State Tax Commission of Missouri

MARIES MANOR, LLC.,)

)

Complainant,)

)

v.) Appeal Nos.06-69000 & 06-69001

)

JUDY LOGAN, ASSESSOR,)

MARIES COUNTY, MISSOURI,)

)

Respondent.)

DECISION AND ORDER

 

HOLDING

Assessment by Assessor that subject property was taxable was sustained by Maries County Board of Equalization.Hearing Officer finds subject property to be exempt under Section 137.100(5), RSMo, assessment SET ASIDE.

Complainant appeared by Counsel, G. Stanton Masters, North Kansas City, Missouri.

Respondent appeared by Counsel, Terry Daly Schwartze, Maries County Prosecuting Attorney.

Case heard and decided by Senior Hearing Officer W. B. Tichenor.

ISSUE

The Commission takes this appeal to determine whether the subject property is exempt from taxation under Section 137.100(5) for the tax year 2006.

SUMMARY

Complainant appeals the decisions of the Maries County Board of Equalization.Respondent assessed the subject property as residential and personal property.The real property under appeal was valued by the Assessor at $2,427,700, assessed value of $461,260.The personal property was valued by the assessor at $15,000, assessed value of $5,000.These assessments were sustained by the Board.Complainant contends that the subject property is exempt from taxation under the provisions of Section 137.100(5).

An evidentiary hearing was conducted on July 5, 2007, before W. B. Tichenor, Senior Hearing Officer, at the Maries County Courthouse, Vienna, Missouri.Transcript was certified to the Commission on July 27, 2007.On August 31, 2007, Attorney for Complainant filed Complainant’s Brief (received by Commission on September 4, 2007).Respondent had until and including October 1, 2007, to file Respondent’s Brief.No brief from Respondent was filed with the Commission.

Complainant’s Evidence

The following exhibits were received into evidence on behalf of Complainant:

Exhibits X, Y, Z, AA, BB, CC, DD, GG, HH, KK, LL, NN, RR, UU, VV and WW were prefiled but were not offered into evidence.

At hearing Counsel for Complainant filed Hearing Brief and Motion for Commission to Take Judicial Notice of Federal Laws Regarding Disregarded Entities, with Brief Exhibits A through F attached.The Hearing Brief, with exhibits, was received into the file and the Motion taken under advisement.

Respondent’s Evidence

The following exhibits were received into evidence on behalf of Respondent:

Exhibit A (R-A)	Copy of the Notice of Change of Assessed Value for the subject real property dated April 28, 2004
Exhibit B (R-B)	Copy of the Notice of Change of Assessed Value for the subject real property dated April 18, 2005
Exhibit F (R-F)	Written Direct Testimony of Judy Logan

Respondent’s Exhibits C, D and E were excluded from evidence by Order issued July 3, 2007.The response to the next to the last and the second from the last questions of Exhibit F were stricken from evidence by Order issued July 3, 2007.

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

FACTS

1.The subject property is both real and personal property.The address of the real property and location of the personal property is 174 Ballpark Road, Vienna, Missouri.Complainant operates as this location a nursing care facility known as Maries Manor Nursing Home.The real property is identified by Locator Number 08-4.0-20-003-01-0002.01.The personal property is identified by Assessor’s Account Number 00 02015.

2.The Complainant is a limited liability company under the laws of the State of Missouri and it operates under the following purpose statement:

“The limited liability company is organized exclusively for charitable, educational, religious, or scientific purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, including acquiring, developing, maintaining, operating, leasing and managing skilled and intermediate long-term nursing facilities and adult congregate care residential facilities for the elderly on behalf of Eden Heritage Foundation, a Missouri nonprofit corporation exempt from federal income tax pursuant to section 501(a) and 501( c)(3) of the Internal Revenue Code.Such projects will offer help and nursing care, and supervise residential living services for persons have such a need, including the indigent, sick and other persons of low income, regardless of race, creed, color, sex or national origin.No substantial part of the activities of the limited liability company shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the limited liability company shall not participate in, or interfere in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office.Notwithstanding any other provision of these articles, the limited liability company shall not carry on any other activities not permitted to be carried on (a) by an organization exempt from federal income tax under section 501(c) (3) of the Internal Revenue Code or the corresponding section of any future federal tax code, or (b) by an organization, contributions to which are deductible under section 170 (c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code.”

Exhibit E.

3.Complainant operates under the following dissolution provision:

“In the event of liquidation, dissolution or termination of Complainant for any reason, the managing member (Eden Heritage Foundation) shall, after paying or making provision for the payment of all liabilities of the LLC dispose of all of the assets of the LLC exclusively for purposes of the LLC in such manner or to such organization or organizations organized and operated, exclusively for charitable, educational, religious or scientific purposes and shall at the time qualify as an exempt organization or organizations under Section 501 (c)(3) of the Internal Revenue Code of 1954 (or the corresponding provisions of any future United States Internal Revenue law) as the managing member shall determine.” Exhibit E; See also, Exhibit F, Item 9.

4.There is one (1) member of the Complainant, Eden Heritage Foundation (Eden/Foundation), a Missouri non-for-profit corporation and there is no provision for any additional members.Exhibit E.

5.As of January 1, 2006, the operating agreement between Complainantt and Eden provided: “ DISTRIBUTIONS.The Company’s Operating Proceeds shall be distributed to the Member at such times as the Member shall determine.” Exhibit F, Item 5.On April 19, 2007 Item 5 of the Operating Agreement of Maries Manor, LLC was amended to read as follows:

“DISTRIBUTIONS.Any excess in revenue over expenses incurred in the operations of the Company shall be used exclusively to further the charitable, non-profit purposes of the Company, including but not limited to expanding services provided by the Company; repairing, renovating or providing other upkeep for the Company’s facilities; and/or holding such funds in reserves for anticipated future expenses of the Company in the performance of its charitable, non-profit purposes.”Exhibit G.

6.Eden Heritage Foundation is exempt from Federal Income Tax under section 501(c)(3) of the Internal Revenue Code and operates exclusively for charitable purposes as described in Section 501(c)(3) of the Internal Revenue Code.Exhibits H, L and M.Eden is exempt from Missouri Sales and Use Tax on purchases.Exhibit N.

7.The Foundation operates under the following purpose statement:

“The Corporation is organized exclusively for charitable, educational, religious, or scientific purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code. The Corporation is formed for the purposes of acquiring, constructing, developing, maintaining, operating, leasing and managing skilled and intermediate long-term care nursing homes and adult congregate care residential facilities for the elderly.Such projects will offer long-term health and nursing care and supervised residential living services to persons having such a need, including the indigent, sick and other persons of low income, regardless of race, creed, color, sex or national origin.”Exhibit H.

8.The Foundation operates under the following dissolution provision:

“In the event of liquidation, dissolution, or termination of this Corporation for any reason, the Board of Directors shall, after paying or making provisions for the payment of all the liabilities of the Corporation, dispose of all the assets of the Corporation exclusively for the purposes of the Corporation in such manner or to such organizations, or organizations organized and operated exclusively for charitable, educational, religious, or scientific purposes and shall at the time qualify as an exempt organization or organizations under Section 501 (c)(3) of the Internal Revenue Code of 1954 (or the corresponding provision(s) of any future United States Internal Revenue law), as the Board of Directors shall determine.Any such assets not so disposed of shall be disposed of by the Circuit Court of Greene County, Missouri, or the county in which the principal office of the Corporation is then located, exclusively for such purposes or to such organizations, as said Court shall determine, which are organized and operated exclusively for such purposes.”Exhibit H.

9.The Foundation operates under the following limitation of activities provision:

“Notwithstanding any other provisions of these Articles, the Corporation shall not carry on any other activities not permitted to be carried on (2) by a corporation exempt from Federal Income Tax under Section 501(c)(3) of the Internal Revenue Code of 1954 (or the corresponding provision(s) of any future United States Internal Revenue Law), (b) by a corporation, contributions to which are deductible under Section 170(c)(2) of the Internal Revenue Code of 1954 (or the corresponding provision(s) of any future United States Internal Revenue Law).Exhibit H.

10.The Foundation operates under the following net earnings provision:

“The Corporation has not been formed for pecuniary profit or financial gain, and no part of the net earnings of the Corporation shall inure to the benefit of, or be distributed to, its members, directors, officers, or other private persons, except that the Corporation shall be authorized and empowered to pay reasonable compensation for services rendered to the Corporation and to make payments and distributions in furtherance of the [corporate purposes].Exhibit H.

11.The Foundation operates under the following political activities provision:

No substantial part of the activities of the Corporation shall be the carrying on of propaganda or otherwise attempting to influence legislation and the Corporation shall not participate in or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office.Exhibit H.

12.Complainant is a “disregarded entity” under federal tax laws, and is treated as a division of Eden Heritage Foundation for tax purposes.See, Disregarded Entity, infra.

13.The subject property is owned and operated on a not-for-profit basis.It is unconditionally dedicated to a charitable use.The dominant use of the property benefits an indefinite number of people and benefits society directly and indirectly.

14.Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Respondent and Board of Equalization and establish the exempt status of the subject property.

CONCLUSIONS OF LAW AND DECISION

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.

Official and Judicial Notice

Agencies shall take official notice of all matters of which the courts take judicial notice.Sections 490.080; 536.070(6), RSMo.Official notice is taken of Federal Laws Regarding Disregarded Entities as set forth in Complainant’s Hearing Brief, filed July 5, 2007.

Disregarded Entity

Whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law.26 CFR § 301.7701-1(a)(1).Certain Organizations that have a single owner can choose to be recognized or disregarded as entities separate from their owners.26 CFR § 301.7701-1(a)(4).A business entity is any entity recognized for federal tax purposes including an entity with a single owner that may be disregarded as an entity separate from its owner.A business entity with only one owner is classified as a corporation or is disregarded; if the entity is disregarded, its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner. 26 CFR § 301.7701-2(a).An eligible entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner.26 CFR § 301.7701-3(a).Unless the entity elects otherwise, a domestic eligible entity is disregarded as an entity separate from its owner if it has a single owner.26 CFR § 301.7701-3(b)(ii).Complainant is a single member limited liability company.As a result, it is a “disregarded entity” under Federal tax laws.See, Brief Exhibits D & E.

Counsel for Complainant argues in his Hearing Brief that the statutory provisions of Section 347.187, RSMo provide a basis for Complainant to be treated as a tax exempt organization.However, subsection 2 of Section 347.187 specifically provides that the applicability of the section is solely for the purposes of Chapters 143, 144 and 288, that a limited liability company and its members shall be classified and treated on a basis consistent with the limited liability company’s classification for federal income tax purposes.Therefore, Section 347.187 does not mandate that Complainant be treated as a disregarded entity for purposes of seeking exemption from taxation under Section 137.100.

Nevertheless, Complainant’s argument on this point is not without merit. As a disregarded entity under Federal tax laws, Complainant becomes a not-for-profit entity because its sole member – Eden Heritage Foundation – is a Missouri not-for-profit corporation, exempt from federal taxation as a 501(c)(3), entity.Furthermore, any distributions from Complainant to Eden as its sole member can then only be used for the tax exempt purposes of Complainant and Eden, which for all intents and purposes in substance are identical.Therefore, for the purposed of this decision, it is appropriate to treat Complainant as a “disregarded entity” or maybe more properly to treat Maries Manor, LLC and Eden Heritage Foundation as a single not-for-profit entity, as the owner and operator of the real and personal property under appeal.

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. State ex rel. Council Apartments v. Leachman, 603 S.W.2d 930, 931 (Mo. 1980).It is well established that taxation is the rule and exemption from taxation is the exception.Exemption is not favored in the law.(See, Missouri Church of Scientology v. STC, 560 S.W.2d 837, 844 (Mo. banc 1977); CSCEA v. Nelson, 898 S.W.2d 547, 548 (Mo. banc 1995), citing Scientology).Complainant’s burden of proof has been met in the present case as is developed below.

Section 137.100(5), RSMo

Complainant seeks exemption of its real and personal property from taxation pursuant to Section 137.100(5):

“The following subjects are exempt from taxation for state, county or localpurposes:

…

(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; … .

Franciscan Tertiary Test

In meeting its burden of proof that the subject property is used “exclusively 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 thepurpose, as expressed in Salvation Army, of “relieving 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.

The three tests to be met under Franciscan are:

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.

When these tests are applied to the evidentiary record, Complainant has established that Maries Manor Nursing Home (real and personal property) is exempt from taxation under section 137.100(5) RSMo and the controlling case law.

I

MARIES MANOR IS OWNED AND OPERATED ON A NOT-FOR-PROFIT

BASIS SO THERE CAN BE NO PROFIT, PRESENTLY OR

PROSPECTIVELY, TO INDIVIDUALS OR CORPORATIONS

 

To be entitled to a property tax exemption, a nursing home must be owned and operated on a not-for-profit basis so there can be no profit, presently or prospectively, to individuals or corporations.See Franciscan, 566 S.W.2d at 224.

A. OWNED AND OPERATED ON A NON-PROFIT BASIS

 

Maries Manor meets the first prong of the Franciscan test because the property is owned and operated on a not-for-profit basis.See, FACTS 2 – 13, supra.The only activities permitted to a 501 (C) (3) exempt organization are those exclusively religious, charitable, or scientific; testing for public safety; literary or educational purposes; or to foster national or international amateur sports competition; or the prevention of cruelty to children or animals, but only if no part of the net earnings of those activities inure to the benefit of any private shareholder or individual.See 26 U.S.C. § 501 (C) (3).These are non-profit activities by definition.Complainant operates in accordance with these purposes.Exhibit XX, Nos. 81-82.Maries Manor’s Articles of Organization, therefore, demonstrate that profit is not a primary goal of the project. See Franciscan, 566 S.W. 2d at 219.

In addition, Maries Manor is a single-member limited liability company, and Eden Heritage Foundation is its sole member. See, FACTS 4, supra; Exhibit XX, No. 7.Eden Heritage Foundation is organized as a Missouri not-for-profit corporation, and is exempt from Federal taxation under I.R.C. 501 (C) (3).See, FACTS 6 – 11, supra; Exhibit XX, Nos. 11-17, 24-28.At its creation, Maries Manor elected not to be treated like a corporation.Exhibits E & XX, No. 85.As a result, Maries Manor is a “disregarded entity” under Federal tax laws, and is treated as a division of Eden Heritage Foundation for tax purposes.Generally, disregarded entity status means that all the activities of the entity are treated as if they were actually performed by the single owner.Thus, Maries Manor’s income and losses are attributed to the tax-exempt Eden Heritage Foundation, and Maries Manor comes within Eden Heritage’s tax-exempt status.See, FACTS 12; Disregarded Entity, supra; Exhibit XX, Nos. 83 – 84.

As a disregarded entity, Maries Manor uses the same tax identification number as Eden Heritage, and Eden Heritage’s annual Form 990 filed with the IRS covers not only Eden Heritage’s operations, but Maries Manor’s operations as well.Exhibits O, P, Q, R & XX, Nos. 86 – 96. In addition, Maries Manor has responded to donors with a written reference to its tax exempt status through Eden Heritage Foundation.Exhibits II & XX, Nos. 83, 97 – 99. Furthermore, Maries Manor qualified for a Missouri Foundation for Health Basic Support Grant in 2006 as an exempt entity under IRC 501 (C)(3), and the terms of the grant require that it maintain such status throughout the grant term.Exhibit JJ & XX, Nos. 175 – 178.Maries Manor operations are both non-profit and tax exempt.

B.NO PROFIT TO ANY INDIVIDUAL OR ENTITY

The first prong of the Franciscan test also requires that there be no profit, presently or prospectively, to individuals or corporations.Maries Manor meets this requirement as well.

Because Maries Manor is operated as a not-for-profit entity, it technically has no “profits,” although it could have a surplus of revenues over expenses.At no time in the past has there been a distribution of surpluses to another person or entity because there have been no surpluses.Exhibit XX, Nos. 100, 101.From 2002 to the present, Maries Manor has operated at net losses ranging from approximately $227,000 to as much as $538,000.Exhibits S, T, U, V & XX, Nos. 102-110.Similarly, Maries Manor’s financial statements for 11 months of fiscal year 2006 reflect a net loss of at least $544,000.Tr. 8 – 9; Exhibit YY.At no time from fiscal years 2002 to the present has Maries Manor distributed any net profits to any person or entity.Exhibit XX, No. 112; Tr. 9, lines 11 – 18.

Not only have no surpluses been distributed in the past or at present, there are structural barriers in place to prevent such distributions from occurring in the future.These barriers are found in Maries Manor’s Articles of Organization and Operating Agreement, as amended.Non-profit entities like Maries Manor are required to follow the requirements of their governing documents.Cf. generally Higginsville Memorial Post 6270 v. Benton, 108 S.W.3d 28 (Mo. App W.D. 2003) (non-profit corporation).Since Eden Heritage Foundation is the sole member of Complainant, any distribution of excess revenues over expenses would have to be made to the Foundation, whose funds must then be used for the same charitable corporate purposes as Complainant’s purposes.Any such distribution although made from Complainant to the Foundation is in fact not a distribution from one entity to another, as Complainant is a disregarded entity for purposes of Federal tax purposes and the issue of tax exemption under Section 137.100, RSMo.See, Disregarded Entity, supra.

Maries Manor’s Articles of Organization explicitly prohibit it from carrying on any activities not permitted to be carried on by an organization exempt from federal income tax under section 501 (C) (3) of the Internal Revenue Code.Exempt organizations are prohibited from distributing net earnings to private persons.See 26 U.S.C. 501 (C) (3).Exhibits E & XX, No. 114.Similarly, Complainant’s Operating Agreement, as amended, provides that any excess in revenues over expenses incurred in the operation of Maries Manor shall be used exclusively to further the charitable, non-profit purposes of Maries Manor, including but not limited to expanding services; repairing, renovating or providing other upkeep for facilities; and/or holding such funds in reserve for anticipated future expenses in the performance of its charitable, non-profit purposes. Exhibits E, G, & XX, Nos. 114 – 118.Furthermore, the Eden Heritage Mission Statement, which Maries Manor has adopted, disseminates to the public and posts states that “operational surpluses will be used, to the extent possible, to provide services, at reduced costs, or no cost, to individuals who cannot afford or who are not eligible for Medicaid or Medicare coverage.”Exhibits I & XX, Nos. 18 – 23; Tr. 17, lines 11 – 21.Maries Manor meets the first prong of the Franciscan test.See, Citizens Memorial Health Care Foundation v. Johnson, State Tax Commission (2004).

C. PAYMENT OF MANAGEMENT FEE

Although Maries Manor has not and cannot distribute surpluses to any person or entity, Maries Manor does pay a management fee to Eden Heritage, which includes payments for administrative and management services Eden Heritage provides for Maries Manor and a contribution toward management salaries paid by Eden Heritage.Exhibit XX, Nos. 39-42.Because Maries Manor is still in a start up mode and is not yet able to pay the full share of its administrative costs at this time, Eden Heritage does not charge Maries Manor a management fee that fully reflects the amount of time Eden Heritage Foundation employees commit to assist Maries Manor.Exhibit XX, Nos.155 – 156; Tr. 11, lines 14-18.Payment of a reasonable management fee does not preclude exemption.Mizpah Assisted Living Services v. Muehlheausler, State Tax Commission (2003).

II

MARIES MANOR’S PROPERY IS DEDICATED

UNCONDITIONALLY TO CHARITABLE ACTIVITY

Maries Manor meets the second prong of the Franciscan Test because its property is dedicated unconditionally to charitable activity.Franciscan, 566 S.W.2d at 224.As used in this context, “charitable” means:“[a] gift, . . . 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. . . .”Salvation Army v. Hoehn, 188 S.W.2d 826, 830 (Mo. 1945) (en banc). 

