STEVEN & DIANE OKENFUSS, ) Appeals No. 03-30074 through 30081

FLOYD & MARY SUE YOUNG, ) Appeals No. 03-30082 through 30087

ANTHONY DIPARDO, ) Appeals No. 03-30088 through 30095

RICHARD SCALETTY, ) Appeals No. 03-30096 through 30103

LARRY & MARCIA WALLACE, ) Appeals No. 03-30104 through 30119

BRUCE & SHARON CHEVALIER, ) Appeals No. 03-30120 through 30127

LARRY & DEBI STUCKER, ) Appeals No. 03-30128 through 30142

)

Complainants, )

)

v. )

)

)

MICHAEL O’FLAHERTY, )

DIRECTOR OF ASSESSMENT, )

JACKSON COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

The highest and best use of the subject properties are for individual ownership. The correct market value of each unit is set out in Findings of Fact, Paragraph 11.

ISSUE

The issue in the above appeal is the true value in money on the subject properties on tax days January 1, 2003, and January 1, 2004. The resolution of this issue requires a determination of the highest and best use of the properties. Complainants argue that the highest and best use is the continued use as rental properties. Respondent argues that the highest and best use is for sale as individual condominium units.

SUMMARY

The properties under appeal are townhouse style condominium units grouped together in fourplexes.

An evidentiary hearing was held on October 21, 2004, in the Jackson County Courthouse, Kansas City, Missouri before Luann Johnson, Hearing Officer. Complainants were represented by David Sperry, Esq. Respondent was represented by Arthur Hogge, Esq. The parties were further represented by state licensed appraisers. All exhibits submitted by the parties are received into evidence.

The various values proposed by the parties are set out in Finding of Fact, Paragraph 3 below.

The Commission finds that the true value of the subject property on the subject tax days is as set out in Finding of Fact, Paragraph 11 below.

FINDINGS OF FACT

1. Jurisdiction over these appeals is proper. Complainants timely appealed from the decisions of the Jackson County Board of Equalization. Complaints for Review of Assessment. At the request of Complainants, the appeals were consolidated for evidentiary purposes. Tr. 16, 17.

2. The subject properties are two and three bedroom, two story townhouse style condominiums with 2 and one-half baths and an attached garage. Some have basements. All units were built in 1994. Respondent’s Exhibit A, all appeals. The condominiums are grouped together in fourplexes. Each condominium represents a separate parcel and a separate appeal.

3. The original assessments, the value determined by the Board of Equalization, and the proposed values of the parties are as follows:

 

Appeal Number	Original Assessment	Board of Equalization	Proposed By Assessor	Proposed By Taxpayer
03-30074	$88,000	$79,200	$88,000	$65,000
03-30075	$85,200	$76,680	$85,200	$60,000
03-30076	$85,200	$76,680	$85,200	$60,000
03-30077	$88,000	$79,200	$88,000	$65,000
03-30078	$88,000	$79,200	$88,000	$65,000
03-30079	$85,200	$76,680	$85,200	$60,000
03-30080	$85,200	$76,680	$85,200	$60,000
03-30081	$88,000	$79,200	$88,000	$65,000
03-30082	$97,300	$87,570	$95,700	$66,875
03-30083	$92,300	$83,070	$92,300	$61,875
03-30084	$92,300	$83,070	$92,300	$61,875
03-30085	$97,300	$87,570	$95,700	$66,875
03-30086	$97,300	$87,570	$96,700	$63,000
03-30087	$92,300	$83,070	$92,300	$63,000
03-30088	$88,000	$79,200	$88,000	$65,000
03-30089	$85,200	$76,680	$85,200	$60,000
03-30090	$85,200	$76,680	$85,200	$60,000
03-30091	$88,000	$79,200	$88,000	$65,000
03-30092	$88,000	$79,200	$88,000	$65,000
03-30093	$85,200	$76,680	$85,200	$60,000
03-30094	$85,200	$76,680	$85,200	$60,000
03-30095	$88,000	$79,200	$88,000	$65,000
03-30096	$97,300	$87,570	$96,700	$66,875
03-30097	$92,300	$83,070	$92,300	$61,875
03-30098	$92,300	$83,070	$92,300	$61,875
03-30099	$97,300	$87,570	$96,700	$66,875
03-30100	$88,000	$79,200	$88,000	$65,000
03-30101	$85,200	$76,680	$85,200	$60,000
03-30102	$85,200	$76,680	$85,200	$60,000
03-30103	$88,000	$79,200	$88,000	$65,000
03-30104	$88,000	$79,200	$88,000	$65,000
03-30105	$85,200	$76,680	$85,200	$60,000
03-30106	$85,200	$76,680	$85,200	$60,000
03-30107	$88,000	$79,200	$88,000	$65,000
03-30108	$88,000	$79,200	$88,000	$65,000
03-30109	$85,200	$76,680	$85,200	$60,000
03-30100	$85,200	$76,680	$85,200	$60,000
03-30111	$88,000	$79,200	$88,000	$65,000
03-30112	$88,000	$79,200	$88,000	$65,000
03-30113	$85,200	$76,680	$85,200	$60,000
03-30114	$85,200	$76,680	$85,200	$60,000
03-30115	$88,000	$79,200	$88,000	$65,000
03-30116	$88,000	$79,200	$88,000	$65,000
03-30117	$85,200	$76,680	$85,200	$60,000
03-30118	$85,200	$76,680	$85,200	$60,000
03-30119	$88,000	$79,200	$88,000	$65,000
03-30120	$88,000	$79,200	$88,000	$65,000
03-30121	$85,200	$76,680	$85,200	$60,000
03-30122	$85,200	$76,680	$85,200	$60,000
03-30123	$88,000	$79,200	$88,000	$65,000
03-30123	$88,000	$79,200	$88,000	$65,000
03-30125	$85,200	$76,680	$85,200	$60,000
03-30126	$85,200	$76,680	$85,200	$60,000
03-30127	$88,000	$79,200	$88,000	$65,000
03-30128	$97,300	$87,570	$96,700	$63,750
03-30129	$106,000	$95,400	$98,700	$67,500
03-30130	$97,300	$87,570	$96,700	$63,750
03-30131	$109,600	$98,460	$101,400	$69,375
03-30132	$92,300	$83,070	$92,300	$61,875
03-30133	$92,300	$83,070	$92,300	$61,875
03-30134	$97,300	$87,570	$95,700	$66,875
03-30135	$88,000	$79,200	$88,000	$65,000
03-30136	$85,200	$76,680	$85,200	$60,000
03-30137	$85,200	$76,680	$85,200	$60,000
03-30138	$88,000	$79,200	$88,000	$65,000
03-30139	$88,000	$79,200	$88,000	$65,000
03-30140	$85,200	$76,680	$85,200	$60,000
03-30141	$85,200	$76,680	$85,200	$60,000
03-30142	$88,000	$79,200	$88,000	$65,000

 

In some instances, the value finally determined by the assessor’s office was larger than the value initially determined by that office. However, the assessor’s office did not advocate a higher value.

4. The subject properties are located in the Blue Springs, Missouri school district; minutes away from main highways and interstates and ten to fifteen minutes away from one of the largest shopping districts in Jackson County, Missouri. Employment opportunities in the area are good. Recreational areas are nearby. Marketing time for similar townhouse style condominiums in the area is less than 3 months. Property values are increasing. Respondent’s Exhibit A, all appeals.

5. All properties are in good condition. Respondent’s Exhibit A, all appeals. The properties have experienced some problems with their siding, but most of those problems occurred after the tax day. Tr. 40. Complainants’ appraiser did not adjust for siding conditions because the properties that were being appraised “would have been in as good of condition as they could possibly be.” Tr. 98. However, Respondent’s appraiser allowed a $4,000 adjustment, per unit, for siding problems in her sales approach even though the problems may not have been evident on the tax day. Tr. 105.

6. Because only a few individuals own the majority of the units in this subdivision, sales are rare. However, when units sell, they sell for substantially more than Complainants’ assertion of value. An interior unit with walkout basement sold for $101,000 in October of 2002; an end unit with a walkout basement sold in October 2001 for $106,000; and, in September of 2000 and interior unit on a slab sold for $84,000. Tr. 101. Sales of similar properties in a subdivision one and one-quarter miles away from the subject subdivision show similar high values for individual units. Tr. 100.

7. There is a “glut” of rental units in the area and, with lower interest rates, more individuals are turning to purchasing homes rather than renting. Tr. 88, 91.

8. The use of the property that will produce the greatest return in the reasonably near future, also called the highest and best use, is for sale as individual units.

9. Complainants’ appraisal reports are not reliable indicators of value for the subject properties because said appraisal reports are not based upon the highest and best use and fail to consider actual market value of the condominiums.

10. Respondent’s appraisal reports are reliable indicators of value for the subject properties because they consider the appropriate highest and best use and use market sales based upon said highest and best use.

11. The correct value for parcels under appeal are as follows:

 

Appeal Number	Market Value	Assessed Value
03-30074	$88,000	$16,720
03-30075	$85,200	$16,190
03-30076	$85,200	$16,190
03-30077	$88,000	$16,720
03-30078	$88,000	$16,720
03-30079	$85,200	$16,190
03-30080	$85,200	$16,190
03-30081	$88,000	$16,720
03-30082	$95,700	$18,180
03-30083	$92,300	$17,540
03-30084	$92,300	$17,540
03-30085	$95,700	$18,180
03-30086	$96,700	$18,380
03-30087	$92,300	$17,540
03-30088	$88,000	$16,720
03-30089	$85,200	$16,190
03-30090	$85,200	$16,190
03-30091	$88,000	$16,720
03-30092	$88,000	$16,720
03-30093	$85,200	$16,190
03-30094	$85,200	$16,190
03-30095	$88,000	$16,720
03-30096	$96,700	$18,380
03-30097	$92,300	$17,540
03-30098	$92,300	$17,540
03-30099	$96,700	$18,380
03-30100	$88,000	$16,720
03-30101	$85,200	$16,190
03-30102	$85,200	$16,190
03-30103	$88,000	$16,720
03-30104	$88,000	$16,720
03-30105	$85,200	$16,190
03-30106	$85,200	$16,190
03-30107	$88,000	$16,720
03-30108	$88,000	$16,720
03-30109	$85,200	$16,190
03-30100	$85,200	$16,190
03-30111	$88,000	$16,720
03-30112	$88,000	$16,720
03-30113	$85,200	$16,190
03-30114	$85,200	$16,190
03-30115	$88,000	$16,720
03-30116	$88,000	$16,720
03-30117	$85,200	$16,190
03-30118	$85,200	$16,190
03-30119	$88,000	$16.720
03-30120	$88,000	$16,720
03-30121	$85,200	$16,190
03-30122	$85,200	$16,190
03-30123	$88,000	$16,720
03-30123	$88,000	$16,720
03-30125	$85,200	$16,190
03-30126	$85,200	$16,190
03-30127	$88,000	$16,720
03-30128	$96,700	$18,380
03-30129	$98,700	$18,750
03-30130	$96,700	$18,380
03-30131	$101,400	$19,270
03-30132	$92,300	$17,540
03-30133	$92,300	$17,540
03-30134	$95,700	$18,180
03-30135	$88,000	$16,720
03-30136	$85,200	$16,190
03-30137	$85,200	$16,190
03-30138	$88,000	$16,720
03-30139	$88,000	$16,720
03-30140	$85,200	$16,190
03-30141	$85,200	$16,190
03-30142	$88,000	$16,720

 

12. No evidence was presented which would indicated that any new construction or property improvements occurred during tax year 2003 which would warrant a change in value for tax year 2004.

CONCLUSIONS OF LAW

Burden of Proof

In order to prevail Complainants must demonstrate, by substantial and persuasive evidence, that the market value of their properties, on January 1, 2003, were as proposed in Finding of Fact, Paragraph 3.

Substantial evidence is that evidence which, if true, has probative force upon the issues, i.e., evidence favoring facts which are such that reasonable men may differ as to whether it established them, and from which the Commission can reasonably decide an appeal on the factual issues. Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

Highest and Best Use

A property’s true value in money is a function of the property’s highest and best use, which has been defined as “the use of the property that will produce the greatest return in the reasonably near future.” Aspenhof Corporation v. State Tax Commission, 789 S.W. 2d 867, 869. (Mo. App. 1990). Highest and best use has also been defined as “the use which will most likely produce the highest market value, greatest financial return, or the most profit from the use of a particular piece of real estate.” Brain Trust, Inc. v. City of Raytown, 523 S.W.2d 156, 159. (Mo. App. 1975).

True Value in Money

Section 137.115, RSMo requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and purchased by one who is desiring to purchase but who is not compelled to do so. St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children’s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). It is the fair market value of the subject property on the valuation date. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).

DISCUSSION

Highest and Best Use

Complainants have failed to meet their burden of proof inasmuch as they have failed to demonstrate that the highest and best use of the subject properties would be their continued use as rental units. Having failed to meet this test, they have also failed to present reliable evidence of market value.

Complainants’ appraiser asserted “I feel the property owner is the best determination [of] use.” Tr. 87; highest and best use is “what the property owner desires” Tr. 92; and “Ownership determines highest and best use.” Tr. 94. None of these statements are accurate. The use an owner makes of his property may, or may not, be the highest and best use of the property. Missouri defines market value as value in exchange, not value in use.

Highest and best use is the use which will most likely produce the highest market value, greatest financial return, or the most profit from the use of a particular piece of real estate. Brain Trust, supra.

The evidence in these appeals is that (1) there is a glut of rental units in the area; (2) falling interest rates have resulted in more individuals purchasing homes and has reduced the pool of possible tenants for the subject properties; (3) these condominiums are capable of individual sale and there is a ready market for condominiums; and (4) the subject properties have a substantially higher value for sale as owner occupied units than for rent. Given all these facts, it is clear that the use which will most likely produce the highest market value (value in exchange) is for sale as owner-occupied units.

Market Value

Because Complainants’ appraiser misunderstood the concept of highest and best use, he presented evidence of value based upon continued use as rental properties without any recognition of potential uses which were more economically feasible. Thus, Mr. Cardwell prepared an income approach and a sales comparison approach which substantially understated the actual value of the units. Although Mr. Cardwell assigned a value to each unit, he arrived at his per unit value solely by determining what he thought the fourplex would sell for for continued use as a rental property using sales of fourplex properties which were twice as old as the subject units. Mr. Cardwell made no attempt to ascertain the selling prices of individual condominium units in spite of the fact that individual units were selling within this particular subdivision and nearby subdivisions.

Likewise, Complainants’ presentation of unadjusted sales prices for fourplexes in less desirable locations; different school districts; without lots; and not platted for condominium use, were not reliable indicators of value for the subject properties.

And, the fact that the county had, in all years previous to the subject tax year, valued the subject units as fourplexes and assigned values of $55,000 per unit to the parcels is not indicative of the market value of the subject parcels. The county is never bound by past practices; this is especially true when those past practices do not result in market value. The evidence suggests that the county became aware that it had a problem with undervaluation of condominium units and that the substantial increases in market value in tax year 2003 were due to an effort by the county to correct underassessments.

Finally, Complainants’ argument that the Board of Equalization had reduced the assessed value on similar properties owned by Complainants is not helpful or relevant to a determination of the market value of the subject properties. Even if the Board had acted in an inconsistent manner, which fact has not been proven, it would not have changed the market value of the subject units.

The only reliable evidence of market value for these condominium units were sales of other condominium units. Respondent’s appraiser presented evidence demonstrating that individual condominiums in the same subdivision and a nearby subdivision had been selling for $84,000 to $106,000. Furthermore, the fact that marketing time for said units were only three months and the fact that a subdivision less than two miles away is wholly owner-occupied, indicates that there is a high demand for condominium units.

Respondent’s appraiser appropriately calculated market value based on these sales and made adjustments for market reaction to areas of significant variation, including an adjustment for the condition of the siding on the subject units.

The mostly likely price the individual parcels would bring if placed on the market are as proposed by Respondent.

DISCUSSION

The fundamental flaw in Complainants’ case is the belief that use controls value. The fallacy is obvious. Such a practice would allow the subject units to be valued at $60,000 to $65,000 because they were being used as rental property while requiring that exactly the same properties in the same subdivision be valued as high as $106,000 solely because they were owner-occupied. Such a practice violates the Uniformity Clause of our Constitution and demonstrates why value in exchange, rather than value in use, must be the criteria for establishing market value.

ORDER

The assessed values as determined by the Board of Equalization, are SET ASIDE. The Clerk is hereby ordered to place new assessed values on the parcels as set out in Findings of Fact, Paragraph 11.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Jackson as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED December 16, 2004.

STATE TAX COMMISSION OF MISSOURI

Luann Johnson

Hearing Officer

ORDER

AFFIRMING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

On December 16, 2004, Hearing Officer Luann Johnson entered her Decision and Order (Decision) setting aside the assessments by the Jackson County Board of Equalization and setting true value in money at the values originally set by the Respondent.

Complainants timely filed Application (Motion) for Review of the Decision. Respondent timely filed his Response and Suggestions in Support Thereof.

CONCLUSIONS OF LAW

Standard Upon Review

The Hearing Officer is not bound by any single formula, rule or method in determining true value in money, but is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled. The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide. St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968).

The Hearing Officer as the trier of fact may consider the testimony of an expert witness and give it as much weight and credit as she may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer is not bound by the opinions of experts who testify on the issue of reasonable value, but may believe all or none of the expert’s testimony and accept it in part or reject it in part. St. Louis County v. Boatmen’s Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992); Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981).

The Commission will not lightly interfere with the Hearing Officer’s Decision and substitute its judgment on the credibility of witnesses and weight to be given the evidence for that of the Hearing Officer as the trier of fact. Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Lowe v. Lombardi, 957 S.W.2d 808 (Mo. App. W.D. 1997); Forms World, Inc. v. Labor and Industrial Relations Com’n, 935 S.W.2d 680 (Mo. App. W.D. 1996); Evangelical Retirement Homes v. STC, 669 S.W.2d 548 (Mo. 1984); Pulitzer Pub. Co. v. Labor and Indus. Relations Commission, 596 S.W.2d 413 (Mo. 1980); St. Louis County v. STC, 562 S.W.2d 334 (Mo. 1978); St. Louis County v. STC, 406 S.W.2d 644 (Mo. 1966).

DECISION

Complainants raise essentially two grounds in their appeal. The first ground for appeal is that the Hearing Officer erred in her analysis and Finding of Fact that the highest and best use for the subject properties would be for sale as individual owner occupied units, as opposed to rental units. Finding of Fact 8, Decision, p. 6. The second ground asserted is that the Hearing Officer erred in her analysis and Finding of Fact which rejected the income approach to determine value and relied upon the sales comparison approach. Finding of Fact 9 & 10, Decision, p. 6. The Hearing Officer addressed in detail the importance and application of the concept of highest and best use. Decision, pp. 10-11. The Hearing Officer likewise discussed the basis for her dismissal of the Complainants’ income analysis and her acceptance of Respondent’s sales analysis. Decision, pp. 11-13.

A review of the record in the present appeal provides support for the determinations made by the Hearing Officer. There is competent and substantial evidence to establish a sufficient foundation for the Decision of the Hearing Officer. A reasonable mind could have conscientiously reached the same result based on a review of the entire record. The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused her discretion as the trier of fact and concluder of law in this appeal. Hermel, Inc. v. STC, 564 S.W.2d 888 (Mo. 1978); Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Holt v. Clarke, 965 S.W.2d 241 (Mo. App. W.D. 1998); Smith v. Morton, 890 S.W.2d 403 (Mo. App. E.D. 1995). Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980). The Hearing Officer was persuaded that the Respondent’s opinions of value were supported by substantial and persuasive evidence. She did not find Complainants’ evidence to meet that necessary standard.

The Hearing Officer did not err in her determinations as challenged by Complainants.

ORDER

The Commission upon review of the record and Decision in these appeals, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified. Accordingly, the Decision is affirmed.

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.

