, not the amount
the property would generate under the existing leases on the
property. (See De Luz Homes, supra, 45 Cal.2d at p. 565; Dennis
v. County of Santa Clara (1989) 215 Cal.App.3d 1019, 1030
(Dennis); see also Cal. Code Regs., tit. 18, § 8, subd. (d).)7 We

6
Although “[a] lease of private property is not taxable”
(Jewish Community Centers Development Corp. v. County of Los
Angeles (2016) 243 Cal.App.4th 700, 709), “when there is a lease
. . . of land owned by a tax-exempt governmental agency, . . . the
possessory right under the lease is subject to assessment and
taxation.” (City of Desert Hot Springs v. County of Riverside
(1979) 91 Cal.App.3d 441, 449, citing De Luz Homes, supra,
45 Cal.2d at p. 563.)
7
The “[State Board of Equalization] regulations referred to
as the ‘Property Tax Rules,’ . . . which can be found in the
California Code of Regulations, title 18 . . . ‘have the force and
effect of law.’ ” (Paramount Pictures Corp. v. County of Los
Angeles (2023) 95 Cal.App.5th 1246, 1252.) Rule 8, subdivision
(d) provides that, “In valuing property encumbered by a lease,
the net income to be capitalized is the amount the property

27
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

concluded, however, that under the circumstances of the case,
the valuation of De Luz Homes’ leasehold interests should be
based on the “actual income” it was scheduled to receive under
its contractual arrangements with the government. We
explained that while this method may not be appropriate when
“valuing property wherein actual income is derived in large part
from enterprise activity and cannot be ascribed entirely to the
use of the property” (De Luz Homes, at p. 572), it was
nonetheless appropriate to consider the owner’s actual
income — i.e., the amount the government had guaranteed to
pay for the units pursuant to the original development
agreement — because “future income can be expected to remain
stable, for rents are controlled in amount by the [federal
agencies] and occupancy is assured by the fact that the project
is located on a military installation” (ibid.).8

would yield were it not so encumbered, whether this amount
exceeds or falls short of the contract rent . . . .” (Cal. Code Regs.,
tit. 18, § 8, subd. (d).)
8
Justice Kruger’s concurring and dissenting opinion
(hereafter the dissent) reasons that because the Occupancy Tax
Agreement was “successfully negotiated” (conc. & dis. opn. of
Kruger, J., post, at p. 8) between the original developer of the
hotel and the City “before the hotel was ever built” (id. at p. 12),
the additional revenue that Olympic (and all subsequent
owners of the hotel) receive under that agreement must be
attributed to the original developer’s “enterprise activity” (ibid.)
and not to the property. That reasoning, however, cannot be
squared with De Luz Homes, 45 Cal.2d 546, in which the federal
government guaranteed the developer a stable rate of rental
income over a specified period of time in exchange for building a
housing facility. As in this case, the developer and the
government “negotiated” (conc. & dis. opn. of Kruger, J., at p. 8)

28
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

Freeport-McMoran Resource Partners v. County of Lake
(1993) 12 Cal.App.4th 634 (Freeport-McMoran), and Watson
Cogeneration Co. v. County of Los Angeles (2002) 98 Cal.App.4th
1066 (Watson), applied similar reasoning in a pair of cases
involving the valuation of powerplants that were governed by
federal and state legislation incentivizing the development of
“cogeneration” (Watson, p. 1068) power production facilities.
The statutes governing these “ ‘qualifying facilities’ ” (Freeport-
McMoran, at p. 638) allowed the owners to enter into long-term
power purchase agreements with utilities that guaranteed a
specified rate for their electricity. Due to unanticipated
fluctuations in energy markets, the guaranteed rates in those
contracts rose above market rates. (See Watson, at pp. 1068–
1069.)
The assessors used an income capitalization method to
value the powerplants based on the rates set forth in the
guaranteed contracts (known as SO4 contracts). The owners
challenged the assessments, contending that the income
calculations “should not have included the full value of [the
owners’] power purchase agreement because th[ose] favorable
contract[s] [were] an intangible asset exempt from property
taxation.” (Watson, supra, 98 Cal.App.4th at p. 1069.) In
support, the owners relied on “cases holding that the value of
properties . . . must be determined by reference to the income
the properties could generate on the open market rather than

those favorable rental terms “before the [project] was ever built”
(id. at p. 12). We nonetheless concluded that those rental
guarantees were properly considered in valuing the property
and expressly rejected the suggestion that they should be
attributed to “enterprise activity.” (De Luz Homes, at p. 572.)

29
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

the income generated under the actual contracts.” (Freeport-
McMoran, supra, 12 Cal.App.4th at p. 642.)
Citing De Luz Homes, supra, 45 Cal.2d 546, Freeport-
McMoran rejected the plaintiffs’ assertions that “property must
be valued without consideration of any type of contract
pertaining to income to be derived from property” (Freeport-
McMoran, supra, 12 Cal.App.4th at p. 644) or that
“consideration of the SO4 contract income impermissibly taxes
nontaxable intangible property [rights]” (id. at p. 645). The
court explained that under the principles of Roehm, supra,
32 Cal.2d 280 (see ante, at pp. 14–15), assessors “ ‘ “may take
into consideration earnings derived [from the property], which
may depend upon the possession of intangible rights and
privileges that are not themselves regarded as a separate class
of taxable property.” ’ [Citations.] ‘ “[M]arket value for
assessment purposes is the value of property when put to
beneficial or productive use.” ’ ” (Freeport-McMoran, at p. 645.)
According to the court, “[i]n this case the SO4 contracts are the
means by which [the owner’s] properties are put to beneficial
use and must be considered in assessing the properties’ ‘full
value.’ ” (Id. at p. 646.)
Watson, supra, 98 Cal.App.4th 1066, involved essentially
identical facts and likewise rejected a qualifying facility owner’s
assertion that assessors had erred in utilizing its SO4 contracts
when calculating the facility’s value under the income method.
Consistent with the approach in De Luz Homes and Freeport-
McMoran, the court reasoned that “[w]here, as here, the income
flow can be expected to remain stable, based on controlled
pricing and assured usage, the value of the property ‘can best be
estimated in terms of actual income.’ ” (Watson, at p. 1072,

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

quoting De Luz Homes, supra, 45 Cal.2d at p. 572.) The court
distinguished cases that had addressed the tax treatment of
franchise rights and other forms of intangible assets that are
“attributable to the enterprise value of the business” (Watson,
at p. 1075), explaining that the qualifying facilities “were the
result of government incentives and regulations specifically
intended to encourage their development. Among these
government-facilitated arrangements were the power purchase
agreements . . . of the projects. . . . The power purchase
agreement is inextricably intertwined with the creation and
operation of the project as a qualified facility.” (Ibid.)
We conclude that the reasoning of De Luz Homes,
Freeport-McMoran and Watson, apply equally here. As in those
cases, Olympic’s hotel was developed pursuant to “government-
facilitated” (Watson, supra, 98 Cal.App.4th at p. 1075)
contractual rights (the Occupancy Tax Agreement) that enable
the property to generate more revenue than it otherwise would.
These contractual rights are “integral to the economic viability
of the [project]” (Freeport-McMoran, supra, 12 Cal.App.4th at
p. 644) and provide “ ‘the means by which appellant’s properties
are put to beneficial use’ ” (Watson, supra, 98 Cal.App.4th at
p. 1073). Indeed, it is undisputed that without the additional
revenue provided by the Occupancy Tax Agreement — which
amounts to a 14 percent increase in nightly rental rates — the
costs of the project would have been prohibitively
uneconomical.9