A. DEDICATED UNCONDITIONALLY TO CHARITY

Maries Manor meets the second prong of the Franciscan test because, as demonstrated above, Maries Manor’s nursing home operations are non-profit, and there are no other businesses operated on the site.Exhibit XX, Nos. 119-120.Maries Manor’s purposes and operations are charitable.Exhibits E & XX, Nos. 71-76.

B.A GIFT

The care provided by Maries Manor qualifies as “charitable” because (1) it helps relieve the elderly and others from disease, suffering or constraint, and (2) a substantial part of what Maries Manor provides is a “gift.”It is true that Maries Manor’s operations generate revenues by residents who can pay a private pay rate and with reimbursements through Medicaid or Medicare. Exhibit XX, Nos. 124, 130, 138, 143.This fact does not preclude a finding that Maries Manor’s activities are charitable.Ultimately, the very fact that no dividends or earnings are paid to stockholders constitutes a gift by making funds that otherwise would be payable to stockholders available to carry out the charitable purpose of the not-for-profit entity.

“Charity is not limited to the relief of the destitute,” and it is not the purpose of RSMo 137.100 to “withhold the financial assistance of a tax-exemption until such time as our elderly are totally incapable of providing for themselves.” Franciscan, 566 S.W.2d at 226.“The fact that subsidization of part of the cost of furnishing such housing is by the government rather than private charitable contributions does not dictate a different result.”Franciscan 566 S.W.2d at 226.

Although Medicare and Medicaid rates are set by the government, Maries Manor determines its private pay rates based on what it thinks a resident can afford, what is required to cover the basic cost of resident care and rates comparable in the market.Historically, Maries Manor’s rates have been lower than those at other facilities.Exhibit XX, No. 127.

Nevertheless, there is a substantial portion of Maries Manor’s operations that constitutes a gift in the classic sense.Maries Manor does not turn anyone away, nor does it have a financial requirement for admission.Exhibits TT & XX, Nos. 121-123, 162 – 163.Individuals who do not qualify for government assistance, but who otherwise cannot afford Maries Manor’s private pay rates, pay what they are able.Maries Manor makes up the rest through various means, including contribution from Eden Heritage Foundation.Tr. 13, line 11 – 14, line 9; Exhibits SS & XX, Nos. 164 – 173.

Maries Manor provides services to its patients at cost or less.If resident revenues covered all of the costs of providing their care, Maries Manor would not be operating at a loss.Exhibits S, T, U, V, XX, Nos.144 – 145; YY.Indeed, on a daily basis, Maries Manor’s Key Operating Statistics show that total expenses per day for fiscal years 2003, 2004 and 2005 were substantially higher than its daily rates or revenues per day.Exhibits OO, PP, QQ & XX, Nos. 146-154.

In addition, Maries Manor provides services over and above those services covered by its fees.Medicaid does not cover all of the services an indigent resident may need.When that occurs, Maries Manor provides them.For example Medicaid provides an allowance of $30 per month for personal needs and clothing.Unfortunately there is not always money left over for clothing. To meet this need, Maries Manor runs a clothing bank for which Maries Manor solicits clean and wearable used clothing or new clothing to assist patients who do not have the funds to buy clothing for themselves.Exhibit XX, Nos. 135 – 136.Maries Manor also provides services to Medicare patients that Medicare does not cover.Exhibit XX, Nos. 141-142.Furthermore, some Medicare/Medicaid patients require special equipment that is not covered by those rates, and which the resident cannot afford to pay for themselves.In those instances Maries Manor provides the equipment.Exhibits FF & XX, Nos. 157 – 161.Another example is food.For Medicaid reimbursement purposes, the federal government allows a maximum of $3.64 raw food costs per patient day.Nevertheless Maries Manor spends in excess of $6.60 per patient day for raw food costs.Maries Manor provides this “gift” in order to better serve its residents.Tr. 30 – 31.

Maries Manor meets the second prong of the Franciscan test because Maries Manor provides charity in the nature of a gift to assist the elderly and infirmed.The revenues generated by residents do not cover all of the services provided, and Maries Manor must look to grants, charitable contributions, and other assistance to make up the difference.Private pay patients who cannot pay the full rate are subsidized by Maries Manor and/or Eden Heritage Foundation.Even those who pay a full private pay rate receive valuable services their rates do not cover.Similarly, Medicare and Medicaid patients receive services those government reimbursements do not cover fully.Maries Manor is dedicated unconditionally to providing these services in Maries County.See Simmons Direct at No. 209.This dedication to charitable assistance to the elderly is deserving of tax exemption under the law.See, Citizens Memorial Health Care Foundation v. Johnson, Missouri State Tax Commission (2004).

III

MARIES MANOR’S DOMINANT USE IS FOR THE BENEFIT

OF AN INDEFINITE NUMBER OF PEOPLE AND PROVIDES A

BENEFIT TO SOCIETY.

Maries Manor meets the third prong of the Franciscan Test because the dominant use of Maries Manor’s property is for benefit of an indefinite number of people and it provides a benefit to society in addition to and as a result of its humanitarian activity.Franciscan, 566 S.W.2d at 224.

A. BENEFITING AN INDEFINITE NUMBER OF PEOPLE

Maries Manor does not restrict who may obtain its services.Maries Manor makes its services available to anyone who needs its help, regardless of race, creed or color.Furthermore, Maries Manor does not restrict its services only to those who can pay for them.Exhibit XX, Nos. 162 – 163, 190.Maries Manor’s scope of services is made clear in its Mission Statement: “All services and activities of Eden Heritage Foundation will be offered on an equal basis to all persons, regardless of race, creed, color, sex, or national origin.Operational surpluses will be used, to the extent possible, to provide services, at reduced cost, or no cost, to individuals who cannot afford or who are not eligible for Medicaid or Medicare coverage.” Exhibit I.Maries Manor subscribes to this Mission Statement and operates according to its terms.Exhibit XX, No. 23.

B. BENEFIT TO SOCIETY

Maries Manor provides a benefit to society beyond the immediate care given to residents.Maries Manor provides living accommodations, some of which are subsidized by government programs and with Maries Manor’s funds, and this is recognized as charitable.See, Franciscan, 566 S.W.2dat 225.In the absence of housing such as that provided by Maries Manor, the assets of Missouri’s elderly citizens “could have been depleted so quickly as to place them in public housing, or if not so placed, in substandard housing under conditions conducive to increasing the problems of government and society. . . .A retirement center . . .clearly serves an important social need.” Franciscan, 566 S.W.2d at 225.See, Rolla Apartments v. Commission 797 S.W.2d 781, 792 (Mo. App. 1990) (housing for the elderly and disabled persons “generally benefits society”).

Maries Manor also benefits society, and specifically Maries County residents, because it is the only skilled nursing facility located in Maries County, the county from which most of its residents come.There also is no public transportation available in Maries County, making access to facilities in other counties more difficult for Maries County residents.Exhibit XX, 182 – 185.Without Maries Manor, Maries County residents in need of skilled nursing care would have to go outside the county, which creates the potential of isolating them from their families and friends.Exhibit XX, Nos. 191-192.

As noted above, Maries Manor also benefits the community by providing services free of charge to elderly in the community who are not its residents.Those services include providing a substantial number of wellness checks, meals on wheels deliveries, and in-home follow-up visits to former residents.Exhibit XX, Nos. 191 – 202.These services are significant.From July 1, 2003, to June 30, 2004, Maries Manor provided 1,928 Meals on Wheels meals and 3,000 blood pressure checks.Exhibit Q at p. 23.From July 1, 2004, to June 30, 2005, Maries Manor provided 4,840 Meals on Wheels meals and 3,700 blood pressure checks.Exhibit R at p. 20.Maries Manor’s level of service for the Meals on Wheels and blood pressure checks programs is similar at the present time to what it has been in the past.Exhibit XX, Nos. 196-197, 200-201.These services benefit the community because, by looking after the needs of elderly citizens who are still living independently at home and by providing a little assistance to keep them living independently in their homes, Maries Manor helps prevent or at least delay those individuals from entering skilled nursing facilities, often times with government subsidies.Exhibit XX, No. 203.

Maries Manor also benefits the community by opening its facility for community celebrations and group meetings.These activities benefit the community because it helps keep the community connected to its elderly, and the elderly connected to their community.Exhibit XX, Nos. 204-205.In addition, Maries Manor makes available in Maries County adult day care and respite services for those who do not need Maries Manor services on a full-time basis, and Maries Manor coordinates with local agencies to provide hospice services.Maries Manor also makes its Eden Heritage Academy available to non-residents in the community.Exhibit XX, Nos. 204 – 207.

The evidence provided to the Commission demonstrates that Maries Manor does not turn away anyone it is equipped to serve.Missouri law makes clear that providing such services to the elderly and infirmed benefits society.As an extension of its nursing care, Maries Manor provides charitable services in the community to those who are not its residents.Furthermore, it is Maries Manor’s goal to provide services to the elderly and infirmed in a county that otherwise would not be served by a skilled nursing facility.Maries Manor meets the third prong of the Franciscan test.

ORDER

The assessment of the subject property (real and personal) made by the Assessor and sustained by the Board of Equalization for Maries County for the subject tax day is SET ASIDE.

The county clerk is ordered to enter the subject property on the list of exempt property into the supplemental tax book for the county for the tax year 2006.

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 2000.

If an application for review of this decision is made to theCommission, 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 Maries 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 October 26, 2007.

STATE TAX COMMISSION OF MISSOURI

_________________________________

W. B. Tichenor

Senior Hearing Officer

Certificate of Service

I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 26^th day of October, 2007, to:G. Stanton Masters, 1907 Swift, Suite 200, North Kansas City, MO 64116, Attorney for Complainant; Terry Daley Schwartze, 12247 Highway 63 South, Vienna, MO 65582,Vienna, MO 65582, Attorney for Respondent; Judy Logan, Assessor, P.O. Box 188, Vienna, MO 65582; Rhonda Brewer, P.O. Box 205, Vienna, MO 65582; Jayne Helton, Collector, P.O. Box 71, Vienna, MO 65582.

___________________________

Barbara Heller

Legal Coordinator

State Tax Commission of Missouri

HARDAGE HOTELS, LLC,)

)

)

Complainant.)

)

v.)Appeal Number 06-79089

)

LISA POPE, ASSESSOR,)

PLATTE COUNTY, MISSOURI,)

)

Respondent.)

DECISION AND ORDER

 

HOLDING

 

The value determined by the Assessor and approved by the Board of Equalization is SET ASIDE.The correct value for the property on January 1, 2006, was $2,919,024(assessed value $934,087).

SUMMARY

The subject property is a three acre tract improved with a 112 room extended stay hotel.The property was originally valued by the Assessor at $5,000,000.That value was affirmed by the Board of Equalization.Upon appeal, Complainant asserts a value of $1,290,000.Respondent asserts a value of $3,360,000.Both appraisers made significant errors in their appraisal reports.We find value to be $2,919,024.

A hearing was conducted on June 18, 2007, before Senior Hearing Officer Luann Johnson, at the Platte County Administration Building, Platte City, Missouri.Complainant appeared by its appraiser, Bernie Shaner, and by its attorney, Richard Dvorak.Respondent appeared by her appraiser, Brian Everly, and by counsel, John R. Shank.Pursuant to Tax Commission Order, both parties prefiled their appraisal reports and written direct testimony.

ISSUE

The issue raised on appeal is: What was the true value in money of Complainant’s property on January 1, 2006?

FINDINGS OF FACT

1.Jurisdiction.Jurisdiction over this appeal for tax year 2006 is proper. Complainant timely appealed to the State Tax Commission from the decision of the Platte County Board of Equalization.

2.Subject Property.The subject property is an approximately three acre tract improved with a fifteen building, 76,860 square foot, extended stay motel.The property was built in 1986-1987 and is identified as parcel number 17-7.0-36-000-009-001-000, more commonly known as 9900 Prairie View Road, Kansas City, Platte County, Missouri.Ex. 1, pg. 1.The subject property has frontage along the west side of NW Prairie View Road and NW 100^th Street and visibility from Interstate 29.Ex. D, Property Data, pg. 1.

The subject property contains 112 rooms; divided as follows:56 studio suites containing 450 square feet each; 28 double suites containing 564 square feet each; and 28 penthouse suites containing 776 square feet each.Three of the suites are handicap accessible.All suites contain a kitchen, living room and sleeping area.Studio and double suites are one-story while penthouse suites are two-stories.Studio suites are furnished with one double bed and double suites are furnished with two double beds.Penthouse suites have a king-sized bed, a queen-sized bed, a pull-out sofa bed, and two bathrooms.Ex. D, Property Data, pgs. 5-6.

The property is further improved with a heated pool and spa, a fitness center, a sports court, laundry facilities, and meeting facilities.Ex. D, Property Data, pgs. 6-7.

3.Deferred Maintenance. As of the tax day, the property needed exterior painting and the furnishings were older and scheduled to be replaced in 2007.Ex. D, Property Data, pg. 4.The subject property is in good overall condition.Ex. D, Property Data, pg. 8.

4.Age and Depreciation. The subject property has an estimated effective age of 15 years and an estimated economic life of 40 years.Ex. 1, pg. 10, Ex. D, Property Data, pg. 4.

5.Furniture Fixtures and Equipment have a depreciated value of $156,800. Ex. D, Income Approach, pg. 17.

6.Management.The subject property performed at or above market levels until 2001.Tr. 44.“The property has experienced decreased occupancy rates over the past few years due to turnover in the sales department and management issues.The subject’s occupancy is anticipated to increase to near competitive set averages in the next few years due to the sales department and management issues being resolved”Ex. D, Market Analysis, pg. 9, Income Approach, pg. 3.

7.Franchise.The subject property carries a “Chase Suite Hotel” flag.Said franchise contains only 17 properties nationwide.Ex. D, Property Data, pg. 8.Said flag does not help the property.Tr.pg. 25.

8.No Functional Obsolescence.At hearing, Complainant’s appraiser argued that the decline in revenue was due to the “maze of buildings” and lack of elevators.Tr. P. 6-7, p. 26,p. 28.Respondent’s appraiser agreed that the subject had no elevators and was not as well designed as some similar properties, Tr. Pg. 37-38.But, Respondent’s appraiser also points out that the property was functioning at market level prior to 2001 and asserts that the events of September 11, 2001, dampened all hotel business.Respondent’s appraiser also asserts that the subject property’s flag does not aid the business.Tr. Pg. 44.

We find that the most probable cause of declining revenues were management and sales problems, as articulated by Complainant’s general manager and quoted in Complainant’s appraisal report.Ex. D, Market Analysis, pg. 9. We also find that “Competent management will play a pivotal role in boosting the subject’s current occupancy rates.The subject’s occupancy is anticipated to increase to near competitive set averages in the next few years due to the new furnishings to be purchased for the guest suites.”Ex. D, Income Approach, pg. 3.Therefore, we find that Complainant’s appraiser’s assertion of functional obsolescence is contradicted by his own appraisal report.There is insufficient market evidence in the record to support a finding that the subject property is not capable of producing market income because of functional deficiencies.

9.Highest and Best Use. The highest and best use of the property is as improved.Ex. 1, pg. 7.

10.Occupancy. The subject property’s occupancy during 2005 was 47%.Ex. D, Income Approach, pg. 3.Complainant’s appraiser estimates the appropriate occupancy rate for the subject property to be 60%.Ex. D, Income Approach, pg. 3.The average occupancy for the subject market was 61.42%.Respondent’s appraiser used a 61.6% occupancy rate based upon Smith Travel Research April 2005 for the subject area. Ex. 1, pg. 14.The correct occupancy rate is the market occupancy rate of 61.4%.

11.Rental Rates. Average daily room rates (ADR) for limited service properties in the subject neighborhood range from $55 to $199. The subject property quotes room rates at $89 to $109 for studio suites; $109-129 for double suites and $149 for penthouse suites.The subject’s average daily rate was $82.46 for 2005, which is slightly above the average daily rate for the competitive set.This is due to the subject property’s penthouse suites.The rates for these suites are near the upper end of the range.“The subject’s current quotes rates are reasonable relative to its competitive stature among direct competitors in its submarket”.Ex. D, Market Analysis, pg. 9, Income Approach, pg. 3.

In spite of the fact that the subject property had an actual ADR of $82.46 in 2005, Complainant’s appraiser reduced ADR to $75 arguing that a reduction was necessary to increase occupancy to 60%.Ex. D, Income Approach, pg. 3.Respondent’s appraiser chose an ADR of $85, which represented a 3% increase over the ADR in 2005.We find ADR of $82.46, based upon the actual earning potential of the subject property, is appropriate.

12.Income Approach Most Reliable. The income approach, when done correctly, is the most reliable way to value the subject property. The sales comparison approach is not a reliable mechanism for valuing properties which have business value and personal property components because of the inability to adjust the comparable sales for these variances. Because of the age of the improvements, the cost approach is not a reliable indicator of the value of the subject property.

13.Total Annual Stabilized Revenue. The correct room revenue of the property is $2,069,722 ($82.46 x .614 x 112 x 365).Further, an addition of 2% of room income as other income is appropriate, say $41,394 ($2,069,722 x .02 = $41,394).The potential gross income for the subject property for tax year 2006 is $2,111,116.($2,069,722 + $41,394 = $2,111,116).

14.Total Annual Department Expenses. The correct department expenses for the property are $641,894 as proposed by Respondent.The difference between Complainant’s and Respondent’s departmental expenses is merely Respondent’s decision to increase expenses 3% over actual 2005 expenses.Normally, we would find that the addition of 3% over actual 2005 expenses is not appropriate for a property valuation as of January 1, 2006.However, we are aware that expenses increase as occupancy increases and, therefore, prefer to accept Respondent’s higher expense numbers rather than Complainant’s actual expense numbers.

15.Total Annual Undistributed Expenses.The correct undistributed expenses for the property are $726,931 as proposed by Respondent.The difference between Complainant’s and Respondent’s undistributed expenses is merely Respondent’s decision to increase expense 3% over actual 2005 expenses.Normally we would find that the addition of 3% over actual 2005 expenses is not appropriate for a property valuation as of January 1, 2006.However, we are aware that expenses increase as occupancy increases and, therefore, prefer to accept Respondent’s higher expense numbers rather than Complainant’s actual expense numbers.

16.Total Annual Fixed Charges.These expenses properly include management fees, franchise fees, and reserves for replacing structural components and reserves for replacing furniture, fixtures and equipment. The stabilized expenses properly do not include a sum for real property taxes.Respondent’s appraiser’s inclusion of real estate taxes within the expenses tends to understate the value of the property because his capitalization rate includes a percentage for real estate taxes.Further, Respondent’s appraiser failed to include a reserve for replacement.However, Complainant’s estimate of fixed expenses does not account for market occupancy.Therefore, we set fixed charges based upon our calculation of potential gross income of $2,111,116, as follows:

17.Net Operating Income. The correct net operating income is $293,627. ($2,111,116 – 641,894 – $726,931 – $448,664 = $293,627).

18.Capitalization Rate.Complainant presented evidence of sales with overall rates of 12.88%, 8.46%, 8.34% and 8.50%.Said sales occurred in 1997 and 1998.Ex. D, Income Approach, pg 9.Perhaps to bolster his lack of recent sales data, Complainant’s appraiser referred to surveys showing rates from 8.34% to 13%.Complainant’s appraiser determined that the appropriate cap rate was 12% to which he added 2.82% as the effective tax rate.