SO ORDERED April 14, 2005.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Sam D. Leake, Commissioner

Jennifer Tidwell, Commissioner

 

MIDCOAST AVIATION, INC. )

)

Complainant, )

)

v. ) Appeal Number 03-10233

)

)

PHILIP MUEHLHEAUSLER, ASSESSOR, )

ST. LOUIS COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

The evidence in the record persuasively establishes that the value of the leased fee is higher than the market-indicated value for the fee simple interest in the property. Under the terms of the lease, the lessee is paying rent that is higher than the market rent. Accordingly there is no bonus value to the leasehold interest. As of January 1, 2003, Complainant’s leasehold interest in the subject property had a $0 value for property tax purposes.

ISSUE

The ultimate issue in this appeal is: Does the rental obligation under the lease provide a savings to the lessee when compared to market level rents for comparable properties?

SUMMARY

Complainant appeals the assessment of its leasehold interest in a 20 acre parcel improved with a two-story terminal/office building and four (4) aircraft hangars located at Lambert-St. Louis International Airport. The property is leased to Complainant by the City of St. Louis. Complainant maintains that there is no bonus value to the lease, therefore there is no value subject to taxation. Respondent valued the leasehold improvements at a market value of $3,569,200 for a corresponding commercial assessment of $1,142,140. The St. Louis County Board of Equalization reviewed and affirmed this assessment.

The evidentiary hearing in the above-styled appeal was held on Tuesday, July 27, 2004 before State Tax Commission Hearing Officer, Aimee L. Smashey, at the St. Louis County Collector’s Office Conference Room, in Clayton, Missouri. Complainant was represented by Mr. Charles Misko and Ms. Gretchen Garrison, Attorneys at Law. Respondent was represented by Ms. Paula Lemerman, Associate County Counselor.

EVIDENCE

Complainant’s Evidence

Complainant submitted the following exhibits in support of its positions:

Exhibit A	Market Rent Analysis and Appraisal of Midcoast Aviation Leasehold Interest in Facilities at Lambert – St. Louis International Airport, St. Louis, Missouri
Exhibit B	2003 St. Louis County Real Estate Tax Bill
Exhibit C	2003 St. Louis County Change of Assessment Notice
Exhibit D	June 16, 2003 Transmittal Letter to Board of Equalization
Exhibit E	Agency Authorization Form
Exhibit F	Appeal to Board of Equalization
Exhibit G	Lease Agreement
Exhibit H	Market Rental Analysis dated December 28, 1998
Exhibit I	Supplemental Income and Expense Form and Attachments
Exhibit J	Decision of Board of Equalization
Exhibit K	Notice from the Board of Equalization dated August 15, 2003
Exhibit L	September 4, 2003 Transmittal Letter to the State Tax Commission
Exhibit M	Complaint for Review of Assessment and Attachments
Exhibit N	Curriculum Vitae of Neil Ewing
Exhibit O	Documents Produced in Response to Respondent’s First Request for Documents
Exhibit P	Written Direct Testimony of Neil Ewing, Appraiser
Exhibit Q	Written Direct Testimony of James Bates, Vice President and Chief Financial Officer of Complainant Corporation

Respondent’s Evidence

Respondent did not submit evidence on the issues.

FINDINGS OF FACT

1. Jurisdiction over this appeal is proper. On August 15, 2003, the St. Louis County Board of Equalization issued a decision affirming the Assessor’s valuation of the subject improvements. On September 8, 2003, Complainant filed its Complaint for Review of Assessment with the State Tax Commission.

2. The subject property in this appeal is identified by locator number 12K230064 and is located at 9805 Air Cargo Road, Lambert-St. Louis International Airport, St. Louis, Missouri. It consists of a tract of land containing approximately 20 acres, improved with a 9,248 square foot two-story terminal/office building of steel and glass construction, approximately 102,325 square feet of hangar area in four buildings, a fuel facility, a concrete aircraft ramp, and a parking lot. Complainant’s Exhibit G, at 5 – 6, and Complainant’s Exhibit A, at 12.

3. The subject property is owned by the City of St. Louis and leased to Complainant, Midcoast Aviation, Inc. Complainant and the City of St. Louis have a lease history at the subject airport dating back to 1957. Complainant’s original lease with the City of St. Louis began in 1957 and involved a different site in the Lambert complex. After many amendments which allowed for more land area for additions to Complainant’s facilities, the lease was amended in 1985 which (1) enabled Complainant to move their facilities to their current location consisting of 20 acres; (2) enabled the City to expand the Lambert International Airport Terminal; and (3) provided that the city would grant Complainant $9,350,000 to construct improvements on the 20 acre site. The improvements were constructed and placed into operation as of March 30, 1987. The negotiated ground lease payment pursuant to this lease was $87,120 per year with a lease expiration of April 30, 2000. Complainant’s Exhibit H, at 1.

The current lease provides for an initial term of five (5) years which began April 30, 2000, and is scheduled to expire on April 29, 2005. The lease provides for two additional five year terms at the option of the Lessee. The City may terminate the lease at any time for a Higher and Better Use by giving the Lessee one year prior written notice. Id., at 9. The annual rental payment under the current lease is $685,000. Id., at 11.

4. Complainant offered the testimony and appraisal report of Neil Ewing. Mr. Ewing is an appraiser licensed with the Missouri Real Estate Appraiser’s Commission and has 36 years of experience in the appraisal field. Complainant’s Exhibit P, at 1.

5. Mr. Ewing was retained in 1998 for the purpose of preparing a Market Rental Analysis for the subject property for use in the negotiations for the new lease. Id, at 7. His analysis involved a review of national data from the National Air Transportation Association involving hangar rental rates to determine average rates per square foot at both large hub and medium hub airports. The analysis also reviewed leases on certain facilities that Mr. Ewing found to be comparable. His analysis indicated that the rental should be on the order of $4.17 per square foot or $471,980 per year. Id., at 7, Complainant’s Exhibit H, at 4 – 9, and 22.

6. Mr. Ewing was retained in 2004 for the purpose of appraising Complainant’s leasehold interest in the subject property as of January 1, 2003 by the estimation of the market rent for the subject property and a determination whether a bonus value was present.

7. Mr. Ewing’s appraisal and analysis for the tax date in question, involved an investigation of the local general aviation hangar market which indicated that in the last five years, fixed base general aviation operations have severely decreased at major metropolitan airports. He concluded that locations at smaller airports are more conducive to private fixed-base operations than locations at metropolitan/international airports. Complainant’s Exhibit A, at 34.

Mr. Ewing performed a cost approach, sales comparison approach, and income approach to determine the market value of the fee simple interest in the subject property as of January 1, 2003. The indicated values were:

 

Cost Approach	$6,675,000
Sales Comparison Approach	$6,335,000
Income Approach	$6,520,000

 

The income approach is typically the most persuasive indicator for a properties that are leased on a net basis. The income approach application is supported by market lease data from comparable hangar facilities, and Korpacz and RERC/CRE capitalization rate surveys. Mr. Ewing relied primarily on the income approach and concluded a value of $6,520,000 as representative of the market value of the fee simple interest in the subject property as of January 1, 2003.

8. The leased fee produces an annual rental income of $685,000. Deductions of 2% for vacancy and collection loss, 2% for management fee, and 2% for reserves for replacement indicate a net rental income of $644,448. The net rental income capitalized a 9.5% indicates a value of $6,783,633 for the leased fee.

CONCLUSIONS OF LAW

1. The City of St. Louis as owner of the subject property is immune from taxation.

2. “…[L]easeholds in city owned real estate are taxable if they have value.” Frontier Airlines, Inc., et al. v. State Tax Commission, 528 S.W.2d 943, 947 (Mo. banc 1975) (citing Iron County v. State Tax Commission, 437 S.W.2d 665(3) (Mo. 1968)).

3. Complainant, as the movant in the appeal, has the burden of presenting substantial and persuasive evidence in support of its proposed value. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897.

4. “Substantial” evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

5. “Persuasive” evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

6. “…[T]he value of the leasehold should be determined from the testimony of a qualified expert witness as that value which a buyer under no compulsion to purchase the tenancy would pay to a seller under no compulsion to sell, taking into consideration the period of the lease yet to run, including the unexercised right of renewal, the favorable and unfavorable factors of the leasehold estate, the location, type of construction of the building, the business of the tenant, comparable properties in similar neighborhoods, present market conditions and future market trends, and all other material factors that would enter into the determination of the reasonable market value of the property. The bonus value, sometimes referred to as the leasehold savings or profit, is the difference between the economic rental and the contract rental. The economic rental is the actual market value of the use and occupancy.”

Land Clearance for Redevelopment Corp. v. Doernhoefer, 389 S.W.2d 780, 784 (Mo. 1965); Frontier Airlines, Inc., et al. v. State Tax Commission, 528 S.W.2d 943, 947 (Mo. banc 1975) (accepts the bonus value methodology for the valuation of leasehold interests in city owned properties for tax assessment purposes).

“…[A] lease of tax exempt property does not have a value for ad valorem taxation purposes unless the lease has a bonus value. [Missouri Courts have held] that bonus value exists only when the contract rent actually being paid is less than the market rent for the [leased property]”. Sky Chef v. Morton, 1990 WL 99912, STC Appeal No. 88-10458, (March 8, 1990), at 7.

7. The value of the leased fee is higher than the market-indicated value for the fee simple interest in the property. Under the terms of the lease, the lessee is paying rent that is higher than the market rent. Accordingly, there is no bonus value to the leasehold interest.

8. As of January 1, 2003, Complainant’s leasehold interest in the subject property had a $0 value for property tax purposes.

DECISION

Our courts have made clear that the lease of property owned by an entity immune from taxation has no leasehold value for ad valorem taxation purposes unless the lease has a bonus value. A bonus value is said to exist when the contract rent pursuant to the lease is less than the market rent for the leased property. The evidence on the record establishes that the rent secured by the subject lease provides a higher return for the leased fee than what could be commanded for the subject property in the open market on or about the tax date. The value of lessor’s interest in the leased fee is greater than the market value of the fee simple interest in the subject property. Accordingly, there is no profit or bonus value to the lessee under the lease. Therefore, this Hearing Officer concludes that Complainant’s leasehold interest in the subject property had a $0 value for property tax purposes as of January 1, 2003.

ORDER

The assessed valuation for the subject property for the 2003 tax year, as determined by the Assessor and affirmed by the Board of Equalization is SET ASIDE.

The Clerk is hereby ordered to place a new assessed value of $0 on the books for tax years 2003 and 2004.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of St. Louis County as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED December 16, 2004.

STATE TAX COMMISSION OF MISSOURI

Aimee Smashey

Hearing Officer

 

CITIZENS MEMORIAL HEALTH CARE )

FOUNDATION, )

)

Complainant, )

)

v. ) Appeal Number 03-49502

)

PAUL E. JOHNSON, ASSESSOR, )

CEDAR COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

Complainant presented evidence to establish that the subject facility is primarily and inherently used for charitable purposes, is owned and operated on a not-for-profit basis, and that its use is beneficial to society in addition to those directly served by the facility. Accordingly, this Hearing Officer finds that the subject property should be exempt from property taxes for 2003 and 2004.

ISSUE

The primary issue in this appeal is whether Complainant=s operations of Community Springs Healthcare Facility constitutes a charitable operation and use.

SUMMARY

Complainant appeals the taxation of the Community Springs Healthcare Facility in El Dorado Springs, Missouri for the 2003 tax year and alleges entitlement to an exemption.

The parties waived hearing and the appeal was submitted for a decision on the basis of the prefiled exhibits and testimony.

EVIDENCE

Complainant submitted the following documents and written direct testimony as evidence in this appeal:

Complainant=s Exhibit A, Certificate of Incorporation of Citizens Memorial Hospital District Foundation;

Complainant=s Exhibit B – Articles of Incorporation of Citizens Memorial Hospital District Foundation;

Complainant=s Exhibit C – Certificate of Merger and Not for Profit Merger Plan;

Complainant=s Exhibit D – Certificate of Amendment;

Complainant=s Exhibit E– 1991 Amendment to Articles of Incorporation;

Complainant=s Exhibit F – 1992 Amended By-Laws;

Complainant=s Exhibit G – Certificate of Good Standing, 2001;

Complainant=s Exhibit H – Certificate of Good Standing, 2002;

Complainant=s Exhibit I – Certificate of Good Standing, 2004;

Complainant=s Exhibit J – 2001 Annual Registration Report;

Complainant=s Exhibit K – 2002 Annual Registration Report;

Complainant=s Exhibit L – 2003 Annual Registration Report;

Complainant=s Exhibit M – Letter of Sales Tax Exemption;

Complainant=s Exhibit N – 501(c)(3) Letter, February 26, 2003;

Complainant=s Exhibit O – 501(c)(3) Letter, November 7, 1990;

Complainant=s Exhibit P – 501(c)(3) Letter, November 21, 1989;

Complainant=s Exhibit Q – 501(c)(3) Letter, July 16, 1987;

Complainant=s Exhibit R – Form 990, Year Ending May 31, 2000;

Complainant=s Exhibit S – Form 990, Year Ending May 31, 2001;

Complainant=s Exhibit T – Form 990, Year Ending May 31, 2002;

Complainant=s Exhibit U – Form 990, Year Ending May 31, 2003;

Complainant=s Exhibit V – Admission Agreement for Community Springs Healthcare Facility;

Complainant=s Exhibit W – Financial and Statistical Report for Nursing Facilities for Period of January 1, 2002 through May 31, 2002;

Complainant=s Exhibit X – Financial and Statistical Report for Nursing Facilities for Period of June 1, 2002 through May 31, 2003;

Complainant=s Exhibit Y – Citizens Memorial Health Care Foundation Policy: Mission Statement;

Complainant=s Exhibit Z– Citizens Memorial Health Care Foundation Policy: Hardship Consideration;

Complainant=s Exhibit AA– Schedule of Revenues;

Complainant=s Exhibit BB – Community Springs Healthcare Facility Advertising Materials;

Complainant=s Exhibit CC – 2002 Property Tax Statement;

Complainant=s Exhibit DD – April 3, 2002 Letter to Cedar County Assessor=s Office without Enclosures;

Complainant=s Exhibit EE – December 24, 2002 Letter to Cedar County Assessor=s Office with Enclosures;

Complainant=s Exhibit FF – January 14, 2003 Letter to Cedar County Collector;

Complainant=s Exhibit GG – Written Direct Testimony of Donald J. Babb.

Respondent did not submit evidence on the issues.

FINDINGS OF FACT

1 The subject property consists of a lot improved with a 120-bed skilled nursing facility which operates under the name of Community Springs Healthcare Facility (hereafter ACommunity Springs@). The facility provides A…housing, food and medical care to persons who are unable to care for themselves due to advanced age, disease or disability.@ Complainant=s Exhibit GG, at 2.

2. Community Springs is owned and operated by Citizens Memorial Health Care Foundation (hereafter AComplainant@). Complainant is organized as a not-for-profit corporation with the Missouri Secretary of State. Complainant=s Exhibit A, B, C, and GG, at 1. Complainant purchased the Community Springs on January 1, 2002. Complainant=s Exhibit GG, at 2.

3. Complainant is organized for A…charitable purposes … by way of the establishment, funding, and operation of facilities, programs, operations and enterprises including but not in limitation thereof, real estate developments, clinics, nursing homes, residential care facilities, fitness centers, child care centers…and to support and assist Citizens Memorial Hospital District….@ Complainant=s Exhibit E, at 1 – 2.

4. Complainant is exempt from federal income taxes. Complainant=s Exhibits N and O.

5. Complainant submitted a Schedule of Revenues and Expenses for its operation at Community Springs. Complainant=s Exhibit AA. For fiscal year ending May 31, 2003, the Schedule reflects net revenues of $3,240,431 and expenses of $3,440,120 which indicate a deficit of $199,689 for the year. Id. See also, Complainant=s Exhibits W, at 4 – 7 and X, at 5 – 8.

6. From January 1, 2002 to May 31, 2002, Community Springs had 61.5% of the licensed beds occupied. Complainant=s Exhibit W, at 1. From June 1, 2002 to May 31, 2003, Community Springs had 65.69% of the licensed beds occupied. Complainant=s Exhibit X , at 1.

7. Of Community Springs= residents approximately 33% are private pay residents, 57% are Medicaid residents, and 10% are Medicare residents. Complainant=s Exhibit AA, at 2. The private pay rates are $94 dollars per day for a semi-private room and $104 per day for a private room. The Medicaid rate is $85.00 per day. The Medicare rate is approximately $124.00 per day. Complainant=s Exhibit GG, at 2.

8. For fiscal year ended May 31, 2003, the private pay residents paid $932,053, incurred $1,141,329 in expenses for a deficit of $209,276 for the year. The Medicaid patients paid $1,382,185 plus Community Springs received an intergovernmental transfer of $10,928. They incurred expenses of $1,935,059 for a deficit of $541,946 for the year. The Medicaid patients paid $361,416 and incurred expenses of $346,647 for a surplus of $14,769 for the year.

9. The services of Community Springs are available to those with means to pay for their care and those without means to pay for their care. Community Springs charges those that have the ability to pay so that they can continue providing health care to the community. Complainant=s Exhibit GG, at 2. Since Complainant has owned Community Springs, no one has been forced to leave for failure to pay. Additionally no one has been refused admittance due to inability to pay. Id., at 3. If presented with a resident that does not have the ability to pay, the social worker will counsel concerning Medicaid options and help the family apply for Medicaid through the local DFS Office. If Medicaid will not pay, the family can apply to Complainant and Community Springs for hardship consideration. AIf Community Springs determines that the resident cannot privately pay, Community Springs will write-off the resident=s charges.@ Id. See also, Complainant=s Exhibit Z.

10. Complainant advertises Community Springs as a Medicare/Medicaid certified facility. Complainant=s Exhibit BB.

11. No part of Complainant=s net earnings may inure to the benefit of any individual or corporation. Complainant=s Exhibit B at 6.

CONCLUSIONS OF LAW

Jurisdiction

Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Cedar County Board of Equalization.

Burden of Proof

Although a taxing statute is construed strictly against the state, an exemption statute is strictly construed against the one claiming the exemption. State ex rel. Union Electric Co. v. Goldberg, 578 S.W.2d 921, 923 (Mo. banc 1979). AThe law disfavors claims for exemption from taxation. The substantial burden of establishing the property falls within the exempted class is on the person claiming exemptions under the referenced constitutional and statutory provisions. To prevent the curtailing of the purpose and intended scope of a tax exemption, the tax exemption statute is to be strictly but reasonably construed.@ Twitty v. State Tax Commission of Missouri, 896 S.W.2d 680, 684 (Mo. App. S.D. 1995) (citations omitted). Accordingly, in order to prevail, Complainant must demonstrate by substantial and persuasive evidence, that it is entitled to an exemption.

Substantial evidence is that evidence which, if true, has probative force upon the issues, i.e., evidence favoring facts which are such that reasonable men may differ as to whether it established them, and from which the Commission can reasonably decide an appeal on the factual issues. Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

Statutory Exemptions

Properties which can be exempted from taxation are set out within our Constitution and the statutes enacted to enforce that Constitution, to wit:

A . . .all property, real and personal, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, . . .may be exempt from taxation by general law but any such law may provide for approximate restitution to the respective political subdivisions of revenues lost by reason of the exemption. All laws exempting from taxation property other than the property enumerated in this article, shall be void.

 

Article X, Section 6, Mo. Const. of 1945.

In support of this Constitutional provision, the Legislature has enacted Section 137.110, RSMo 1994, which provides in relevant part:

The following property shall be exempt from taxation:

(5) All property, real and personal, actually and regularly used exclusively for religious worship, for schools and colleges, or for purposes purely charitable and not held for private or corporate profit, except that the exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefrom is used wholly for religious, education or charitable purposes;

 

Section 137.110, RSMo.

Case Law on Charitable Use

1. In order for a property to be exempt from taxation for state, county or local purposes, the following tests must be met:

A. The property must be actually and regularly used exclusively for a charitable purpose, as charity is defined by Salvation Army v. Hoehn, 188 S.W.2d 826 (Mo. banc 1945). ACharity@ is therein defined as A. . .a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.@ Salvation Army at 830.