9
The dissent acknowledges that cases such as De Luz
Homes, Freeport-McMoran and Watson permit an assessor to

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

Moreover, the Board found that the occupancy tax
payments were “related not just to the development of the
[h]otel but to its continued operation.” According to the Board’s
factual findings, which the parties have not challenged here (see
generally SHR St. Francis, supra, 94 Cal.App.5th at p. 632

consider the “ ‘actual income’ ” a property owner “is guaranteed
to collect” under government-facilitated contracts that enable
the economic viability of a publicly beneficial project. (Conc. &
dis. opn. of Kruger, J., post, at p. 3.) According to the dissent,
however, those cases are distinguishable because the occupancy
tax payments are not “income” that derives from hotel guests’
use of the property. (See id. at p. 6.) Instead, the dissent views
these payments as taxes that the hotel guests pay “to the City,”
which the City then “assign[s]” to the property owner. (Id. at
p. 8, italics omitted; see id. at p. 13, fn. 5.) We are not persuaded
that the reasoning of De Luz Homes and its progeny applies only
when the payments are made directly by the customer. Whether
characterized as an additional fee that a guest pays directly to
the hotel or as a tax that is first paid to the City and then
transferred to the hotel, the fact remains that the hotel owner
receives 14 percent more in revenue each time a guest rents a
hotel room. From the perspective of a potential buyer of the
hotel analyzing future revenue that the property can be
expected to generate, it is of no moment whether the hotel owner
receives that additional 14 percent payment directly from the
customer or through a third party intermediary (i.e., the City).
(See SHC Half Moon Bay, supra, 226 Cal.App.4th at p. 486
[income method assumes that a buyer would pay “ ‘ “an amount
approximately equal to the present value of the future income
to be derived from the property” ’ ”].) What matters is that
Olympic obtained a 14 percent premium on every room rental,
which is income derived from use of the property. That
additional revenue does not become a non-taxable component of
the hotel valuation simply because the City transferred the
customer money to Olympic rather than Olympic receiving the
money directly “through customer payments.” (Conc. & dis. opn.
of Kruger, J., post, at p. 13, fn. 5.)

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

[Board’s factual findings are reviewed for substantial evidence]),
the occupancy payments were made in part to secure guarantees
regarding how the property would be used in the future.
Specifically, the occupancy tax payments were conditioned on
the owner agreeing that it would maintain the property as a
hotel for a period of 30 years and that it would set aside a certain
number of rooms for conference goers, as detailed in the Block
Room Agreement. The Board also found that in the absence of
the Block Room Agreement, “the income of the subject [property]
would be higher” because the evidence showed that “[g]roup
rates [were] typically lower” than nongroup rates.
Thus, based on the Board’s factual findings, the payment
was made not only to incentivize the development of an
otherwise uneconomic project, but to ensure the owner utilized
the property in a way that was beneficial to the City. (See Elk
Hills, supra, 57 Cal.4th at p. 619 [under the income method,
“ ‘ “it is the earnings from the [taxable] property itself or from
the beneficial use thereof which are to be considered” ’ ”].) As
aptly described by Justice Grimes’s dissent in the proceedings
below, the Occupancy Tax Agreement was, in effect, “part of the
overall return on investment the hotel’s original developer,
Olympic’s predecessor in interest, required to agree to use its
property the way the City wanted.” (Olympic, supra,
90 Cal.App.5th at p. 116 (dis. opn. of Grimes, J.).) Unlike
franchise rights or customer goodwill, which increase the going
concern value of the business, the Occupancy Tax Agreement
ensures that the taxable property (the hotel) will generate an
additional 14 percent each time a room is rented. Because the
occupancy tax payments constitute “ ‘ “earnings from the
[taxable] property itself or from the beneficial use thereof,” ’ ”

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

they are subject to assessment. (Elk Hills, supra, 57 Cal.4th at
p. 619.)
And much like the contractually guaranteed streams of
income at issue in De Luz Homes, Freeport-McMoran and
Watson, the Occupancy Tax Agreement ensures the property
will continue to generate 14 percent of additional income every
time a room is rented regardless of how well or poorly the owner
may run its hotel business. In that way, the income cannot be
said to “ ‘ “derive[] in large part from enterprise activity,” ’ ” but
is more aptly characterized as “ ‘ “earnings from the [taxable]
property itself or from the beneficial use thereof [as a hotel].” ’ ”
(Elk Hills, supra, at p. 619, italics omitted; see De Luz Homes,
supra, 45 Cal.2d at p. 572 [rental income due under
development contracts was not “derived in large part from
enterprise activity”]; Freeport-McMoran, supra, 12 Cal.App.4th
at p. 646 [“The [guaranteed] higher price received under the
SO4 contract is not the result of [the owner’s] successful
operation of its plants”]; Watson, supra, 98 Cal.App.4th at
p. 1075.)10

10
Olympic argues that Freeport-McMoran and Watson are
distinguishable because in both cases the courts described
powerplants with SO4 contracts as being in a separate “market”
from powerplants without “assured” government contracts.
Olympic contends that, in contrast, there was no showing that a
separate “market” exists for hotels that are entitled to collect
occupancy tax payments.
While it is true that both cases made references to a
distinct market for power facilities with SO4 contracts (see
Freeport-McMoran, supra, 12 Cal.App.4th at pp. 644–645;
Watson, supra, 98 Cal.App.4th at p. 1076), we do not read either

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

The Court of Appeal majority did not consider these
authorities. Instead, it concluded that our decision in Elk Hills
established a categorical rule requiring the assessor to deduct
any and all forms of revenue that derive from intangible
contractual rights that are necessary to put the property to its
productive use and are capable of valuation. As explained
above, we reject that broad reading of Elk Hills. (See ante, at
pp. 22–26.) Rather, we hold that when, as here, a project came
into existence as the result of contractual guarantees that
enable the property to generate additional revenue that is
unrelated to the enterprise activity of the entity that owns the
property, the assessor may properly consider that additional
revenue when conducting an income method valuation. Indeed,
excluding a source of revenue that both derives from the use of
the property and “is inextricably intertwined with the creation
and [continued] operation of the [hotel]” (Watson, supra,
98 Cal.App.4th at p. 1075) would “artificially deflate the value
of the property, in violation of the assessor’s obligation to
determine the full cash value of the property” (id. at p. 1072).11

case as turning on that factor. Indeed, both decisions focused
primarily on the fact that the powerplants had been developed
pursuant to contractual rights that assured the “income flow
[would] . . . remain stable” (Watson, at p. 1072) and that those
rights provided the “ ‘means by which appellant’s properties are
put to beneficial use’ ” (id. at p. 1073, quoting Freeport-
McMoran, at p. 646).
11
Olympic suggests that the occupancy tax payments should
not be treated as income from the property because the
Occupancy Tax Agreement was itself the product of business
negotiations between the original developer and the City. The