Respondent presented sales from 2003 and 2005 with overall rates of 9.56%, 9.71%, 9.99% and 10.67%. Ex. 1, pg. 16. Respondent selected a capitalization rate of 10%.Neither appraiser sought to remove the tax rate from the market capitalization rates.Respondent’s appraiser opined that attempting to remove the tax rate from the sales would be virtually impossible.Tr. 38.

We find Respondent’s use of recent sales to determine a capitalization rate to be more accurate that Complainant’s use of older sales and surveys.We also find that an effective tax can not be added to a capitalization rate which already includes a tax rate inasmuch as it would overstate the appropriate capitalization rate.Therefore we find that the appropriate capitalization rate for the subject property is 10% based upon the two sales within Platte County (Best Western Platte City and Comfort Inn KCI) which indicate capitalization rates of 9.71% and 9.99%.

19.Value Before Deduction of Intangible or Personal Property Values. The correct value for the subject property, before the deduction of any intangible business values or value attributable to personal property, is $2,936,270($293,627/.10 = $2,936,270).

20.No Additional Business Value Deduction. Complainant’s expenses include a deduction for management fees and a deduction for franchise fees. No additional business value remains to be deducted from the value of the real property. Tr. 54 – 56.

21.No Additional Return of Personal Property Required. Complainant’s expenses include a deduction for the periodic replacement of furniture, fixtures and equipment. No additional return of personal property is required to be deducted from the value of the real property.

22.Return on Personal Property. Complainant is entitled to a return on personal property to recognize the contributory affect of personal property on the income producing capacity of the subject property. However, the contributory affect of the personal property on the income stream is not the depreciated value of that personal property. Only the income generated by the personal property can be deducted from the income stream. Return on personal property is calculated by multiplying the value of the personal property by a reasonable rate of return.

Complainant’s appraiser estimated the depreciated value of the FF&E to be $156,800 and proposed an 11% rate of return, or $17,246.Ex. D, Income Approach, pg. 15.We find this rate of return to be reasonable and adopt same.

23.True Value in Money of Real Property. The true value in money of the real property is hereby set at $2,919,024 ($2,936,270- $17, 246 = $2,919,024).

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; Sections 138.430, 138.460(2), RSMo.

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 purchase but who is not compelled to do so. St. Joseph 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). Valuation is expressed in terms of cash or its equivalent.

Substantial and Persuasive Evidence

In order to prevail, Complainant must present substantial and persuasive evidence that the true value in money for this property on January 1, 2006, was $1,290,000. Substantial evidence is evidence favoring facts which are such that reasonable men may differ as to whether it establishes 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 evidence that has sufficient weight and probative value to convince the trier of fact. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

No Presumption in Favor of Respondent

There is a presumption of validity, good faith, and correctness of assessments made by the Board of Equalization. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 895 (Mo. banc 1978). However, there is no such presumption in favor of the Assessor. Section 138.431.1, RSMo. When Respondent advocates a value different from that set by the Board of Equalization, he or she is under the same burden as Complainant to present substantial and persuasive evidence in favor of his or her value.

Fee Simple

A value assessment of the fee simple of real estate includes every interest or estate therein. Dorman v. Minnich, 336 S.W.2d 500, 505 (Mo. banc 1960).

Expert Testimony

The rules governing expert testimony are well settled. The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the trier of fact may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer, as the trier of fact, has the authority to weigh the evidence and 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. Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981); Scanlon v. Kansas City, 28 S.W.2d 84, 95 (Mo. banc 1930).

Intangibles

In Missouri, intangible personal property is not subject to property taxation. Intangible property has no physical substance but, rather, is a right of action such as easements, good will or trade secrets and which may be evidenced by documents which have no intrinsic value, such as stocks, bonds, notes, judgments or franchises. Webster’s Third New International Dictionary, unabridged, 1976. John Hancock, supra, p. 408.

Some properties have both a “market value” and a “going concern value.”The later is value enhanced by, among other things, the intangible value of an operating business enterprise.

“Going concern” has both a tangible and intangible component. That portion of the going concern value which is the result of assemblage is tangible and taxable; while the portion of going concern value which is attributable to a saleable business asset based upon reputation rather than physical assets is intangible and not taxable. Boise Cascade Corporation v. Department of Revenue, 12 Or. Tax 263 (1991); John Hancock, supra, p. 408.

Similar to assemblage value, the concept that one buying the real estate necessarily gets the business is called “transmissible value.” Courts have long held that transmissible value constitutes taxable real estate, even when intertwined with a business. Public Service Company of New Hampshire v. Hew Hampton, 136 A. 2d 591 (N.H. 1957); John Hancock, supra, p. 408.

As articulated in State ex rel. N/S Associates v. Board of Review of the Village of Greendale, 473 N.W.2d 554 (Wisc. App. 1991), the test for isolating intangible business value is as simple as asking whether the disputed value is appended to the property and, thus transferrable with the property or is it independent of the property so that it either stays with the seller or dissipates upon sale. John Hancock, supra, p. 408.

The presence of intangibles is determined using the following test:

(1)The intangible asset must be identifiable, i.e., legally recognized;

(2)It must be capable of private ownership;

(3)It must be marketable, i.e., capable of being financed and/or sold separate and apart from the tangible property; and

(4)Practically, it must possess value, i.e., have the potential to earn income, or its existence is of no consequence.

Simon Property Group v. Boley, 51 Proceedings and Decisions of the State Tax Commission, 1996, p. 483.

Competent management is not a basis for reducing property value under an “intangible” theory. Any correct market value appraisal must presuppose competent management. The Appraisal of Real Estate, 10th Edition, Appraisal Institute, 1992, p. 439. It is only extraordinary management, evidenced by extremely high rents, occupancy, and sales volume that suggests value added because of an intangible. Simon, supra, p. 495. The burden to prove the existence of an intangible asset lies with the party claiming that existence.

STC Approved Hotel Valuation Guidelines

Valuing Hotel or Motel Property

In the real estate appraisal industry, the market value of a hotel is considered to consist of four components (1) value of the land; (2) value of the improvements; (3) value of the business or going concern and franchise affiliation; and (4) value of the furniture, fixtures and equipment (i.e. personal property). John Hancock Mutual Life v. Stanton, 51 STC Proceedings and Decisions, 1996, p. 394. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, January, 1993, p. 17. For appraisal purposes, fixtures such as bathtubs and sinks are valued as part of the real property. Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, p. 76.

Stabilized Income

Hotels and motels are almost always valued by an income capitalization approach that takes the property’s stabilized net income and capitalizes it into an estimate of market value. The stabilized net income is intended to reflect the anticipated operating results of the hotel over its remaining economic life, given any or all applicable stages of buildup, plateau, and decline in the life cycle. Therefore such stabilized net income excludes from consideration any abnormal relation of supply and demand and any transitory or nonrecurring conditions that may result in unusual revenues or expenses of the property. The process of deriving the stabilized net income for a lodging facility requires the appraiser to look into the future and estimate operating revenues and expenses. This is accomplished by forecasting or predicting trends in historical performance based on the hotel’s current position in an economic life cycle. Most types of real estate exhibit a pattern or life cycle in their ability to generate income over a period of time. Usually a property’s net income will start low and rise quickly, reaching a plateau before slowly declining. By determining a hotel’s position in its life cycle the appraiser is able to forecast future income based on historical operating results.

New hotels show a normal upward growth in occupancy which results in a stabilized occupancy level, income and expense, higher than actually demonstrated by historical performance.

An older hotel which shows declining performance over several years is in the downward phase of its life cycle and a stabilized occupancy level, income and expense, somewhat lower than actually demonstrated by historical performance would be appropriate.

Finally a hotel which shows an historical operating performance which oscillates up and down is considered to be at the peak or plateau portion of its life cycle. With hotels which are in such a plateau, the historic net income does not significantly understate what can be considered a stabilized level of income. In hotels with oscillating income, the stabilized income will fall into a range between the highest income reported and the lowest income reported. These divergences cannot be considered unacceptable, particularly over a period of time where the smoothing impact of averaging tends to minimize the differences. Rushmore and Rubin, The Valuation of Hotels and Motels for Assessment Purposes, The Appraisal Journal, April 1984, p. 275-277. Crown Center Hotel Complex, Inc. v. Robert Boley, 49 Proceedings and Decisions, State Tax Commission, 423-435-436.

Operating Expenses

Allowable operating expenses are ordinary and typical expenses that are necessary to keep the property functional and rented competitively with other properties in the area but do not include interest and principal payments that amortize a mortgage loan, depreciation, income tax, capital improvements, owner’s business expenses, or property taxes. Property taxes are treated as part of the capitalization rate. Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, p. 256-259. Property Assessment Valuation, International Association of Assessing Officers, 1977, p. 215-221. Diamond Savings Association v. A. Roy Pearson, State Tax Commission Appeal No. 92-41024. John Hancock Mutual Life v. Stanton, 51 STC Proceedings and Decisions, 1996, p. 394.

Return on Personal Property

The return on personal property to be deducted from a hotel’s income and expense statements can be calculated by (1) using the market value of the personal property as shown on the assessment rolls; (2) actual appraisal of the personal property; or (3) using the depreciated book value of the personal property. Because of the rapidity with which short-lived items are depreciated, the depreciated book value can be considered a “floor” on the value of the personal property. Its use in the return on personalty calculation thus results in the most conservative (i.e., lowest) estimate possible for a return on personal property, given any benefit of the doubt to the value of the hotel’s real estate component. Chattel mortgages for hotel furniture, fixtures and equipment are generally not available in the marketplace. Therefore, interest rates on hotel mortgages establish a minimum required rate of return on personalty. Return on personalty is determined by adding the capitalization rate for the real property to the tax load or effective tax rate per $100 of the personal property and multiplying same by the assessed value of the personal property. In attempting to segregate personal property from real estate, the primary consideration in valuing the personal property is its actual contributory value, not its hypothetical replacement cost new less depreciation. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, January 1993, P. 33, Crown Center, supra, p. 439, John Hancock, supra, p. 396.

Return of Personal Property

Periodic replacement of furniture, fixtures and equipment is essential to maintain the quality, image, and income potential of a lodging facility. An appraisal should reflect these expenses in the form of an appropriate reserve for replacement. Industry experience indicates that a reserve for replacement of 3% to 5% of total revenue generally is sufficient to provide for timely replacement of furniture, fixtures and equipment. The deduction of a reserve for replacement from the stabilized statement of income and expense can therefore be used to account for the return of personal property. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal. January, 1993, p. 21, 22. Crown Center, supra, p. 440.

Hotel Management and Business Value

Management companies generally offer their brand names, corporate identities, and reservation systems solely in conjunction with their management expertise. The process of isolating the value of a hotel’s business is based on the premise that by employing a professional management agent to handle the day-to-day operation of the property, an owner maintains only a passive interest, while income attributed to the business has been taken by the managing agent in the form of a management fee. Therefore, deduction of a management fee from the stabilized net income removes a portion of the business component from the stabilized income stream. Hotel management contracts are routinely structured with fees payable in two parts. The first part is the base management fee. This portion of the fee is usually based on a percentage of gross revenue and as such may be considered payment to the management company for the portion of its services that include building the hotel’s gross revenues. The second part of a typical management fee is called the incentive management fee and is usually based on a percentage of some level of net income. As such, this portion of the fee may be deemed payment to the management company for the portion of its services that include monitoring the hotel’s expenses and implementing the required control systems. Additionally, lodging facilities operated with a franchise affiliation provided by a third party are subject to the payment of franchise fees. Deducting the franchise fees from the stabilized net income removes the remaining business component from the income stream. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, April 1984, p. 280-291; Crown Center, supra at p. 438. John Hancock, supra at p. 397. The business value component of a hotel is accounted for through the franchise fee and the management fee. If these two items are calculated as expense items, no additional calculation is necessary to remove their impact from net operating income. John Hancock, supra. p. 397. Going concern value can be treated in one of two ways: The appraisers can leave the management and franchise fees in the expenses calculations, in which case no further calculation is necessary. Or, alternatively, the may remove those fees from the expenses and treat them separately. John Hancock supra p. 405. Leaving management and franchise fees in the expense calculations and then making further adjustments for business value results in stating business value twice and understating the value of the real property.

DISCUSSION

Both appraisers made significant mistakes in their appraisal reports.Respondent’s appraiser deducted $776,171 from his value indication as a deduction for personal property.The value of the personal property is not a deduction.The only appropriate deduction is the contribution of the personal property to the income stream.By deducting the entire value of the personal property, Respondent’s appraiser understated the value of the real property.

Respondent’s appraiser also failed to provide a reserve for replacement deduction.

Complainant’s appraiser had even greater problems.Not only did he deduct for the depreciated value of the business personal property, but he also deducted for a return on and a return of the property; effectively more than doubling the appropriate deduction.He then deducted for business value through his management fees and franchise fees and then deducted an additional $618,200 as a business value, more than tripling the appropriate deduction.He also double dipped in his capitalization rate when he added an effective tax rate to a capitalization rate which already had a tax rate included.

Finally, Complainant’s appraiser hung his whole argument that the property was poorly performing upon his assertion that the functional obsolescence within the property was such a drain on the property that it would never be able to operate up to market standards.Tr. 27.Not only does this position contradict the position stated by Complainant’s general manager and quoted in Complainant’s appraisal report, but it also ignores recent history which demonstrates that despite any perceived flaws, the property is more than capable of performing up to market standards.

ORDER

The assessed value for the subject property for tax year 2006, as determined by the Assessor and affirmed by the Board of Equalization, is SET ASIDE. The Clerk is HEREBY ORDERED to place a new value of $2,919,024(assessed value $934,087) on the books for tax year 2006.

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 Platte 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 September 14, 2007.

STATE TAX COMMISSION OF MISSOURI

_____________________________________

Luann Johnson

Hearing Officer

Certificate of Service

I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 14^thday of September, 2007, to:Richard Dvorak, 7111 West 98th Terrace, Suite 140, Overland Park, KS 66212, Attorney for Complainant; John Shank, 9800 N.W. Polo, Suite 100, Kansas City, MO 64153, Attorney for Respondent; Lisa Pope, Assessor; 415 Third Street, P.O. Box 20, Platte City, MO 64079; Sandra Krohne, Clerk, 415 Third, P.O. Box 30, Platte City, MO 64079; Donna Nash, Collector; 409 Third, P.O. Box 40, Platte City, MO 64079.

___________________________

Barbara Heller

Legal Coordinator

GKN AEROSPACE,)

)

Complainant,)

)

v.) Appeal Number 05-10572

)

PHILIP MUEHLHEAUSLER, ASSESSOR,)

ST. LOUIS COUNTY, MISSOURI,)

)

Respondent.)

 

 

ORDER

AFFIRMING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

On July 10, 2007, Hearing Officer Maureen Monaghan, entered her Decision and Order (Decision) affirming the decision of the St. Louis County Board of Equalization.

Complainant timely filed her Application for Review of the Decision.On August 15, 2007, Complainant appealed asserting that the Decision and Order is not supported by competent and substantial evidence on the record and is arbitrary, capricious, unreasonable and unlawful.The Complainant disputes the weight and credit the Hearing Officer gave the evidence and testimony of the Complainant’s appraiser.

On September 19, 2007, the Respondent filed his Response in Opposition to Complainant’s Application for Reconsideration.

DISCUSSION

The subject property consists of five buildings on 42.88 acres. The subject property was purchased by the Complainant in 2001 along with three other parcels for a total purchase price of $14,000,000.The subject parcel represents 48% of the total improved square footage and 61% of the land area of the complex.

The current improvements were constructed on the land beginning in 1942.Building #1, a manufacturing facility, was originally constructed in 1942 and consisted of 182,281 square feet. Additions to Building #1 were made in 1956 to expand the building to 650,989 square feet.After purchase of the property in 2001, the Complainant made $5,000,000 renovations to a portion of Building #1.

New construction and improvements in 2005 included modifying Building #5 from the fuel systems lab to an 8,488 square foot steam plant at the cost of $7.45 million.An electrical substation was also constructed at the cost of $3.2 million.

Complainant’s evidence included Exhibit A (appraisal of the subject property and three other parcels with an effective date of January 1, 2006), Exhibit B (an appraisal of the subject parcel with an effective date of January 1, 2003) and Exhibit D (a letter to the Complainant from the appraiser regarding the value Building #1 on January 1, 2005 and January 1, 2006).

The appraiser, in Exhibits A and B, used the cost and sales approaches to values.The income approach was not used as the property’s specialized use would prevent the property from being marketed or sold based upon anticipated lease income.The sales approach was given more weight than the cost approach due to the subject’s age and segmented history of construction.The appraiser used the information from Exhibits A and B to develop his opinion of value in Exhibit D.

The appraiser opined the value of the subject parcel on January 1, 2003, was $6,000,000 (Exhibit B).The appraiser opined the value of all the parcels on January 1, 2006, was $9,000,000 (Exhibit A).The appraiser opined the value of Building #1 on January 1, 2005 and January 1, 2006 was $6,000,000 (Exhibit D).

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 he 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).

The Complainant purchased the subject property and three other parcels in 2001 for $14,000,000.The subject parcel represents 48% of the total improved square footage and 61% of the land area of the complex.The subject property, when purchased, had five buildings.Building 1 is a 650,989 square feet building that contains office space.The other improvements on the subject property included a 10,487 square foot auto service garage (Building #4), a 7,222 square foot chemical storage facility (Building #6) and a 944 square foot pump house (Building #10) and a fuel systems lab (Building #5).

The Complainant made $5,000,000 in renovations to Building #1 on the subject property immediately after purchasing the property.The subject property underwent $7.45 million in renovations and construction on Building 5 to convert it to a steam plant and $3.2 million for an addition of an electrical substation in 2005.The steam and electricity were being obtained from the adjacent landowner however actions by the adjacent landowner were threatening the availability of steam and power to the subject property.

The appraiser opined the value of the subject property, land and five buildings, on January 1, 2003, was $6,000,000 (Exhibit B),The appraiser opined the value of Building #1 on January 1, 2005 and January 1, 2006, was $6,000,000 (Exhibit D).

Although the Complainant’s appraiser did not include the new steam plant in his valuation, the appraiser did not find that the renovations and new construction on the subject property enhanced the marketability or value of the subject.

There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the assessor’s or Board’s valuation is erroneous and what the fair market value should have been placed on the property.

Complainants’ evidence did not rise to the level of substantial and persuasive on the issue of fair market value.The presumptions were not rebutted.

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 his 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).

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.

If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts.If no petition for judicial review is filed 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 to the appropriate taxing jurisdictions the protested taxes presently in an escrow account for this appeal.

SO ORDERED October 31, 2007.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Jennifer Tidwell, Commissioner

Charles Nordwald, Commissioner

DECISION AND ORDER

 

HOLDING

Decision of the St. Louis County Board of Equalization sustaining the assessment made by the Assessor is AFFIRMED.Hearing Officer finds presumptions of correct assessment not rebutted. True value in money for the subject property for tax years 2005 and 2006 to be $17,595,100, assessed value of $5,630,430.

Complainant appeared by Counsel, Cathy Steele,St. Louis,Missouri.

Respondent appeared by Counsel, Paula Lemerman, Associate County Counselor.

Case heard by Senior Hearing Officer W. B. Tichenor. Pursuant to §138.431.4, RSMo, the appeal was transferred to Hearing Officer Maureen Monaghan for rendering of the Decision and Order.

ISSUE

The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2005, and January 1, 2006.

SUMMARY

Complainant appeals, on the ground of overvaluation, the decision of the St. Louis County Board of Equalization.The Assessor determined an appraised value of $17,595,100, assessed value of $5,630,430, as commercial property.The Board affirmed the value.Complainant proposed a value of $6,000,000, assessed value of $1,920,000.Respondent waived filing of exhibits and written direct testimony.Evidentiary hearing was conducted on June 5, 2007, at theSt. LouisCountyGovernmentCenter,Clayton,Missouriby Senior Hearing Officer W. B. Tichenor.