B. The property must be owned and operated on a not-for-profit basis. The property Amust be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to achievement of the charitable objectives of the project.@

C. The dominant use of the property must be for the benefit of an indefinite number of persons and must directly or indirectly benefit society generally. AIt is required that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity@.

 

Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, at 224 (Mo. banc 1978). See also, Barnes Hospital v. Leggett, 589 S.W.2d 241 (Mo. banc 1979).

2. AExclusive use@ has been construed by our courts to mean the Aprimary and inherent use@ of the property rather than Aa mere secondary and incidental use.@ Central States Christian Endeavors Association v. Nelson, 898 S.W.2d 547, 549 (Mo. banc 1995).

3. Salvation Army, supra, indicates that the provision of products or services to the public at cost or less constitutes a gift. Id., at 830. Provision of services Aat cost or less@ does not mean that it is impermissible for the operator A…at times or even fairly regularly to operate in the black rather than on a deficit basis, provided of course, that any excess of income over expense is achieved incidentally to the accomplishment of the dominantly charitable objective and is not a primary goal of the project….@ Tri-State Osteopathic Hospital Association v. Blakeley, 898 S.W.2d 693 (Mo. App. S.D. 1995).

Community Springs Operations

1. The provision of long-term skilled nursing care at a residential facility to the public at cost or less constitutes a gift.

2. Long-term skilled nursing care at a residential facility directly benefits people by relieving their bodies of disease, suffering, or constraint.

3. The brief performance history of the Community Springs= operations evidences an intent to provide such services on a non-profit basis.

4. The availability of such services at the Community Springs facility accessible to rich and poor alike is beneficial to the Cedar County community.

DECISION

Use

Exemption law requires that the primary and inherent use of the property be for a charitable objective. Charity is defined as A. . .a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.@ Salvation Army, at 830.

Is the use made of the Community Springs facility a qualified use? Community Springs is a 120-bed skilled nursing facility that provides A…housing, food and medical care to persons who are unable to care for themselves due to advanced age, disease or disability.@ Complainant=s Exhibit GG, at 2. The provision of long-term skilled nursing services clearly qualifies as an appropriate use under the Salvation Army definition in that the services directly benefit people by relieving their bodies of disease, suffering, or constraint as well as providing two of the most basic human needs — food and shelter.

Does Complainant=s operation of Community Springs constitute a public gift? In order for Community Springs= long-term skilled nursing services to constitute a gift, they must be provided at cost or less. The average per day cost of Community Springs= services for private pay and Medicaid residents are below the average per day expenses incurred for these residents creating deficits of $209,276 and $541,946, respectively. The private pay and Medicaid residents constitute 90% of Community Springs= occupancy. Complainant=s Exhibit AA, at 2. Of the remaining residents, their costs covered expenses and created a surplus of only $14,769. Id. It is clear that on the whole, the daily room rates for Community Springs have been below the cost incurred to provide such services. Community Springs= brief performance history under Complainant=s ownership evidences an intent to provide long-term skilled nursing services at cost or less.

Operation

Exemption law requires ownership and operation on a non-profit basis. The key element of this prong is that the property Amust be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to achievement of the charitable objectives of the project.@ Franciscan, at 224.

Complainant is organized as a Missouri not-for-profit corporation. Complainant=s Exhibits A, B, at 1, and C, at 2. Complainant=s Articles of Incorporation declare that A[n]o part of the property or net earnings of the corporation shall be distributed to, used for or inure to the benefit of any private member, director, individual, firm or corporation….@ Complainant=s Exhibit B, at 6. Complainant purchased Community Springs on January 1, 2002. Complainant=s Exhibit GG, at 2. Complainant has operated Community Springs since January of 2002 and, thus far, those operations have been at a loss. As discussed above, 90% of the residents pay room rates that do not fully reimburse Community Springs for the cost of the services provided to those residents. Complainant=s Exhibit AA, at 2. Complainant=s evidence is persuasive to establish that its brief performance history with Community Springs shows an intent to provide long-term skilled nursing services on a non-profit basis.

Public Benefit

Exemption law further requires A…that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity.@ Franciscan, at 224. Under this analysis, the court requires us to go

further and consider whether the rendering of the charitable activity inherently confers a benefit to society in general.

The Missouri Supreme Court upheld the determination that the provision of housing at cost or less to elderly low income people renders a benefit to society generally in addition to those directly served by the activity. Id., 224 – 226. The Court also provided the example of a hospital operation whose services are available to both rich and poor as being an activity considered to benefit society generally. Id. It follows then that the operations of a long-term skilled nursing facility whose services are available to both rich and poor would qualify as an activity that benefits society generally.

The evidence on the record establishes that the long-term skilled nursing care services provided by Community Springs are provided to many on a subsidized basis and that prospective residents are not denied service based upon an inability to pay. Complainant=s Exhibit GG, at 3. The fact that Cedar County has long-term skilled nursing care services at the subject facility available to rich and poor alike is beneficial to the Cedar County community.

Conclusion

The evidence persuasively supports a conclusion that the Community Springs is primarily and inherently used for charitable purposes, is owned and operated on a not-for-profit basis, and that its use is beneficial to society in addition to those directly served by the facility. Accordingly, Complainant is entitled to an exemption on the real property that houses Community Springs Healthcare Facility, parcel number 90-3-8-28-4-14-1.

ORDER

The Assessor=s determination to tax the subject parcel and the Board=s approval thereof are set aside. The Clerk is ordered to show the subject parcel as exempt for the 2003 and 2004 tax years.

A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision. The application shall contain specific grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial. Section 138.432, RSMo 1994.

If an application for review of this decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Cedar County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any or all protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED November 5, 2004.

STATE TAX COMMISSION OF MISSOURI

Aimee Smashey

Hearing Officer

 

 

EAGLE FORUM EDUCATION CENTER, )

)

Complainant, )

)

v. ) Appeal Nos. 01-10968, 02-11310 & 03-12276

)

PHILIP MUEHLHEAUSLER, ASSESSOR, )

ST. LOUIS COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

Assessment by Assessor that subject property was not tax exempt for tax years 2001, 2002 and 2003, sustained by St. Louis County Board of Equalization is SET ASIDE in part. Hearing Officer finds subject property for tax years 2001, 2002 and 2003 to be exempt in part under Section 137.100(5) and taxable in part.

Complainant appeared by Counsel, Jerome Wallach, St. Louis, Missouri.

Respondent appeared by Counsel, Edward Corrigan, Associate County Counselor.

ISSUE

The Commission takes this appeal to determine whether the subject property is exempt in part from taxation for the tax years 2001, 2002 and 2003.

SUMMARY

Complainant appeals the decision of the St. Louis County Board of Equalization. Respondent assessed the subject property as commercial property. This assessment was sustained by the Board of Equalization. Complainant contends that sixty-two percent (62%) the subject property is exempt from taxation under the provisions of Section 137.100(5). An evidentiary hearing was conducted on April 28, 2004, before W. B. Tichenor, Hearing Officer, at the St. Louis County Government Center, Clayton, Missouri. Parties filed Briefs and Reply Briefs. Reply Brief of Complainant was received by the Commission on September 27, 2004. Reply Brief of Respondent was received by the Commission on September 27, 2004.

The Hearing Officer, having considered all of the competent evidence upon the whole record and the Briefs and Reply Briefs filed by the parties, enters the following Decision and Order.

FINDING OF FACTS

1. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the St. Louis County Board of Equalization. Complaints for Review of Assessment, with Board of Equalization Decision Letters attached.

2. The subject property is located at 7800 Bonhomme Avenue, Clayton, Missouri. The property is identified by locator number 19 K 640581. The Assessor assessed the property as commercial property at an assessed value of $398,080 for the 2001-2002 assessment cycle and at an assessed value of $399,584 for the 2003-2004 assessment cycle. Complaints for Review of Assessment.

3. Complainant=s Exhibits A through FF were received into evidence. Tr. 5, Lines 24-25; Tr. 40, Line 10. Said exhibits are described in the Exhibit Exchange List filed by Counsel for Complainant on December 10, 2003, and in the Order issued March 5, 2004. Said listings and descriptions are incorporated by reference as if set out in full in his Decision.

4. Respondent=s Exhibits 1 through 75 were received into evidence. Tr. 44, Lines 7-8. Said exhibits are described in the Exhibit Exchange List filed by Counsel for Respondent on December 17, 2003, and in the Order issued March 5, 2004. Said listings and descriptions are incorporated by reference as if set out in full in his Decision.

5. The total square footage of the subject building is 14,598 square feet. The Eagle Forum Education & Legal Defense Fund (Fund) is headquartered at Complainant=s property. Exhibit AA.

(A) As of January 1, 2001, the Fund occupied 6,250 square feet in the subject building (2,460 square feet on the lower level, 3,790 square feet on the first floor, and no space on the second floor). The total square footage occupied by the Fund represents 43% (6,250/14,598 = .429, rounded to .43) of the total area of the building.

(B) As of January 1, 2002, the Fund occupied 8,576 square feet in the subject building (2,460 square feet on the lower level, 3,790 square feet on the first floor, and 2,326 square feet on the second floor). The total square footage occupied by the Fund represents 59% (8,576/14,598 = .588, rounded to .59) of the total area of the building.

(C) As of January 1, 2003, the Fund occupied 9,049 square feet in the subject building (2,460 square feet on the lower level, 3,790 square feet on the first floor, and 2,799 square feet on the second floor). The total square footage occupied by the Fund represents 62% (9,049/14,598 = .62) of the total area of the building.

Exhibits: 3, 7, 8, 9, 10, N, & O; Testimony of Complainant=s and Respondent=s witnesses.

6. The Eagle Forum Education Center was duly incorporated as a General Not-For- Profit Corporation under the laws of the State of Missouri on September 21, 1993. The original purpose of the corporation was: ATo hold title to property, collect income therefore, and turn over the entire amount less expenses to an organization that is exempt from income tax.@ The purpose was amended on December 1, 1993: ATo hold title to property for the exclusive benefit of an organization that is exempt from income tax as described in Section 501(c)(3) of the Internal Revenue Code; and in furtherance of that purpose, to turn over to such exempt organization the entire amount less expenses of any income collected from the property.@ Exhibit H; Exhibit EE, p. 9, Lines 13-23.

7. For tax years, 2001, 2002 and 2003, Complainant was in good standing as a Missouri Nonprofit Corporation, having filed its annual registration reports. Exhibit I, Annual Registration Reports; Exhibit EE, p. 9, Line 24 – p. 10, Line 3.

8. Complainant is a wholly owned subsidiary of Eagle Forum Education and Legal Defense Fund (Fund), a Missouri not-for-profit corporation. The Fund is the sole member of the corporation. Exhibit EE, p. 9, Lines 14-21; Exhibit H, Articles of Incorporation; Minutes of 1993 Annual Meeting of Board of Directors of Fund, p. 5 – Formation of Subsidiary.

9. The Eagle Forum Education and Legal Defense Fund is exempt from Federal Income Tax under section 501(c)(3) of the Internal Revenue Code. Exhibits J & L, Exhibits 13 & 17.

10. No part of the funds received by Complainant inure to the benefit of, or are distributed to the Directors, Officers, or other private persons, except for salaries for staff. Exhibit EE, page 29, Line 19 – p. 30, Line 8; page 31, Lines 4-10.

11. The activities organized, administered or conducted at Complainant=s property by the Fund include the following:

(A) Literacy Program. First Reader, a comprehensive, user-friendly phonics-based system of reading instruction that enables parents without formal teaching credentials to teach their own children to read. Eight separate programs involving in excess of 150 students involved in reading activities and exercises were conducted in 2001. Eight other Literacy Opportunity Projects were conducted in 2002. (Exhibit S);

(B) Collegians Leadership Summit held in Washington, D.C. involves hundreds of students from 118 colleges and universities, who are given information and instruction on national issues and campus activism from a conservative political perspective and exposure to national conservative leaders. (Exhibits T & U);

(C) Eagle Forum University is an on-line educational web-site, which offers various courses related to current events, the political process, political science. In excess of 6,000 individuals were enrolled in ten different courses offered beginning in May 2001. (Exhibit V).

(D) Education Report, a newspaper of education rights. (Exhibit X).

(E) Educational project on dangers of Marijuana. (Exhibit Z).

(F) A library of approximately 20,000 volumes is maintained in the subject facility and is available for use by persons doing research.

12. The Fund=s activities organized, administered or conducted at the subject property are not restricted as to the persons who may participate and no charge is made for participation in the programs.

13. The Fund=s activities organized, administered or conducted at the subject property as listed in Finding of Fact 11 constitute educational activities in furtherance of an exempt purpose.

14. The portion of the subject property utilized for an exempt purpose by the Fund for 2001 was 43%, therefore 57% of the property was used for a non-exempt purpose. The assessed value of the non-exempt portion of the subject property is $226,900 ($398,080 x .57 = $226,905, rounded to $226,900).

15. The portion of the subject property utilized for an exempt purpose by the Fund for 2002 was 59%, therefore 41% of the property was used for a non-exempt purpose. The assessed value of the non-exempt portion of the subject property is $163,210 ($398,080 x .41 = $163,212, rounded to $163,210).

16. The portion of the subject property utilized for an exempt purpose by the Fund for 2003 was 62%, therefore 38% of the property was used for a non-exempt purpose. The assessed value of the non-exempt portion of the subject property is $151,840 ($399,584 x .38 = $151,841, rounded to $151,840).

CONCLUSIONS OF LAW

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. Article X, Section 14, Missouri Constitution of 1945; Constitution of 1945; Sections 138.430, 138.460(2), RSMo. The hearing officer shall issue a decision and order affirming, modifying or reversing the determination of the board of equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. Section 138.431.4, RSMo.

Burden of Proof

Complainant has the burden to present substantial evidence to rebut the presumption of correct assessment by the Board of Equalization. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 895 (Mo. banc 1978). In order to meet this burden in an appeal seeking exemption from taxation, the Complainant must meet the substantial burden to establish that the property falls within an exempted class under the provisions of Section 137.100. Bethesda Barclay House v. Ciarleglio, 88 S.W.3d, Mo. App. E.D. 2002; Two Pershing Square, L.P. v. Boley, 981 S.W.2d 635 (Mo. App. W.D. 1998); Central States Christian Endeavors Ass=n v. Nelson, 898 S.W.2d 547 (Mo. 1995); Tri-State Osteopathic Hosp. Ass=n, Inc. v. Blakeley, 848 S.W.2d 571 (Mo. App. S.D. 1993); United Cerebral Palsy Ass=n of Greater Kansas City v. Ross, 789 S.W.2d 798 (Mo. 1999); Callaway Community Hosp. Ass=n v. Craighead, 759 S.W.2d 253 (Mo. App. W.D. 1988); Affiliated Medical Transport, Inc. v. State Tax Com=n of Missouri, 755 S.W.2d 646 (Mo. App. E.D. 1988); Missouri Conference Ass=n of Seventh Day Adventists v. State Tax Com=n, 727 S.W.2d 940 (Mo. App. W.D. 1987); Evangelical Retirement Homes of Greater St. Louis, Inc. v. State Tax Com=n of Missouri, 669 S.W.2d 548 (Mo. 1984); Sunday School Board of Southern Baptist Convention v. Mitchell, 658 S.W.2d 1 (Mo. 1983); Pentecostal Church of God of America v. Hughlett, 601 S.W.2d 666 (Mo. App. S.D. 1980); City of St. Louis v. State Tax Commission, 524 S.W.2d 839 (Mo. 1975).

Property Exempt from Taxation

The following subjects are exempt from taxation for state, county or local purposes:

A(5) All property, real and personal, actually and regularly used exclusively for … purposes purely charitable and not held for private or corporate profit, except that the  exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefore is used wholly for — charitable purposes;@

Section 137.100, RSMo.

Exclusive Use

The exclusive use of a property means the primary and inherent use rather than merely a secondary or incidental use. Central States Christian Endeavors Association v. Nelson, 898 S.W.2d 547, 549 (Mo. banc 1995).

Partial Exemption from Taxation

The Constitutional provision of Mo. Const. art. X, Sec. 6 and Section 137.100(5), RSMo which exempt from taxation property Aused exclusively … for purposes purely charitable,@ authorize a partial exemption of real property where the building or land is used in part for charitable purposes and in part for non-charitable purposes. Barnes Hospital v. Leggett, 589 S.W.2d 241 (Mo. banc 1979).

Franciscan Tertiary Test

In meeting its burden of proof that the subject property is used Aexclusively for … purposes purely charitable, and not held for private or corporate profit….@ Complainant must meet the three prong test set forth by the Missouri Supreme Court in Franciscan Tertiary Province v. STC, 566 S.W.2d 213, 223-224 (Mo. banc 1978). The court said:

The first prerequisite for property to be exempt as charitable under ‘137.100 is that it be owned and operated on a not-for-profit basis. It must be dedicated un-conditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to attainment of the charitable objectives of the project…. [A]n exemption will not be granted covering property which houses a business operated for the purpose of gaining a profit, even though it is turned over to a parent organization to be used for what are admittedly independently…charitable purposes.

The requirement that the property must be operated as a not-for-profit activity does not mean that it is impermissible for the project at times or even fairly regularly to operated in the black rather than on a deficit basis, provided, of course, that any such excess of income over expenses, is achieved incidentally to accomplishment of the dominantly charitable objective and is not a primary goal of the project, and provided further that all of such gain is devoted to the charitable objectives of the project.

Another prerequisite for charitable exemption is that the dominant use of the property must be for the benefit of an indefinite number of people, for the purpose, as expressed in Salvation Army, of Arelieving their bodies of disease, suffering, or constraint…or by erecting or maintaining pubic buildings…lessening the burdens of government.@ 188 S.W.2d at 830…. Thus it is required that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity.

Id. At 224.

Charity

The case law definition of charity followed in Missouri has been set out as follows:

A a gift to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government. A charity may restrict its admissions to a class of humanity, and still be public; it may be for the blind, the mute, those suffering under special diseases, the aged, for infants, for women, for men, for different callings or trades by which humanity earns its bread, and as long as the distinction which involuntarily affects or may affect any of the whole people, although only a small number may be directly benefited, it is public.@

 

 

Salvation Army v. Hoehn et al., 188 S.W.2d 826, 830, (Mo. 1945).

DECISION

Complainant=s Property Qualifies Under Franciscan Test

In the case of State ex rel. St. Louis Young Men=s Christian Ass=n v. Gehner, 11 S.W.2d 30, 31 (Mo. 1928), the Missouri Supreme Court made the following observation with reference to the case before it:

AThe issue is clear-cut. There is no dispute about the facts, counsel having filed in this court an agreed statement, which Judge Sherwood some years ago said was a very good way for lawyers to try a case.@

In nearly all exemption cases the same could and should be applied. The importance of various facts, or the inferences that might be drawn from certain facts, can be disputed and argued between opposing counsel. However, in many, if not all exemption cases certain basic and fundamental facts could simply be agreed to by a stipulation. Such stipulations would save not only a great deal of paper, but also valuable time of all parties. Such is the situation in the present case. There are various facts that are not in dispute. Those facts are identified and are set out under FINDINGS OF FACTS, supra. The next course of action is to make an application of the appropriate law to those facts.

Franciscan Test Applied to Use of Subject Property

The three tests to be met under Franciscan may be summarized as follows:

1. Property must be owned and operated on a not-for-profit basis;

2. Property must be actually and regularly used exclusively for a charitable purpose; and

3. Property must be used for the benefit of an indefinite number of persons and for society in general, directly or indirectly.

Each of these prongs of the test will be examined and analyzed in relation to the evidence presented on behalf of Complainant.

Not-For-Profit Ownership and Operation

Ownership

The initial point of inquiry in an exemption appeal before the Commission must be what is the nature of the entity which owns the property. Is the property owned on a not-for-profit basis? If this threshold standard is not met, there is no need to do any further analysis.