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

2. Olympic’s counter arguments
a. Our holding does not mean that all forms of
intangible assets that derive value from the use
of property are taxable
Olympic argues that “[n]o California law supports the
County’s position that an intangible asset with a quantifiable
value may be assessed for . . . property taxation if its value
depends upon a business using tangible property.” According to
Olympic, adopting such a standard would “swallow the rule that
intangible assets are exempt from property taxation” because
“[m]any intangible assets derive value from the use of real
estate, but they remain exempt from property taxation.” As
examples, Olympic cites “[t]he patents used in a manufacturing
facility, the franchise rights of a fast-food restaurant, and the
operating manuals of a retail store,” all of which “depend on real
property to generate value, but [have traditionally been treated
as] exempt from property taxation as intangible assets.”
Contrary to Olympic’s suggestion, our conclusion that the
Assessor did not err by including revenue from the Occupancy
Tax Agreement does not effectuate any sea change in the tax
treatment of intangible assets. Indeed, we view our holding,
which is predicated on the rather unique characteristics of the
Occupancy Tax Agreement, as being narrow in scope.

fact that the Occupancy Tax Agreement might have been the
product of negotiation, however, does not alter the fact that the
structure of the agreement that the parties settled on entitles
the property owner to receive 14 percent more in room rates by
virtue of being the property owner. We express no view regarding
the appropriate tax treatment of other forms of negotiated
payments that lack the characteristics of the Occupancy Tax
Agreement.

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

Preliminarily, we find no merit in Olympic’s sweeping
assertion that no California court has ever found it permissible
to include revenue that derives from an intangible asset that
increases the amount of income the property can generate when
determining a property’s assessed value. Several of the cases
discussed above approved of the assessor’s inclusion of income
that flowed through an intangible asset. (See, e.g., De Luz
Homes, supra, 45 Cal.2d 546 [assessor was permitted to
calculate income based on rights set forth in the parties’
development contracts]; American Sheds, supra, 66 Cal.App.4th
at p. 395 [assessor was permitted to consider how capacity limits
set forth in operating permits “impact[ed]” the “amount of
income [the landfill] could yield”]; Freeport-McMoran, supra,
12 Cal.App.4th at p. 644 [rejecting plaintiff’s assertion that
“property must [always] be valued without consideration of any
type of contract pertaining to income to be derived from
property”]; Watson, supra, 98 Cal.App.4th 1066 [accord].)
Moreover, the various forms of intangible assets that have
traditionally been exempted from property taxation are easily
distinguishable from the Occupancy Tax Agreement. For
example, as explained above, while it is true that franchise
rights or customer goodwill might in some sense “derive value
from the use of real estate,” they do so by increasing the going
concern value of the business operating on the property. (See
ante, at pp. 23–24.) The franchise rights do not alter the ability
of the property itself to generate more income. Stated
differently, if the taxpayer is able to show that an intangible
asset such as franchise rights or customer goodwill allows the
business operating on the property to generate more revenue
than would be expected from a generic business operating on the

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

same property without such assets, the additional revenue
deriving from those assets is nontaxable and must be deducted
from the income stream analysis.
The same could be said of the other forms of intangible
assets Olympic has identified, such as a patent owned by a
business running a manufacturing plant or the operating
manuals of a retail store. Again, those intangible assets might
well increase the value of the business operation that is utilizing
the taxable property, but they do not directly increase the ability
of the taxable property to generate additional income. As stated
by one court, such assets “ ‘ “relate to the real property only in
their connection with the business using it.” ’ ” (SHR St.
Francis, supra, 94 Cal.App.5th at p. 640.)
The Occupancy Tax Agreement, in contrast, is a
government-provided contractual incentive that allowed the
property to be put to use as a hotel by increasing the revenue
that is generated each time a guest uses the property: Every
time a room is rented, the hotel generates 14 percent more in
revenue than it otherwise would. This will remain true
regardless of who might own the hotel or how well or poorly the
hotel business might be run. In that way, the Occupancy Tax
Agreement is an example of an intangible right “ ‘whose primary
purpose is . . . to authorize a more productive use of taxable
property.’ ” (SHR St. Francis, supra, 94 Cal.App.5th at p. 640,
quoting Assessors’ Handbook, p. 155; see Olympic, supra,
90 Cal.App.5th at p. 115 (dis. opn. of Grimes, J.) [“value of the
[Occupancy Tax Agreement] derives directly from Olympic’s use
of its taxable property, much like lease payments from a tenant
to the landlord derive from the use of the property, not just from
the lease agreement”]; see Elk Hills, supra, 57 Cal.4th at p. 619

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

[“ ‘ “[i]ncome derived in large part from enterprise activity [may
not] be ascribed to the property being appraised; instead, it is
the earnings from the [taxable] property itself or from the
beneficial use thereof which are to be considered” ’ ” (italics
omitted)].)
Nor do we find persuasive Olympic and amici curiae’s
contention that allowing the assessment of the Occupancy Tax
Agreement would conflict with well-established case law holding
that an above or below market lease is to be treated as a
nontaxable intangible asset. Those holdings require that when
valuing property encumbered by a lease, the assessor must
generally utilize the fair market rental income of the property,
not the amount generated under the property’s current lease.
(See ante, at pp. 27–28 & fn. 7; Clayton v. County of Los Angeles
(1972) 26 Cal.App.3d 390, 393; Cal. Code Regs., tit. 18, § 8, subd.
(d).) This rule rests on the premise that the negotiation of a
nonmarket lease is effectively a matter of the owner’s enterprise
activity, rather than a reflection of the value of the property
itself. (See Clayton, at p. 393.) Courts have likewise expressed
concern that assessing value based on the income of existing
leases would allow savvy property owners to manipulate their
property taxation rates, thereby requiring assessors to
investigate whether the lessor and lessee may have exchanged
additional benefits that might not be reflected in the rental
price. (See Carlson v. Assessment Appeals Bd. I (1985)
167 Cal.App.3d 1004, 1013, 1012 (Carlson) [the parties’ sales
price “provided a distorted notion of value” given other aspects
of the transaction; assessors should not be required to “ferret[]
out the often undisclosed and secret intentions of lessors and

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

lessees relative to the terms of a lease”]; Dennis, supra,
215 Cal.App.3d at p. 1030.)
Relying on those authorities, Olympic and its amici curiae
argue that the Occupancy Tax Agreement cannot be
meaningfully distinguished from a nonmarket lease insofar as
it is a negotiated contractual right that guarantees the hotel will
receive room rate payments that are in excess of the market
rental rate. Similar arguments were considered and rejected in
Freeport-McMoran, supra, 12 Cal.App.4th 634, and Watson,
supra, 98 Cal.App.4th 1066. Those courts explained that unlike
leases, the power purchase agreements at issues in those cases
“present[] no possibility of . . . manipulation” (Freeport-
McMoran, at p. 644), but rather were “fixed by contract terms”
that “cannot be modified by the parties without governmental
approval” (ibid.). That same reasoning applies.
More fundamentally, we see a meaningful distinction
between an owner negotiating a lease on an existing (or soon to
be completed) property, which is essentially a form of enterprise
activity, and a government-facilitated agreement that allows
the property to generate an elevated level of revenue as a means
of financing an otherwise uneconomical, publicly beneficial
project. As explained, the Occupancy Tax Agreement was
necessary to both bring the hotel into existence and “enabl[e] its
profitable [and beneficial] use” as a hotel. (American Sheds,
supra, 66 Cal.App.4th at p. 392.) That is substantially different
than a standard above-market lease or any of the other types of
intangible business assets that have traditionally been deemed
nontaxable. (See Watson, supra, 98 Cal.App.4th at p. 1075
[distinguishing guaranteed power purchase agreements from
nontaxable intangible “assets [such] as franchise rights,