Transcript of hearing filed with the Commission on June 26, 2007.

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

Complainant’s Evidence

Exhibit A – Appraisal Report of Shaner Appraisals, Inc. with an effective date of valuation of January 1, 2006.Exhibit A is received as evidence on this record.

Exhibit B – Appraisal Report of Shaner Appraisals, Inc. with an effective date of valuation of January 1, 2003.Exhibit B is received as evidence on this record.

Exhibit C – Written Direct Examination of H. Laird Goldsborough.Exhibit C was not offered by Complainant.

Exhibit C-1 – Amended Written Direct Examination of H. Laird Goldsborough.Exhibit C-1 is received as evidence on this record.

Exhibit D – Letter from H. Laird Goldsborough to Mr. Charles Young.Exhibit D is received as evidence on this record.

Complainant’s Witness was H. Laird Goldsborough.

Respondent’s Rebuttal Evidence

Rebuttal Exhibit 1 A thru D – Photographs.Exhibit 1 A thru D is received as evidence on this record.

Rebuttal Exhibit 2 – Facilities Capital Forecast.Exhibit 2 is received as evidence on this record.

Respondent’s Rebuttal Witness was John Kiene.

FINDINGS OF FACT

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.

2.The subject property is located at 5290 Bashee,Hazelwood,Missouri.The property is identified by locator number 10L310031.The subject property consists of five buildings on 42.88 acres and include:

3.There was evidence of new construction and improvement in 2005 including an electrical substation at a cost of $3.2 million and a steam boiler capacity plant (Building #5) was constructed by expanding an existing building at a cost of $7.45 million.

4.Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2005.

CONCLUSIONS OF LAW AND DECISION

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.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.

Presumptions In Appeals

There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof 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).

The Supreme Court of Missouri has held, “A tax assessor’s valuation is presumed correct.”Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341 (Mo. 2005).Citing to Hermel, supra; and Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the assessor’s or Board’s valuation is erroneous and what the fair market value should have been placed on the property.Snider, Hermel & Cupples Hesse, supra.

Complainants’ evidence did not rise to the level of substantial and persuasive on the issue of fair market value.The presumptions were not rebutted.The evidence failed to establish an erroneous assessment.

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.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.

Market Value

Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

1.Buyer and seller are typically motivated.

2.Both parties are well informed and well advised, and each acting in what they consider their own best interests.

3.A reasonable time is allowed for exposure in the open market.

4.Payment is made in cash or its equivalent.

5.Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.

6.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.

 

Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.

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 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).

Trier of Fact

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).

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 January 1, 2005.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).However, a taxpayer does not meet his burden if evidence on any essential element of his case leaves the Commission “in 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 Complainant introduced into evidence two appraisal reports, Exhibits A and B.Exhibit A was an appraisal with an effective date of January 1, 2006.The appraisal provided an opinion as to market value for the subject property and three other parcels including seven buildings on 70.19 acres on parcels 10L310031, 10L220921, 10L220930 and 10L220912.The final estimate of value, according to Exhibit A, was $9,000,000 for all of the properties on January 1, 2006.

The appraisal valued the property using the cost approach and the sales comparison approach.Using the cost approach the appraiser determined the value of the property of all four parcels to be $14,000,000.The land was valued at $8,400,000 and the improvements after adjustments were valued at $5,645,582.The appraiser valued the improvements on the subject parcel as follows: Building #1 at $7,743,280, Building #4 at $96,994, Building #5 at $305,999, Building 6 at $39,636, and Building #10 at $5,062.

The appraiser also used the sales comparison approach to value the property.By comparing the property with other six other industrial properties that sold inIllinois,Ohio,MarylandandMichigan, the appraiser concluded that the value of all the properties on January 1, 2006, was $8,900,000.

The appraiser did not use the income approach.The appraiser stated that the income approach was not appropriate as the subject property is a specialized land use, it is not typically marketed, purchased or sold on the basis of anticipated lease income.

In reconciling the values, the appraiser placed more weight on the cost approach due to the subject’s age and segmented history of construction.

The second appraisal report submitted by Complainant, Exhibit B, was an appraisal with an effective date of January 1, 2003, which was dated February 4, 2005.The appraisal report details opinion of value for Parcel 10L310031 only.The appraiser once again found the cost and the sales comparison approaches the only appropriate approaches and believed the sales comparison approach to be the most reliable.The appraiser concluded a value of $6,000,000 for the subject property on January 1, 2003.

Using the cost approach, the appraiser determined the land, building and site improvements for the subject property to be $6,600,000.The appraiser valued the properties as follows: $5,566,104 for Building 1, $34,314 for Building 5, $4,468 for Building 10, $86,059 for Building 4, and $35,643 for Building 6.After determining the value of the buildings at $5,726,587 the appraiser deducted $4,200,000 for deferred maintenance.The appraiser determined the land value using a sales comparison approach to be $5,100,000.

Using the sales comparison approach, the appraiser determined the building and site improvements had a value of $5,900,000.

The appraiser reconciled the value under the two approaches and concluded that the value of the property on January 1, 2003, was $6,000,000.

The appraiser’s third documentation of value was a letter which was submitted as Exhibit D.The purpose of the letter was to set forth a value for Building #1, 10L310031 on January 1, 2005, and January 1, 2006.In the letter, the appraiser states the property is valued at $6,000,000 on January 1, 2005, and $6,000,000 on January 1, 2006.He further states that support of his values may be found in Exhibits A and B.

The appraiser did not find that the construction of the new steam plant and new power substation and network enhance the marketability or value of the subject.Steam had been purchased from the adjacent landowner however the adjacent landowner was phasing out the operation threatening the availability of steam to the subject property.

The appraiser, H. Laird Goldsmith, the preparer of exhibits A, B, and D, testified.He testified the value of Building #1 was $6,000,000 on January 1, 2005, and $6,000,000 on

January 1, 2006.The support for his valuation, according to the appraiser, could be found in Exhibits A and B.The appraiser did not testify as to the specific adjustments made for time value for Exhibit B or as to his specific findings when valuing one item from the valuation of four parcels – land and improvements- in Exhibit A. The testimony of Mr. Goldsmith as to his opinion of fair market value, without demonstrating the manner in which the opinion of value was concluded is not sufficient to provide a proper foundation to constitute substantial and persuasive evidence.

The additional factor that Complainant purchased the subject property in an open market transaction in 2001 for $14,000,000 and spent $5,000,000 shortly thereafter for maintenance or improvements cannot be ignored.Evidence of the actual sales price of property is admissible to establish value at the time of an assessment, provided that such evidence involves a voluntary purchase not too remote in time.The actual sale price is a method that may be considered for estimating true value.St. Joe Minerals Corp. v. STC, 854 S.W.2d 526 (App. E.D. 1993).

Evidence of recent improvements to the property should also be considered.A steam boiler capacity plant (Building #5) was constructed by expanding an existing building at a cost of $7.45 million.The steam plant is necessary for the viability of the property.An electrical substation was constructed in 2005 at a cost of $3.2 million.

The Complainant’s opinion of a fair market value of only $6,000,000 was not supported by substantial and persuasive evidence.The evidence presented did not provide Hearing Officer with sufficient information to determine market value.The presumptions of correct assessment were not rebutted.

ORDER

The assessed valuation for the subject property as determined by the Board of Equalization forSt. LouisCountyfor the subject tax day is AFFIRMED.

The assessed value for the subject property for tax years 2005 and 2006 is set at $5,630,430.

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 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 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 10, 2007.

STATE TAX COMMISSION OFMISSOURI

Maureen Monaghan

Hearing Officer

State Tax Commission of Missouri

M’SHOOGY ANIMAL RESCUE,)

)

Complainant,)

)

v.)Appeal No.06-40501 & 06-40502

)

RONALD CHRISTMAS, ASSESSOR,)

ANDREW COUNTY, MISSOURI,)

)

Respondent.)

DECISION UPON REMAND FROM COURT OF APPEALS

FINDINGS OF FACT

1.Remand from Court of Appeals.By Opinion Filed: November 24, 2009, the Missouri Court of Appeals Western District reversed the Order of the Commission issued October 11, 2007, and the Decision of the Hearing Officer issued June 14, 2007.[i]The Court remanded the case to the Commission for consideration and further proceedings consistent with the Opinion of the Court of the issues of (1) use of a part of the house on the exempt property as a residence and (2) occasional personal use of the claimed motor vehicles as exempt property.

2.Order for Reporting on Case Status.By Order dated December 2, 2009, Respondent was given until December 21, 2009, to report if review of the Court of Appeals Judgment would be sought.No report was provided.No appeal has been taken by either party from the Court of Appeals Judgment.

3.Judgment of Court of Appeals.The Court found “The use of property in rescuing and housing injured and abandoned animals is beneficial to mankind and society in general and, if rendered in a not-for-profit manner, is charitable in nature.”[ii]

4.Sufficiency of Evidence.The Court determined that on the issues of low cost veterinary services, educational activities, assistance to state and local law enforcement officials in handling injured and abandoned animals, and lessening a government burden, the testimony of Mr. Silverglat standing alone was sufficient to establish these activities and uses to qualify the subject property for exempt status.[iii]

5.Partial Use of House.The Court in remanding the case to the Commission on the matter of the use of part of the house as a residence noted the following:

“The provision of a residence occupied by key personnel, who were necessary to the efficient operation of the charity and needed to be located nearby, may be deemed sufficiently connected to the charitable purpose to justify the claimed exemption.Abbott Ambulance, Inc. v. Leggett, 926 S.W.2d 92, 95 (Mo. App. E.D. 1996).Silverglats testified that he and his wife resided in four rooms of the house because someone had to be present 24-hours a day to care for and treat the animals.To the extent this testimony is found credible by the trier of fact, anexemption would certainly seem appropriate.”[iv]

6.Silverglat Testimony Controlling on Use of House.The testimony of Mr. Silverglat with regard to the use of the house to support the exempt use of the remainder of the subject property, like his testimony on the matters of the low cost veterinary services, educational activities, assistance to state and local law enforcement officials in handling injured and abandoned animals, is sufficient to establish occupancy of the house as a residence is necessary to the efficient operation of the charity, needs to be located on the property, and is sufficiently connected to the charitable purpose to justify exemption of the house.

7.Silverglat Testimony Controlling on Use of Motor Vehicles.The testimony of Mr. Silverglat with regard to the use of the motor vehicles to support the exempt use of the remainder of the subject property, like his testimony on the matters of the low cost veterinary services, educational activities, assistance to state and local law enforcement officials in handling injured and abandoned animals, is sufficient to establish the use of the vehicles is necessary to the efficient operation of the charity, and is sufficiently connected to the charitable purpose to justify exemption of the motor vehicles.

ORDER

The assessment of the subject property made by the Assessor and sustained by the Board of Equalization for Andrew County for the subject tax day is SET ASIDE.

The county clerk is ordered to enter the subject property (Uniform Parcel Number 13-2.0-03-0-00-07.00 – Real Property at 11519 State Route C, Savannah, Missouri and Uniform Parcel Number -05-5000235 – Personal Property) on the list of exempt property into the supplemental tax book for the county for the tax year 2006.

A party may file with the Commission an application for review of this decision within thirty days of the mailing date set forth in the Certificate of Service.The application shall contain specific facts or law as grounds upon which it is claimed the decision is erroneous.Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.

Failure to state specific facts or law upon which the appeal is based will result in summary denial. [v]

The Collector of Andrew County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8, RSMo.

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 February 26, 2010.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Senior Hearing Officer

ORDER

AFFIRMING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

On June 14, 2007, Senior Hearing Officer W. B. Tichenor entered his Decision and Order (Decision) affirming the assessments by the Andrew County Board of Equalization and finding the subject real and personal property was not exempt from taxation under section 137.100(5) RSMo.

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

CONCLUSIONS OF LAW AND DECISION

Hearing Officer Decision Not Arbitrary or Capricious

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 his 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.2d403 (Mo. App. E.D. 1995); Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).

Complainant’s Argument

Complainant asserts the Hearing Officer erred in determining that Complainant’s activities do not constitute a charitable use under Missouri Law and in applying the standards of Franciscan Tertiary Province v. STC, 566 S.W.2d 213 (Mo. banc 1978) and Salvation Army v. Hoehn, et al, 188 S.W.2d 826 (Mo. banc 1945).The Commission is not so persuaded.

Charitable Use Argument

Complainant puts forth its argument relative a charitable use of the subject real and personal property along four lines.The lines of argument being the Complainant’s property is used to provide a charitable benefit to animals, a direct benefit to human beings, educational activities and lessening the burden of government.

Charitable Benefit to Animals

Complainant asserts that certain “charities which provide benefits to animals or the environment have nevertheless been fully accepted as qualified charities under both federal and state law.”It is further argued that Complainant “and similar organizations have fully qualified as exempt from sales and use tax under Missouri law.”Complainant also claims “many other public charities benefiting animals and the environment have qualified as charitable organizations exempt from real and personal property taxes under state laws.”

However, Complainant fails to point to a single place in the evidentiary record where it was shown that any animal rescue corporation has been granted tax exempt status from ad valorem property taxes in Missouri.It has not occurred in Missouri and no citation was provided to any such holding in any sister jurisdiction.Being granted a sales tax exemption is a factor which can be considered in exemption cases under 137.100, however, it is not dispositive on the issue.For the Hearing Officer to have concluded that keeping of animals constitutes a charitable use of real and personal property under section 137.100(5) RSMo would have meant the Hearing Officer was in effect rewriting the statute and case law to create an exempt use for care of animals.He properly declined to do.Likewise, the Commission is not persuaded that the reach of the statute extends to the care of keeping of animals as a charitable use of property.

The Hearing Officer did not err in his determinations on this point as challenged by Complainant.

Direct Benefit to Human Beings

Complainant’s next point is the assertion that low-cost or no-cost spaying and neutering provides a direct benefit to persons in reducing the number of stray animals.Complainant’s witness testified that there is a veterinary clinic operating on the property.This clinic is open to the public and fees are charged.This is simply a business enterprise.

There was no testimony of low or no cost spaying and neutering.The evidence was that people are charged for veterinary services to “try to cover the expenses.”The only no charge service is “life-threatening emergency” to an animal that a person cannot afford the veterinary services. Persons seeking elective veterinary services are charged a fee.Tr. 37, Line 12 – Tr. 38, Line 14.

The operation of the veterinarian clinic is simply a business enterprise in which the fees charged are used to cover the cost of operating the clinic.The record did not provide any evidence as to financial statements on the operation of the clinic, so it was not established if the fees charged cover the cost of operation or how any income over and above expenses are used.

However, the operation of a business enterprise even if any net income was going to a charitable, religious or educational entity does not render the business enterprise and the property it occupies as tax exempt.There is no citation to any case law to establish that the operation of a veterinarian clinic has qualified as a tax exempt use of real or personal property in Missouri or any other jurisdiction.

There is no documentation or testimony in the record which in any manner addressed the matter of alleged reduction in stray animals because of the veterinary services available at the clinic on the subject property.Nor does the record address the assertion made in Complainant’s Application for Review concerning emergency assistance with pets in times of floods, house fires, domestic abuse or death.Accordingly, the Hearing Officer could not have erred in failing to give consideration to alleged activities which were not addressed in the record.Therefore, the record failed to establish a direct benefit to humans from the operation of a veterinary clinic which would qualify as a charitable activity.

The Hearing Officer did not err in his determinations on this point as challenged by Complainant.

Educational Activities

Complainant argues that the Hearing Officer ignored or dismissed the direct benefits Complainant provides through educational activities.The argument is that the exposure of school groups and adults to wild animals helps teach people about the world around them.The Commission finds that the Hearing Officer specifically addressed the asserted educational activities on page 7 of the Decision.

In the words of the Decision, “…, the evidence is completely lacking as to what the alleged educational activities consist of, how often they are conducted, what the actual program of education is that is presented.No evidence was presented to establish what the content of the ‘education programs’ might be.In the absence of definitive evidence of past and continuing educational activities beyond simply conducting a tour of the facilities and explaining about animal rescue, the claim for an exemption on an educational ground fails.”

The Commission agrees.Complainant did not establish on the record anything concerning alleged educational activities.The Hearing Officer did not ignore the asserted “direct benefits.”He found there was no evidence upon which a reasonable mind could conclude any educational benefit, direct or indirect.Therefore, he properly applied the law to the evidentiary record and declined to grant an exemption for an educational use, when the evidence failed to establish any such use which would warrant exemption.

The Hearing Officer did not err in his determinations on this point as challenged by Complainant.

Lessening the Burden of Government

Complainant next asserts the Hearing Officer omitted any discussion of the activities of the Appellant which “lessen the burdens of government.”Because the Hearing Officer declined to expand the definition of charity to include animals, a discussion of any potential lessening of the burdens of government would not appear to be required in his Decision.Here again, the evidentiary record is severely lacking on this point.Although, Complainant asserts assistance to state and local law enforcement officials in handling wild and domestic animals, no evidence was presented to establish the frequency or number of incidents of such assistance.However, such assistance is an activity of Complainant, it is not a use of the subject property, which simply houses animals.

The argument made in the Application for Review that the use of the Complainant’s property to house animals reduces the necessity for government to maintain animal control facilities was simply not established on the record.There was no evidence whatsoever to demonstrate that because of the use of the subject property in keeping animals that any government had been able to do away with an animal control facility.

Complainant’s other assertion relating to keeping of animals reducing “taxpayer’s burden in meeting requirements of state statutes, federal statutes and international treaties requiring the protection and preservation of wildlife and migratory birds,” was not established on the record.There was no demonstration of any state or federal statute or international treaty obligation which is required to be met by the use of the subject property in keeping a variety of animals, which may or may not be protected in some fashion by statute or treaties.

In like manner, no evidence was presented on the subject of Complainant providing work release and parolee workfare employment.Even if such evidence was in the record, this would not establish the use of Complainant’s property to keep and care for animals as being an exempt use.

In summary, Complainant essentially puts forth this argument based upon an assertion of facts which do not appear in the record.Furthermore, in general the arguments made relate more to the activities of Complainant and not to the use of the real and personal property.

The Hearing Officer did not err in his determinations on this point as challenged by Complainant.

Franciscan and Salvation Army Not Controlling

The second alleged point of error relates to the Hearing Officer’s reliance upon the two seminal cases in Missouri on the granting of exemption from ad valorem taxation on the basis of charitable use of the property.Complainant’s argument essentially boils down to the Supreme Court of Missouri was addressing issues in Franciscan and Salvation Army that related to humans, and therefore, the Hearing Officer should have ignored the holdings in those two cases.In other words, Complainant would have had the Hearing Officer and now the Commission create a new line of case law establishing a classification of charity relating to the housing and care of animals.The Hearing Officer declined to take such a course of action and the Commission believes properly so.The Hearing Officer did not err in his determinations on this point as challenged by Complainant.

Complainant had 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. State ex rel. Council Apartments v. Leachman, 603 S.W.2d 930, 931 (Mo. 1980).It is well established that taxation is the rule and exemption from taxation is the exception.Exemption is not favored in the law.(See, Missouri Church of Scientology v. STC, 560 S.W.2d 837, 844 (Mo. banc 1977); CSCEA v. Nelson, 898 S.W.2d 547, 548 (Mo. banc 1995), citing Scientology).

The Hearing Officer concluded that Complainant failed to meet its burden of proof under the facts in the record and the controlling law.The Commission agrees and declines to take the step of carving out a new tax exemption for the care and housing of animals.If such an exemption is to be established it is a matter to be addressed by the courts or the legislature and not the Commission in its quasi-judicial role.