The property under appeal in the present case is owned by a not-for-profit corporation, i.e. Eagle Forum Education Center, Complainant (hereafter, Center). The fact that Complainant is a wholly owned subsidiary of Eagle Forum Education and Legal Defense Fund (hereafter, Fund), another not-for-profit corporation, does not render the ownership in violation of the standard established by Franciscan. There was no factual dispute on this point. Respondent does not argue that the ownership of the subject property is on any other basis than that of not-for-profit ownership. The subject property meets this prong of the Franciscan test. A stipulation to this point would have been appropriate.

Operation

The present case does not deal with that portion of the subject property that was rented to tenants during 2001, 2002 and 2003. Although that portion of the subject building is owned on a not-for-profit basis, it is not so operated. Neither the Center nor the Fund are asserting any claim of tax exemption for the leased area. Complainant has conceded that the leased area of the subject building is operated on a for-profit, as opposed to a not-for-profit basis. The Hearing Officer does not reach the issue of whether the portion of the subject building leased to another not-for-profit entity could be exempt, since Complainant did not assert that argument.

The only operation issue relates to the operation of the 43, 59 or 62 percent of the space of the subject facility being utilized in carrying out the various activities of the Fund. There was no dispute as to the various parts of the facility occupied by the Fund being used for any other purpose than activities of the Fund. Respondent did not challenge this simple factual element. The dispute is whether the activity conducted constituted an exempt use. However, the operation of the space utilized by the Fund on a not-for-profit basis was not challenged. No profit was shown to have been generated from the space being occupied by the Fund. A stipulation to these facts would have been appropriate.

It is the rule in Missouri that a property may be used for both a tax exempt and a non-exempt purpose. A partial exemption may be granted for that portion of the property which is used for the exempt purpose. Barnes Hospital, supra. In the present case, Complainant asserted an exempt use of sixty-two percent (62%) of the subject building for each of the years in question. As determined in Finding of Fact 5, supra, the evidence did not establish an exempt use of 62% for each of the tax years. The exempt use varied from year to year based upon the amount of space that was rented out and not used by Complainant for its educational activities, programs and purposes.

The Hearing Officer=s review of the relevant exhibits on this point was not in accord with either the position advanced by Complainant for each year, or the position advanced by Respondent. Only for tax year 2003 were the parties in agreement (Respondent=s Brief, p. 7) as to the amount of space being occupied by Complainant. This was based upon Exhibits 3 & O which were identical and purported by Complainant to represent the allocation of floor space for all three years. However, the evidence does not establish that.

The actual leases only provide that 2,100 square feet of the lower level were under lease, but both Respondent (Respondent=s Brief, p. 6) and Complainant (Exhibit O) allocate 2,406 square feet as being leased to Clayton Personal Training and only 2,460 square feet being occupied by Complainant.

There is no dispute between Exhibits 3 & O, and the leases (Exhibits 10 & N) on the square footage being leased on the first floor. The parties were in agreement for the leased space (1,076 square feet) in all three years.

As to the second floor, Complainant was not occupying any of the floor on January 1 of 2001 and 2002. However, the lease which was applicable for 2003 only had 1,700 square feet being leased (Exhibits 8 & N), while Exhibits 3 & O indicate 2,067 square feet under lease. If Complainant did in fact lease 3,166 square feet, instead of only 2,799 square feet that was not asserted. Complainant=s witness testified under cross-examination that the tenant on the second floor for 2003 was occupying what was shown on Exhibits 3 & O. Tr. 14, Lines 2-4.

These particular factual matters would have been better addressed if the parties had jointly reviewed the documents and arrived at an agreement as to the total square footage occupied by Complainant and utilized for the Fund=s activities on January 1 of each year and filed a stipulation to that effect. That course of action would have taken far less time and effort than assembling duplicate documents to file as exhibits. The filing stacks of documents and written direct testimony and the cross-examination of witness on such uncontested matters could have been dispensed with and the case submitted on agreed facts and briefs.

The evidence establishes that the determined areas, portions and percentages of the subject improvement space occupied by Complainant for activities conducted and sponsored by the Fund were being operated on a not-for-profit basis. There was in point of fact no dispute as to the use of these areas, the only real dispute was as to the amount of space being used in a not- for-profit manner. Accordingly, the operation portion of the Franciscan test was met by Complainant.

Exclusively Used for Charitable Purpose

The next factor of the Franciscan test which must be examined is whether the areas of the subject building used to carry out the programs and activities of the Fund constitute an exclusive use for a charitable purpose.

Exclusive Use

The exclusive use issue requires no great analysis. The areas of the subject building utilized for the programs and activities of the Fund are exclusively used for those purposes and no other. The other areas of Complainant=s building which are rented on a for-profit basis are not at issue, nor are they relevant to the discussion as to the exclusive use of the portion of the subject property for which Complainant seeks exemption. Exclusive use has a particular meaning in exemption law.

The primary or inherent use is what qualifies as the exclusive use. The use must not be simply a secondary use, or incidental to the predominant use of the property seeking exemption. Central States Christian, supra. In the present case, the areas of the subject building in question as to the issue of exemption have no real secondary or incidental use, the only use is to provide space for the organizing, administering and conducting the programs and activities of the Fund. This is not a situation in which there are a variety of activities, some of which are not being conducted by a not-for-profit entity in the space under appeal. The primary and inherent use of the areas at issue is to carry on the work of the Fund. Again, there is no real dispute on this matter.

Charitable Purpose

It is now possible to turn to the real matter at controversy in this appeal, which is whether the activities conducted in those portions of the building utilized by the Fund constitute work that is a charitable purpose. It is appropriate to review the controlling case law definition of charitable or charity from the Salvation Army decision.

Under the Salvation Army, holding in order for work or activity to constitute a charitable endeavor there must be a gift which brings the hearts of individuals under the influence of education. At 830. This is all of the definition that needs be addressed at this point in this discussion. Although there are a number of other endeavors which will qualify as charitable work, it is not required that a property have all of the various activities being conducted in order to qualify as supporting a charity. Complainant is not seeking exemption under any other asserted activity than educational programs and endeavors.

The gift component of the definition was not challenged in this case. There is no charge for the educational services and activities. The programs of the Fund are underwritten by charitable contributions, not by charging for services. A stipulation to this point would have been appropriate.

Complainant does not claim the subject property is being used to relieve bodies of disease or for a religious purpose. It is obvious the undertakings conducted in the subject facility by the Fund are not those of a licensed or accredited college or university, or of a primary or secondary school. No claim was made that the subject property is a school or university, notwithstanding that one of the programs conducted at the facility, over the Internet, calls itself a Auniversity.@ The claim for exemption is that the activities and programs conducted on Complainant=s property under the auspices of the Fund are educational in nature. Some of the programs are in fact similar to school or college course work.

The various activities which are carried on or administered at the Complainant=s property as set forth in Finding of Fact 11, supra, are educational in nature. The fact that they do not lead to the awarding of an elementary or high school diploma, or a college degree, make them no less educational in nature. They are charitable operations. All of the space in Complainant=s building that is utilized by the Fund is devoted to the carrying out of Fund=s educational programs.

The Hearing Officer recognizes that the programs of the Fund proceed from or are based upon a particular political perspective or persuasion which would generally be considered and recognized as a conservative one. However, this does not disqualify the activities in question from being educational. The fact that one particular political persuasion is advanced through the Funds programs, as opposed to presenting various political points of view, cannot be utilized to deny the educational claim for exemption.

It is necessary to consider the general area of religious exemption to understand the nature of the political perspective endorsed by the Fund is irrelevant to the issue of whether an educational activity is being conducted. In considering whether a religious exemption should be granted, it would be improper for the Hearing Officer to deny an exemption simply because a church, temple, mosque or other property only present one particular religious viewpoint. The fact that a Catholic congregation does not use its church building to present the religious views offered in a Muslim mosque or a Buddhist temple is not a basis to deny a religious exemption. The Catholic congregation is going to naturally present the Catholic religious doctrine. The critical factor is that religious worship, of whatever particular belief, is being conducted, not that all faiths are being equally represented.

In like manner, Complainant=s property and its use by the Fund for the various educational programs conducted or administered there do not have to come from some generic, general or all encompassing political point of view. Even assuming that there is such a political perspective, it is enough that the Fund operates educational programs. The particular political perspective weighs neither for nor against exemption.

The Fund=s activities at the subject property qualify as a charitable use with regard to the elements of exclusive use and charitable purpose.

Benefit to Indefinite Number of Persons and Society

The final prong of the Franciscan test to be met is that the educational activities conducted on a not-for-profit basis by the Fund at Complainant=s property provides a benefit to both an indefinite number of persons and to society in general. The benefit can be direct or indirect to meet the test.

Benefit to Indefinite Number of Persons

It is not necessary that the activities of an entity seeking exemption must be made available to each and every person in the city or state where the activity is carried on. In the present case, the programs offered by the Fund are not restricted. In the case of the Internet educational program (Eagle Forum University), any individual with access to a computer and the Internet can avail themselves of this educational opportunity. The Collegians Leadership Summits are open to any college student desiring to attend. The Literacy Programs developed, administered and conducted by the Fund are not restricted as to which children may participate.

All persons participating in any of the various programs of the Fund receive the particular and direct benefit of the given program. Expanded knowledge of American history and other topics, better insight into the political process in America, information relative to the dangers of the use of marijuana, and the ability to read at a more advanced level, are all various direct benefits conferred on those persons who take advantage of the various educational activities offered by the Fund.

The activities and endeavors organized, conducted or administered by the Fund at Complainant=s facilities provide a direct benefit to an indefinite number of people.

Benefit to Society in General

Society receives a benefit from the activities conducted and administered at the subject facility. Citizens who are educated and informed as to our nation=s history can be more responsible citizens and more active in the political process. Children who are assisted to improve their reading skills will be more apt to succeed in school and thereby go on to higher levels of education. This can result in a high level of employment for the individuals and greater productivity for the nation in general.

College and university students who are exposed to the political process in a more in- depth fashion than may be offered in the college classroom are better informed and more likely to be politically active. A republic functions best when the greatest number of citizens are knowledgeable as to current affairs and issues. Government leaders and officials are best held accountable to the citizenry when the largest number of citizens take part in the political give and take which is part of a representative democracy. Society is benefited when young people, because of their exposure to the political process, are equipped to take roles of leadership in society and government.

Education and information relating to dangers of drug use is a benefit to society at large. It can hardly be asserted by anyone who has done the most fundamental research into the problems of drug use by young people, that prevention is the best means of combating drug use. Prevention can only come about when people are informed as to the inherent dangers and problems associated with the use of marijuana. The fact that the government may have efforts to prevent drug use, does not negate the fact that informational programs by private entities likewise provide a benefit which supplements government efforts in the same area.

The very fact that the various programs which constitute the not-for-profit education activity conducted and administered at or through the subject facility directly benefit an unrestricted number of citizens, not just in this state but in other states, confers a direct benefit on the society at-large. Bringing the hearts and minds of an unrestricted class of people under the influence of education, even though limited to certain areas of subjects, also benefits society. The improvement of the condition of our citizens is an improvement of our society.

The activities and endeavors organized, conducted or administered by the Fund at the Complainant=s facilities provide a direct benefit to society in general.

Conclusion

The evidence presented by Complainant meets the standard of substantial and persuasive evidence to establish the use of those portions of the subject property utilized by the Fund meets each of the tests required by Franciscan. The subject property is owned and operated on a not-for-profit basis. The ownership of the property by a non-for-profit corporation is without question. Complainant operates the property for which exemption is sought (certain areas of the building) on a not-for-profit basis. It was uncontested that for the percentage of space for which exemption was sought there was no income derived.

The specific areas in questions provide an educational use which benefits an indefinite number of persons and society in general. The property is actually and regularly used for an educational purpose. The primary and inherent use of the property is for an educational purpose. Accordingly an exemption for the percentages of area set out in Findings of Fact 14, 15 and 16 for the relevant tax years is appropriate.

Respondent=s Arguments

Counsel for Respondent in his Brief and Reply Brief presents a number of arguments against granting tax exempt status to Complainant. For purposes of addressing Respondent=s arguments, the Hearing Officer has summarized them as follows: (1) Complainant=s corporate purpose is not educational or charitable; (2) property is not used as a school or college; (3) the primary and inherent use of the subject property is not 100% educational; (4) Content of the Leadership Summit is not educational but conservative indoctrination; (5) use of property does not lessen a governmental burden; and (6) alleged education use is occasional, inconsistent and secondary. Any other arguments put forth, in the mind of the Hearing Officer, simply dovetail into one of the above arguments.

Corporate Purpose Not Educational

The Complainant=s corporate purpose is to hold property and turn over income less expenses to an 501(c)(3) exempt organization (the Fund). The only member of Complainant corporation is the Fund, the tax exempt entity for which the property is held and who actually conducts the activities which are organized, administered and conducted at the subject property. What were the legal considerations which prompted this type of ownership arrangement are not relevant for purposes of this analysis and decision. The Hearing Officer recognizes it is different than most exemption cases in which the Complainant is both the owner of the property in question, as well as, the entity carrying on the asserted exempt use.

However, notwithstanding the legal distinction that there are two corporate not-for-profit entities involved in this matter. For all intents and purposes, there is really only one – the Fund. Complainant is controlled by the Fund. The purposes (Exhibit BB) and activities of the Fund are educational. Educational use is a part of the general definition of charity under Salvation Army, supra. It is not necessary that a use be both educational and charitable, if it is educational it is charitable under the applicable case law. Respondent=s point is not well taken.

Property Not Used As A School or College

Complainant did not seek an exemption on the grounds that it was a school or college. It sought an exemption because of the educational use of the property. An exemption for educational use does not require exclusive use by a school or college. Respondent=s argument is not relevant in the present appeal.

The controlling statute makes a clear distinction concerning this issue. Property actually and regularly used for schools and colleges is exempt. Likewise, property actually and regularly used for purposes purely charitable is exempt. As previously noted the case law definition of charity in Missouri includes bringing the hearts of people under the influence of education. Salvation Army, supra.

Primary And Inherent Use of Property Not 100% Educational

Respondent appears to be arguing that in order to obtain an exemption for educational use, the entirety of Complainant=s building must be used for the educational purpose. Respondent argues that various portions of Complainant=s building were leased to for-profit tenants at market competitive lease rates. This matter was not in dispute, although the exact

percentage of the building utilized by the programs and activities of the Fund and the percentage being leased was in dispute, as addressed above.

Respondent=s argument is the old and now discarded Aall-or-nothing interpretation of the exemption statute.@ Had this case come before the Commission prior to 1979, then indeed the reasoning and rational that was articulated in St. John=s Mercy Hospital v. Leachman, 552 S.W.2d 723 (Mo. banc 1977) would have applied. Under Leachman, there could be no partial exemption.

However, in 1979 in Barnes v. Leggett, supra, Leachman was overruled. The Supreme Court of Missouri established that Aa partial exemption of a building or tract, where the building or tract, is used in part for charitable purposes and in part for non-charitable purposes is acceptable.@ Barnes, at 244. In the present appeal Complainant made no claim that the entirety of the building was used for a charitable purpose. Actually, the Asubject property@ in this appeal is only the parts of the Complainant=s building which are used by the Fund for the carrying on of its various programs. Complainant never sought an exemption of 100% of the building. Respondent argues a point that was not at issue and is not applicable in this appeal.

Content Of Leadership Summit is Conservative Indoctrination

Respondent=s argument on this point focuses upon the fact that the College Leadership Summit sponsored and conducted by the Fund is presented only from a conservative political perspective. Respondent characterizes the Summit as indoctrination not education. This argument is not well taken.

One person=s education may be another person=s indoctrination. Just as one person=s religious faith is another person=s heresy. As discussed above, the political perspective from which this particular program is presented does not render it non-educational. Furthermore, the evidence in this record fails entirely to persuade the Hearing Officer that the Summit is indoctrination. The burden was not on Complainant to prove that the content and purpose of the Summit was not to indoctrinate. That is not an element required to be established under any relevant case law on exemption.

Respondent raised the contention on alleged indoctrination. Respondent therefore assumed the burden of proving up this contention. See, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003) on the burden to prove issues raised by one party. Neither questions asked by Counsel for Respondent during cross-examination, nor claims asserted in Briefs as the interpretation and opinion of Counsel, constitute evidence upon which his claim of indoctrination can be established. Although Respondent=s Counsel raised the issue, he failed to offer proof to establish this conclusion.

It is obvious to the Hearing Officer one of our most precious and fundamental rights in this country is the right to hold opinions on issues of public, and even private import. Consistent with that right and inseparable from it is the further right to share those opinions, be they conservative, liberal, moderate, socialist, communist, anarchist or whatever. The right to share opinions and beliefs carries with it the right to educate.

For a religious entity to be granted an exemption, there is no requirement that all religious perspectives be presented. Likewise, there is no requirement under Franciscan that, when offering education on political and social issues, all perspectives must be presented. The argument advanced by Respondent is irrelevant and is without merit in the case.

Property Use Does Not Lessen Burden Of Government

Respondent=s argument under this point is not well taken. This argument is premised upon an erroneous understanding of the Franciscan test. Counsel for Respondent=s argument implies that in addition to establishing a religious or educational or healing use there must also be a Alessening the burdens of government@ use. This is simply not the case under Franciscan.

The definition of charity set forth in Salvation Army, supra and cited in Franciscan, at 224, is not in the conjunctive. It is in the disjunctive. The dominate use of the property must be for Abringing their hearts under the influence of education or religion, … or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government.@ The lessening the burdens of government criterion is not tied to an educational or religious use, nor is it tied to a relieving from disease and suffering use. The list of charities are connected by the word Aor@ not the word Aand.@ It appears that Alessening the burdens of government@ actually refers back to erecting or maintaining public buildings and works.

Complainant did not claim that it was seeking an exemption because the use of the property under appeal was to Alessen the burdens of government.@ Although Respondent asserts in his Brief, at page 4, that Complainant claimed a use which lessens a government burden, no cite was given to any part of the record on this point. The Hearing Officer, after review of the record, finds none. Complainant=s brief, at page 6, clearly articulates that the use upon which exemption is being claimed is educational and no other. There is not a single reference in Complainant=s Brief or Reply Brief that the claimed use of the property is for the purpose of lessening the burdens of government. The claim for exemption was based upon educational use and no other.

Complainant did not seek an exemption on any other ground. It is not appropriate for Respondent to dictate under what particular use a Complainant may seek exemption. The issue is not whether a use fulfills each and every charitable use set forth in Salvation Army. The issue is whether a use fulfills one of the uses. The use of the part of Complainant=s property for which exemption is sought is an educational use and does not also have to be a use to lessen a burden of government. ATo establish a tax-exempt status, however, the property owner need not prove that the specific activity or project was one which government had a burden to provide. … To the contrary, it is only necessary that there be a clear and convincing showing that the specific activity in question does fall within an accepted category found in the definition. Of those, >education= has been explicitly and firmly established as one by the case law of this state.@ City of St. Louis et al., v. State Tax Commission, et al., 524 S.W.2d 839, 845 (Mo. banc 1975) (Engineer=s Case). Respondent=s argument on this point bases an argument on a point which has previously been addressed and found contrary to Respondent=s position in the relevant case law.

Alleged Education Use Is Occasional, Inconsistent And Secondary

The final line of argument put forth by Respondent is that the alleged educational use is occasional, inconsistent and secondary in contrast to the use of property in the Engineer=s case, supra. As reiterated in the Engineer=s case and stated in numerous other exemption cases, Aeach tax exemption case is peculiarly one which must be decided on its own facts, …@ At 843. It is not necessary that Complainant establish an educational use that is exactly the same as the use in Engineer=s. It is sufficient if the individual and rather unique educational programs and activities of the Fund at the property under appeal are actually and regularly conducted or administered there. Section 137.100.5, RSMo. Further, that the uses are the primary and inherent uses to which those portions of Complainant=s building utilized by the Fund are routinely put. Central States, supra.

The record shows a variety of programs are being carried out by the Fund. Not all of the programs and events take place at the Complainant=s building. All of the work related to the educational work of the Fund is organized and administered at the subject property, irrespective of where an actual event is conducted, makes the use no less of an exempt use. Complainant=s reasoning on this point is logical, rational and persuasive.