40
OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

concession rights, cable licenses, liquor licenses, and other
assets attributable to the enterprise value of the business”].)
b. It is immaterial whether the proceeds of the
Occupancy Tax Agreement can be sold to a
third party
Olympic also argues that the Occupancy Tax Agreement
should not be treated as income from the property because the
underlying HDA makes clear that it “can be transferred
independent of the Hotel and does not run with the land.”
According to Olympic, the fact that the Occupancy Tax
Agreement is “transferable” and can “be monetized separately
from the Hotels” demonstrates that payments flowing from that
agreement should not be treated as income from the property
itself. The County disputes Olympic’s interpretation of the hotel
development contracts, asserting that the Occupancy Tax
Agreement payments are contractually required to go to the
owner of the hotel.
In the proceedings below, the Board agreed with the
County’s interpretation, concluding that the contracts
governing the development of the project were most reasonably
construed as creating a requirement that the Occupancy Tax
Agreement “runs with the land.” (Ante, at p. 9.) Although the
trial court affirmed the Board’s finding that the Occupancy Tax
Agreement was assessable, it did not state whether it agreed
with the Board’s interpretation of the governing contracts. The
Court of Appeal, in turn, concluded that “[w]hether the subsidy
runs with the land” was immaterial to its analysis and likewise
declined to address the parties’ conflicting interpretations of the
governing contracts. (Olympic, supra, 90 Cal.App.5th at p. 109.)

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

Like the Court of Appeal, we are not persuaded that the
taxation status of the revenue generated from the Occupancy
Tax Agreement turns on whether the agreement can be
transferred to an entity that does not actually own the property
in question. It is well established that “fair market value . . .
equals the sum total of interests in the property.” (Dennis,
supra, 215 Cal.App.3d at p. 1030.) “ ‘Separate legal interests in
property . . . will not affect the manner of assessment, because
the assessment is against the property itself, and . . . payment
of the tax should be a matter of “private arrangement” among
the owners of various interests in the property.’ ” (290 Division
(EAT), LLC v. City and County of San Francisco (2022)
86 Cal.App.5th 439, 454 (290 Division), quoting De Luz Homes,
supra, 45 Cal.2d at p. 563.)
Applying that reasoning here, the Assessor’s duty in
valuing the hotel under the income method was to calculate the
total earnings that could be derived from the use of the property.
(See, e.g., Dennis, supra, 215 Cal.App.3d at p. 1030 [“the
assessor’s valuation equals the sum total of all parties’ interests
in the property”].) Whether the hotel owner could theoretically
choose to transfer some portion of those earnings to another
entity does not alter the fact that the earnings were generated
from the use of the property itself. To the extent Olympic
chooses to sell the revenue from the Occupancy Tax Agreement
to a third party entity (and assuming the agreement permits it
to do so), the question of which entity would be responsible for
paying the property taxes associated with that revenue would
be a matter of private arrangement. (See De Luz Homes, supra,
45 Cal.2d at p. 563; 290 Division, supra, 86 Cal.App.5th at
p. 454.)

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

c. The tax treatment of other forms of government
incentives is not relevant here
Olympic and its amici curiae also argue that the Assessor
should have removed the revenue generated from the
Occupancy Tax Agreement because “California law prohibits the
assessment of subsidies that incentivize a business enterprise
or construction of uneconomic Property.” In support, Olympic
cites to various authorities that relate to the tax treatment of
subsidies incentivizing low-income housing and wind energy
facilities.
Before addressing those two specific categories of
subsidies, we note that the Board found that the Occupancy Tax
Agreement was not offered solely as an incentive to develop the
project, but also as a means of ensuring that the hotel would
continue to operate in a manner that would benefit the
convention center. (See ante, at p. 9.) As explained, payment of
the Occupancy Tax Agreement was dependent on compliance
with the Room Block Agreement, which required the hotel to set
aside a certain number of rooms for conference attendees. Thus,
while Olympic characterizes the Occupancy Tax Agreement
solely as a financial incentive to construct the hotel, the record
demonstrates that the payments were also provided to ensure
the owner continued to operate the property in a way that was
beneficial to the City.
Second, even accepting Olympic’s characterization of the
Occupancy Tax Agreement as a subsidy, Olympic has made no
showing that California has embraced a categorical rule
prohibiting the assessment of all government incentives that are
offered as an inducement to develop projects that are beneficial
to the public. Indeed, our discussion of Freeport-McMoran,

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

supra,12 Cal.App.4th 634, and Watson, supra, 98 Cal.App.4th
1066, makes clear that courts have not embraced such a
categorical rule. To the contrary, those cases effectively held
that when a project was developed pursuant to incentives that
allow the property itself to generate more income, that revenue
should be included in the relevant income calculation. (See ante,
at pp. 29–31.)
Third, the two discrete types of subsidies Olympic has
identified as being exempt from taxation do not persuade us that
the Occupancy Tax Agreement should likewise be exempt from
taxation. The first of those subsidies, which relates to low-
income housing, is the subject of an express statutory
exemption. Section 402.95 provides that in “valuing property
under the income method of appraisal, the assessor shall
exclude from income the benefit from federal and state low-
income housing tax credits.” The fact that the Legislature has
chosen to exempt one specific form of subsidy does not support
the conclusion that California generally prohibits the
assessment of government subsidies. In fact, this statutory
exemption would seem to undercut Olympic’s position: If such
subsidies are generally nontaxable under California law, there
would have been no need for the Legislature to create a special
law excluding the taxation of one type of incentive.
The other category of incentive Olympic identifies relate
to wind energy projects, which are described in the State Board
of Equalization’s Guidelines for the Assessment of Wind Energy

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

Properties (June 2017) (Wind Energy Guidelines).12 We express
no opinion on the Wind Energy Guidelines’ approach to taxing
production tax credits, which is not a question presented in this
case. We think it clear, however, that those incentives — which
provide an income tax credit that could be altered by future
federal action — share little in common with the Occupancy Tax
Agreement, which guarantees that the hotel will generate 14
percent more in actual revenue each time a customer stays on
the premises during the initial 25 years of the hotel’s operation.
More generally, we emphasize that the terms “subsidy” or
“incentive” may be subject to different definitions, depending on
the context. Merely labeling a particular form of revenue as a
“subsidy” or an “incentive” is not dispositive of whether that
revenue can be properly considered when evaluating the
property’s assessed value.13 Nor does our holding create any

12
Available at https://www.boe.ca.gov/proptaxes/pdf/
lta17020.pdf (as of Aug. 28, 2025.) All Internet citations in this
opinion are archived by year, docket number and case name at
.
13
The dissent argues that the type of “financing credits”
(conc. & dis. opn. of Kruger, J., at p. 8) at issue here cannot be
considered in the valuation of the property. But the cases the
dissent cites in support of that proposition do not address
whether “financing credits” or any other form of financial
incentive may be considered when calculating a property’s
expected net income. Instead, those cases considered whether
favorable interest rates that the government extends to
developers of low-income housing may be considered in
calculating the capitalization rate that is to be applied to the
relevant income stream. (See Bontrager v. Siskiyou Assessment
Appeals Bd. (2002) 97 Cal.App.4th 325, 332 [describing “the