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.

If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts.If no judicial review is made within thirty (30) days, this decision and order is deemed final and the Collector of Andrew 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.

SO ORDERED October 11, 2007.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Jennifer Tidwell, Commissioner

Charles Nordwald, Commissioner

DECISION AND ORDER

 

HOLDING

Assessments by Assessor that subject properties were not tax exempt was sustained by Andrew County Board of Equalization.Hearing Officer finds subject property to not be exempt under Section 137.100(5), assessments AFFIRMED.

Complainant appeared by Counsel, James Nadolski, St. Joseph, Missouri.

Respondent appeared by Counsel, Steven Stevenson, Prosecuting Attorney.

ISSUE

The Commission takes this appeal to determine whether the subject real and personal property is exempt from taxation for the tax year 2006.

SUMMARY

Complainant appeals the decision of the Andrew County Board of Equalization on the ground of exemption under Section 137.100, RSMo.Respondent assessed the personal property (Appeal No. 06-40501) at an appraised value of $81,891.89, assessed value of $27,270.Respondent assessed the real property at an appraised value of $147,900, assessed value of $28,100, as residential property and $27,300, assessed value of $3,280, assessed value as agricultural property.The Board of Equalization sustained the assessments.

An evidentiary hearing was conducted on May 15, 2007, before Senior Hearing OfficerW. B. Tichenor at the Andrew County Courthouse, Savannah, Missouri.The Hearing Officer, having considered all of the competent evidence upon the whole record and the Briefs filed by the parties, enters the following Decision and Order.

Complainant’s Evidence

Complainant offered into evidence Exhibit A, the written direct testimony of Gary Silverglat, the founder and president of Complainant.Attached to and incorporated into Exhibit A were the following documents:

Exhibit IArticles of Incorporation of M’Shoogy Animal Rescue as a Missouri General Not For profit Corporation

Exhibit IICertificate of Corporate Records of Secretary of State of Missouri For Complainant, dated January 4, 2001

Exhibit IIICopy of Internal Revenue Service 501(c)(3) Determination Letter dated October 29, 2001

Exhibit IVCopy of Missouri Sales Tax Exemption Letter, effective from 3/2/07 to 3/2/10

Exhibit VCopy of Missouri Veterinary Medical Board Veterinary Facility License for Angel’s Vet Express

Exhibit VICopy of Federal Fish and Wildlife Permit for Complainant, dated 4/29/05, expiration 3/31/10

Exhibit VIICopy of Missouri Dept. of Agricultural, Animal Care Facility License, expires 1/31/08

Exhibit VIIICopy of Missouri Dept. of Conservation Wildlife Rehabilitation permit #271, expires 12/31/07

Exhibit IXCopy of Complainant’s informational brochure

Exhibit XCopy of Board of Equalization Decision Notices, Dated August 10, 2006

Exhibit A, with the attached Exhibits I through X were received into evidence.Exhibit A referenced an Exhibit XI, however, no such document was attached to the copy of Exhibit A filed with the Commission.

Respondent’s Evidence

Respondent did not file any exhibits or written direct testimony.Counsel for Respondent conducted cross-examination of Complainant’s witness.

FACTS

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

2.Complainant is a not for profit corporation, organized under the laws of the State of Missouri, with 501 (c)(3) tax exempt status from the Internal Revenue Service of the United States.Exhibits I, II, III.

3.The stated corporate purpose of Complainant is: to educate the community and to provide, assist and protect all animals that are stray, wild, abused, injured, without shelter, or owners, and to increase and promote public awareness and appreciation for all animals and to provide shelter, medical care and food for all unwanted animals.Exhibit I.

4.The activities which the Complainant performs are:Rescue injured and abandoned animals, adoption of animals, provide low-cost veterinary services for the public

(operation of a public veterinary clinic), spaying and neutering of animals, providing of educational tours and programs.Exhibit A, Q & A 13 & 18; Tr. 37, Lines 13 – 20.

5.Exemption from state Sales and Use tax does not establish the use of real or personal property that qualifies for exemption under Section 137.100(5), RSMo.

6.Holding of a Federal Fish and Wildlife Permit, a Veterinary Facility Certification, an Animal Care Facility License, and/or a Wildlife Rehabilitation Permit does not establish the use of real or personal property that qualifies for exemption under Section 137.100(5), RSMo. CONCLUSIONS OF LAW AND DECISION

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.

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. State ex rel. Council Apartments v. Leachman, 603 S.W.2d 930, 931 (Mo. 1980).It is well established that taxation is the rule and exemption from taxation is the exception.Exemption is not favored in the law.(See, Missouri Church of Scientology v. STC, 560 S.W.2d 837, 844 (Mo. banc 1977); CSCEA v.

Nelson, 898 S.W.2d 547, 548 (Mo. banc 1995), citing Scientology).Complainant seeks exemption of its property from taxation pursuant to Section 137.100(5), RSMo:

“The following subjects are exempt from taxation for state, county or localpurposes: …

(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, educational or charitable purposes; …”

Complainant’s substantial burden of proof has not been met in the present case.

Franciscan Tertiary Test

In meeting its burden of proof that the subject property is used “exclusively 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.…

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 thepurpose, as expressed in Salvation Army, of “relieving 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.

The three tests to be met under Franciscan are:

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.

The critical issue in the present case involves the question of whether the activities which are conducted at the subject real property – housing of rescued animals and the activities – and conducted by the subject personal property (miscellaneous motor vehicles) – traveling to rescue animals – are charitable or educational activities.Because the answer to this point of inquiry determines the case, the Hearing Officer will not address the additional issues which arose in the hearing of this case.Those include (1) use of part of a house on the property as a residence; (2) operation of a veterinary clinic on the subject property; and (3) mixed use of motor vehicles – personal and corporate use.It is noted that no listing of the subject personal property was submitted into evidence, nor was any detailed description of the real property, improvements, buildings, etc., or deed of conveyance establishing corporate ownership, with or without any reversion to individuals or another entity.

It appears that that the subject real property (whatever that may include) and the subject personal property (whatever it may be) is owned by Complainant, and it appears that Complainant operates on a not-for-profit basis.However, the linchpin issue is whether the actual and regular use of the real and personal property is for an educational or charitable purpose.No claim was asserted as to any religious exemption under Section 137.100(5).

The only asserted educational activities conducted on the subject property are field trips and tours.However, the evidence is completely lacking as to what the alleged educational activities consist of, how often they are conducted, what the actual program of education is that is presented.No evidence was presented to establish what the content of the “education programs” might be.In the absence of definitive evidence of past and continuing educational activities beyond simply conducting a tour of the facilities and explaining about animal rescue, the claim for an exemption on an educational ground fails.

It is now possible to turn to the matter of a “charitable use” of the real and personal property.In order for Complainant’s property to be exempt it must be actually and regularly used for a charitable purpose.In simplest terms the actual and regular use of the property is to rescue and house rescued animals.Does this activity constitute a charitable activity, or a charitable use?

The Franciscan case relies upon the holding of the Supreme Court of Missouri in the case of Salvation Army v. Hoehn, et al, 188 S.W.2d 826 (Mo. banc 1945).In Salvation Army, the Court stated the following, cited to In re Rahn’s Estate, 291 S.W. 120:

“Probably the most comprehensive and carefully drawn definition of a charity that has ever been formulated is that it is 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.”

The critical and controlling language of the Court’s holding has to do with “persons.”Charity is rendered toward persons, individuals, people, not animals.It is the hearts and minds of persons that must be influenced for a religious or educational purpose.It is the bodies of persons that are to be relieved from disease, suffering and constraint, not animals.It is persons, not animals, who are to be assisted in establishing themselves for life if charity is to be rendered.

The entire thrust of the language of the Court deals not with animals, but with human beings.As laudable as the activities of the Complainant may be in the minds of various people, those activities are directed toward rescuing animals, not charity under the controlling case law.As such, the use of the real and personal property is not a charitable use.Complainant’s property, real and personal, does not qualify under Section 137.100(5) as exempt from ad valorem taxation.

ORDER

The assessments of the subject properties made by the Assessor and sustained by the Board of Equalization for Andrew County for the subject tax day are AFFIRMED.

The assessed value for the subject property in Appeal No. 06-40501 for tax year 2006 is set at $27,270.

The assessed value for the subject property in Appeal No. 06-40502 for tax year 2006 is set at $31,380.

Complainant 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 theCommission, 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 Andrew 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.

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 June 14, 2007.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Senior Hearing Officer

State Tax Commission of Missouri

 

3M COMPANY)

)

Complainant,)

)

v.)Appeal Number 04-44503

)

TOM SCHAUWECKER, ASSESSOR,)

BOONE COUNTY, MISSOURI,)

)

Respondent.)

 

 

ORDER AFFIRMING HEARING OFFICER DECISION

AND DENYING APPLICATION FOR REVIEW

 

HISTORY

 

This case involves a determination of the market value of certain business personal property owned by the taxpayer on January 1, 2004.An evidentiary hearing was held on

January 9, 2007, in Boone County, Missouri.On April 12, 2007, Senior Hearing Officer Luann Johnson issued her decision and order setting aside the value determined by the Boone County Board of Equalization and adopting the value proposed by the taxpayer.

POINTS ON APPEAL

On May 11, 2007, Respondent appealed asserted that the Hearing Officer had erred in disregarding the evidence offered by Respondent in as much as:

(1)the Commission had previously stated in P.D. George v. Daly, Appeal 97-20316, that business personal property could be valued as if in continued productive use when there was evidence that there are markets for the purchase and sale of such machinery and equipment as installed and in continued use; and, in the alternative; and

(2) the Hearing Officer had failed to include the admitted $13,362,368 in installation costs, freight and taxes when she calculated her opinion of value for the subject property.

DISCUSSION

As to Point I

Respondent’s valuation expert stated that “. . .if the 3M Columbia manufacturing facility tangible personal property were to be sold on January 1, 2004, it would likely have been sold in its present condition, assembled and in place, combined with all the other assets of a larger ongoing business enterprise, as opposed to being dismantled and sold piecemeal at a used equipment auction in order to be dismantled and carried off for use elsewhere.”Said expert then attempted to determine the value of the company and apportion a percentage of said value to the business personal property.Specifically, said expert looked at Complainant’s acquisition of the W.L. Gore facility in October, 2000 and determined that said sale indicated a value for the subject personal property of $65,300,000.Respondent’s expert did not find any sales of assembly lines without the sale of the underlying businesses.

The problem with using this allocation approach is obvious.It requires a presumption that allocation accurately reflects market value of the various components.In fact, as one of Complainant’s witnesses testified, the allocation in the W.L. Gore purchase was actually done after a purchase price has been agreed upon and is a negotiation between the buyers and sellers to minimize their respective federal income liabilities.Tr. 22, 35.In other words, the allocation may or may not represent the fair market value of any one particular asset within the total purchase.This does not constitute substantial and persuasive evidence of the actual market value of the subject property.When called upon to determine if an apportioned value is market value, we will look to see if actual sales of equipment support the proposed apportioned value.In this instance, Respondent presented no equipment sales which would support his opinion of value.

Complainant’s expert also stated:“Given the apparent financial strength and profitability of the manufacturing operations conducted at the Columbia facility, it is most likely that the exchange for the tangible personal property would occur, with the equipment in its current condition, as part of a merger or acquisition of the electronics business as a whole.”The Hearing Officer properly found that Respondent had focused on the value the machinery and equipment created for 3M (value in use) but had failed to demonstrate that a potential purchaser of the equipment (without the underlying business) would find the machinery and equipment more attractive than that which could be purchased elsewhere.She found that at least 56% of Complainant’s personal property could be valued using comparable sales reported in trade publications.She also affirmed the cost methodology Complainant’s appraiser used for the remaining 44% of Complainant’s personal property.She correctly found that a computer or piece of furniture is not worth more merely because it is owned by a profitable company.Respondent has failed to demonstrate that his proposed apportionment method more accurately reflects market value than Complainant’s market sales and appropriate cost calculations.

Respondent argues that this was the very type of situation that was contemplated in P.D. George and, on this point, we agree.However our ruling inP.D. George rejected the methodology similar to the methodology employed by Respondent’s expert in the present case.Our rejection of an “in-use” value was affirmed in the subsequent appeal identified as P.D. George v. Daly, 77 S.W. 3d 645 at page 649 wherein the court found that valuing machinery and equipment as part of an entire manufacturing facility may not represent the fair market value (value in exchange) of the subject property.

Respondent’s first point on appeal is DENIED.

As to Point II

Respondent asserts, in the alternative, that if removal or liquidation value is to be used, freight, taxes and installation should have been included in value.As pointed out by the Court of Appeals in P.D. George v. Daly, 77 S.W.3d 645, “valuation of machinery and equipment need not include installation, freight and other costs unless such costs establish a value equivalent to value in exchange, as mandated by section 137.115.”Respondent has failed to demonstrate that purchasers would be willing to pay for freight, taxes and installation in order to purchase the subject property.

Respondent’s second point on appeal is DENIED.

 

CONCLUSIONS OF LAW

Standard of 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 he 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).

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, theDecision 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.

If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts.If no judicial review is made within thirty (30) days, this decision and order is deemed final and the Collector of Boone 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.

SO ORDERED October 11, 2007.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Charles Nordwald, Commissioner

Jennifer Tidwell, Commissioner

 

 

 

DECISION AND ORDER

 

HOLDING

The decision of the Boone County Board of Equalization approving the valuation of $56,878,860 (assessed value $18,959,630) made by the Assessor, is SET ASIDE.The Commission sets value at $20,289,000 (assessed value $6,763,000).

This appeal was heard and this Decision is rendered by Senior Hearing Officer Luann Johnson.Complainant appeared by Counsel, Thomas Campbell and Kenneth Newman, St. Louis, Missouri.Respondent appeared by Counsel, John Patton, Columbia, Missouri.

ISSUE

The issue in this appeal is the true value in money of Complainant’s machinery and equipment; defined as the most probable price that could be commanded for the machinery and equipment in an open-market, competitive exchange with buyer and seller both acting knowledgeably and prudently.

SUMMARY

The acquisition cost of the assets, less freight, taxes and installation, was $143,458,323.Respondent originally valued the property at $56,878,860 (assessed value $18,959,620) for tax year 2004, which value was approved by the Board of Equalization.At hearing, Respondent asserted a value of $51,000,000 (assessed value $17,000,000).At hearing, Complainant asserted a value of $20,289,000 (assessed value $6,763,000).

A hearing was held on January 9, 2007, in the Boone County Government Center, Columbia, Missouri.Complainant presented the testimony of a certified appraiser, Roger Chantal.Respondent’s valuation evidence was produced by John R. Phillips, a certified public accountant accredited in business valuation by the American Institute of Certified Public Accountants.

Complainant’s Evidence

Complainant offered the following exhibits:

Exhibit A – Appraisal Report of Robert Chantal

Exhibit B –Written Direct Testimony of Todd Corbo

Exhibit C– Written Direct Testimony of Roger Chantal

Exhibit D – Work File – Depreciation Tables (excluded)

Respondent’s Evidence

Respondent offered the following exhibits:

Exhibit 1 – Appraisal Report of John Phillips

Exhibit 2 –Written Direct Testimony of John Phillips

Exhibit 3 – Written Direct Testimony of Michael Lee

Exhibit 4 –Mr. Levick’s Study (withdrawn)

Ruling on Objection

At hearing, Complainant offered Exhibit D which was the work file of its appraiser, Roger Chantal.Respondent objected to the introduction of said work file inasmuch as Respondent had requested same and Complainant had failed to provide it prior to hearing.Ruling was reserved.12 CSR 30-3.060 provides that “Any exhibit or written direct testimony which has not previously been exchanged in accordance with this rule will be excluded from admission into evidence at the evidentiary hearing.”Respondent’s objection to the introduction of Exhibit D is SUSTAINED.

FINDINGS OF FACT

1.Jurisdiction.Jurisdiction is proper.Complainant timely filed its appeal from the decision of the Boone County Board of Equalization.

2.Complainant.Complainant’s Columbia facility is one of 61 manufacturing facilities operated by Complainant in 23 states.The facility manufactures electronic packaging and interconnect products, including insulation displacement connectors, trays and carriers for semiconductor packages; tape automated bonding circuits, flexible circuitry, Fresnel lenses, and anti-shoplifting marker tags.3M Flexible Circuits are the most visible product of this segment.Ex. 1, pg. 3.

3.Subject Property.The personal property which is the subject of this appeal consists of 2,351 items of computer equipment, furniture and fixtures, electronic manufacturing equipment, injection molding equipment and tools, molds, dies and jigs as more completely set out the parties’ appraisal reports.Ex. C, pg. 6, Ex. A, Ex. 1.Although Complainant lists over 5,300 entries in its fixed asset list, closer inspection indicates that many of the entries consist of merely partial payments on the same assets.Ex. C, pg. 6, Tr. 51.

4.Market Activity.The printed wire board (“PWB”) or printed circuit board (“PCB”) manufacturing industry has had a cyclical history.During the eight years following 1995, the PWB industry experienced rapid growth followed by rapid decline.Of the 75 facilities operated by the top 15 PCB fabricators, between 1995 and 2003, 20 facilities were acquired during that period, some twice; however, 35 closed, including 7 of those previously acquired.Among the 20 acquired facilities, 19 were acquired as part of the merger or acquisition of an entire company or line of business. Complainant accounts for about 30% of the flex circuits produced in the United States and Canada.Ex. 1, pg. 4-6.

There are also between 700 and 750 independent PWB manufacturing plants that make PWBs for use internally in their own electronic products.More than 75% of U.S.-made PWBs are produced by independent shops.Ex. 1, pg. 4.

5.Highest and Best Use.The current use of the property is its highest and best use.Tr. 41.The equipment is functioning in the arena in which it was manufactured to function.Tr. 49.

6.Methodology.Both the market approach and the cost approach are appropriate methods of valuing personal property.Daly v. P.D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341 (Mo. banc 2005).

7.Complainant’s Market Approach.Complainant’s appraiser spent eight days in the subject facility identifying the property under appeal.Tr. 42, 57, 58.Because of the custom built nature of some of Complainant’s machinery and equipment, Complainant’s appraiser was not always able to find recent comparable sales and only about 56% of the personal property was valued using the market approach.For those items which could be valued under the market approach, Complainant’s appraiser found comparable sales and made appropriate adjustments.Ex. C, pg. 11-14.Tr. 47.Sources of market information included Orion Blue Book, L&M “The Book” and Top Bid.Ex. C, pg. 18-19.

8.Complainant’s Cost Approach.For the remaining personal property, Complainant’s appraiser used the cost approach to value.His methodology included determining the original acquisition cost from the fixed asset list, indexing the cost up to current replacement cost and depreciating the item using depreciation tables set forth in Marshall Valuation Service.Ex. C, pg. 14-17.Complainant’s appraiser excluded identifiable items of installation costs.Tr. 44-45.The total freight, taxes and installation removed from the fixed asset list was $13,362,268.Tr. 45.

9.Complainant’s Opinion of Value.Complainant’s opinion of value, based upon the market and cost approach, was $20,289,000.As a cross check on his final conclusion of value, Complainant’s appraiser applied the MACRS tables recommended in Section 137.122, RSMo which will apply to personal property purchased after January 1, 2006.This cross check indicated a value of $20,803,000.Ex. C, pg. 17.

10.Respondent’s Market Approach. Because most of the personal property at the Columbia facility was in productive use, Respondent’s valuation expert rejected the auction market for most of Complainant’s personal property but, rather, “looked at the merger and acquisition market to obtain prices for equipment in comparable condition for purposes of determining fair market value of the same or similar tangible personal property when acquired by merger or acquisition in place as a part of an entire facility.”Specifically, Respondent’s valuation expert looked at Complainant’s acquisition of the W.L. Gore facility in October, 2000 and determined that said sale indicated a value for the subject personal property of $65,300,000.Ex. 2, pg. 11-13, Tr. 85, Ex. 1, pg. 21-22.