ATo argue that a portion of the property was utilized to administer to educational activities and therefore not subject to tax exemption would disqualify the principal=s office in every privately funded school in the state. Likewise the administrative office building of the Archdiocese of St. Louis would not be entitle to tax exemption.@

Complainant=s Reply Brief, page 1.

The record establishes that all of the various work that occurs under the direction of the Fund for its tax exempt purposes is a combination of organizing, administering and conducting the various educational program. The fact that each and every one of the educational uses does not take place each and every week at the subject facility does not fail the tests of active and regular, or primary and inherent use. The evidence is actually uncontroverted that the activities sponsored by the Fund occurring at the subject building are the complete extent of activities conducted in those portions for which Complainant is seeking exemption.

There are no other business activities, for-profit or not-for-profit, that are being conducted at those areas utilized by the Fund. Since there is no other business activity, the sole educational activities cannot be considered to be secondary in any sense of the word. In like manner, the only day-to-day functions carried out in those portions of Complainant=s facility for which exemption is sought relate to the education purpose and use carried on by the Fund. Therefore, these activities are not considered to be occasional activities. The activities demonstrated by this record, irrespective of whether they are consistent with activities being conducted in the Engineer=s case, are consistent with an educational use which qualifies for and merits exempt status under the applicable statute and case law.

ORDER

The assessment of the subject property made by the Assessor and sustained by the Board of Equalization for St. Louis County for the subject tax day is SET ASIDE in part and AFFIRMED in part.

The Assessor for St. Louis County is ordered to enter the subject property on the list of exempt property into the supplemental tax book for the county for the tax years 2001, 2002, 2003 and 2004, as a partially exempt property.

The assessed value for tax year 2001 for the non-exempt commercial portion of the subject property is $226,900.

The assessed value for tax year 2002 for the non-exempt commercial portion of the subject property is $163,210.

The assessed value for tax years 2003 and 2004 for the non-exempt commercial portion of the subject property is $151,840.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial. Section 138.432, RSMo 1994.

If an application for review of this decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of St. Louis County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any or all protested taxes have been disbursed pursuant to ‘139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED November 5, 2004.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Hearing Officer

 

 

FORD MOTOR COMPANY, )

)

Complainant, )

)

v. ) Appeal Nos. 02-32001 and 02-32002

)

CATHY RINEHART, ASSESSOR, )

CLAY COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

Complainant’s execution of the 2002 Acceptance of Value Change Forms constituted a valid compromise and settlement of Complainant’s appeals before the Clay County Board of Equalization. Complainant has no basis to appeal to the State Tax Commission. Accordingly, the Commission lacks jurisdiction to review the subject assessments.

ISSUE

The initial issue to be decided in this case is whether the Complainant settled these assessment disputes before the Clay County Board of Equalization.

EVIDENCE

The exhibits relevant to the activity before the Clay County Board of Equalization are:

Complainant’s Exhibit F – Written Direct Testimony of Kellianne M. Nagy;

Complainant’s Exhibit G – July 26, 2002 faxed communication from Patty Seifers, Clay County Clerk’s Office to Complainant;

Respondent’s Exhibit 7 – August 5, 2002 Order issued by the Clay County Board of Equalization on Parcel # 82-381-00-00-000.00;

Respondent’s Exhibit 8 – August 5, 2002 Order issued by the Clay County Board of Equalization on Parcel # 82-382-00-00-000.00;

Respondent’s Exhibit 10 – 2002 Acceptance of Value Change Form for Parcel # 82-381-00-00-000.00;

Respondent’s Exhibit 11 – 2002 Acceptance of Value Change Form for Parcel # 82-382-00-00-000.00;

Respondent’s Exhibit 12 – 2002 Board Appeal Form for Parcel # 82382;

Respondent’s Exhibit 13 – 2002 Board Appeal Form for Parcel # 82381;

Respondent’s Exhibit 21 – Written Direct Testimony of Dee Anna Richardson;

Respondent’s Exhibit 22 – July 24, 2002 letter from Complainant to the Clay County Board of Equalization.

FINDINGS OF FACT

1. On June 14, 2002, Complainant, Ford Motor Company, filed appeals with the Clay County Board of Equalization challenging the assessed valuation of the personal property parcel numbers 82381 and 82382. Appeal to the Board of Equalization attached to the Complaint for Review of Assessment, which serves as the pleading in each appeal.

2. On or before July 18, 2002, Complainant requested and received a Board of Equalization hearing date of July 23, 2002. Respondent’s Exhibits 7 & 8.

3. On July 19, 2002, Complainant’s agent, Kellianne Nagy, executed a 2002 Acceptance of Value Change Form on both accounts. Respondent’s Exhibits 10 and 11. In executing this form, Complainant’s agent stated the following with regard to the proposed action of the Board concerning the subject assessments : “I/we, Kellianne M. Nagy, do hereby agree with the above change and do not wish to appeal to the Board of Equalization.” Id. (emphasis supplied).

4. On July 23, 2002, the Clay County Board of Equalization met and accepted the values proposed in the 2002 Acceptance of Value Change Forms for personal property account numbers 82381 and 82382. The proposed and Board-approved market value for each account was $152,978,764. The proposed and Board-approved assessed value for each account was $50,987,822. Id. See, Appeal to the Board of Equalization attached to the Complaint for Review of Assessment, which serves as the pleading in each appeal.

5. On July 24, 2002, Complainant issued a letter to the Clay County Board of Equalization “…respectfully withdraw[ing] the stipulation signed July 19, 2002 with the Clay County Assessor’s Office…” on the basis that Complainant had not received written notice of the hearing date before the Board and that Complainant believed the stipulated value to be in error. Respondent’s Exhibit 22.

6. On August 5, 2002, the Clay County Board of Equalization met concerning the subject assessments. The Board heard evidence, received exhibits, and made the following findings for each assessment:

a. The Taxpayer requested and received a hearing date of July 23, 2002, on or before July 18, 2002. The taxpayer entered a stipulation for the resolution of its valuation on July 19, 2002, stating that it agreed to an assessed value of $50,987,822 per parcel and did not wish to appeal such valuation to the Board of Equalization. The Taxpayer did not appear at hearing on July 23, 2002. The Board finalized the stipulation by signature approval that date. The Taxpayer advised that it withdrew its stipulation on July 24, 2002.

b. This Board, the Clay County Assessor’s Office, and interested taxing districts understood on July 23, 2002, the matter of Taxpayer’s Assessment to be compromised and closed by settlement and not subject to appeal to the State Tax Commission.

c. The accurate market value for the Taxpayer’s business personal property for 2002 is $160,334,956. The accurate assessment of same is $53, 439,641.

d. These valuation findings based on evidence at hearing may not be imposed because the stipulation and waiver of appeal in evidence is valid and binding on all parties thereto.

Respondent’s Exhibits 7 & 8. The Board declined Complainant’s request to set aside its July 23, 2002, approval of the parties’ agreed upon assessments of $50,987,822 for each assessment. Id., at 2.

7. On August 9, 2002, Complainant filed appeals on these parcels with the State Tax Commission.

8. Witness Nagy’s testimony addressing her understanding of the import of the 2002 Acceptance of Value Change Forms was not credible.

CONCLUSIONS OF LAW

Administrative Review of Property Tax Assessments

The first required step in appealing a property tax assessment is an appeal to the local Board of Equalization. Relative to the Board’s review, the statutes provide:

Every person who thinks himself aggrieved by the assessment of his property may appeal to the county board of equalization, in person, by attorney or agent, or in writing. Section 137.275, RSMo 2000.

Any person aggrieved by the assessment of his property may appeal to the county board of equalization. An appeal shall be in writing and the forms to be used for this purpose shall be furnished by the county clerk. Such appeal shall be lodged with the county clerk as secretary of the board of equalization before the third Monday in June; provided, that the board may in its discretion extend the time for filing such appeals. Section 137.385, RSMo 2000.

The county board of equalization shall, in a summary way, determine all appeals from the valuation of property made by the assessor, and shall correct and adjust the assessment accordingly. Section 138.060, RSMo Supp. 2003.

The next step is an appeal from the determination of the local board of equalization to the State Tax Commission. Section 138.430, RSMo 2000.

Compromise and Settlement

“A valid compromise and settlement assented to by all the parties in interest is ordinarily final, and as binding on them as any other contract, and is as binding as if its terms were embodied in a judgment.” Maxwell v. Maxwell, 775 S.W.2d 576, 578 (Mo. App. S.D. 1989). “…[A] compromise and settlement ‘operates as a merger of, and bars all right to recover on, the claim or right of action included therein.’ 11 Am. Jur. (Compromise and Settlement) Sections 23 – 24, p. 271.” Farmer v. Arnold, 371 S.W.2d 265, 269 (Mo. 1963). “Freedom of contract and peaceful settlement of disputes are encouraged in the law.” B-Mall Co. v. Williamson, 977 S.W.2d 74, 77 (Mo. App. W.D. 1998).

Complainant’s execution of the 2002 Acceptance of Value Change Forms constituted a valid compromise and settlement of Complainant’s appeals before the Clay County Board of Equalization. Complainant has no basis to appeal to the State Tax Commission.

DECISION

Complainant initiated appeals to the Clay County Board of Equalization but cut short the Board’s substantive review with the execution and filing of the 2002 Acceptance of Value Change Forms. These forms communicated an acceptance of the Assessor’s recommended change in value and an assertion that Complainant does not wish to appeal to the Board. The Board thereafter, at the scheduled hearing date, approved the recommended assessments as indicated on the forms. This Hearing Officer concludes that these forms constituted a valid compromise and settlement of the Complainant’s appeals before the Clay County Board of Equalization. Accordingly, the Commission lacks jurisdiction to review the subject assessments.

ORDER

As determined above, the Commission lacks jurisdiction to review the correctness of the assessments at issue. Accordingly, the Board-approved assessments stand.

A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision. The application shall contain specific grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial. Section 138.432, RSMo 2000.

If an application for review of this decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Clay County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any or all protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED October 28, 2004.

STATE TAX COMMISSION OF MISSOURI

Aimee L. Smashey

Hearing Officer

ORDER

AFFIRMING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

On October 28, 2004, Hearing Officer Aimee L. Smashey entered her Decision and Order (Decision) holding that the Commission lacked jurisdiction to review the correctness of the assessment at issue.

Complainant timely filed its Application for Review of the Decision. Respondent filed her Response. Complainant filed its Reply to Response.

ARGUMENTS

Complainant’s Grounds for Review

Complainant put forth the following grounds as a basis for its Application for Review.

1. Complainant has an absolute statutory right of appeal to the Missouri State Tax Commission.

2. The State Tax Commission had already accepted jurisdiction of these appeals and the Hearing Officer was without authority to change that Decision.

3. The Hearing Officer’s Decision to reopen the hearing for the purpose of inquiring into jurisdiction and the subsequent order of the Hearing officer denying jurisdiction were a clear abuse of discretion and were invalid actions.

4. The Hearing Officer erred in finding that a valid stipulation had been agreed to between the parties which waived Complainant’s statutory right to appeal to the State Tax Commission.

5. The Hearing Officer erred in allowing inappropriate arguments on behalf of North Kansas City School District, an “interested person.”

Respondent’s Response

Respondent gave the following responses to Complainant’s Arguments.

1. Complainant did appeal to the Missouri State Tax Commission.

2. The State Tax Commission’s denial of Respondent’s previous motion to dismiss in no way affected the hearing officer’s determination that a valid settlement had been reached.

3. The Hearing Officer’s decision to re-open the hearing for the purpose of inquiring into jurisdiction was within the Hearing Officer’s discretion and was entirely proper.

4. The Hearing Officer correctly found that a valid stipulation had been agreed to between the parties.

5. The Hearing Officer properly allowed North Kansas City School District the opportunity to be heard.

Complainant’s Reply

Complainant made the following replies to Respondent’s points.

1. Respondent confuses jurisdictional matters with substantive, evidentiary matters. The rebuttable presumption as to correct assessment by a board does not attach to other actions of boards of equalizations.

2. Complainant had no burden, in the reopened hearing, to show that the Board’s order was arbitrary, capricious, etc. That standard applies to the presumption of validity of an assessment.

3. Respondent can point to no statute or case law ruling that allows a hearing officer to overrule an interlocutory order of the Commission which firmly established the Commission’s jurisdiction to hear these appeals.

4. All cases cited by the Hearing Officer and Respondent on the validity of the supposed stipulation pertain to the matter of settlement or accord and satisfaction of an insurance claim or to a stipulation announced in open court or by attorney(s) for the parties, which is not the situation in the present cases.

DECISION

A review of the record in the present appeal provides support for the determinations made by the Hearing Officer. There is competent and substantial evidence to establish a sufficient foundation for the Decision of the Hearing Officer. A reasonable mind could have conscientiously reached the same result based on a review of the entire record. The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused her discretion as the trier of fact and concluder of law in this appeal. Hermel, Inc. v. STC, 564 S.W.2d 888 (Mo. 1978); Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Holt v. Clarke, 965 S.W.2d 241 (Mo. App. W.D. 1998); Smith v. Morton, 890 S.W.2d 403 (Mo. App. E.D. 1995). Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).

The Commission finds no benefit to be derived in restating what the Hearing Officer set forth in her Decision and Order. The Hearing Officer did not err in her determinations as challenged by Complainant.

ORDER

The Commission upon review of the record and Decision in this appeal, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified. Accordingly, the Decision is affirmed.

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.

SO ORDERED February 10, 2005.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Sam D. Leake, Commissioner

Jennifer Tidwell, Commissioner

 

METHODIST CAMPS, INC., )

)

Complainant, )

)

v. ) Appeal Nos. 03-49500 and 03-49501

)

PAUL E. JOHNSON, ASSESSOR, )

CEDAR COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

Complainant presented sufficient and persuasive evidence to establish that the subject parcels have enlarged the Camp Galilee site and the added land and improvements are actively used for the horse riding program of Complainant=s Camp Galilee. Accordingly, the parcels qualify for exempt status.

ISSUE

Do the recently acquired subject parcels expand and serve the camp=s charitable purposes or are they used or held for other purposes?

SUMMARY

Complainant filed appeals with the Commission on two properties identified by parcel numbers 90-3-5-22-10 and 90-3-5-21-1-1-24. The Board of Equalization decision letters reflect that the parcels were originally appraised by the Assessor=s office at $68,316 and $16,200, respectively. The parcels were classified as residential property and the indicated assessments were $12,980 and $3,080. Upon review by the Cedar County Board of Equalization, parcel # 90-3-5-22-10 was increased in appraised value to $112,300 for an indicated residential assessment of $21,340. Parcel # 90-3-5-21-1-1-24 was reclassified as agricultural property and decreased in value to $6,825 for an indicated agricultural assessment of $819.

Complainant appeals the subject assessments alleging that the subject parcels should be exempt. The parties were given an opportunity to conduct discovery and exchange and file exhibits and the written direct testimony of all witnesses.

Complainant=s Exhibits

Complainant filed the following exhibits and written direct testimony:

1. Exhibit A, Cedar County Board of Equalization Decision for 2003 for parcel number 90-3-5-21-1-1-24;

2. Exhibit B, Cedar County Board of Equalization Decision for 2003 for parcel number 90-3-5-22-10;

3. Exhibit C, Complaint for Review of Assessment;

4. Exhibit D, Acknowledgment Letter on parcel no. 90-3-5-22-10;

5. Exhibit E, Acknowledgment Letter on parcel no. 90-3-5-21-1-1-24;

6. Exhibit F, Warranty Deeds transferring title of subject parcels to Complainant;

7. Exhibit G, Application for Pro Forma Decree of Incorporation, Pro Forma Decree of Incorporation, Articles of Association;

8. Exhibit H, Certificate of Incorporation and Articles of Incorporation of Missouri United Methodist Camping and Retreat Ministries;

9. Exhibit I, Complainant=s Mission Statement;

10. Exhibit J, Cedar County Assessment Records for the subject parcels, Assessor=s notes from BOE meeting, BOE Schedule and minutes.

11. Written Direct Testimony of Mike Coffey.

Respondent=s Exhibits

Respondent did not submit any exhibits or testimony.

On April 29, 2004, Complainant filed a Motion for Summary Judgment Under 12 C.S.R. 30-3.050(4). These appeals have been assigned to Hearing Officer Aimee L. Smashey for hearing and decision. Complainant is represented by John D. Dunbar, Attorney. Respondent is represented by Michael L. Ash, Prosecuting Attorney for Cedar County.

FINDINGS OF FACT

1. Complainant, Methodist Camp, Inc. owns and operates Camp Galilee in Cedar County, Missouri. Written Direct Testimony of Mike Coffee, at 3. The original camp site has been and is currently exempt. Id. In 2001 and 2002, Complainant purchased two parcels which are adjacent to their original campsite. Id., and Complainant=s Exhibit F, at 1 and 4.

2. The original campsite is used for religious and physical education on a charitable basis. The recently acquired subject parcels are part of the same operation and are used to hold the horses used at the camp, for hay production, and a horse riding arena. The house and garage are used by the assistant manager of the camp as part of his employment. The barn has been remodeled for hay storage, a tack room and saddling stalls. The barn is also used to stable the horses which are injured and needing special care. Written Direct Testimony of Mike Coffey, at 4.

CONCLUSIONS OF LAW

1. Jurisdiction over this appeal is proper. Complainant timely appealed the Cedar County Board of Equalization=s decisions on the subject parcels= assessments to the State Tax Commission.

2. Although a taxing statute is construed strictly against the state, an exemption statute is strictly construed against the one claiming the exemption. State ex rel. Union Electric Co. v. Goldberg, 578 S.W.2d 921, 923 (Mo. banc 1979). AThe law disfavors claims for exemption from taxation. The substantial burden of establishing the property falls within the exempted class is on the person claiming exemptions under the referenced constitutional and statutory provisions. To prevent the curtailing of the purpose and intended scope of a tax exemption, the tax exemption statute is to be strictly but reasonably construed.@ Twitty v. State Tax Commission of Missouri, 896 S.W.2d 680, 684 (Mo. App. S.D. 1995) (citations omitted). Accordingly, in order to prevail, Complainant must demonstrate by substantial and persuasive evidence, that it is entitled to an exemption.

Substantial evidence is that evidence which, if true, has probative force upon the issues, i.e., evidence favoring facts which are such that reasonable men may differ as to whether it established them, and from which the Commission can reasonably decide an appeal on the factual issues. Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

3. Properties which can be exempted from taxation are set out within our State=s Constitution and the statutes enacted to enforce that Constitution. Our Constitution states:

…[A]ll property, real and personal, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, . . .may be exempt from taxation by general law but any such law may provide for approximate restitution to the respective political subdivisions of revenues lost by reason of the exemption. All laws exempting from taxation property other than the property enumerated in this article, shall be void.

 

Article X, Section 6, Mo. Const. of 1945.

In support of this Constitutional provision, the Legislature has enacted Section 137.110, RSMo 1994, which provides in relevant part:

The following property shall be exempt from taxation:

(5) All property, real and personal, actually and regularly used exclusively for religious worship, for schools and colleges, or for purposes purely charitable and not held for private or corporate profit, except that the exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefrom is used wholly for religious, education or charitable purposes;

 

Section 137.110, RSMo 1994.

4. In order for a property to be exempt from taxation for state, county or local purposes, the following requirements must be met:

1. The property must be actually and regularly used exclusively for a charitable purpose, as charity is defined by Salvation Army v. Hoehn, 188 S.W.2d 826 (Mo. banc 1945). ACharity@ is therein defined as A. . .a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.@ Salvation Army at 830.

2. The property must be owned and operated on a not-for-profit basis. The property Amust be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to achievement of the charitable objectives of the project.@ Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, at 224 (Mo. banc 1978).

3. The dominant use of the property must be for the benefit of an indefinite number of persons and must directly or indirectly benefit society generally. AIt is required that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity@. Franciscan at 224. See also, Barnes Hospital v. Leggett, 589 S.W.2d 241 (Mo. banc 1979).

5. Complainant presented substantial and persuasive evidence that the subject parcels share the same ownership and operation as the exempt original camp site and the subject parcels are used for religious and physical education purposes.

