When building Capital Expenditure Plans, costs that are often overlooked are those that are not tangible. Getting a firm quote from a vendor is relatively easy on a piece of kitchen equipment or even 300 rooms of guest room furnishings. However, it is important to realize that other costs associated with CapEx items or projects may not be so obvious.
“Late announced surprises” can contribute to severe cost overruns at the close out of the project. As it is said, “That could ruin your whole day”!!!!
a. Sales Tax – These can vary but generally range from 4% to 8.25%. More states are on the upper end of this range than on the lower. Some cities or counties have additional taxes that are imposed due to Enterprise Zones, school improvements, civic improvements, etc.
b. Use Tax – Often it is assumed that purchases from out of state will not incur sales tax. However, it should be known that those states will seek “Use Tax” based on the purchase price of the product. These generally are about the same percentage as sales tax for the geographic location that the product is used or installed.
c. Contractors’ Excise Tax – Certain states require a collection of 2% of Gross Contractor Receipts plus the value of owner furnished materials handled or installed by that G.C. These taxes are imposed on the general contractor and paid by the general contractor; however, the cost will directly affect your CapEx budget through the general contractor’s cost to you. Check the area that you are performing CapEx to identify any such tax.
2. Freight – This category can have a wide swing in variance. Based on early 2012, CapEx budgets should allow 9% to 13% freight on the purchase price of the products, materials or equipment. Issues that would alter these estimates are fuel surcharges, charges for unusual weight or charges for cubic volume. Purchasing groups and logistic companies are very astute in managing freight costs for a hotelier and additionally can enhance the overall effectiveness of a project.
3. Professional Fees – This would include interior design, architectural, engineering, purchasing and other consultants that would be involved in the CapEx project.
4. Other – Installation charges, warehousing (including local delivery to the site), rental equipment, building permits and general contractor overhead and profit.
To assure that all capital expenditure plans are accurate, it is suggested that each project be thoroughly queried of the above questions.
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