11.Respondent’s Cost Approach.Like Complainant’s appraiser, Respondent’s valuation expert trended the acquisition costs upward and applied a percent good factor.However, Respondent’s expert used an “Iowa curve” to determine remaining useful life and then “modified the Iowa curve method by adding a service factor and by discounting the future expected benefits from each machine to a present value.”Respondent’s expert utilized the same methodology he would have typically used when examining corporate acquisitions and mergersand made an assumption that these assets would be acquired as part of a larger transaction.Based upon this methodology, Respondent’s expert estimated a value for the personal property, under the cost approach, of $51,000,000.Ex. 2, pg. 15, 17, Tr. 92-94, Tr. 103-104.He testified that said methodology measured the value of machinery and equipment in “productive use.”Tr. 104.

12.Complainant’s Evidence Substantial and Persuasive.Complainant presented substantial and persuasive evidence tending to indicate that the market value for the subject personal property on January 1, 2004, was $20,289,000 (assessed value $6,763,000).

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 Pettis 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).

Standard for Valuation

Section 137.115, RSMo 1994, 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.Mo. Const. Art X, Section 4(b) (1945, amended 1982); 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.

Market Value

“Market value” is defined as “…[t]he most probable price which a property would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

a.buyer and seller are typically motivated;

b.                  both parties are well informed or well advised, and acting in what they consider their best interests;

 

c.a reasonable time is allowed for exposure in the open market;

d.payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and

 

e.the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

 

Federal Register, vol. 55, no. 163, August 22, 1990, pages 34228 and 34229; also quoted in the Definitions section of the Uniform Standards of Professional Appraisal Practice, 1996 ed.Exhibits A-11 and A-12, at 2.

 

Comparison of Value in Exchange and Value in Use

“Value in exchange” or “exchange value” is defined as “[t]he value of a commodity in terms of money to persons generally, as distinguished from use value to a specific person.” (The Dictionary of Real Estate Appraisal, Third Edition, Appraisal Institute, 1993, at 125.) “Value in use” or “use value” is defined as “the value a specific property has for a specific use” (Ibid., at 383) and “the value of property which reflects a value to a specific user, recognizing the extent to which the property contributes to the personal requirements of the owner.”(The Appraisal of Personal Property, American Society of Appraisers, 1994 at 2).

An exchange value is an objective value determined by transactions between buyers and sellers in the open market.A use value is a subjective value of an owner, user, or potential owner based solely upon his or her personal needs for the property.By definition then, market value is the value determined by the exchange of property between an informed seller and an informed buyer after exposure in the open market and not a subjective opinion of some individual or entity.However, there is a distinction between a value in use to a specific user and a value recognized by a group of informed potential buyers that a property has for a specific use.The latter should be fully considered under a market value appraisal.Further, if there is sufficient demand for the property for the use to which it is being put by the owner, exchange value can be equivalent to the use value to the owner.The market value standard does not require appraisers to discard transactions or market demand for assembled machinery and equipment just because the market finds the property valuable for the same use that it is being put to by the owner.Such evidence should be fully considered in a market value appraisal.Conversely, if there is no evidence that there is demand for machinery and equipment assembled and in place, it would be inappropriate to value the property as assembled and in place since such valuation would not be indicative of a market value in exchange.See, Daly v. P.D. George, 77 S.W.3d 645(Mo. App. E.D. 2002).

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 January 1, 2004.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).

Experts – Requirement for Substantial Evidence

An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion.Missouri Pipeline Co. v. Wilmes, 898 S.W.2d 682, 687 (Mo. App. E.D. 1995). The facts upon which an expert’s opinion is based, like the facts sufficient to support a verdict, must measure up to the legal requirements of substantiality and probative force; the question of whether such opinion is based on and supported by sufficient facts or evidence to sustain the same is a question of law for the court.Robinson v. Empiregas Inc. of Hartville, 906 S.W.2d 829 (S.D. 1995).

The state tax commission cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach.Drey v. State Tax Commission, 345 S.W.2d 228, 234-236 (Mo. 1961); Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 348 (Mo. 2005).

The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the trier of fact may deem it entitled to when viewed in connection with all other circumstances.The hearing officer, as the trier of fact, has the authority to weigh the evidence and 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 may 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. 1981); Scanlon v. Kansas City, 28 S.W.2d 84, 95 (Mo. 1930).

Discussion

For ad valorem purposes appraisers are required to value property based upon its highest and best use:“The highest and best use of a property is generally accepted to be the most probable use of a property that is physically possible, legally permissible, financially feasible, and that results in the appropriately supported most profitable use of the property being appraised.In many instances the highest and best use of a given item is the original function for which it was designed and manufactured, provided the item is indeed being employed in that fashion and not merely that it may be employed in that fashion.

However, this blanket statement may not always be applicable.An important consideration in determining the highest and best use of machinery and equipment, is that machinery and equipment, in most instances, can be removed and relocated.In this context, if machinery and equipment in a manufacturing facility is not generating sufficient returns to support a fair market value-in-continued-use estimate, then the highest and best use may be some form of liquidation or piecemeal in-exchange market sale, as such sale could result in the highest value.”Valuing Machinery and Equipment:The Fundamentals of Appraising Machinery and Technical Assets, 2d Edition, American Society of Appraisers, 2005, pg. 212.

From the foregoing we see that value-in-continued-use is an acceptable way to value business personal property.But, in Missouri, we must also look at value in exchange.And, while value in exchange and value in use can, at times, be one and the same; when a party asks us to accept value in use as value in exchange, that party has the burden to demonstrate that some market exists for the subject property in its assembled form.If there is no evidence that there is demand for machinery and equipment assembled and in place, it would be inappropriate to value the property as assembled and in place since such valuation would not be indicative of a market value in exchange.See, Daly v. P.D. George, 77 S.W.3d 645(Mo. App. E.D. 2002).

Complainant demonstrated that there was an active secondary market for over half of Complainant’s business personal property, supporting a market value of $20,289,000.This conclusion would seem to be supported by the fact that there are over 700 independent PCB fabricators who may have an interest in purchasing Complainant’s equipment.

On the other hand, Respondent’s expert provides no sales of assembly lines but assumes that the subject property would be sold as part of the sale of the entire business.Respondent reports that 3M stock prices rose more than 40% between December 31, 2002, and December 31, 2003, and than states:

Given the apparent financial strength and profitability of the manufacturing operations conducted at the Columbia facility, it is most likely that the exchange for the tangible personal property would occur, with the equipment in its current condition, as part of a merger or acquisition of the electronics business as a whole.With the exception of some equipment taken offline, for the remaining bulk of the tangible personal property located at the Columbia facility, it is implausible to assume that the most likely exchange price would be obtained by dismantling and selling the equipment at a used equipment auction.Moreover, given 3M’s objection to producing more useful evidence, the financial data, budgets, and plans specific to the Columbia facility, our finding, that Columbia’s manufacturing activities are most likely to be sold as part of a going-concern, should be conceded.Ex. 1, pg. 8.

 

The ability of the equipment to function according to its design is certainly a factor when determining market value but the fact that 3M is profitable should not create a premium value for its equipment.Thus, a unique assemblage may be worth more because the market shows that a purchaser would pay more for that particular assemblage but a computer or piece of furniture is not worth more merely because a profitable company owns it.Respondent has focused on the value the machinery and equipment creates for 3M (value in use) but has failed to demonstrate that a potential purchaser of the equipment (without the underlying business) would find the machinery and equipment more attractive than that which could be purchased elsewhere.

ORDER

The assessed valuation for the subject property as determined by the Assessor and approved by the Boone County Board of Equalization for the subject tax day is SET ASIDE.

The Commission sets value for tax year 2004 at $20,289,000 (assessed value $6,763,000).

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 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 ofBoone 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 of Fact or Conclusion of Law shall be so deemed.

SO ORDERED April 12, 2007.

 

STATE TAX COMMISSION OF MISSOURI

Luann Johnson

Senior Hearing Officer

 

State Tax Commission of Missouri

3M COMPANY,)

(Minnesota Mining & Manufacturing Company))

)

Complainant,)

)

v.)Appeal Number 04-44502

)

TOM SCHAUWECKER, ASSESSOR,)

BOONE COUNTY, MISSOURI,)

)

Respondent.)

 

DECISION AND ORDER

 

HOLDING

The decision of the Boone County Board of Equalization approving the assessment made by the Assessor, is SET ASIDE.The Commission finds the true value of the commercial property in question is $7,250,000 (assessed value $2,320,000) for tax year 2004.The value of the agricultural land in the parcel is not contested and remains at $138,100 (assessed value $16,572).

This appeal was heard and this decision is rendered by Senior Hearing Officer Luann Johnson.An evidentiary hearing was held on January 9, 2007, in the Boone County Government Center, Columbia, Missouri.Complainant appeared by Counsel, Thomas Campbell and Kenneth Newman, St. Louis, Missouri.Respondent appeared by Counsel, John Patton, Columbia, Missouri.

ISSUE

The issue in this appeal is the true value in money, also called the market value, of a 371,426 square foot manufacturing property on January 1, 2004.The subject parcel also contains agricultural land having a value of $138,100.The assessment for the agricultural land is not under appeal.

SUMMARY

The Assessor originally valued the commercial property at $12,516,700 (assessed value $4,005,344) for tax year 2004.Said value was approved by the Boone County Board of Equalization.Complainant asserts a value for the subject property of $3,770,000 (assessed value $1,206,400).Respondent now asserts a value for the subject commercial property of $7,250,000 (assessed value $2,320,000).The Commission finds that the true value in money of the subject commercial property was $7,250,000 on January 1, 2004.

Complainant’s Evidence

Complainant offered the following exhibits:

Exhibit A – Appraisal Report of Thomas McReynolds

Exhibit B – Written Direct Testimony of Todd Corbo

Exhibit C — Written Direct Testimony of Thomas McReynolds

Respondent’s Evidence

Respondent offered the following exhibits:

Exhibit 1 – Appraisal Report of Allan J. Moore

Exhibit 2 – Written Direct Testimony of Allan J. Moore

FINDINGS OF FACT

1.Jurisdiction is proper.Complainant timely filed its appeal from the decision of the Boone County Board of Equalization.

2.The property under appeal consists of commercial and agricultural property identified as parcel number 12-503-00-10-001.00 01, more commonly known as 5400 Paris Road (Route B), Columbia, Boone County, Missouri.

3.The value of the 13.81 acre agricultural portion of the parcel has not been contested and, therefore, the Board value of $138,100 (assessed value $16,572) is approved.Ex. 1, p. 22.

4.The commercial portion of the parcel consists of a 39.88 acre tract improved with a one-story 371,426 square foot manufacturing facility, a 40,000 square foot mezzanine, a 4,144 square foot wastewater treatment building, parking and other miscellaneous site improvements.The improvements were built in 1970 with additions in 1980, 1994, 1996 and 1997.Ex. A, p. 6, Ex. 1, p. 5, 22, 28.

5.The improvements have an effective age of between 20 and 22 years with a remaining economic life of between 30 and 38 years.Ex. A , pp. 7, 22, Ex. C, p. 10, Ex. 1, p. 28.

6.The improvements are average to good quality steel frame and masonry construction and are considered to be in good condition for their age.Ex. A, p. 24, Ex. 1, p. 28.Marketing time is estimated to be between 18 and 30 months.Ex. A, p. 6, Ex. 1, p. 5.

7.The market for industrial space in Columbia, Missouri is good with few unsold properties.Tr.34.Properties in Columbia, Missouri sell for twice as much as properties in Lawrence, Kansas and almost three times as much as properties in other smaller Missouri cities.Ex. 1, pp. 63, 66.Shell industrial buildings are frequently bought and sold in the market.Tr. 15.Purchasers anticipate making some changes to a facility to suit their individual needs.Ex. 1, p. 19.

8.The highest and best use of the property is for continued use as an office and manufacturing facility.Ex. A, p. 30, Ex. 1, p. 36.

9.The income approach to value is not a reliable indicator of value for an owner occupied manufacturing facility such as the subject property.And, while it is possible to value such a property using the cost approach, the age of the improvements and the super adequate improvements make determination of obsolescence difficult.The most reliable indicator of value for the subject property is the market or sales comparison approach which uses market derived evidence to determine what buyers are willing to pay for similar properties.

10.Approximately 25% of the available floor space is currently finished for office and support use.Ex. A, p. 22.These areas have dropped ceilings with heights of 10 to 12 feet.Ex. 1, p. 19.However, because of the nature of the dropped ceilings in the subject, any of the ceilings could be raised to at least 16 feet with minimal cost.Tr.29-31.Facilities with eave heights below 14 feet are not functional for most manufacturing and/or industrial uses and are difficult to market.Ex. 1, pp. 19-20.The subject property has eave heights between 22 and 30 feet with clear ceiling heights ranging from 16 to 22 feet.Ex. 1, p. 64.Complainant presented no market data, in the form of a paired sales analysis, which would suggest that the subject property’s ceiling heights would be perceived by buyers as creating a loss in utility (functional obsolescence).

11.Likewise, while the amount of office space is more than that typically found in general manufacturing facilities, it is comparable to that found in research and development facilities.Ex. 1, p. 19.Complainant presented no market data, in the form of a paired sales analysis, which would suggest that the subject property’s office space would be perceived by buyers as creating a loss in utility (functional obsolescence).

12.Approximately 40% of the floor space is currently devoted to H-4 production and clean rooms.H-4 areas are required to have six hour fire rated walls which are usually built of concrete block.Tr. 22.These areas are designed for hazardous manufacturing.Tr. 28.H-4 , clean rooms and waste treatment facilities, represent highly specialized finishes that do not add substantial value, if any, upon sale to other parties.Ex. 1, p. 20.However, H-4 areas are not limited to only H-4 use.Tr. 38.These areas may be developed in a super-adequate manner, but no market data, in the form of a paired sales analysis, was presented which tended to demonstrate that the designation of an area as H-4, in and of itself, creates a perception of unsuitability for any use at all.Assigning no additional value to the specialized improvements is adequate to account for any superadequacy.

13.The existence of multiple load bearing walls within a structure may limit its appeal for some single users as suggested by Complainant.However, there is also significant evidence of a market for similar buildings which have been divided into smaller units.Tr.29, 32, 35-38.Ex. 1, p. 20, 65. [Respondent’s comparable sales 4, 5, 7, 8 and 10].The demand for buildings with multiple load bearing walls refutes Complainant’s claim of functional obsolescence.

14.The H-4 areas also have some trench drains which Complainant’s appraiser asserted, at hearing, would be impossible to repair. Tr. 13, 22, but Complainant’s appraiser makes no mention of trench drains as a factor within his appraisal report.Further, Complainant’s appraiser made no attempt to quantify the amount or impact of those trench drains and, consequently, we cannot find that those drains impact value.

15.Because of the H-4 use, Complainant asserts that there may be a stigma associated with its property which would detract from the value of the property.No paired sales analysis was presented which would identify or quantify such a stigma.

16.Complainant asserts that the existence of only five loading docks limits the value of the subject property.There is no reference to adjustments for loading docks in Complainant’s comparable sales and Complainant has failed to quantify an appropriate adjustment.

17.Complainant’s appraiser asserts that, because most of manufacturing similar to that done by Complainant has moved off shore, there is significant external obsolescence in the subject property.Ex. A, p. 26.Respondent’s appraiser also reports a downturn in the electronics market.Ex. 1, p. 19.One method to account for said external obsolescence, if the market is severely restricted, is to assign no value to the super adequate features of the subject property and consider the property as being available for alternate uses.Respondent’s appraiser used this methodology.Complainant’s appraiser, on the other hand, opines that it would be virtually impossible, on an economic basis, to convert the subject property to any sort of traditional manufacturing or other industrial use.Ex. A, p. 24, Tr. 14.The market evidence presented does not support Complainant’s conclusion.

18.Complainant’s appraiser presents three sales in support of his opinion of value.Two of those sales are located in Lawrence, Kansas and sold for $9.47 per square foot and $9.05 per square foot.The remaining sale is located in Findlay, Ohio and sold for $3.71 per square foot.Based upon these sales, Complainant’s appraiser determined that the proper value for the subject property was $10.00 per square foot, or $3,770,000.

Complainant’s appraiser testified that he had appraised no more than four or five properties in Columbia, Missouri in the last 20 years.Tr. 12.Nonetheless, Complainant’s appraiser asserts that the Columbia and Lawrence locations are similar.Ex. A, 37. Consequently, Complainant’s appraiser made no location adjustments to the Lawrence comparables. However, Respondent’s appraiser testified and presented market evidence tending to show that comparable properties in Columbia, Missouri were selling for twice as much as properties in Lawrence, Kansas.Ex. 1, p. 63, 66.

In addition, Respondent demonstrated that Complainant’s comparable sale number one, which had originally sold in 2003 for $2,000,000 with a three year lease back, had resold for $3,110,000 in June, 2005, indicating an unadjusted value for the subject property of at least $14.72 per square foot.

We cannot comment on the comparability of the sale in Findley, Ohio because no market data was provided which would support a finding that the Findley, Ohio property should be adjusted 35% for location.

Complainant has failed to present substantial and persuasive evidence tending to show that the subject property would sell for no more than $3,770,000 on the tax day.

19.Respondent presented fifteen sales of similar properties; thirteen of which were in Missouri and two were in Kansas.Respondent’s appraiser analyzed ten of these sales to reach an opinion of value for the subject property of $19.50 per square foot or $7,250,000.Respondent’s appraiser adjusted the sales for location, gross building area, percentage of finished space, construction quality, effective age, eave height, functional utility, and sprinkler and air conditioning.A number of these sales had multiple load bearing walls.After adjustments, the comparable sales indicated a range of value between $8.91 per square foot and $31.94 per square foot.The highest value of the “inferior” sales was $14.46.The lowest value of the “superior” sales was $20.59.Therefore, Respondent’s appraiser determined that the value of the subject property was between $14.46 per square foot and $20.59 per square foot.

Respondent’s appraiser determined that the overall superior quality of the subject property as opposed to the comparable properties, the extent of the load bearing walls, and the larger amount of office finish made the subject property more desirable and thus determined that the market value for the subject property should be between $19 and $20 per square foot.

Respondent’s analysis is complete, well reasoned and supported by market data.Therefore, we find that Respondent’s opinion of value is substantial and persuasive.

CONCLUSIONS OF LAW

<span
lang=EN-CA style=’mso-ansi-language:EN-CA’><span
style=’mso-spacerun:yes’> SEQ CHAPTER \h \r 1<span
lang=EN-CA style=’mso-ansi-language:EN-CA’>Highest and Best Use

True value in money is the fair market value of the property on the valuation date, and is a function of its highest and best use, which is the use of the property which will produce the greatest return in the reasonably near future.Aspenhof Corp. v. State Tax Commission, 789 S.W.2d 867, 869 (Mo. App. 1990).

It is true that property can only be valued according to a use to which the property is readily available.But this does not mean that in order for a specific use to be the highest and best use for calculating the property’s true value in money, that particular use must be available to anyone deciding to purchase the property. . . .A determination of the true value in money cannot reject the property’s highest and best use and value the property at a lesser economic use of the property.Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 348-349 (Mo. 2005).

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).