DECISION

Given the parties= agreement about the exempt status of the original Camp Galilee site, the dispute in this case is whether the recently acquired subject parcels expand and serve the camp or are used or held for other purposes.

Complainant=s Camp Galilee has been operated as a camp offering religious education and physical recreation for youth and adults. Its use has been accepted as a qualified use for exempt purposes. See, Conclusion of Law 4.1, supra. Mike Coffey, Site Director for the camp, established that newly acquired subject parcels are used as:

…the main base of operations for the horse riding program of Camp Galilee. Part of the camp activities include orientation to riding, safety information, riding within the confines of the riding arena and also riding in the pastures once the campers are qualified to do so. There are also certain periods of camp that are dedicated for horse riding activities. At these camps, participants spend approximately 8 hours per day with the horses, doing everything but feeding them.

Written Direct Testimony of Mike Coffey, at 4. Mr. Coffey further indicated that Camp Galilee uses these riding activities as A…an enticement for [their] religious education program. The horse riding activities are used to show the campers that the Christian life is joyous one and to get a chance for them to have a break from the intensity of worship, Bible Study, and small group time.@ Id.

The expanded provision of a horse riding program qualifies as an appropriate use under the Salvation Army definition in that it brings the participant=s hearts under the influence of education and religion.

The exempt status of the original Camp Galilee site (prior to the expansion in 2001 and 2002), indicates that there is no dispute concerning the nature of Complainant=s ownership, operation, or the element of public benefit. Accordingly, no further analysis is required under the Franciscan test.

This Hearing Officer is persuaded that Complainant presented sufficient evidence to establish a prima facie case that the subject parcels are used for the charitable provision of religious and physical education, are owned and operated on a charitable basis and serve an indefinite number of people providing a public benefit. Accordingly, the subject parcels are entitled to a property tax exemption.

ORDER

The taxable status the subject parcels for 2003 tax years, as determined by the Assessor and approved by the Board of Equalization, is SET ASIDE. The Clerk is HEREBY ORDERED to show these parcels as exempt for the 2003 tax year.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Cedar County as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED August 10, 2004.

STATE TAX COMMISSION OF MISSOURI

Aimee Smashey

Hearing Officer

 

HARLEY & SUSIE BOGUE, INC., )

)

Complainant, )

)

v. ) Appeal Number 03-32091

)

CATHY RINEHART, ASSESSOR, )

CLAY COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

The value approved by the Board of Equalization is SUSTAINED.

ISSUE

The issue in this case is the true value in money of tract of land with residential and agricultural improvements, specifically a hog farm with breeding, farrowing, nursery and finishing buildings.

SUMMARY

A hearing was held in the above matter in the Clay County Administration Building, Liberty Missouri on April 21, 2004. Complainant was represented by counsel, Randall Crawford and by an appraiser, Boyd Harris. Respondent was represented by counsel, Mark Murphy and by an appraiser, Gary Maurer.

The assessor originally valued the residential portion of the property at $121,700 (assessed value $23,130). Said value was approved by the Board of Equalization. Complainant now asserts a value of $80,195 (assessed value $15,240). Respondent asserts a market value of $152,100 (assessed value $29,090) in support of the original value approved by the Board of Equalization.

The assessor originally valued the agricultural portion of the property at $345,900 (assessed value $41,510). Said value was approved by the Board of Equalization. Complainant now asserts a value of $139,312 (assessed value $16,720). Respondent asserts a market value of $382,900 (assessed value $45,950) in support of the original value approved by the Board of Equalization.

Complainant and Respondent presented appraisal reports, prepared by state certified appraisers, in support of their opinions of value.

FINDINGS OF FACT

1. The subject property is a 148.9 acre tract located in the northwest corner of Clay County, Missouri, two miles southeast of Holt, Missouri. The property is identified as parcel number 07-304-00-01-003.00; more commonly known as 17913 Bogue Road, Holt, Missouri.

2. The subject area is composed of predominantly family farms although recent sales have included sales for future residential development.

3. The subject real property is improved with a 1,400 square foot brick raised ranch built in 1969. The residence sits over a full, partially finished basement. The house has three bedrooms, two baths, and a one-car basement garage. The remaining life of the house is approximately 31 years.

4. The house and three acres of land are classified as residential. Additionally, there is a two-car detached garage which is also classified as residential.

5. The assessor originally valued the residential portion of the property at $121,700 (assessed value $23,130). Said value was approved by the Board of Equalization. Complainant now asserts a value of $80,195 (assessed value $15,240). Respondent asserts a market value of $152,100 (assessed value $29,090) in support of the original value approved by the Board of Equalization.

6. Although there are no recent sales of larger tracts containing residential property, there are a number of sales or rural residential properties on small acreages which may be adjusted to reflect the value of the subject residential property.

7. The sales comparison approach is the best method of determining the value of the subject residential property. The cost approach is not reliable because of the age of the improvements. The income approach is not reliable because of the lack of rental properties in the area.

8. The remaining land and improvements are classified as agricultural. Those improvements include:

• 120 square foot utility shed built in 1969

• 4,800 square foot metal storage shed built in 1950

• 704 square foot concrete and metal storage shed built in 1971

• 2,208 square foot concrete and metal hog confinement building built in 1970

• 10,000 bushel grain bin built in 1965

• 10,000 bushel grain bin built in 1965

• 12,000 bushel grain bin built in 1970

• grain handling complex built in 1965

• 400 square foot metal storage shed built in 2000

• 6,500 square foot concrete and metal hog breeding building built in 2000 having a useful life of 20 years

• 8,200 square foot concrete and metal hog farrowing and nursery building built in 2000, having a useful life of 20 years

• 8,200 square foot concrete and metal hog finishing building built in 2000 having a 20 year life

• 8,200 square foot concrete and metal hog finishing building built in 2000 having a 20 year life

• lagoon system

• various fixtures, including automated heating and air conditioning and automatic feeders which are deemed to be fixtures by reason of the fact that Complainant failed to declare same as personal property.

9. Complainant paid $890,000 for the 1999/2000 agricultural improvements. Most of the valuation dispute concerns the value of these newer improvements.

10. The assessor originally valued the agricultural portion of the property at $345,900 (assessed value $41,510). Said value was approved by the Board of Equalization. Complainant now asserts a value of $139,312 (assessed value $16,720). Respondent asserts a market value of $382,900 (assessed value $45,950) in support of the original value approved by the Board of Equalization.

11. The current use of the property is for agricultural purposes, i.e., feeding, breeding and management of livestock (Section 137.016.1(2), RSMo 2000). The immediate most suitable economic use of the property is for the feeding, breeding and management of hogs (Section 137.016.5, RSMo. 2000).

12. The true value in money of land which is in use as agricultural property shall be that value which such land has for agricultural use. The true value of buildings or other structures customarily associated with agricultural use shall added to the value of the agricultural land to determine the value of the agricultural property (Section 137.017.1, RSMo. 2000). Land which is classified as agricultural, shall remain in this category as long as the owner of the land complies with the provisions of Sections 137.017 through 137.021 (Section 137.017.2, RSMo 2000).

13. The evidence shows that there is a market for hog farms, and a number of sales of hog farms in Missouri. Additionally, a new hog confinement area is being built in Platte County, adjacent to Clay County, indicating a continuing demand for hog facilities.

14. The sales comparison approach is the best method for determining the value of the subject agricultural property. The cost approach has some value, but that value is limited because of an inability to measure depreciation. The income approach is not helpful in valuing the subject agricultural property because swine containment facilities are typically owner-occupied.

15. The evidence presented by Complainant is not credible, as more fully discussed below.

16. Respondent is precluded from advocating a value higher than the value initially determined by the Assessor or the Board of Equalization, whichever is higher. However, Respondent=s appraised value validates the value found by the Board of Equalization. Respondent=s appraisal is more reliable than Complainant=s appraisal because the conclusions of value under the sales approach are based upon market sales of similarly improved properties.

17. No evidence was presented which would indicated that there had been any new construction or property improvements between January 1, 2003, and January 1, 2004, which would warrant a change in the assessed value of the subject property.

18. The correct value for the residential portion of the property on January 1, 2003, and January 1, 2004, was $121,700 (assessed value $23,130).

19. The correct value for the agricultural portion of the property on January 1, 2003 and January 1, 2004, was $345,900 (assessed value $41,510).

CONCLUSIONS OF LAW

Section 137.115, RSMo. 2000 requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children=s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). It is the fair market value of the subject property on the valuation date. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).

However, AFor general property assessment purposes, the true value in money of land which is in use as agricultural and horticultural property, as defined in section 137.016, shall be that value which such land has for agricultural or horticultural use. The true value of buildings or other structures customarily associated with farming, agricultural, and horticultural uses, excluding residential dwellings and related land, shall be added to the use value of the agricultural and horticultural land to determine the value of the agricultural and horticultural property under sections 137.017 to 137.021. After it has been established that the land is actually agricultural and horticultural property, as defined in section 137.016, and it has been valued and assessed accordingly, the land shall remain in this category as long as the owner of the land complies with the provisions of sections 137.017 to 137.021.@ Sections 137.017.1 and 137.017.2, RSMo. 2000.

In order to prevail, a party must present an opinion of value and then must present substantial and persuasive evidence that its proposed value is indicative of the true value of the subject property on January 1, 2003, in order to have that value accepted. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897. ASubstantial@ evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). APersuasive@ evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

The Hearing Officer is not bound by any single formula, rule or method in determining true value in money, but is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled. The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide. St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968).

The Hearing Officer as the trier of fact may consider the testimony of any expert witness and give it as much weight and credit as she may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer is not bound by the opinion of experts who testify on the issue of reasonable value, but may believe all or none of the expert=s testimony and accept it in part or reject it in part. Beardsley v. Beardsley, 819 S.W. 2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W. 2d 605, 607 (Mo. banc 1981).

A party does not meet his burden of proof if evidence on any essential element of his case leaves the Commission Ain the nebulous twilight of speculation, conjecture or surmise.@ Rossman v. G.F.C. Corporation of Missouri, 596 S.W. 2d 469, 472 (Mo. App. 1980).

DISCUSSION

Respondent=s Sales Comparison Approach Supports Board Value

Respondent=s appraiser produced sales of three hog confinement farms in support of his opinion of value. After making adjustments for areas of significant variation, those sales indicate a value for Complainant=s agricultural property of $382,900. The most similar sale, Sale 1, had older and smaller buildings than the subject and sold in June of 2000 for $350,000. Although all of the sales had older and smaller improvements, they maintained a higher number of hogs than the subject property. Respondent=s appraiser made an additional adjustment for the Ahog units@ on each farm.

The value approved by the Board of Equalization for the subject agricultural improvements is supported by market sales.

Likewise, Respondent=s appraiser presented sales of residential properties which were similar to the residential portion of the subject property and which were located between three and six miles away from the subject property. After adjustments, those sales indicate a range of value for the subject residential property of $134,800 to $160,190. Respondent=s appraiser did not make an adjustment for the impact of the close proximity of the hog confinement area. However, we cannot say that the Board did not consider what, if any, impact location had when adopting the $121,000 value for the residential portion of the property.

Complainant=s Evidence is Not Credible

Complainant has the burden to present substantial and persuasive evidence in support of its opinion of value in order to have the decision of the Board of Equalization set aside.

The hearing officer is called upon to weigh the opinion and judge credibility of expert witnesses and evidence. Land Clearance for Redevelopment v. Kansas University, 797 S.W.2d 495 (WD 1990). An expert=s opinion must be founded on substantial information and not mere conjecture or speculation, and there must be a rational basis for the information. Missouri Pipeline Co. v. Wilmes, 898 S.W.2d 682 (Mo. App. 1995). The factual underpinnings of an expert witness= opinion goes to the weight and credibility of that opinion. Missouri Highway and Transportation Commission v. Kansas City Cold Storage, 948 S.W.2d 679. Testimony cannot be substantial or persuasive unless it is first found to be credible.

There are several areas of testimony that are problematic, raising concerns about the credibility of Complainant=s evidence.

1. Improper Valuation Date. The only proper date of valuation for the subject property is January 1, 2003. At the prehearing conference in October 2003, Complainant=s appraiser stated that the county=s value of $121,700 for the residential portion of the property was correct. However, at hearing Complainant=s appraiser testified that the correct value of the residential portion was only $80,195, as of April 14, 2004. In both instances, Complainant=s appraiser had presented an appraisal report in support of his opinion of value. At hearing, there was extensive cross examination about whether the October, 2003 value or the April, 2004 value was most accurate. Ultimately, Complainant=s appraiser decided that the April 2004 opinion was the most accurate reflection of the value of the property on January 1, 2003. Complainant=s appraiser testified that the property value probably hadn=t changed between January 1, 2003 and April, 2004 but also testified that he had recognized additional depreciation from his October, 2003 value and his April 2004 value. From the conversation between Complainant=s appraiser and counsel for Respondent, it is evident that Complainant=s appraiser had not considered the valuation date to be important prior to the time that he was challenged (Tr. 32-36; 49-54). Because property values tend to change over time, a proposed value for April 2004 is not substantial and persuasive evidence of the value of the property on January 1, 2003. It is not sufficient to assert that the value Aprobably@ had not changed.

2. Failure to Use Sales Approach for Residential Valuation. Although there were a number of recent rural residential sales of smaller tracts, Complainant=s appraiser testified that none of these sales could be used as comparable sales to determine value of the residential portion of this property. Complainant=s appraiser stated that the only possible residential comparable that could be used in this instance was a rural sale with a similar acreage. Having failed to find a residential sale with approximately 148 acres in this area of Clay County, and not being willing to adjust smaller sales, Complainant=s appraiser relied on the cost approach to determine the value of the residential portion of the property.

Failure to use sales of smaller acreage improved properties was an error. Not only do sales provide the best indicator of market value, they can also be adjusted to recognize market reaction to variations. It would have been an easy process to use comparable residential sales and adjust for excess acreage. This methodology is accepted in the appraisal industry and would have yielded a more accurate determination of value for the subject residential property.

Failure to use comparable sales left the appraiser relying on a cost approach to value a 35 year old home. It is an accepted premise in the appraisal industry that, as a property ages, a cost approach becomes less reliable because depreciation becomes difficult to measure accurately. A cost approach is best used on a new property; a special use or unique property; or a property which cannot be valued by a sales or income approach.

Not only is Complainant=s cost approach unreliable because of age, it is also unreliable because of methodology.

In valuing the residence under the cost approach, Complainant=s appraiser calculated replacement cost new and applied 50% physical deprecation. However, he then deducted another 15% for functional obsolescence. As noted in Complainant=s appraisal, it is an appraisal error to use a functional obsolescence adjustment when using replacement cost new. A. . .Inherent by definition in utilizing Replacement Cost is the elimination of any functional obsolescence. . .@ (Ex. 1, p. 26, see also Tr. p. 20). This very fundamental error raises questions about the quality and accuracy of the other adjustments within Complainant=s appraisal report.

3. Unsupported Economic Obsolescence Adjustment. Complainant=s appraiser developed his 85% economic obsolescence adjustment for the hog containment buildings based upon a single sale (the Turney sale) which has questionable validity. The fact that the lender was selling the property suggests that the property had been foreclosed. The circumstances around the actual sale, marketing efforts, and the time on the market were not disclosed and it is impossible to ascertain if this is a discounted price or a true reflection of economic obsolescence and market value.

Although Mr. Harris testified that his research indicated that other similar properties suffered from 90% economic obsolescence; no other sales were presented to bolster the questionable Turney sale.

Economic obsolescence occurs when factors outside the property impinge on the property=s value. Economic obsolescence is always a questionable deduction and strict proof is required to devalue a property based upon economic obsolescence. While it is true that many people do not want to live around a swine production facility, this fact tends to devalue the surrounding property more than it devalues the swine production facility.

4. Wrong Highest and Best Use. Complainant=s appraiser focused on the wrong highest and best use. Because Mr. Harris was so focused on potential future residential development of the property, it was his position that the improvements would be salvaged off because they added no value for that potential highest and best use (Tr. 30). He stated: A. . .[T]here=s no question that the highest and best use of this property is for rural residential development. And the buildings have to be valued, if they can at all, for the buildings to have value, that have to be consistent with the highest and best use of the land. If the buildings are not consistent with the highest and best use of the land, they cannot have value. . .@ (Tr. 58, 59). AThe improvements are . . .not conducive to the as vacant land use, and don=t offer significant value.@ (Tr. 60).

Although Mr. Harris was willing to speculate about many other hypothetical uses, he adamantly refused to concede that the highest and best use of the subject property could be as improved. Based upon this position, Mr. Harris used sales of raw crop land which had been purchased for subsequent residential development rather than sales of swine production facilities.

While it is true that the farm land may be more valuable if it were sold and subdivided into residential properties, state law does not allow us to value property in this manner when there is an existing agricultural use. When a property is being used for agricultural purposes, it must be valued as though the agricultural use was the highest and best use. The best comparable sales for the subject property are sales of other swine production facilities.

5. Unsupported Conclusions of No Market Value. Complainant=s appraiser asserts that there is no market for the subject agricultural property as improved. He suggests (a) that the subject property has no value because it has no contract with a major vertical producer; and (b) that farrow to finish operations are undesirable and cannot be converted into single use properties. Mr. Harris=s own evidence suggests that these conclusions are not true.

(a) Properties sell without contracts. Mr. Harris asserts that hog confinement operations that do not have contracts with vertical producers – such as the subject property – cannot be sold. Mr. Harris further asserts that the sales comparison approach cannot be utilized to value the subject property because all of the value in the recent sales of swine containment facilities is in their intangible contract value.

Attachment 8 to Mr. Harris=s appraisal report is a property which sold for $590,000. The buyer procured a new contract after the sale. This suggests that the contract was not a factor in determining the sale price of the property.

Likewise, Mr. Harris=s attachment 9 is a property which sold for $335,000. It shows that the sale was contingent upon the buyer being able to obtain a contract from Cargill. This demonstrates that the sales price did not include the value of a continuing contract with a vertical producer.

Mr. Harris points to one sale (the Turney sale) where a swine production facility sold for substantially less than it=s replacement cost new less depreciation, which he asserts supports his opinion that a non-contract swine production facility has little value. However, that sale may have been a distress situation since it was sold by a lender to a local farmer. Mr. Harris=s assertion that Amarket data will show that non-contract swine production units have no demand to be purchased@ (Tr. 15) is not supported by this sale.

There is no other market data presented which suggests that a contract adds anything to the value of a property. There was no explanation for why the subject property did not have such a contract; how hard it would be to obtain such a contract; if these contracts were even transferrable to subsequent owners; or what value having such a contract would add to the property. There are no factual underpinnings to Mr. Harris=s conclusion.

(b) Properties are converted to different uses. Mr. Harris testified that the subject property was not marketable because it was a farrow to finish operation, which no purchaser would want. He further testified that conversions would be cost prohibitive. Finally, he testified that all farrow to finish operations that were for sale were sitting empty and unwanted. Attachment 8 to Mr. Harris=s appraisal report was a farrow to finish operation which was converted to a single use in 1997. Likewise, Mr. Harris=s attachment 9 is a property which was a conversion of a nursery into a farrowing building. Both sales indicate that buyers are willing to make conversions to suit their needs. If farrow to finish operations were not selling, there should be some examples of unsold operations that Mr. Harris could have pointed to, but none were presented.

The very fact that Complainant would spend $890,000 to construct a farrow to finish operation suggests that the appraiser=s opinion is incorrect. A prudent business organization would not spend $890,000 to build something which would be worth no more than $68,000 – and maybe as little as zero – two or three years later. This defies common sense. And there was no testimony which would suggest that Complainant, or its principals, had a history of acting in an imprudent manner. In the absence of evidence, we will not presume poor business practices to support a reduction in value.

Conclusion

Complainant=s evidence fails on many fronts – any one of which is fatal to a finding of credibility. When a party asserts that its property has absolutely no value for the use for which it was improved (Tr. 66-67), it is tantamount upon that party to present substantial and persuasive evidence to that end. An appraiser=s opinion, without supporting market data, will not carry the day. Complainant has failed to meet its burden of proof and has failed to overcome the presumption in favor of the Board of Equalization.