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

categorical rule governing the ad valorum taxation of incentives
that are tied to the development of publicly beneficial projects.
Whether the revenue associated with a particular type of
subsidy or incentive may be properly included in an income
stream analysis must be evaluated based on the individual
characteristics of the incentives at issue.
d. The purpose of the Occupancy Tax Agreement
does not control whether the revenue may be
considered in valuing the hotel
Finally, Olympic contends that the proceeds from the
Occupancy Tax Agreement should not be considered in
assessing the value of the hotel because that agreement was
intended to finance a portion of the construction costs of the
hotel. The dissent raises a similar argument, asserting that
because the parties intended the occupancy tax payments to
operate as a means of offsetting construction costs, those
payments cannot be properly treated as earnings that are
generated from the use of the property. (See conc. & dis. opn. of
Kruger, J., post, at pp. 7–12.)
Much like Olympic’s arguments regarding the tax
treatment of revenue derived from subsidies, we do not believe
that the purpose of the Occupancy Tax Agreement dictates
whether the revenue generated from that agreement may be
considered in assessing the value of the hotel. Nor do we believe

issue at hand” as what “[interest] rate [should] . . . be used to
compute the debt component of the capitalization rate”]; Maples
v. Kern County Assessment Appeals Bd. (2002) 96 Cal.App.4th
1007, 1015 [assessing whether subsidized interest rate or
standard interest rate should be considered when “deriving a
capitalization rate”].)

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

that the property owner’s decisions regarding how that revenue
should be put to use (i.e., to offset construction costs) dictates
whether the revenue may be considered in valuing the property.
Rather, our prior holdings make clear that when valuing
property under the income method, the proper inquiry is
whether the revenue qualifies as “earnings from the [taxable]
property itself or from the beneficial use thereof.” (California
Portland Cement, supra, 67 Cal.2d at p. 584.) We simply
disagree with the dissent’s suggestion that this analysis should
be altered merely because Olympic planned to spend that
additional revenue to pay down construction costs or because
the City wanted to help them pay those costs. Regardless of why
the parties may have entered into the Occupancy Tax
Agreement or how the owner may have intended to use the
revenue derived therefrom, the key point is that the agreement
enables the property to generate 14 percent more on room rental
revenue than it would otherwise be able to in the absence of the
agreement. And that will remain true regardless of who owns
the property or how they run their business. In the end, the
proper inquiry in determining whether a revenue stream should
be included in the valuation of the property is how the revenue
is generated (in this case, each time a customer rents a room)
not, as the dissent suggests, how the property owner intends to
use that revenue. (See conc. and & dis. opn. of Kruger, J., post,
at pp. 7–10.)
The dissent also argues that the occupancy tax payments
should not be considered in assessing the value of the property
because the parties could have chosen a different mechanism to
finance the construction costs that would not enable the hotel to
generate more revenue. (See conc. & dis. opn. of Kruger, J., post,

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

at pp. 11–12.) The dissent explains, for example, that rather
than assigning the hotel owner the proceeds of the occupancy
tax, the City could “have given the developer a lump-sum grant”
(id. at p. 11) or “could have contracted for a bank loan for $62
million (the then-present value of future tax payments)” (ibid.)
and then assigned the proceeds of that loan to the developer.
But it matters that the City did not provide a lump-sum
payment or assign the proceeds of a bank loan. Instead, it
agreed to a mechanism that generated more revenue for the
hotel every time a room was rented. In our view, there is
nothing remarkable in concluding that the manner in which a
funding agreement or financial incentive is structured could
have different tax consequences. Nor is there anything
particularly surprising in concluding that it is the nature and
structure of the payments that matters for purposes of
determining whether they can be considered in valuing the
property, not how the owner intends to use those payments. In
Freeport-McMoran, supra, 12 Cal.App.4th 634, and Watson,
supra, 98 Cal.App.4th 1066, for example, the government chose
to incentivize the development of cogeneration power production
facilities by “approv[ing] favorable [power purchase] contracts”
(Watson, at p. 1076) that enabled those facilities to receive a
guaranteed level of income. Presumably, the government could
have chosen a different mechanism to encourage the
development of such facilities, including “a lump-sum grant”
(conc. & dis. opn. of Kruger, J., post, at p. 11) toward
construction costs. But the courts in those cases nonetheless
concluded that the revenue derived from the financial
mechanism that the government did choose to adopt —
favorable power purchase agreements — was properly included

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

in the income stream analysis because those agreements
“guarantee[d]” that the property would generate “a higher
income.” (Watson, at p. 1072.)
The same is true here. Whether these highly sophisticated
parties could have structured their deal differently does not
alter the fact that the agreement they did make enabled the
property to be “ ‘put to beneficial use’ ” as a hotel by allowing the
owner to generate additional revenue each time a customer
rented a room. (Watson, supra, 98 Cal.App.4th at p. 1073).14
D. The Assessor’s Treatment of the Key Money
Payment
The second category of revenue at issue in this case is a
$36 million key money payment that Marriott made to Olympic
pursuant to the terms of the parties’ hotel management
agreement. Olympic does not dispute that Marriott paid the key
money to secure the right to manage the hotel for a period of 50
years. As compensation for those management duties, Olympic
pays Marriott approximately three percent of revenues along
with other incentive-based management fees.
1. The key money payment constitutes earnings from
the use of property
Unlike the Occupancy Tax Agreement, the Court of
Appeal majority’s analysis of the key money payment was not
directly tied to Elk Hills. Instead, the majority reasoned that it
was improper for the County to treat this payment as “income
to the hotel” because the money was in fact provided to Olympic
as a “discount on income to the managers from the hotel.”

14
We express no view on how other financing mechanisms
might be treated under property tax law.

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

(Olympic, supra, 90 Cal.App.5th at p. 111.) Stated differently,
the majority viewed the key money as a reduction of the total
management fees that Olympic would have to pay to Marriott.
The dissent below disagreed with that characterization,
explaining that the key money paid by Marriott to Olympic was
closer in nature to a commercial lease between a landlord and
tenant: The money was offered to secure tangible rights in the
property that the management company then used “to conduct
commercial activities that generate income of their own.”
(Olympic, supra, 90 Cal.App.5th at p. 118 (dis. opn. of Grimes,
J.).)
We agree with the reasoning of the dissent below. As
explained above, under the income method, an assessor is to
consider “ ‘earnings from the [taxable] property itself or from the
beneficial use thereof.’ ” (Portland Cement, supra, 67 Cal.2d at
p. 584; accord, Elk Hills, supra, 57 Cal.4th at p. 619.) Here, the
Board expressly found that Marriott paid the key money “to
acquire the right to manage the hotel, collect an income stream
from the hotel, and to fly their flag in a prominent and high-
profile location.” Thus, much like a commercial tenant pays rent
to a landlord to make beneficial use of the property, so too here
Marriott paid the key money to secure the ability to use
Olympic’s property to generate its own income stream (in the
form of management fees) and brand the property with its
corporate logo.15

15
As explained more fully in Justice Grimes’s dissent below:
“In a typical commercial real estate lease, a property owner
generates income from its property by granting property rights

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Opinion of the Court by Groban, J.