Taxpayer has Burden of Proof

Under Mo. Const., Article X, Section 14, the state tax commission corrects “any assessment which is shown to be unlawful, unfair, arbitrary or capricious.”Thus, in order to prevail, the taxpayer must establish that the decision of the board of equalization falls into one of the above four categories.If a taxpayer fails to make the required showing, it will not prevail, regardless of the amount of evidence – or lack of evidence — presented by the county.

In Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003), the court of appeals stated:

There is no longer an automatic presumption regarding the correctness of an assessor’s valuation. Section 138.431.3. This statutory change from the previous situation in which the assessor’s valuation was presumed to be correct does not mean that there is now a presumption in favor of taxpayer. The taxpayer in a Commission tax appeal still bears the burden of proof and must show by a preponderance of the evidence that the property was improperly classified or valued. Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App.1991).

In Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003), the court of appeals described the taxpayer’s burden as follows:

Taxpayers were the moving parties seeking affirmative relief, and as such, they bore the burden of proving the vital elements of their case, i.e., the assessments were “unlawful, unfair, improper, arbitrary or capricious.” Cupples Hesse Corp. v. State Tax Comm’n, 329 S.W.2d 696, 702 (Mo.1959); Westwood P’ship v. Gogarty, 103 S.W.3d 152, 161[8] (Mo. App. 2003); 84 C.J.S. Taxation §§710, 726. This is true regardless of the existence or non-existence of the challenged presumption. As the Supreme Court of Missouri explained, “even were we to hold that it [the presumption] has been overcome, the burden of proof on the facts and inferences would still remain on petitioner, for it is the moving party seeking affirmative relief.”Cupples, 329 S.W.2d at 702[16]. See also 84 C.J.S. Taxation §710, which states: “Even where there is no presumption in favor of the assessor’s ruling, if no evidence is offered in support of the complaint, the reviewing board is justified in fixing the valuation complained of in the amount assessed by the assessor.”
To prevail, Taxpayers had to “present an opinion of market value and then … present substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on tax day.” Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. 2002).

Substantial and Persuasive Evidence

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).

Cost Approach

The cost approach may be based on either reproduction cost or replacement cost.The reproduction cost, or cost of construction, is a determination of the cost of constructing an exact duplicate of an improved property using the same materials and construction standards.The replacement cost is an estimate of the cost of constructing a building with the same utility as the building being appraised but with modern materials and according to current standards, design and layout.

The cost approach is most appropriate when the property being valued has been recently improved with structures that conform to the highest and best use of the property or when the property has unique or specialized improvements for which there are no comparables in the market.

While reproduction cost is the best indicator of value for newer properties where the actual costs of construction are available, replacement cost may be more appropriate for older properties.Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 347 (Mo. 2005).(citations omitted).

Income Approach

The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property.The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use.

When applying the income approach to valuing business property for tax purposes, it is not proper to consider income derived from the business and personal property; only income derived from the land and improvements should be considered.This approach is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses and capitalization rates can reasonably be estimated from existing market conditions. The initial step in applying the income approach is to find comparable rentals and make adjustments for any differences. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 347 (Mo. 2005).(citations omitted).

Comparable Sales Approach

The comparable sales approach uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties.Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.This approach is most appropriate when there is an active market for the type of property at issue such that sufficient data is available to make a comparative analysis.Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 347-348 (Mo. 2005). (citations omitted).

Experts

An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion.Missouri Pipeline Co. v. Wilmes, 898 S.W.2d 682, 687 (Mo. App. E.D. 1995).The state tax commission cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach.Drey v. State Tax Commission, 345 S.W.2d 228, 234-236 (Mo. 1961); Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 348 (Mo. 2005).

The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the trier of fact may deem it entitled to when viewed in connection with all other circumstances.The hearing officer, as the trier of fact, has the authority to weigh the evidence and 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 may 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. 1981); Scanlon v. Kansas City, 28 S.W.2d 84, 95 (Mo. 1930).

DISCUSSION

Complainant’s appraiser assumed that certain perceived flaws may have impacted value but he was not able to present reliable market data which would tend to demonstrate that the market shared his belief.Therefore, Complainant’s opinion of value does not rise to the level of substantial and persuasive.

Respondent produced evidence tending to show that a market existed for similar properties with multiple load bearing walls.Respondent also demonstrated that the current low ceilings could be remedied with minimal cost.Finally, Respondent presented undisputed testimony that H-4 space had alternate uses.Respondent’s evidence was substantial and persuasive.

ORDER

The Decision of the Board of Equalization is SET ASIDE.The Commission sets value for the subject commercial property at $7,250,000 (assessed value $2,320,000).The value of the agricultural property remains unchanged at $138,100 (assessed value $16,572).

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 ofBoone 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 April 12, 2007.

STATE TAX COMMISSION OF MISSOURI

_____________________________________

Luann Johnson

Senior Hearing Officer

Certificate of Service

 

I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 12^th day of April, 2007, to:Thomas Campbell, 101 S. Hanley Rd., Suite 1600, St. Louis, MO63105, Attorney for Complainant; John Patton, County Counselor, 601 East Walnut, Room 207, Columbia, MO 65201, Attorney for Respondent; Tom Schauwecker, Assessor, 801 E. Walnut, Room 143, Columbia, MO 65201; Wendy Noren, Clerk, 801 E. Walnut, Room 236, Columbia, MO 65201; Pat Lensmeyer, Collector, Boone County Government Center, 801 E. Walnut, Room 118, Columbia, MO 65201.

____________________________

Barbara Heller

Legal Coordinator

MCCHINN PROPERTIES, INC.)

)

Complainant,)

)

v.)Appeal Number 05-52000

)

SHAWN ORDWAY, ASSESSOR,)

COLE COUNTY, MISSOURI)

)

Respondent.)

ORDER SETTING ASIDE HEARING OFFICER DECISION

 

History

The subject property is a small office building subject to a long term lease.For tax year 2005, The Assessor valued the property at $923,300, which value was approved by the Cole County Board of Equalization.Complainant appealed asserting a value of $500,000 within its Complaint for Review of Assessment and $633,531 for the leased fee under a discounted cash flow presented at hearing.Complainant presented no evidence concerning the value of the leasehold interest.Respondent presented an appraisal report indicating fee simple value of $967,300 under the cost approach; $949,600 under the income approach; and $969,500 under the sales comparison approach.Respondent urged a reconciled value of $950,000.Respondent also presented a value of the leased fee of $790,000 and a value for the lease hold interest of $490,000.

An evidentiary hearing was held on June 20, 2006, before Senior Hearing Officer W.B. Tichenor.On September 13, 2006, Hearing Officer Tichenor issued his decision and order finding value of the leased fee to be $580,900.Hearing Officer Tichenor found that no evidence was presented to suggest that the leasehold interest was marketable and, thus, assigned no value to the leasehold interest.We overturn this finding.

Complainant also appealed on the basis of discrimination, but said claim was poorly developed at hearing and Senior Hearing Officer Tichenor found said claim to be without merit.We sustain this finding.

On October 12, 2006, Respondent filed his Application for Review of the Hearing Officer decision citing the following alleged errors:

1.The Hearing Officer’s determination of value is erroneous because it is based upon below market lease rates;

2.The decision fails to value improvements made to the property by the lessee;

3.The decision fails to assign any value to the leasehold interest; and

4.The decision fails to distinguish between the value of the fee and the value of the leasehold interest; and therefore, is contrary to the holding in Nance v. State Tax Commission, 18 S.W.3d 611 (Mo. App. 2000).

Respondent goes on to list a number of specific evidentiary problems, which we do not need to address here, but are more specifically set out in his Application for Review.

We find that the Senior Hearing Officer failed to consider the value of all of the possessory interests in the property when reaching his determination of value and, therefore said value is in error and must be set aside.The correct value for the subject property on January 1, 2005, and January 1, 2006, is $923,300 (assessed value $295,460), as originally determined by the assessor and approved by the Board of Equalization.

Subject Property

The subject property is an 11,205 square foot site improved with a one-story masonry office building containing approximately 11,144 square feet of above grade office area and a finished basement lower level of 11,144 square feet.There is also a sub-basement level containing 1,368 square feet.The actual age of the improvements are 50 years.Their effective age is 15 years.The property is identified as parcel number 11-03-07-0004-005-012, more commonly known as 212 East High Street, Jefferson City, Cole County, Missouri.

Complainant’s Valuation Evidence

James C. Jordan, a state certified appraiser, prepared a spread sheet analysis, for the subject property calculating a value of the leased fee based upon a discounted cash flow analysis.He determined that the leased fee had a value between $630,000 and $700,000.He determined that the reversionary value of the property was between $923,927 and $985,128 at the end of ten years.Most significantly, he failed to assign a value to the leasehold interest. Exhibit C-WDT-1.

At hearing, Mr. Jordan testified that the subject property had a fee simple value of between $910,000 and $1,070,000.Tr. 39-41.Mr. Jordan testified that he was not aware of why the subject property had a below market lease.

Complainant’s Supplemental Evidence

Greg Bowman, a real estate agent, testified that he had been trying to lease the 11,000 square foot basement area for several years with no success.He testified that the asking rent on the tax day was $2.50 per square foot.He further testified that some six months after the tax day, he had been asked to list the entire building for sale.The asking price for the property, subject to the lease, was $700,000 and no one had stepped forward to purchase the property.He did not indicate the typical marketing time for a property such as the subject.Exhibit C-WDT-2.

At hearing Mr. Bowman indicated that he was not aware of how much exposure the basement space had actually received.He indicated that it might be on his website and it had a small sign in the window.He further indicated that an individual wanting to determine if the space was for lease would basically have to walk by it.He testified that it received as much advertising as any of his other properties.He further indicated that there was a very low vacancy rate in Jefferson City.

James Vossen testified that he was the senior vice-president of Exchange National Bank.He testified as to what he believed to be the debt service that could be handled by the subject property, based upon the actual income of the property reduced by interest and depreciation.C-WDT-4.Mr.Vossen admitted that he was not qualified to provide appraisal testimony.He also indicated that he was not aware of what efforts may have been made to rent the basement.

Robert McCurren testified that he was the president and a shareholder of Complainant.He testified that Central Bank leased and remodeled the 10,000 square foot main floor of the building.The initial lease was entered into on July 24, 1995, for a five year period with the option to renew for three additional five year terms.Rent was fixed at $45,000 per year for the first term; $45,000 per year for the first renewal; $50,000 per year for the second renewal; and $52,000 for the third renewal.On the tax day, Central Bank was approaching the end of the first renewal period.At the time of hearing, Central Bank had exercised its option to rent the property under the second renewal period.Complainant, the lessor, is responsible for paying the real estate taxes, insurance, and repairs to roof, interior and exterior walls, plate glass, plumbing, mechanical and electrical systems and other structural elements.

Mr. McCurren testified that it was his opinion that the fair market value of the subject property was between $450,000 and $500,000.He testified that he based his opinion upon the depressed market for properties in the downtown area of Jefferson City.

At hearing Mr. McCurren testified that, other than the opinion letter provided by Mr. Jordan, no efforts had been made to have the subject property appraised.He further indicated that Central Bank had made some $350,000 in improvements to the property.Mr. McCurren was not clear on what constituted market rent at the time of the initial lease, but indicated that he wanted a good solid tenant who was going to make some improvements and “felt like the $4.50 to $5.00 per square foot for the building as it existed was a—was a good price for the—for the lease.”

Respondent’s Valuation Evidence

Judith Trail, a state certified appraiser, prepared a narrative appraisal report on behalf of Respondent.She calculated fee simple value at $967,300 under the cost approach; $949,600 under the income approach; and $969,500 under the sales comparison approach.

Ms. Trail also prepared a discounted cash flow analysis to determine the value of the leased fee and leasehold interest.She determined that the value of the leased fee was $790,000 and the value of the leasehold interest was $490,000; for a total value of $1,280,000.However, she asserts that the assessor is only required to value based upon fee simple.“If this was not the case, the assessor would be required to identify every property in the jurisdiction subject to a lease, obtain a copy of the complete lease with all the changes and modifications, analyze each lease to establish if a leasehold estate was present and then determine which party was responsible for the taxes prior to assigning the property value. . . .Without the assumption of fee simple value for ad valorem purposes, we would be in danger of arriving at values based on the business ability, or lack of, of the property owner.”Exhibit 2, pg. 61.

At hearing Ms. Trail indicated that not only was the Central Bank lease below market at the present time, it was also below market at the time in which it was leased – having leased for less than the basement storage in the same building was being leased for at that time.Tr. 55.

FINDINGS OF FACT

1.Jurisdiction is proper.Complainant timely filed its appeal from the Cole County Board of Equalization.Likewise, Respondent timely appealed from the decision of the Hearing Officer.

2.The subject property is an 11,205 square foot site improved with a one story office building commonly known as 212 East High Street, Jefferson City, Cole County, Missouri.

3.Some 10,000 square feet of the main floor of said building is being leased by Central Bank at a lease rate of $5.00 per square foot.On the tax day, the lease was in its first renewal period and, subsequently, Central Bank has exercised its second renewal option.The lease has the potential to run through August of 2015 with only minimal increases in rent.The subject lease can be characterized as a long-term lease.Stephen and Stephen Properties, Inc. v. STC, 499 S.W.2d 798 (Mo. 1973). (10 year lease is a long-term lease).No evidence was presented at hearing which would allow us to find that this lease was typical of leases being executed in this area in 1995.

4.The rent under the lease is below the current $10 per square rent commanded in the market and was below market rent at the time it was entered into.Although Mr. McCurren testified that he thought the lease was reasonable, no evidence was presented which would suggest that a prudent owner would enter into a long term lease that was below market rent on the date of its inception.

5.Actual rent substantially distorts the property’s true value.

6.No evidence was presented that suggests that the long term lease was necessary to obtain long term financing and there was no demonstration that the existence of the leaseholder enhanced nearby property values.

7.The appraisers agree that the fee simple value of this property is between $900,000 and $1,070,000.

8.The appraisers agree that the leased fee value of this property is between $630,000 and $790,000.

9.Respondent’s appraiser calculated the leasehold value at $490,000.Even though the terms of the lease are highly favorable to the leaseholder, Complainant’s appraiser failed to find any leasehold value.Therefore, we find that the value of the leasehold is $490,000.

10.Although the sum of the value of the leased fee and the value of the leasehold is as much as $1,280,000, uniformity demands a different market value conclusion.Respondent’s cost, sales and income approaches to value indicate that a reasonable substitute for the subject property could be purchased for something less that $1,280,000.

Respondent’s appraiser found eight comparable sales in the immediate area of the subject property which sold between July 2000 and September 2004.After adjustments, these sales indicated a range of value for the subject property between $80.44 and $91.09 per square foot.The four best sales indicated a range of value between $85.56 and $88.87 per square foot.At $87 per square foot, the indicated value of the subject property is $969,528 under the sales comparison approach to value.Exhibit 1, pg. 62-77.

Under the cost approach, the replacement cost new of the improvements is $1,178,166.The subject property has an effective age of 15 years and a typical life of 50 years and is 70% good, for a depreciated value of the improvements of $799,168.The site value is $168,100 for a total value under the cost approach of $967,300.Exhibit 1, pg.32 -49.

Respondent also prepared an income approach based upon market rents, expenses and capitalization.Rents in the area range from $8.04 to $11.54 per square foot.The subject property is considered to be above average quality office space and would be at the high end of the market rent for office space, i.e., $10 per square foot for the main level.The climate controlled basement storage area is expected to rent for $2.50 per square foot.A 4% vacancy loss is expected for the main level while a 40% vacancy loss is expected for the basement storage area.After adjustments for vacancy and collection loss, the effective gross income for the subject property, based upon market conditions,is $117,012.Allowable expenses, including a reserve for replacement, are estimated at $17,210, leaving a net operating income of $99,802.Interest rates in mid 2004 were between 6% and 7.25% for amortization periods of 15 to 25 years.Respondent’s appraiser selected a 6% interest rate on an 80% loan for 20 year;a 9% equity return rate; and a 1.84% effective tax rate; for an indicated overall rate of 10.51%.Capitalizing the net operating income of $99,802 at 10.51% produced an indicated value for the subject property of $949,590.Exhibit 1, pg. 50-56.

Consequently, we find that the true value for the subject property is somewhere between $923,300, as affirmed by the Board of Equalization, and $969,500, the highest number indicated by the fee simple appraisal.The Board’s value of $923,300 is supported by competent and substantial evidence on the record, and is adopted by the Commission.

CONCLUSIONS OF LAW

The Commission finds the following specific law to be controlling:

1.“The assessor. . .shall annually assess all real property. . .and possessory interests in real property at. . .its true value in money. . . “Section 137.115.1(1), RSMo 2000.

2.A value assessment of the fee simple for real estate taxes includes every interest or estate therein.Dorman v. Minnich, 336 S.W.2d 500, 505 (Mo. banc 1960).

3.A long term lease is a relevant factor to consider when determining value.Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798; Missouri Baptist, 867 S.W.2d 510 (Mo. banc 1993).

4.The Commission may look at contract rent in conjunction with economic rent if a long term lease was prudent when entered into.Factors to consider weighing in favor of giving consideration to actual rentals rather than relying solely on market rents include:

(A)Does the long term lease give the property value?

(i)was the long term lease necessary to obtain long term financing which in turn made improvements possible?

(ii)is the leaseholder a large, nationally known retailer whose very presence enhances nearby property values?

(B)Would prudent potential buyers take the lease into consideration when determining what they are willing to pay for the property?

Projected actual income may be adjusted to reflect current market conditions where actual rent substantially distorts the property’s true value.Circumstances may exist where the income approach is too vague to be a reliable measure of value.Missouri Baptist, supra. (emphasis supplied).

5.True value in money is defined as the price which the subject property would bring when offered for sale by one willing but not obligated to sell it, and is bought by one willing or desirous to purchase, but who is not compelled to do so.Greene County v. Hermel, Inc., 511 S.W.2d 762, 771 (Mo. 1974).True value in money is defined in terms of value in exchange, and not in terms of value in use.Stephen & Stephen Properties, Inc. v. State Tax Commission, 499 S.W.2d 798, 801-803 (Mo. 1973).In sum, true value in money 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).

6.To obtain a reduction in assessed valuation based upon an overvaluation, also called an improper or over-assessment, or an arbitrary and capricious assessment, the Complainant must prove the true value in money of the subject property on the subject tax day.Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).

7.Nothing contained within Missouri Baptist stands for the proposition that when valuing a leasehold, fair market value is established solely by actual rent received. . . .To limit the value of the property to the value of the leased fee would ignore the value of the leasehold interest.Under Section 137.115, the assessor is required to assess all real property and possessory interests in real property.Nance v. State Tax Commission, 18 S.W.3d 611 (Mo W.D. 2000).

8.If a property owner could unilaterally alienate his property by lease or by other actions that make the property have no value to him, the taxing authority could not collect appropriate property tax because of the taxpayer’s unilateral action. Nance v. State Tax Commission, 18 S.W.3d 611 (Mo W.D. 2000).

9.Taxes. . .shall be uniform upon the same class or subclass of subjects within the territorial limits of the authority levying the tax . . .Article X, Section 3, Missouri Constitution……Real and tangible personal property shall be assessed for tax purposes at its value or such percentage of its value as may be fixed by law . . .Article X, Sections 4(a) and (b), Missouri Constitution.

DISCUSSION

For many years we operated under the premise that only market rents could be considered when reaching an opinion of value for a property.Missouri Baptist now tells us when we may consider contract rents, in conjunction with market rents, to determine the impact of a long term lease on the value of the property in certain clearly defined circumstances or when a prudent purchaser would consider the lease when determining what he would pay for the property. It further tells us that contract rents can be adjusted to reflect current market conditions when contract rents substantially distort value.