DECISION

The value initially determined by the Assessor and approved by the Board of Equalization is AFFIRMED.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Clay County as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED July 9, 2004.

STATE TAX COMMISSION OF MISSOURI

Luann Johnson

Hearing Officer

 

NORTHTOWN VILLAGE, )

)

Complainant, )

)

v. ) Appeal Nos. 03-62515 through 03-62558

)

DON DAVIS, ASSESSOR, )

JASPER COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

Complainant=s evidence is minimally sufficient to establish the appropriateness of an agricultural classification and the application of agricultural grade values on the subject lots.

ISSUES

Complainant appealed these assessments on grounds of overvaluation and misclassification. Specifically, Complainant argued that (1) the statute provides that the assessment of lots cannot change from agricultural to residential until the actual occupation of the house takes place; (2) Jasper County=s methodology for classifying and assessing developing subdivisions differs from that of Christian and Greene Counties which creates a uniformity problem; and (3) the lots are used for agricultural purposes in that hay is cut annually.

SUMMARY

Complainant appeals the assessments on 44 vacant lots in the Northtown Village subdivision located at Highway D and Amber Drive in Oronogo, Missouri. The decision letter from the Jasper County Board of Equalization, issued on September 10, 2003, reflects that for the 2003 assessment the Assessor valued the parcels based upon an estimate of their market value and classified them as residential property. The Board of Equalization affirmed these assessments.

An evidentiary hearing was held on December 11, 2003, before the State Tax Commission Hearing Officer, Aimee L. Smashey, in the Jasper County Annex Building in Carthage, Missouri. Complainant was represented by Thomas Mann, Attorney. Respondent was represented by Mike Roberts, Assistant Prosecuting Attorney.

Complainant=s Evidence

Complainant offered the testimony of Jim Allen, CPA and Vice President of Complainant. Mr. Allen testified about the development of Phase 2 of the subject subdivision. He indicated that Complainant has cut and sold hay once a year and cut and sold some timber from the subject lots. Complainant=s on-site manager usually locates someone willing to cut the hay and the typical arrangement is that the cutter receives 2/3 and the landowner receives 1/3 of the sales price.

Respondent=s Evidence

Respondent offered the testimony of Assessor Don Davis, Deputy Assessor Karen Wright, and Chief Deputy Assessor Sharon Collier. Mr. Davis testified about the manner in which Jasper County classifies and values new subdivision developments. He further testified that occupancy law is not in effect for Jasper County until January 1, 2004. Ms. Wright testified that she had physically inspected the subject subdivision on two occasions and had not detected any type of agricultural activity during her inspections. Ms. Collier testified that when a new subdivision starts developing, the platted lots are valued at 50% of the standard residential lots values for the area and such lots are not assessed at full value until they are sold or developed.

FINDINGS OF FACT

1. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Jasper County Board of Equalization.

2. Complainant filed Complaints for 44 parcels, each with specific parcel numbers and the general address as Highway D and Amber Drive, Oronogo, Missouri. There is a discrepancy between the number of parcels (44 parcels) which Complainant appealed for 2003 and the number of parcels that Complainant appears to have owned on January 1, 2003, based upon Complainant=s Exhibits 1 and 2 (43 parcels). Complainant=s Exhibit 1 is a map of the plat for the Northtown Village subdivision outlining 47 lots identified as Phase 2 of the subdivision. It appears from Mr. Jim Allen=s testimony referencing Complainant=s Exhibit 2 (Tr. 14), that Complainant sold 4 lots (#42, #51, #56, and #67) from Phase 2 in the 2002 year, which leaves 43 lots according to the outlined area on the plat in Complainant=s Exhibit 1.

3. Complainant filed a subdivision plat for Northtown Village on February 4, 2002. Curbed streets and utilities serving the subject lots were constructed between February and October of 2002.

4. Complainant=s on-site manager, Mr. Gerald Schaefer, annually hires a hay cutter to cut hay from the subject lots. Tr. 26. Additionally, some timber has been cut and sold during Complainant=s ownership of the subject property.

CONCLUSIONS OF LAW AND DECISION

For property tax purposes, Missouri law provides that real property is to be classified into one of three categories — >residential property=, >agricultural and horticultural property=, and >utility, industrial, commercial, railroad, and other real property.= Section 4(b), article X of the Missouri Constitution. The categories are defined by statute in Section 137.016.1, RSMo 2000. In relevant part, the statute provides:

As used in section 4(b) of article X of the Missouri Constitution, the following terms mean:

(1) “Residential property“, all real property improved by a structure which is used or intended to be used for residential living by human occupants, vacant land in connection with an airport, land used as a golf course, and manufactured home parks, but residential property shall not include other similar facilities used primarily for transient housing. For the purposes of this section, Atransient housing@ means all rooms available for rent or lease for which the receipts from the rent or lease of such rooms are subject to state sales tax pursuant to section 144.020.1(6), RSMo;

(2) “Agricultural and horticultural property“, all real property used for agricultural purposes and devoted primarily to the raising and harvesting of crops; to the feeding, breeding and management of livestock which shall include breeding and boarding of horses; to dairying, or to any other combination thereof; and buildings and structures customarily associated with farming, agricultural, and horticultural uses. Agricultural and horticultural property shall also include land devoted to and qualifying for payments or other compensation under a soil conservation or agricultural assistance program under an agreement with an agency of the federal government. Agricultural and horticultural property shall further include land and improvements, exclusive of structures, on privately owned airports that qualify as reliever airports under the Nation Plan of Integrated Airports System, to receive federal airport improvement project funds through the Federal Aviation Administration. Real property classified as forest croplands shall not be agricultural or horticultural property so long as it is classified as forest croplands and shall be taxed in accordance with the laws enacted to implement section 7 of article X of the Missouri Constitution;

(3) “Utility, industrial, commercial, railroad and other real property“, all real property used directly or indirectly, for any commercial, mining, industrial, manufacturing, trade, professional, business, or similar purpose, including all property centrally assessed by the state tax commission but shall not include floating docks, portions of which are separately owned and the remainder of which is designated for common ownership and in which no one person or business entity owns more than five individual units. All other real property not included in the property listed in subclasses (1) and (2) of section 4(b) of article X of the Missouri Constitution, as such property is defined in this section, shall be deemed to be included in the term “utility, industrial, commercial, railroad and other real property”.

Section 137.016.1, RSMo 2000. As illustrated in the definitions, the classification turns on the actual use put to the property. If there is no active use being made of the property, the classification turns on the immediate most suitable economic use that could be made of the property after consideration of certain factors set forth at Section 137.016.5, RSMo 2000.

Complainant argued at hearing that the statute provides that the assessment of lots cannot change from agricultural to residential until the actual occupation of the house takes place. In relevant part, Section 137.119, RSMo 2000 provides:

The filing of a real property subdivision plat with the recorder of deeds shall not, singularly, result in a change in classification or an increase in the appraised value of such property. All contiguous lots and lands for which a plat has been filed shall be combined and valued as a single parcel if no improvements have been made to such lots or lands.

On May 2, 1995, the Commission issued a Memorandum to all assessors in the state addressing this statute. The memo referenced the circuit court decision in St. Charles County, Cause No. CV194-2460 which resulted in a March 13, 1995, ruling from Judge Rauch that when improvements are made on a particular lot, that lot may be split into a separate parcel and valued individually, with the remaining contiguous unimproved property continuing to be valued as a single parcel. The memo also provided three examples that the Commission hoped would be helpful in understanding the statute. The second example fits the facts in this appeal. It provides that when a developer files a subdivision plat with the recorder of deeds dividing a tract previously classified as agricultural land into twenty lots and builds access roads into the land, the valuation and classification of the parcel as a whole may change, but the lots must be valued as a single combined parcel because there has been no improvement on a particular lot. Based upon this guideline, once the roads are constructed or the utilities are put in such that they can be accessed from each lot, the valuation and classification of the parcel may change.

Complainant filed a subdivision plat for Northtown Village on February 4, 2002. Curbed streets and utilities serving the subject lots were constructed between February and October of 2002. Once those improvements had been made, the assessor and his staff were following good assessment practice in changing the classification and valuation of the subdivision land.

To the extent that Complainant=s argument addresses the provisions of occupancy law set out at Section 137.082, RSMo, this statute is not applicable to the facts in this case because these provisions (1) do not impact the assessment of the underlying land, they only require that a residential building or structure shall not be assessed until occupancy or the year after the construction is completed, and (2) had not been adopted by the Jasper County governing body such that they were effective on January 1, 2003.

Complainant also argued that Jasper County=s methodology for classifying and assessing developing subdivisions differs from that of Christian and Greene Counties which creates a uniformity problem. The evidence concerning Jasper County=s methodology for the classifying and assessing of developing subdivisions shows it to be lawful and appropriate. The Jasper County Assessing staff reviewed the property, noted the road improvements to the subdivision land, and did not note any apparent agricultural use. The resulting assessments were appropriate and lawful based upon the observations at the site. [Note: When a property owner is performing an active agricultural use, such as the cutting of hay which is only clearly observable while the cutting is taking place, on property that has an observable alternative use, the property owner assumes the responsibility of notifying the assessing staff of the active agricultural use.] There was insufficient evidence presented concerning the applicable law for Christian and Greene counties and the specific methodologies used by these counties in assessing developing subdivisions to show an unlawful lack of uniformity.

Complainant=s final argument was that the subject lots should be classified and valued as agricultural property because hay is cut and sold annually from them. While Complainant could have done a more thorough job at establishing the timing, scope, and approach of the third-party hay cutter in light of the difficulty in haying lots in a subdivision improved with curbed streets, Complainant=s evidence is minimally sufficient to establish the appropriateness of an agricultural classification and productive value for the subject lots.

ORDER

In light of the evidence establishing the fact that hay has been cut from the subject lots annually and sold, the subject lots should be classified as agricultural property and valued based upon its productive capacity as determined by the grade and value assigned in the 2001 assessment. The agricultural grade values set by regulation have remained stable since the 2001 tax year. 12 CSR 30-4.010.

If either party ascertains that Complainant did not own all 44 of the appealed parcels as of the January 1, 2003, tax date, that party is directed to notify the Commission promptly and in no case later than 30 days after the date of this decision and order such that the scope of this decision can be corrected.

A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision. The application shall contain specific grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial. Section 138.432, RSMo.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with these appeals shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Jasper County as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in these appeals. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED May 27, 2004.

STATE TAX COMMISSION OF MISSOURI

Aimee Smashey

Hearing Officer

ORDER

REVERSING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

On May 27, 2004, Hearing Officer Aimee L. Smashey entered her Decision and Order (Decision) setting aside the assessments by the Jasper County Board of Equalization.

Respondent timely filed his Application for Review of the Decision. Complainant timely filed Response.

FINDINGS OF FACT

1. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Jasper County Board of Equalization.

2. Complainant filed Complaints for 44 parcels, each with specific parcel numbers and the general address as Highway D and Amber Drive, Oronogo, Missouri. There is a discrepancy between the number of parcels (44 parcels) which Complainant appealed for 2003 and the number of parcels that Complainant appears to have owned on January 1, 2003, based upon Complainant=s Exhibits 1 and 2 (43 parcels). Complainant=s Exhibit 1 is a map of the plat for the Northtown Village subdivision outlining 47 lots identified as Phase 2 of the subdivision. It appears from Mr. Jim Allen=s testimony referencing Complainant=s Exhibit 2 (Tr. 14), that Complainant sold 4 lots (#42, #51, #56, and #67) from Phase 2 in the 2002 year, which leaves 43 lots according to the outlined area on the plat in Complainant=s Exhibit 1.

3. Complainant filed a subdivision plat for Northtown Village on February 4, 2002. Curbed streets and utilities serving the subject lots were constructed between February and October of 2002.

4. The testimony of Complainant=s accountant of some possible hay cutting or timber cutting was insufficient to establish by substantial and persuasive evidence an on going agricultural use prior to and as of January 1, 2003 that did in fact continue after curb, guttering and utilities were constructed to the various individual lots which comprise the Northtown Village development.

CONCLUSIONS OF LAW

Complainant=s Burden of Proof

In an appeal challenging the classification of real property, Complainants must present substantial and persuasive evidence that the use of the property as of the effective tax date (January 1, 2003 in this instance) is consistent with the proposed classification as established by statute. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897. Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975). See also, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003).

Board of Equalization Presumption

There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).

DECISION

The taxpayer as the moving party in a classification case, bears the burden of establishing by substantial and persuasive evidence the appropriate classification under the controlling statutes. Although there is no presumption as to the Assessor=s valuation being correct, there is a presumption of correct classification by the assessor and of correct assessment by the Board. Hermel and May, supra. In the present case, on the critical issue of an ongoing and existing agricultural use, specifically that had been and was continuing to be annually harvested off of lots prepared for residential use by installation of curb, guttering and utilities, Complainant did not meets its burden of proof.

A taxpayer does not meet his burden if evidence on any essential element of his case leaves the Commission Ain the nebulous twilight of speculation, conjecture and surmise.@ See, Rossman v. G.G.C. Corp. Of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980). The essential element in this case for reclassification was to establish the agricultural use of the subject lots. Although Complainant=s witness testified about a haying operation and some past timber cutting, there was no substantiating evidence. No documentation to establish either the person or persons who had cut hay or timber was presented. No documentation was presented to establish the frequency of either hay or timber cutting. No documentation was presented to establish the most recent hay and timber cutting activities.

The entirety of the claim of agricultural use was based upon hearsay testimony. The Commission is not persuaded based upon this testimony, when there was available to Complainant sufficient time and resources to have provided solid documentary evidence, and additional supporting testimony to establish that the haying and timber operations were of such a nature as to have been going on in a regular basis even after streets, curbs, guttering and other utilities had been located to the subject lots.

Complainant=s failed to carry their burden of proof and rebut the presumption of correct classification by the Assessor and correct assessment by the Board.

ORDER

The Commission upon review of the record and Decision in this appeal, the Decision of the Hearing Officer should be reversed. Accordingly, the Decision is set aside. The subject properties are to be assessed for tax years 2003 and 2004 as residential properties and assessed values as set forth for each parcel in the Board Decision Letters.

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.

SO ORDERED October 22, 2004.

STATE TAX COMMISSION OF MISSOURI

Sam D. Leake, Chairman

Bruce E. Davis, Commissioner

Jennifer Tidwell, Commissioner

 

LAKE OZARK VILLAGE, )

)

Complainant, )

)

v. ) Appeals Number 97-47000, 99-47003

) and 01-47002

EDDIE WHITWORTH, ASSESSOR, )

CAMDEN COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

The methodology set forth in Maryville Properties v. Nelson, State Tax Commission Appeal No. 97-74500, as modified by the Western District Court of Appeals, is the correct methodology to determine market value of subsidized properties. The values established for the subject property for tax years 1997 through 2002 are SET ASIDE. The market value for the subject property on January 1, 1997 and January 1, 1998 was $813,170 (assessed value $154,500). The market value for the subject property on January 1, 1999 and January 1, 2000 was $577,220 (assessed value $109,670). The market value for the subject property on January 1, 2001 and January 1, 2002 was $602,770 (assessed value $114,530).

ISSUE

The Commission takes this appeal to determine the true value in money for the subject property on January 1, 1997, January 1, 1999, and January 1, 2001.

SUMMARY

On November 24, 2003, the above-entitled matter came on regularly for hearing in front of Hearing Officer Luann Johnson in the Camden County Courthouse, Camdenton, Missouri. Complainant was represented by counsel, Cathy Dean. Respondent was represented by counsel, William Icenogle. Both parties submitted post-hearing briefs on January 30, 2004.

The issue on appeal was the true market value of a 24 unit subsidized housing complex for tax years 1997 and 1998; tax years 1999 and 2000; and tax years 2001 and 2002. All exhibits not specifically objected to on the record were entered into evidence.

At the close of the hearing, counsel for Complainant objected to the introduction of a review appraisal prepared by Mr. Loren K. Woodard for use by Respondent as a rebuttal exhibit. Complainant=s objection to the introduction of the exhibit was taken under advisement. Said exhibit is not admissible into evidence inasmuch as it was not authenticated by Mr. Woodard at hearing and was not used to cross-examine Complainant=s expert.

FINDINGS OF FACT

Jurisdiction is Proper

1. Jurisdiction over these appeals is proper. The taxpayer timely appealed to the State Tax Commission from the decision of the Camden County Board of Equalization.

Maryville Properties Methodology Applies

2. These appeals revisit the issue of the proper way to value subsidized housing developments. The subject property, parcel number 09-3.0-06.1-000.0-001-058-004, is a 24-unit apartment complex constructed under the same subsidized housing section as Maryville Properties. Like the Maryville Properties case, a portion of the units must be maintained for low-income tenants; the owners are subject to program record keeping requirements; and are eligible to receive a 7% interest reduction on their loan. And, as in Maryville Properties, the promissory note between the partners and the government is a non-recourse loan providing:

ANO PARTNER, EITHER GENERAL OR LIMITED, WILL HAVE ANY PERSONAL LIABILITY FOR THE PAYMENT OF ALL OR ANY PART OF THE INDEBTEDNESS.@ (Respondent Ex. 6, p. 7).

3. On December 14, 1998, by order of the State Tax Commission, the proceedings concerning the subject property and a number of other similar properties were stayed pending the outcome of Maryville Properties v. Nelson, State Tax Commission appeal No. 97-74500. In order to preserve its appeal rights, in addition to its 1997 and 1998 appeal, the taxpayer timely filed an appeal for tax years 1999, 2000, 2001 and 2002. Those appeals were also stayed by order of the State Tax Commission.

4. A decision was issued by the Hearing Officer and affirmed by the State Tax Commission in the Maryville Properties case in 2000.

5. The decision of the State Tax Commission in the Maryville Properties case was appealed. The Western District Court of Appeals rejected the use of tax credits and accelerated depreciation in calculating market value of subsidized properties, but left the remainder of the State Tax Commission=s valuation methodology unaltered. The Missouri Supreme Court denied application for transfer.

6. Official notice is taken of the State Tax Commission decision, and the Court of Appeals decision, in the Maryville Properties case.

Industry Standards Modified

7. Valuation of subsidized housing falls outside the industry standards for determining market value. Generally accepted industry standards define market value as being a value where: AFinancing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale; and the price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs or credits incurred in the transaction.@ Under the factors commonly considered when determining real property value, we would be required to ignore the benefits, restrictions and unique financing experienced by the subject property. However, in Missouri Baptist Children=s Home v. State Tax Commission, 867 S.W.2d 510 (Mo. banc 1993), our Supreme Court effectively modified industry standards and guidelines when it determined that the impact of long-term leases must be considered when determining value.

Likewise, in Maryville Properties v. Nelson, 83 S.W.3d 608 (W.D. 2002), our Court of Appeals indicated that we must consider Aeconomic realities@ when valuing property. That court further held that factors which have a direct impact on the income of the property should be considered. The economic realities which have a direct impact on the income producing capabilities of a subsidized property are: low equity requirements, subsidized income, subsidized interest, above market expenses and non-recourse promissory notes.

Thus, we find that we must reject approaches to value that fail to adequately deal with the unique characteristics of the subject property=s financing. Market rents, expenses, yield rates and capitalization rates are of no value when determining the income producing capability of subsidized properties. As long as a property remains subsidized, it can never be valued using traditional industry standards and definitions of fair market value which require that we ignore those financing realities. This will, undoubtedly, create problems for appraisers who are accustomed to valuing property based upon industry standards. However, we cannot ignore the dictates of Missouri Baptist Children=s Home and Maryville Properties which, in effect, create a definition of Atrue value@ or Amarket value@ that is outside typical appraisal methodology.