The Assessor also presented undisputed evidence that: (1)
management companies offer key money to hotels that have
certain desirable physical attributes, such as their location
within “coveted markets,” their overall size and scope or their
perceived “quality” as a hotel; (2) key money is an expected
source of revenue for owners of hotels that have these types of
desirable attributes; and (3) were Olympic’s hotel not currently
encumbered with a management agreement providing key
money, the owner would be able to enter into another agreement
offering key money of like value.16 Because the evidence showed
that the $36 million key money payment was a market rate form
of revenue that the owner of a desirable hotel would expect to
receive in exchange for enabling a management company to put
the property to beneficial use, the Assessor properly included
that revenue in its income stream analysis. (See, e.g., California
Portland Cement, supra, 67 Cal.2d at p. 584 [when the “income
method is employed . . . . it is the earnings from the property

to a business in exchange for payments. The business then uses
the property rights, in combination with its efforts, to conduct
commercial activities that generate income of their own. An
equivalent arrangement was established here under the
management agreement. [¶] Olympic owns the hotel as an
income-generating investment. [Marriott is] in the business of
managing hotels. To carry out this business, [it] . . . paid $36
million to Olympic in exchange for the right to enter and control
the hotel and assume it as its place of business to the exclusion
of other hoteliers.” (Olympic, supra, 90 Cal.App.5th at pp. 119–
120 (dis. opn. of Grimes, J.).)
16
Olympic has not challenged the Board’s findings that the
amount Marriott paid in key money ($36 million) reflected the
fair market value of what a management company would be
expected to pay to secure the right to occupy and manage the
type of property at issue in this case.

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OLYMPIC AND GEORGIA PARTNERS, LLC
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itself or from the beneficial use thereof which are to be
considered”]; SHC Half Moon Bay, supra, 226 Cal.App.4th at
p. 486 [the income method assumes a buyer would pay “ ‘ “an
amount approximately equal to the present value of the future
income to be derived from the property” ’ ”].)
The dissent sees things differently, arguing that the key
money cannot be viewed as income generated from the property
because the “relationship between the hotel owner and the hotel
managers pertains to the prototypical enterprise activities
occurring at the hotel.” (Conc. & dis. opn. of Kruger, J., post, at
p. 15.) The dissent explains that the owner hires the manager
to “run the business,” which includes tasks such as “marketing
the hotel”; “finding and retaining qualified staff”; and “running
nonproperty businesses on the hotel’s premises.” (Ibid.) Given
the nature of this business relationship, the dissent does not
believe that the key money can be properly characterized as
having been paid by Marriott in exchange for the right to put
the property to beneficial use because “[i]t is . . . ultimately
Olympic, not Marriott, that puts the property to use.” (Id. at
p. 16.)
We agree with the dissent that many aspects of the owner-
manager relationship are entrepreneurial in nature, as are
many of the tasks that the manager is hired to perform. We also
agree that the value a hotel owner might derive from the
manager’s competent performance of the entrepreneurial tasks
the dissent has identified — such as “marketing the hotel,”
“finding and retaining qualified staff” and “running non-
property businesses” (conc. & dis. opn. of Kruger, J., post, at
p. 15) — cannot be included in the income stream analysis
insofar as those activities relate to the “business relationship

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

between hotel owner and hotel managers” (ibid.). But unlike
the dissent, we view the key money payment as a stream of
revenue that is distinct from any value the hotel derives from
those entrepreneurial activities. Rather, as the Board explained
in its factual findings, management companies pay owners of
desirable hotels key money in order to secure the right to “collect
an income stream from the hotel” (in the form of management
fees) and place its corporate flag on “a prominent and high
profile” property. Because Marriott paid Olympic the key money
so that it could conduct its own commercial activities on the
property, the assessor was permitted to consider that payment
when valuing the hotel.
Stated differently, we view Olympic as deriving two
distinct forms of value from the relationship embodied in the
management agreement: revenue that Marriott paid to secure
the right to brand the hotel and conduct its commercial
management activities on the property (which may be
considered when assessing the value of the property) and
revenue derived from Marriott’s competent management of the
property (which may not be considered when assessing the value
of the property). Whatever value Olympic’s business might
derive from Marriott’s ability to increase profits through its
management skills is distinct from the key money, which is a
routine form of payment that owners of hotels with certain
desirable physical characteristics (location, size or overall

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

quality) expect to receive from whichever entity it might choose
to manage the property.17
The dissent ultimately reasons that Marriott cannot be
said to have paid the key money to put the property to use
because Marriott was merely hired to put the property to use on
behalf of Olympic. (See conc. & dis. opn. of Kruger, J., post, at
p. 16.) That view, however, fails to account for the fact that both
entities put the property to beneficial use in their own way:
Olympic, using Marriott as its manager, obtains whatever
revenue is generated from the hotel above its operating costs.
But Olympic also received a substantial key money payment
from Marriott that secured Marriott’s right (to the exclusion of
all other management companies) to collect its own income
stream for the commercial activities it performs on the property
and brand the hotel with its corporate logo. And the evidence
before the Board established that key money is tied directly to
the desirable physical attributes of a hotel. Properties lacking
such characteristics receive no such payment. Because Marriott
paid Olympic the key money to obtain certain rights in the hotel
because of its desirable physical characteristics, the assessor
was permitted to consider that payment when valuing the
property. (See Elk Hills Power, supra, 57 Cal.4th at p. 619

17
The management agreement makes clear that while the
management fee and key money payment provisions were
housed in the same written instrument, they were distinct
obligations made in exchange for separate consideration. The
management agreement, for example, states that Marriott
agreed to pay the key money in exchange for Olympic agreeing
to “enter[] into th[e] Agreement,” whereas Olympic was required
to pay management fees to Marriott in exchange for Marriott’s
management services.

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Opinion of the Court by Groban, J.

[when applying the income method, the assessor considers
“ ‘ “the earnings from the [taxable] property itself or from the
beneficial use thereof” ’ ”].)18
2. Olympic’s counterarguments
Olympic raises several counterarguments as to why, in its
view, the key money payment should have been excluded from
the Assessor’s income stream analysis. First, echoing the
arguments raised in the dissent of Justice Kruger, it contends
that prior case law has-established that “management
agreements are non-taxable intangible assets.” The cases
Olympic cites, however, merely stand for the proposition that

18
The dissent rejects the view that generating an income
stream by providing management services can be accurately
characterized as a form of commercial activity performed on the
property. It likewise rejects the view that putting a corporate
logo on a commercial building qualifies as a form of putting the
property to beneficial use. Indeed, the dissent finds those
conclusions “inexplicabl[e]” (conc. & dis. opn. of Kruger, J., at
p. 15, fn. 6), reasoning that the key money was actually an
“offset[]” against future management fees (id. at p. 16). This
view does not acknowledge the Assessor’s testimony that key
money is paid only to those hotel owners whose properties have
desirable physical characteristics that will make them
particularly lucrative to manage. Thus, despite the dissent’s
own view that key money merely serves as an offset against
future management fees, the evidence before the Board
demonstrated that key money is paid to obtain the right to
perform certain activities on a hotel property that has
particularly desirable physical characteristics; hotels lacking
such features cannot expect any similar payment. It is a
payment that goes only to those who own an especially valuable
hotel property. We therefore find nothing “inexplicabl[e]” (id. at
p. 15, fn. 6) in concluding that such payments are properly
treated as earnings derived from the property itself.