Maryville Properties Methodology

8. With Missouri Baptist Children=s Home in mind, the Tax Commission decision in Maryville Properties set forth the methodology for valuing subsidized properties which considers the economic realities of the financing arrangements and the impact of those financing arrangements on the income stream of subsidized housing. Utilization of data derived from something other than the subsidized property fails to consider Aeconomic reality@ and creates a presumption of mis-valuation. Maryville Properties defines the methodology to be employed as follows:

AAn income approach for subsidized property should use actual income and expenses realized by the subsidized property; it should use the loan-to-value ratio approved by the subsidizing agency based upon the subsidized mortgage rate; it should allow an appropriate equity dividend rate; and the taxes should be included in the capitalization rate.

The advantages of using actual income, expenses and financing terms are clear. An investor will look at the benefits and restrictions the property actually carries when making a purchasing decision. Likewise, by using actual expenses, including the significantly higher management fees, and considering the contributions required for the reserve account, Complainant=s concerns about the high costs of operating the project are appropriately addressed.@ (Finding of Fact #23).

 

Complainant=s Discounted Cash Flow Unreliable

9. In the Maryville Properties case, the income approach commonly referred to as the Adiscounted cash flow method@ of valuing subsidized housing was found to be unpersuasive. In the best of circumstances, in order to be valid, a discounted cash flow income approach must be based upon trending substantial historical market data from the subject property or substantially similar properties and must have a very short projection period.

In this case, none of the criteria for a valid discounted cash flow have been met. Although the appraiser mentions income and expenses from 6,750 units (Ex. CC, p. 24), he only uses the actual income and expenses from the subject property and an Aaverage@ vacancy rate rather than actual vacancy rates. He then uses a 9% interest rate instead of 1% actually paid – after interest subsidies (Ex. CC, p. 31-32). Finally, the appraiser attempts to trend income and expenses for 48 years through the year 2044.

Complainant=s appraiser asserts that his 15% vacancy rate is an economic reality, but that is simply false. The actual vacancy rate was not 15%.

Complainant=s appraiser does not attempt to characterize his 9% capitalization rate as economic reality but counsel asserts that it is the rate necessary to attract capital investment for this type of property. Again, this is not economic reality.

For these reasons, Complainant’s discounted cash flow is not persuasive.

Complainant=s Income Approach Unreliable

10. Complainant=s appraiser also prepared a more traditional income approach to value. Because there are no market sales of similar properties, Complainant=s appraiser used a mortgage/equity formula for determining the capitalization rate. In this methodology, Complainant=s appraiser did not use the actual interest paid on the subsidized loan but, instead, used a floating rate which he testified was necessary to account for the buildup of equity. And, suggesting that the subject property was a high-risk investment, Complainant=s appraiser asserted that an equity yield rate of 20% would be required to attract investors.

There is no reliable data to support Complainant=s assertion that the subject property would be considered a high-risk investment or that the loan to value ratio would change. These conclusions are purely speculative.

Finally, there is no evidence that Complainant=s appraiser made any adjustment for the favorable interest rate running with the property or the non-recourse nature of the promissory note.

Complainant=s Sales Comparison Unreliable

11. For whatever reason, subsidized properties do not sell in the open market. Consequently, there is no basis for a sales comparison approach to value. Complainant=s appraiser did attempt a sales comparison approach but utilized unsubsidized sales and attempted to adjust for external and functional obsolescence due solely to the special financing arrangements for the subject property.

In Maryville Properties we specifically found that Afinancing tools do not create external obsolescence@ (Finding of Fact #5). Similarly, financing tools do not create Afunctional obsolescence.@ Rent restrictions and management fees do not limit the ability of the apartment complex to function as an apartment complex.

There is no evidence which suggests that the subject property suffers from any functional or external obsolescence. Complainant=s sales comparison approach is wholly conjecture and is not a reliable indicator of value for the subject property.

Complainant=s Cost Approach Unreliable

12. Complainant=s appraiser also attempted to prepare a cost approach to value.

As in the sales approach, Complainant=s appraiser has attempted to use financing tools to justify a Afunctional obsolescence@ adjustment of $160,000 and an Aexternal obsolescence@ adjustment of $160,927. To the extent that Complainant=s appraiser has attempted to use said financing tools as a justification for a reduction in value under his cost approach, his cost approach fails to state the true value of the subject property.

Maryville Properties Methodology Applied

13. Prior to evidentiary hearing, Hearing Officer Luann Johnson supplied the parties with worksheets for calculating value using the Maryville Properties methodology. Said worksheets are identified as Complainant=s Exhibit AA and Respondent=s Exhibit 26.

14. For tax years 1997 and 1998, the assessor valued the property at $858,684 (assessed value $163,150). Upon appeal, the Board of Equalization reduced value of $700,105 (assessed value $133,020). In his appraisal report, Complainant=s appraiser, Teddy Blaylock, asserts a value of $360,000 (assessed value $68,400). Under the Maryville Properties approach to value, the value for the property on January 1, 1997 was $813,167 (Respondent=s Ex. 26). Although not agreeing with the Maryville Properties methodology, Mr. Blaylock produced a modified version of the Maryville Properties methodology which resulted in a value for the subject property for tax year 1997 of $622,755 (Complainant Ex. AA).

15. For tax years 1999 and 2000, the assessor valued the property at $700,100 (assessed value $133,020). Upon appeal, the Board of Equalization approved the assessor=s value. In his appraisal report, Blaylock asserts a value of $365,000 (assessed value $69,350). Under the Maryville Properties approach to value, the value of the property on January 1, 1999 was $577,218 (Respondent Ex. 26). Under the Blaylock modified version of the Maryville Properties methodology, the value of the subject property on January 1, 1999 was $491,700 (Complainant Ex. AA).

16. For tax years 2001 and 2002, the assessor valued the property at $754,900 (assessed value $143,430). Upon appeal, the Board of Equalization affirmed the assessor=s value. For tax year 2001, Mr. Blaylock asserts a value of $350,000 (assessed value $66,500). Under the Maryville Properties approach to value, the value of the property on January 1, 2001 was $602,772 (Respondent Ex. 26). Under the Blaylock modified version of the Maryville Properties methodology, the value of the subject property on January 1, 2001 was $375,000 (Complainant Ex. AA).

17. The values calculated by Complainant=s appraiser in his appraisal report and his modified Maryville Properties approach to value are not reliable indicators of market value for the subject property on the various tax days inasmuch as Mr. Blaylock has failed to correctly apply the Maryville Properties methodology.

18. The Respondent=s calculations of value under the Maryville Properties methodology are correct and correctly state the value for the subject property on the various tax days. The market value for the subject property on January 1, 1997 and January 1, 1998 was $813,170 (assessed value $154,500). The market value for the subject property on January 1, 1999 and January 1, 2000 was $577,220 (assessed value $109,670). The market value for the subject property on January 1, 2001 and January 1, 2002 was $602,770 (assessed value $114,530).

19. Correct calculations are set out in Respondent=s Exhibit 26 as follows:

	1997	1999	2001
Income
Rental Income	$ 40,786	$ 45,558	$ 49,203
Rental Subsidy	$ 43,612	$ 45,162	$ 44,421
Laundry/Vending	$ 166	$ 347	$ 297
Potential Gross Income	$ 84,564	$ 91,067	$ 93,921
Less: Actual Vacancy & Collection	$ 5,270	$ 6,198	$ 11,689
Effective Gross Income	$ 79,294	$ 84,869	$ 82,232
Expenses
Maintenance & Repair	$ 6,600	$ 8,529	$ 7,075
Utilities	$ 14,281	$ 15,111	$ 13,796
Administrative	$ 16,233	$ 21,580	$ 27,165
Insurance	$ 2,399	$ 1,969	$ 2,646
Reserve for Replacement	$ 8,113	$ 15,135	$ 7,720
Total Expenses	$ 47,626	$ 62,324	$ 58,402
Net Operating Income	$ 31,668	$ 22,545	$ 23,830
Capitalization
Loan to Value x Actual Interest Rate	.025402	.025402	.025402
Equity x Equity Dividend Rate	.007500	.007500	.007500
Effective Tax Rate	.006042	.006156	.006632
Overall Capitalization Rate	.038944	.039058	.039534
Value Net Operating Income divided by Overall Capitalization Rate	$ 813,167 (say $ 813,170)	$ 577,218 (say $577,220)	$ 602,772 (say $602,770)

CONCLUSIONS OF LAW

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. Article X, Section 14, Mo. Const. of 1945, Sections 138.430, 138.431 RSMo.

Board of Equalization Presumption

There is a presumption of validity , good faith and correctness of assessment by the Board of Equalization. Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).

Standard for Valuation

Section 137.115, RSMo, requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. True value in money is defined in terms of value in exchange and not value in use. Mo. Const. Art. X, Section 4(b); St. Joe Minerals Corp v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children=s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). It is the fair market value of the subject property on the valuation date. Hermel, supra, at 897.

Complainant=s Burden of Proof

In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on the tax day. Hermel, supra, at 897. Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

Duty to Investigate

In order to investigate appeals filed with the Commission, the Hearing Officer has the duty to inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property. The Hearing Officer=s decision regarding the assessment or valuation of the property may be based solely upon her inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties. Section 138.430.2, RSMo.

Weight to be Given Evidence

The Hearing Officer is not bound by any single formula, rule or method in determining true value in money, but is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled. The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide. St. Louis v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968).

The Hearing Officer as the trier of fact may consider the testimony of an expert witness and give it as much weight and credit as she may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer is not bound by the opinions of experts who testify on the issue of reasonable value, but may believe all or none of the expert=s testimony and accept it in part or reject it in part. St. Louis County v. Boatmen=s Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992); Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981).

Opinion Testimony by Experts

If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.

The facts or data upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing and must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject and must be otherwise reliable, the facts or data upon which the expert relies need not be admissible in evidence. Section 490.065, RSMo; Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-705; pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. E.D. 1992).

Commission Determines Methodology

It is within the State Tax Commission’s discretion to determine what method or approach it shall use to determine the true value in money of property. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 896; Chicago, Burlington & Quincy Railroad Co. v. State Tax Commission, 436 S.W.2d 650, 657 (Mo. 1968), cert den. 393 U.S. 1092 (1969); St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1997).

It is also within the State Tax Commission’s authority to ascertain the correct or modern means of determining value according to a particular method or approach that it adopts to ascertain valuation, and it is within the Commission’s discretion to determine what factors should be considered in fixing the “true value in money” for property under a valuation method or approach adopted for use in a particular case. Hermel, Inc. v. State Tax Commission, supra. The relative weight to be accorded any relevant factor in a particular tax assessment case is for the State Tax Commission to determine. St. Louis County v. State Tax Commission, 515 S.W. 446, 450 (Mo. 1974). State Tax Commission decisions must declare the propriety of and the proper elements to consider in adopting a valuation approach, and must provide a definite indication as to the weight accorded each approach or method, i.e., how the final decision is weighed between the various approaches, methods, elements and factors. St. Louis County v. State Tax Commission, 515 S.W.2d 446, 451(Mo. 1974). The determination of “true value in money” of any property is a factual issue for the State Tax Commission, O’Flaherty v. State Tax Commission, 698 S.W.2d 2, 3 (Mo. banc 1985).

Courts Defer to State Tax Commission Decisions.

The Missouri Supreme Court, in Savage v. State Tax Commission of Missouri, 722 S.W.2d 72 (Mo. banc 1986), observed:

Our review of the Commission’s decision is ordinarily limited to whether that decision is “supported by competent and substantial evidence upon the whole record or whether it was arbitrary, capricious, unreasonable, unlawful or in excess of its jurisdiction.” Evangelical Retirement Homes of Greater St. Louis, Inc. v. State Tax Com’n, 669 S.W.2d 548, 552 (Mo. banc 1984); Section 536.140.01, RSMo. 1978. In matters of property tax assessment, this Court has acknowledged “the wisdom of the General Assembly in providing an administrative agency to deal with this specialized field.” State ex rel Cassilly v. Riney, 576 S.W.2d 325, 328 (Mo. banc 1979). Thus we recognize that the courts may not assess property for tax purposes, Drey v. State Tax Commission, 345 S.W.2d 228, 238-9 (Mo. 1961), that proper methods of valuation and assessment of property are delegated to the Commission, C & D Investment Co. v. Bestor, 624 S.W.2d 835, 838 (Mo. banc 1981) and that on review, “[t]he evidence must be considered in the light most favorable to the administrative body, together will all reasonable inferences which support it, and if the evidence would support either of two opposed findings, the reviewing court is bound by the administrative determination.” Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 894 (Mo. banc 1978) (citation omitted). When read together, our cases demonstrate that this Court is loathe to substitute its judgment for the expertise of the Commission in matters of property tax assessment. Absent clear cause, we will “stay our hand[s].” Pierre Chouteau Condominiums v. State Tax Commission, 662 S.W.2d 513, 517 (Mo. banc 1984).

Official Notice

Agencies shall take official notice of all matters of which the courts take judicial note. Section 536.070(6), RSMo.

Courts will take judicial notice of their own records in the same cases. State ex rel. Horton v. Bourke, 129 S.W.2d 866, 869 (1939); Barth v. Kansas City Elevated Railway Company, 44 S.W. 788, 781 (1898). In addition, courts may take judicial notice of records in earlier cases when justice requires – Burton v. Moulder, 245 S.W.2d 844, 846 (Mo. 1952); Knorp v. Thompson, 175 S.W.2d 889, 894, transferred 167 S.W.2d 205 (1943); Bushman v. Barlow, 15 S.W.2d 329, 332 (Mo. banc 1929) – or when it is necessary for a full understanding of the instant appeal. State ex rel. St. Louis Public Service Company v. Public Service Commission, 291 S.W.2d 95, 97 (Mo. banc 1956).

DISCUSSION

Proper Methodology

In this case, and all subsequent subsidized housing cases, the correct methodology for valuing subsidized housing projects is the methodology set out in Maryville Properties. That methodology is accurate because (1) rent restrictions are considered through the use of actual income rather than market income; (2) additional management requirements and expenses are accounted for through use of actual expenses which are in excess of market expenses; and (3) the actual loan-to-value ratio and the subsidized interest rate demonstrates and accounts for any and all risks involved in the property as well as the benefits flowing to the property. It is Aeconomic reality.@

It is within the authority and expertise of the Tax Commission to determine which valuation methodology best represents value in a given situation or for a particular category of properties. Hermel, supra. After carefully considering the benefits and risks associated with subsidized housing, the State Tax Commission, in Maryville Properties, determined that calculating value based upon actual income, actual expenses, and actual interest and capitalization rates was the best way to recognize all benefits and risks associated with subsidized housing.

Complainant Failed to Meet Burden of Proof

Complainant asserts that the Commission must adopt its appraiser=s opinion of value because that is the only evidence presented in this case. However, it is the duty of the Commission to find value and there is more than enough evidence in this case for the Commission to make a determination of value using the Maryville Properties methodology. The Commission is not required to adopt the conclusions of the Complainant’s appraiser when actual income, actual expenses, actual loan-to-value rates and interest rates are available.

Complainant has failed to present substantial and persuasive evidence in support of its opinion of value. An opinion of value which is based upon improper elements or an improper foundation is without probative value. Shelby County R-4 School District v. Hermann, 392 S.W.2d 609, 613 (Sup. 1965). Complainant=s appraisal ignores economic realities and, thus, is based upon improper elements and an improper foundation.

Failure to Consider Benefits

Mr. Blaylock made no attempt to calculate the value of the substantial benefits flowing to this property by reason of the favorable financing documents in any of his approaches to value. It is possible to measure the difference in rent obtained from a rent restricted apartment and a non-restricted apartment but that only tells a portion of the story. The benefits of a low interest loan, guaranteed rental subsidizes and a non-recourse loan have yet to be measured by an appraiser based upon market-derived data because these properties are not selling. And, without accounting for the benefits associated with the favorable financing and guaranteed income, Mr. Blaylock=s calculations under the cost approach, sales approach, and income approach necessarily understate the value of the subject property. Mr. Blaylock=s assertions that his adjustments reflect market conditions and economic reality are not well taken.

Discounted Cash Flow Highly Speculative

The discounted cash flow methodology was specifically rejected in the Maryville Properties case and we reject it again in this case. To find that a discounted cash flow approach is reliable, the Commission would be required to find that an appraiser can predict a property=s income, expense and capitalization rate at a point in the future—in this case, 2044. With substantial verified data it may be possible to trend or predict income, expenses and capitalization rates in the immediate future. However, a discounted cash flow analysis is extremely speculative. In this case, there is little historical data in that the project came on line in 1995. The tax years in question are 1997, 1999 and 2001. Based upon this very limited information, we again find the discounted cash flow approach to be unreliable and unpersuasive.

Complainant=s Maryville Properties Calculations Unreliable

At the Hearing Officer=s request, both parties prepared income and expense calculations using the Maryville Properties methodology, although Complainant deviated from the methodology at several points.

Complainant asserts that the Maryville Properties methodology is not the correct way to value property but, with some changes, would not be an unreasonable methodology. Complainant asserts that the vacancy rate should be averaged; that partnership management fees should be included in expenses as a third category of management fees; and that the loan to value ratio should be adjusted annually. Such deviations are inappropriate and misrepresent the value of the subject property.

A calculation of actual income includes an adjustment for actual vacancy rate. Applying an artificial vacancy rate results in an understatement of value. Inasmuch as value is calculated every two years, changes in vacancy rates will automatically result in appropriate changes in value. It is not necessary to speculate about vacancy rates when actual rates are available for use in the Maryville formula.

Partnership management fees are clearly not a management fee of the property. The fact that a partnership may only own one asset does not mean that that asset is responsible for paying the costs of maintaining the partnership.

Finally, Complainant=s assertion that a new purchaser would not be able to get a 95% loan for the subject property and might only be able to acquire the property through an assumption of the original loan, is unsubstantiated speculation, is contradicted by the evidence, and is entitled to no weight whatsoever.

Mr. Blaylock testified that, for the Maryville Properties case in 2000, he had spoken with a Mr. Marks from Rural Development and was told that a refinance with a 95% loan would only be available if the property had been Acompletely rehabbed@., i.e. made new. (Tr. 15). Mr. Blaylock later testified that Mr. Marks= exact words were Athey would only make a 95% loan if the property was substantially rehabbed@. (Tr. 58). No evidence was presented which tended to show how Rural Development defined Arehabbed@ or which would tend to clarify when a rehab was required. But, for our purposes, the distinction is immaterial.

The subject property was almost new on the original tax day and, at hearing in 2003, Mr. Blaylock testified that it suffered from very little physical deterioration (Tr. 38) and a reserve for replacement was maintained by the partners. In his appraisal report, Mr. Blaylock states that the purpose of the reserve for replacement was to Areplace roofs, carpets, cabinets, appliances, air conditioning, heating, water heater, tile floors, etc.@ (Complainant=s Ex. CC, p. 25). Even assuming that the government would require rehabilitation, it is obvious from the taxpayer=s testimony little rehabilitation is needed and that the funds have already been earmarked for that rehabilitation.

Respondent=s Maryville Properties Calculations Reliable

The decision of the Commission in this case is based upon the formula set forth in Maryville Properties. And, in particular, the calculations made by Respondent. (Respondent=s Ex. 26). Respondent=s calculations precisely follow the methodology set forth in Maryville Properties. The calculations, as presented by Respondent, are accurate and are adopted by the Commission.

ORDER

The assessed valuation for the subject property as determined by the Board of Equalization for the subject tax days is SET ASIDE.

The market value for the subject property on January 1, 1997 and January 1, 1998 was $813,170 (assessed value $154,500). The market value for the subject property on January 1, 1999 and January 1, 2000 was $577,220 (assessed value $109,670). The market value for the subject property on January 1, 2001 and January 1, 2002 was $602,770 (assessed value $114,530).

A party may file with the Commission an application for review of this decision within thirty (3) days of the mailing of such decision. The application shall contain specific grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial. Section 138.432 RSMo.

If an application for review of this decision is made to the Commission, any protested taxes presently in an escrow account in accordance with these appeals shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Camden County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in these appeals. If any or all protested taxes have been disbursed pursuant to Section 139.031(8), RSMo., either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding or Fact or Conclusion of Law shall be so deemed.

SO ORDERED April 29, 2004.

STATE TAX COMMISSION OF MISSOURI

Luann Johnson

Hearing Officer