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Opinion of the Court by Groban, J.

any increase in enterprise value that a business may enjoy as
the result of a beneficial management agreement should be
excluded from taxation. (See, e.g., GTE Sprint, supra,
26 Cal.App.4th at p. 1006; County of Orange v. Orange County
Assessment Appeals Bd. (1993) 13 Cal.App.4th 524, 533–534.)
Under these authorities, a hotel owner would be entitled to a
deduction if it presented evidence establishing that its
relationship with the management company increased the value
of its business operations by, for example, driving more business
to the hotel or otherwise making the hotel more profitable than
would occur in the absence of the management company’s
efforts.
As explained above, we agree (as does the County) that
any increase in the going concern value of the hotel’s business
resulting from a beneficial management agreement may not be
considered in valuing the property. (See ante, at pp. 52–54.)
But the cases Olympic cites regarding the taxation of
management agreements do not address the question at issue
here: Whether key money that a management company pays to
the property owner to secure the right to generate its own
income stream from the hotel must also be excluded from the
valuation. For the reasons set forth above, we conclude that the
answer to that question is no. Unlike the value a hotel owner
derives from a management company’s entrepreneurial
activities, key money is properly included in the valuation of the
hotel because it is paid by the management company to secure
the right to make beneficial use of the property. (See ante, at
pp. 49–55.)
Second, in a related argument, Olympic contends that
while the management agreement provided Marriott the right

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

to manage the property, the agreement did not create “ ‘a
taxable possessory interest’ in the property being managed.” In
support, it cites cases establishing that the right to manage a
property is a form of “intangible asset exempt from property
taxation” (Shubat v. Sutter County Assessment Appeals Bd.
(1993) 13 Cal.App.4th 794, 802), not a taxable interest in
property. Contrary to the situation here, however, those cases
address the taxation of a management company’s contractual
right to manage the property, concluding that the mere right to
manage a property does not create a property interest assessable
to the management company. (See generally Pacific Grove-
Asilomar Operating Corp. v. County of Monterey (1974)
43 Cal.App.3d 675.) Again, those cases have no relevance to the
question here, which is whether a payment that a hotel owner
receives from a management company to conduct commercial
activities on the property and advertise the hotel under the
management company’s brand can be considered in assessing
the property owner’s tax liability.
More generally, we reject Olympic’s suggestion that the
only form of revenue that may be considered when assessing the
value of a hotel is payments that derive from persons or entities
who have an actual possessory interest in the property, such as
a formal lease. Hotel guests, for example, do not enter into a
landlord-tenant relationship with the hotel or otherwise obtain
a formal legal interest in the property, but the money they pay
to use the hotel unquestionably constitutes a form of property-
generated income. So too, regardless of whether they obtain a
true possessory interest in the property, management
companies pay hotel owners key money “to conduct commercial
activities [on the property] that generate income of their own.”

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Opinion of the Court by Groban, J.

(Olympic, supra, 90 Cal.App.5th at p. 118 (dis. opn. of Grimes,
J.); see Elk Hills, supra, 57 Cal.4th at p. 619 [“ ‘ “earnings from
the . . . property itself or from the beneficial use thereof . . . are
to be considered [in assessing the value of the property]” ’ ”].)
Third, adopting the reasoning of the Court of Appeal
majority, Olympic argues that under well-established case law,
a “discount reduces the fair market value of property . . . so it is
not subject to property taxation. . . . Thus, . . . the discount on
the intangible Management Agreement is excluded from
assessment.” Much like Olympic’s argument regarding the
occupancy tax payments, we do not view its labeling of a certain
type of revenue as a “discount” to be dispositive of whether that
revenue may be considered in assessing the value of the hotel.
The management agreement makes clear that the $36 million
Marriott paid to Olympic was paid separate and apart from the
management fees that Olympic agreed to pay Marriott. (See
ante, at p. 54, fn. 17.) As Olympic itself acknowledges, Marriott
paid the key money “ ‘[t]o secure [a] trophy [management]
agreement[].’ ” The Assessor, in turn, presented undisputed
evidence that key money is a routine, market rate form of
payment that an owner of a hotel with certain desirable physical
qualities would expect to receive in exchange for assigning the
right to manage the property, which is itself an incident of
ownership of the property. In other words, much like the
physical features of a residential home can increase the value of
the property, owners of hotels with certain desirable physical
features can likewise expect to receive additional revenue in the
form of key money, which is paid to manage the property and
brand it under the management company’s corporate flag for a
specified period of time. Because the key money is a routine

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

form of payment offered in exchange for “ ‘ “the beneficial use” ‘ ”
of the property itself, the Assessor was permitted to consider it
when valuing the property under the income method of
appraisal. (Elk Hills, supra, 57 Cal.4th at p. 619.)
Finally, Olympic argues that because the key money was
a one-time payment that Marriott paid to Olympic to secure a
50-year right to manage the property, “a prospective buyer
would never increase the Hotel’s purchase price to reflect a long-
gone payment of Key Money that future operations will never
produce.” According to Olympic, it would be improper to assess
a one-time key money payment that Marriott has already made
to Olympic because the income method is intended to
“ ‘estimate[] the future income stream a prospective purchaser
could expect to receive from the enterprise.’ ” (Quoting Elk
Hills, supra, 57 Cal.4th at p. 604, italics added.) Olympic also
notes that the terms of the management agreement require it to
refund the key money in the event the agreement is prematurely
terminated. Olympic contends that “[t]he penalty not only
eliminates any incentive to terminate the [m]anagement
[a]greement, but entirely offsets the hypothetical key money a
new owner would purportedly receive from a new manager.”
The problem with that argument, however, is that when
valuing property, the assessor’s role is generally to estimate the
income of the property based on fair market value regardless of
the specific terms of any private agreements that may currently
encumber the property. (See 290 Division, supra,
86 Cal.App.5th at p. 455 [“where private parties restrict a
property’s use, such as by encumbering property with a lease at
below-market rent, such privately imposed restrictions are not
considered in determining the property’s value for taxation

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OLYMPIC AND GEORGIA PARTNERS, LLC
v. COUNTY OF LOS ANGELES
Opinion of the Court by Groban, J.

purposes”]; Carlson, supra, 167 Cal.App.3d at p. 1013 [appraisal
board “should not have considered . . . privately imposed
restrictions [on the property]. . . . Ownership of title in fee
simple absolute includes the rights . . . of full use and
disposition of the property”].) The Assessor testified that the
owner of a hotel like the one at issue in this case would expect
to receive a key money payment in an amount equivalent to
what Marriott paid to Olympic. The Assessor further testified
that if the property were not already encumbered with this
management agreement, the hotel owner would expect to obtain
a similar payment from another operator. The Board credited
that testimony in its findings, explaining that “[i]f this property
was not encumbered by the [m]anagement [agreement], the
Hotel owner would have the ability to enter into another
[m]anagement [agreement] and receive a similar payment.”
Olympic, in turn, acknowledges that the $36 million key money
payment represents the fair market rate that an owner of this
type of hotel would expect to receive in exchange for the right to
occupy and manage the property. (See Elk Hills, supra,
57 Cal.4th at p. 606 [“the California Constitution requires
generally the assessment of property at ‘fair market value’ ”].)
Whatever restrictions Olympic may have entered into with
Marriott regarding that market rate payment — including any
repayment obligations or penalties in the event that the
management relationship is terminated early — are not
material to determining the hotel’s unencumbered fair market
value.
E. Valuation of Enterprise Assets
The third issue presented in this appeal is whether the
lower courts erred in finding that the County failed to

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

adequately address evidence that Olympic presented regarding
the valuation of three intangible enterprise assets: (1) flag and
franchise benefits that the hotel enjoyed as a result of its
management relationship with Marriott entities (i.e., customer
goodwill associated with Marriott brands and their worldwide
marketing efforts, valued by Olympic at $17 million); (2) the
enterprise value of the hotel’s food and beverage operations
(valued by Olympic at $13 million); and (3) the workforce in
place value (i.e., an assembled, stable workforce valued by
Olympic at $4 million).
The County does not dispute that “those assets are
intangible and that their value to Olympic must be removed
from [the] assessment.” However, relying on a model of hotel
valuation known as the “Rushmore Method,” the County argues
that it did fully account for each of the enterprise assets by
deducting the management fee paid to Marriott. (See SHR St.
Francis, supra, 94 Cal.App.5th at p. 636, fn. 7 [“The Rushmore
Method . . . ‘holds that the deduction of management fees and
franchise fees accounts for any and all intangible assets
contributing to a hotel’s going-concern income’ ” (italics
omitted)].) Stated more succinctly, the County asserts that
deducting the management fee paid to Marriott necessarily
“accounts for and removes” all value that Olympic receives from
its management relationship with Marriott. Olympic, however,
contends that its enterprise assets have value over and above
the management fee, and that the County failed to make any
showing that the management fee fully accounts for such assets.
The trial court ruled in Olympic’s favor on this issue. The
court remanded the matter to the Board with directions that it
“determine the value of the Flag and Franchise, Workforce in

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Opinion of the Court by Groban, J.

Place, and Food and Beverage Income and to deduct that value
from the assessed value of the Property.” The Court of Appeal
unanimously affirmed that portion of the judgment, concluding
that the County had failed to provide sufficient “empirical
support” for the “premise that every franchise fee wipes out all
intangible benefits a franchise agreement might offer a hotel
owner.” (Olympic, supra, 90 Cal.App.5th at p. 112.) As in the
trial court, the Court of Appeal’s disposition remanded the
matter “to the Board for valuation and deduction” of the three
enterprise assets. (Ibid.)
While the County’s arguments regarding the enterprise
assets appear to have shifted somewhat throughout the
litigation, we understand its current argument to be that the
amount a hotel pays in management fees is, as a matter of law,
always sufficient to account for the full value of any enterprise
value that a hotel may have derived from its relationship with a
management company.19

19
During the Board proceedings, the County does not appear
to have argued — at least not directly — that the Rushmore
Method is always an appropriate means of accounting for all of
a hotel’s enterprise assets. The Board, in turn, does not appear
to have addressed the propriety of the Rushmore Method.
Instead, the Board’s findings state only that it was “not
persuaded by [Olympic’s] . . . valuation of these intangibles and
[did not] believe[] there [was any] . . . compelling evidence to
isolate [them] from the real estate value.” In the present appeal,
the County has not challenged the credibility of Olympic’s
valuations nor has it challenged the Court of Appeal’s finding
that Olympic did in fact provide “credible values” for each of the
assets in question. (Olympic, supra, 90 Cal.App.5th at p. 111.)
The County instead appears to seek a blanket endorsement of
the Rushmore Method.

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OLYMPIC AND GEORGIA PARTNERS, LLC
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Opinion of the Court by Groban, J.

The parties have not identified any Court of Appeal
decision that has categorically accepted, or categorically
rejected, the Rushmore Method of valuation. Instead, the few
decisions that have addressed similar claims have generally
considered the propriety of the Rushmore Method on a case-by-
case basis. In particular, courts have considered whether the
taxing authority presented evidence demonstrating that the
Rushmore Method adequately accounted for the specific
intangible asset at issue in the case at hand. For example, in
SHC Half Moon Bay, supra, 226 Cal.App.4th 471, the Court of
Appeal concluded that the taxing authority’s evidence, which
included testimony from both the assessor and an expert on
hotel valuation, was sufficient to demonstrate that the
deduction of a hotel management fees had captured the value of
one particular form of enterprise asset, namely, the goodwill the
hotel owner derived from its relationship with the management
company. (Id. at p. 493.) The court further held, however, that
the taxing authorities had failed to introduce any evidence
demonstrating that the deduction of the management fee
adequately accounted for other enterprise assets, such as “the
cost of assembling and training a work force.” (Id. at p. 490.)
In SHR St. Francis, supra, 94 Cal.App.5th 622, the court
held that the City of San Francisco had failed to establish that
deducting the hotel management fees fully accounted for the fair
market value of the management agreement. The court
explained that while San Francisco “could have presented
evidence that the return generated by the management
agreement . . . did not exceed the management fees themselves,”
it had failed to do so. (Id. at p. 636; see id. at p. 637 [assessor
had provided no evidence that it had “independently quantified

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Opinion of the Court by Groban, J.

the value of the management agreement in the amount
attributed to the management fees”].) “Absent [such] evidence,”
the court reasoned, San Francisco’s “otherwise formulaic
deduction of those fees from the hotel’s income stream was
legally erroneous.” (Id. at p. 637.)
We agree with the general approach of these cases, which
is also consistent with guidance set forth in the Assessors’
Handbook. (See Assessors’ Handbook, supra, at p. 162 [“the
deduction of a management fee from the income stream of a
hotel does not recognize or remove the value attributable to the
business enterprise that operates the hotel”].) While we do not
foreclose the possibility that the Rushmore Method may be
appropriate to account for intangible enterprise assets that
relate to services provided under a hotel management
agreement, we agree with our Courts of Appeal that when the
property owner has identified and valued a nontaxable
enterprise asset, the assessor must provide evidence that the
value of that asset does not exceed the management fees.
In this case, the only evidence the County cites in support
of its contention that the deduction of the management fee fully
accounted for the three enterprise assets at issue consists of an
academic article written by Stephon Rushmore (the originator
of the Rushmore Method), titled In Defense of the ‘Rushmore
Approach’ for Valuing the Real Property Component of a Hotel.
We are not persuaded that merely referencing an article
regarding the Rushmore Method is sufficient to prove that, as a
matter of law, the deduction of management fees is always a
sufficient means to “account[] for any and all intangible assets
contributing to a hotel’s going-concern income.” (SHR St.
Francis, supra, 94 Cal.App.5th at p. 636, fn. 7.) Nor is citation

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Opinion of the Court by Groban, J.

to that article sufficient to prove that the management fees
account for the value of the three enterprise assets that Olympic
quantified in the board proceedings.20
The judgment of the trial court and disposition of the
Court of Appeal make clear that on remand the County will have
another opportunity to litigate Olympic’s claims regarding the
value of these enterprise assets. At that time, the County is free
to present additional evidence in support of its claim that the
deduction of the management fees accounted for the full value
of the enterprise assets that Olympic identified during the
initial board hearing.21

20
To provide one example, the Rushmore Method article the
City relies on argues that it is generally inappropriate to make
a deduction for the value of an assembled workforce — which is
one of the intangible assets Olympic sought a deduction for
here — because “[h]otels have extremely high turnover rate and
as a result, [the management company] must constantly recruit
and train new staff.” When testifying before the Board,
however, the Assessor acknowledged that it had not conducted
any investigation as to whether Olympic’s pro

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11129210. Public record. Not legal advice.