Missouri Baptist does not tell us what methodology to use in valuing said property. As so clearly pointed out in Nance, “it is not within the purview of this court to determine the method of valuation to be adopted by the Commission.”

It is impossible to make a finding concerning whether or not the lease was prudent when entered into.Although there is a presumption that property owner was acting prudently when entering into the long term lease, Complainant took no steps to rebut Respondent’s testimony that the lease was at below market rates at the time it was entered into nor did Complainant explain why a below market lease constituted a prudent transaction.Complainant further failed to establish how a prudent buyer would react to the existence of the lease.

On the issue of the leasehold value, the law could not be more clear:“Nothing contained within Missouri Baptist stands for the proposition that when valuing a leasehold, fair market value is established solely by actual rent received. . . .To limit the value of the property to the value of the leased fee would ignore the value of the leasehold interest.Under Section 137.115, the assessor is required to assess all real property and possessory interests in real property.”Nance v. State Tax Commission, 18 S.W.3d 611 (Mo W.D. 2000).

The Hearing Officer erred in valuing only the leased fee.The evidence does not support a finding that a below market leasehold interest is not marketable.The dictates of Section 137.115 and Nance, supra, clearly indicate that all interests in the real property are to be valued.Thus, we must determine value for the leasehold interest as well as the leased fee interest and consider what value, or combination of values, accurately address all of the interests in the property while still striving for market value and uniformity.

·        In this instance, the only evidence of the value of the leasehold was presented by Respondent.No persuasive evidence was presented tending to dispute Respondent’s proposed leasehold value.Consequently, we adopt said value as true.

·        The Hearing Officer’s value for the leased fee based upon actual income ($580,900) together with the Respondent’s evidence of the value of the leasehold interest ($490,000), indicates a value for the subject property of $1,060,000.

·        The Respondent’s evidence of the leased fee value ($790,000) and the leasehold value ($490,000), indicates a market value for the subject property of $1,280,000.

·        The Complainant’s evidence of the leased fee value ($630,000) added to the leasehold value ($490,000), indicates a market value for the subject property of $1,120,000.

·        The Respondent’s evidence of fee simple value based upon an appraisal using the income, cost, and sales comparison approaches indicates a value between $949,600 and $969,500.

·        The Board of Equalization adopted a value of $923,300.

We do not dispute the Missouri Baptist Court’s admonition to consider the impact of prudent below market leases.However, we note that that Court has set out only two very limited instances as examples of what constitutes a prudent lease, i.e. (1) if the lease was necessary to obtain long term financing and create improvements; and (2) if the lease involved a nationally recognized retailer whose presence enhances nearby property values.In other words, the lease must give the property value.Not every long term below market lease is going to rise to the level of “prudent.”The property owner has a substantial burden of proof.As suggested in Nance, imprudent action by a property owner cannot justify a tax reduction.Unilateral action by a taxpayer cannot absolve that taxpayer of its appropriate property tax burden.

Although Complainant has failed to meet its burden of proof to allow us to say conclusively that contract rent should be considered, we are willing to concede that a potential purchaser would consider the existence of the lease and contract rent when making a determination on the price to pay for the property.However, given that the value of the leasehold interest puts the total property value above typical market value for a property of this type, we cannot find that a purchaser seeking both the leased fee and the leasehold would necessarily find that the existence of the lease had a chilling effect on the property value.

Conversely, we find that no evidence was presented which would suggest that a potential buyer would pay more for the subject property than the amount he would pay for fee simple in an equally desirable substitute property.Therefore, in this instance, appraisal techniques valuing the subject property in unencumbered fee simple are better indicators of the value of the subject property than determining the sum of the value of each interest in the property and support the determination of the Board of Equalization.

In its opening statement, Complainant asserted that it is not responsible for the taxes on the leasehold estate because the leasehold estate belongs to Central Bank.We note that, by the terms of the lease, Complainant retained the obligation to pay the property taxes.

Complainant has failed to present substantial and persuasive evidence in support of its opinion of market value for the subject property.

ORDER

The Decision of the Hearing Officer is SET ASIDE.The value approved by the Board of Equalization is AFFIRMED.The Clerk of Cole County, Missouri is hereby ordered to put a market value of $923,300 (assessed value $295,460) on the tax books for the subject property for tax years 2005 and 2006.

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 January 9, 2007.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Jennifer Tidwell, Commissioner

Charles Nordwald, Commissioner

DECISION AND ORDER

 

HOLDING

Decision of the Cole County Board of Equalization sustaining the assessment made by the Assessor, SET ASIDE, the Hearing Officer finds true value in money for the subject property for tax years 2005 and 2006 to be $580,900, assessed value of $185,900.

Complainant appeared by Counsel John A. Ruth, Newman, Comley & Ruth,Jefferson City,Missouri.

Respondent appeared by Counsel, Breck K. Burgess, Assistant Prosecuting Attorney.

Case heard and decided by Senior Hearing Officer W. B. Tichenor.

ISSUE

The Commission takes this appeal to determine (1) the true value in money for the subject property on January 1, 2005; and (2) whether there was an intentional plan by the assessing officials to assess the subject property at a ratio greater than 32% of its fair market value as required by law for commercial property, or at a ratio greater than the average commercial assessment ratio for Cole County.

SUMMARY

Complainant appeals, on the ground of overvaluation and discrimination, the decision of the Cole County Board of Equalization, which sustained the valuation of the subject property.The Assessor determined an appraised value of $923,300, assessed value of $295,460, as commercial property.Complainant proposed an appraised value of $500,000 in the Complaint for Review of assessment.A hearing was conducted on June 20, 2006, at the Cole County Courthouse Annex,Jefferson City,Missouri.Transcript of hearing and the case file was received by the Hearing Officer for writing of the Decision on July 11, 2006.

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

Complainant’s Evidence

Exhibits and Written Direct Testimony

Complainant pre-filed the following exhibits and written direct testimony.

Exhibit A – Letter Dated June 25, 2005, from James C. Jordan

Exhibit B – List of Central Business District Tax Comparables

Exhibit E – Listing Agreement, dated July 1, 2005

Exhibit F – MLS Change Form dated December 31, 2004

Exhibit G – Listing Agreement dated May 6, 2004

Exhibit H – Lease dated July 24, 1995

Exhibit I – Memorandum of Lease dated July 24, 1995

Exhibit J – Letter dated March 20, 2006, from James L. Vossen

Exhibit K – Photograph of property at212 East High Street

Exhibit L – Photograph of property at308 East High Street

Exhibit M – Photograph of property at206 East High Street

Exhibit N – Photograph of property at215 East High Street

Exhibit O – Photograph of property at818 – 830 East High Street

Exhibit P – Photograph of property at227 East High Street

Exhibit Q – Photograph of property at231 – 237 East High Street

Exhibit R – Photograph of property at100 East High Street

Exhibit S – Photograph of property at120 East High Street

Exhibit T – Photograph of property at122 East High Street

Exhibit U – Photograph of property at118 East High Street

Exhibit V – Photograph of property at322 – 324 East High Street

Exhibit W – Photograph of property at330 East High Street

Exhibit C-WDT-1 – Written Direct Testimony of James C. Jordan

Exhibit C-WDT-2 – Written Direct Testimony of Greg Bowman

Exhibit C-WDT-3 – Written Direct Testimony of Robert McCurren, III

Exhibit C-WDT-4 – Written Direct Testimony of James L. Vossen

Exhibits C and D were withdrawn at hearing.The remaining exhibits were received into evidence.

Testimony of Greg Bowman

Greg Bowman, a real estate agent and broker for Bowman Commercial Realty, testified as to the listing of the subject property for sale and listing for rent of the basement area.No opinion of fair market value was offered by Mr. Bowman.

Testimony of James L. Vossen

James L. Vossen, Senior Vice-President of Exchange National Bank, testified as to analysis of the cash flow of the subject property for 2004 and 2005.The analysis illustrated the income available to service debt and the level of debt which the 2004 and 2005 cash flows would service.No opinion of fair market value was opined by Mr. Vossen.

Testimony of Robert McCurren III

Robert McCurren III, President of McChinn Properties, Inc., as to the acquisition of the subject property, the lease of the property, attempts to lease the basement, attempts to sell the property and other matters related to the subject property.Mr. McCurren offered his opinion of the fair market value of the subject property to be between $450,000 and $500,000.

Testimony of James C. Jordan

James C. Jordan, State Certified General Real Estate Appraiser, testified as to his consultation with Mr. McCurren relative to the value of the property under appeal.Mr.Jordanperformed a discounted cash flow analysis on the McChinn property and arrived at an opinion of fair market value of the leased fee for 2005 of $695,686 allowing for a vacancy factor of 25% for the basement area; and a value of $633,531 allowing for a 50% vacancy factor for the basement area.

Respondent’s Evidence

Respondent placed into evidence the testimony of Ms. Judith A. Trail, State Certified General Real Estate Appraiser for ColeCounty.The appraiser testified as to her appraisal of the subject property.The Appraisal Report (Exhibit 1) of Ms. Trail and her written direct testimony (Exhibit R-WDT-1) were received into evidence.The appraiser arrived at an opinion of value for the subject property of $967,300 based upon the cost approach to value.The income approach resulted in an indicated value of $949,600.An indicated value of $969,500 was derived form the sales comparison approach.Ms. Trail reconciled her three approaches to value and opined the fair market value of the McChinn property to be $950,000.

Exhibit 2, a valuation performed by Mr.Jordandeveloping cost, income and sales comparison analysis of the fee simple interest of the subject property, was received into evidence.No reconciliation of value or opinion of fair market value was developed in Exhibit 2.The indicated range of values for the fee simple estate was $420,000 to $1,070,000

FINDINGS OF FACT

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

2.The subject property is located at 212 East High Street, Jefferson City, Missouri.The property is identified by parcel number 48-11-03-07-0004-005-012.The property consists of a 56.38’ x 198.75’ lot – 11,205.53 square feet or .26 of an acre.The lot is improved by a one-story masonry office building, built in 1956, remodeled 1993-96, containing approximately 10,000 square feet above grade office area and a finished basement with 11,144 square feet and a sub-basement with 1,368 square feet.Exhibit 1, pp. 4, 18; Exhibit C-WDT-3, p.3.

3.The property under appeal is the subject of a lease entered into in July, 1995 for a five year term, with three successive five year renewal terms, so that the entire term of the lease and the renewals extends to August 31, 2015.The lease covers street level floor.The annual rent for the first ten years (9/1/95 – 9/1/05) was $45,000.The annual rent for the term

September 1, 2005, to August 31, 2010, is $50,000.The annual rent for the term September 1, 2010, to August 31, 2015, will be $52,500.Exhibits H, I & C-WDT-3, pp. 3-5.

4.The basement of the McChinn property has been listed for lease since May 2003.It has not been possible to secure a tenant for all or part of the basement.The basement was not leased on January 1, 2005, and remained without a tenant as of the date of hearing.Exhibits F, G, C-WDT-2, pp 1-3, & C-WDT-3, pp 7-8.

5.The property at 212 East High has been listed for sale with Bowman Commercial Realty, Inc. since July 1, 2005, at a price of $700,000.No offers have been made to purchase the property from July 1, 2005, to the date of the hearing.Exhibit E, C-WDT-3, pp. 8-9; C-WDT-2, pp 3-4.

6.There was no evidence of new construction and improvement from January 1, 2005, to January 1, 2006.The assessed value for tax year 2005 will remain the assessed value for tax year 2006.§137.115, RSMo.

7.The existence of the long-term lease, the inability to lease the basement space and the lack of any offer to purchase the property under appeal for $700,000 are all factors which must be considered in the valuation of Complainant’s property.

8.Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board.

9.The income approach to value is an appropriate method for the valuation of the subject property.Exhibit 1, p. 79; Exhibit R-WDT-1, p. 3, Q & A 15; Exhibit C-WDT-1, pp. 2-4.

10.For purposes of a valuation under the income approach for the 2005 – 06 assessment, the direct capitalization method using the following income, expenses and capitalization rate is appropriate:Exhibits 1 & 2.

Potential Gross Income:

Ground Floor:$50,000

Basement: (11,144 x $2.00)$22,288

Vacancy & Collection: (25% – Basement)-5,572

Effective Gross Income:$66,716

Expenses:

Insurance:2,000

Reserves (3% EGI): 2,000

Repairs/Maint (2% EGI): 1,334

Misc. (.05% EGI): 334

-5,668

Net Operating Income: $61,048

Overall Rate: 8.67

Effective Tax Rate: 1.84

Adjusted Overall Rate:10.51%

Indicated Value:$61,048 ÷ .1051 = $580,856.32, rounded to $580,900

11.The true value in money of the subject property as of January 1, 2005 is $580,900, assessed value is $185,900 ($580,900 x .32 = $185,888, rounded to 185,900).

12.There is no evidence to establish that a market exists for the leasehold interest.

CONCLUSIONS OF LAW AND DECISION

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.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.

Presumptions in Appeals

There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof 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).

The presumption in favor of the Board is not evidence.A presumption simply accepts something as true without any substantial proof to the contrary.In an evidentiary hearing before the Commission, the valuation determined by the Board, even if simply to sustain the value made by the Assessor, is accepted as true only until and so long as there is no substantial evidence to the contrary.

The Supreme Court of Missouri has held, “A tax assessor’s valuation is presumed correct.”Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341 (Mo. 2005).Citing to Hermel, supra; and Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the assessor’s or Board’s valuation is erroneous and what the fair market value should have been placed on the property.Snider, Hermel & Cupples Hesse, supra.

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.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.

Market Value

Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

1.Buyer and seller are typically motivated.

2.Both parties are well informed and well advised, and each acting in what they consider their own best interests.

3.A reasonable time is allowed for exposure in the open market.

4.Payment is made in cash or its equivalent.

5.Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.

6.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.

 

Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.

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 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).

Trier of Fact

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 he 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).

Methods of Valuation

Proper methods of valuation and assessment of property are delegated to the Commission.It is within the purview of the Hearing Officer to determine the method of valuation to be adopted in a given case.See, Nance v. STC, 18 S.W.3d 611, at 615 (Mo. App. W.D. 2000); Hermel, supra;Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975).

Valuation of Complainant’s Property

Consideration of Relevant Factors

 

The determination by the Hearing Officer of the valuation for property under appeal is based upon the evidence presented to the Commission in the evidentiary hearing.§138.430.2, RSMo.It is well established that consideration must be given to all relevant factors in making a determination of true value in money.“A tax assessment, though presumed valid, will not be upheld where it is clear that the assessment does not take into account all factors relevant to a determination of ‘true value in money.’”Stephen and Stephen Properties Inc. v. STC, 499 S.W.2d 798, 802 (Mo. Div I, 1973), citing to Kahler v. STC, 393 S.w.2d 460 (Mo. 1965) and Drey v. STC, 345 S.W.2d 228 (Mo. 1961).In the present case the original assessment, sustained by the Board, did not take into account several relevant and critical factors.The existence of the below-market, long-term lease and the inability to lease the basement area are both factors relevant to what a potential investment buyer would pay for the property on January 1, 2005.

Relevance of Below-Market, Long-Term Lease

The Court in Stephen Properties specifically took note of a ten year lease which limited rental payments and determined as a matter of law this was a factor relevant to arriving at value.Stephens at 803 & 804. This line of reasoning was cited with approval in Missouri Baptist Children’s Home v. STC, 867 S.W.2d 510, 512 (Mo. banc 1993).The Court in Missouri Baptist addressed the issue of a below-market long-term lease as follows:

“…, consideration of potential rent hypothesizes an unrealistic market.It assumes that properties now subject to long-term below-market leases are suddenly available to rent.… Wholly excluding below-market long-term leases from the equation assumes facts that do not and are unlikely ever to exist. … But to ignore actual rentals payable under a long-term lease when the lease was a prudent business transaction at the time it was entered into would have the effect not only of punishing the entrepreneur whose efforts created the environment for the market but would ignore economic realities. … When the lease was prudent when entered into, the Commission is quite correct to consider actual rent as a factor in determining the value of the property under the income capitalization method.”Missouri Baptist, at 513.

 

Since the existence of a below-market long-term lease has been recognized by the Supreme Court of Missouri as an element in valuation of property for assessment purposes which cannot be ignored.It must be taken into consideration in this appeal.When proper consideration is given to the below-market, long term lease the valuation determined by the assessing officials for the Complainant’s property is deemed to not reflect its fair market value.

Persuasive and Substantial Evidence

 

In order to prevail, Complainants 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 January 1, 2005.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, supra at 702.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).Complainant’s evidence, prima facie, rebuts any presumptions of correct assessment.The evidence establishes the basis for determining true value in money utilizing the direct capitalization methodology under the income approach based upon the data in the record as to the stream of income produced by the McChinn property as of January 1, 2005.

Prudent Business Transaction

 

The long-term lease on the subject property was entered into ten years prior to the valuation date.There is no evidence on the record upon which the Hearing Officer can conclude that the lease when entered into in 1995 was other than a prudent business decision on both the part of the lessor (Complainant) and the lessee.The testimony of Mr. McCurren established that at the time Complainant entered into the lease the desire was to have a good solid tenant (Central Trust Bank), who was going to make some improvements and that $4.50 to $5.00 per square foot for the building as it existed was a good price for the lease.Tr. 28, Lines 13 – 21.There is a principle of law as to the presumption relating to a market transaction, the principle has been set out in Phoenix Redevelopment Corporation v. Walker, 812 S.W.2d, 881, 883-4 (Mo. App. W.D. 1991).A price agreed to between a willing buyer and seller creates a presumption that the transaction was a market transaction.The reasoning behind this principle has sound application in the present appeal.A lease agreed to between a willing lessor and lessee creates a presumption that the transaction, at the time was a market transaction.It therefore was a prudent business transaction.It must be given consideration in arriving at fair market value.The logic of this presumption is self-evident.Knowledgeable lessors and lessees do not enter into leases that are other than sound business transactions providing mutual advantages to both parties.In other words, well-informed individuals will act in a prudent manner when conducting their business affairs.There is no evidence to even suggest that in the present instance Complainant and its lessee acted in other than a prudent manner when the current lease was negotiated in 1995.

Valuation Under Income Approach

The valuation problem presented in the present appeal is not difficult.The matter of the subject property being under a below-market, long-term lease is a factor which must be accounted for in the appraisal problem.Any well informed investor, in the hypothetical purchase on January 1, 2005, would take into account the fact that the stream of income is restricted until 2015.The investor would also recognize a negative factor for the lack of a tenant for the basement area.Accordingly, the development of the income approach, utilizing the direct capitalization methodology is appropriate.

Actual Income and Expenses

 

In the direct capitalization approach, the actual income and expenses are to be utilized.This is a method which has been utilized in subsidized housing cases before the Commission.In the lead subsidized housing case it was noted, “The advantages of using actual income, expenses … are clear.An investor will look at the benefits and restrictions the property actually carries when making a purchasing decision.”Maryville Properties, L.P. v. Nelson, STC Appeal No. 97-74500, p. 9 (Johnson – 4/27/2000); affirmed by Western District Court of Appeals, 83 S.W.3d 608.This line of reasoning has been followed in all subsequent subsidized housing cases brought before the Commission.Subsidized housing projects generally have below-market or restricted rents and above market expenses.In nearly all instances the rent restrictions and requirements which cause above market expenses are tied to the property for 20 or more years.Therefore, the subsidized housing arena provides a similar and in many ways a parallel situation to that of a below-market, long-term lease.

Leased Fee Valuation

 

The accepted methodology for the valuation of a property involving a leased fee and leasehold interest has been addressed in The Appraisal of Real Estate, Twelfth Edition, The Appraisal Institute (2001), pp. 81-82, as follows:

“A leased property, even one with rent that is consistent with market rent, is appraised as a leased fee interest, not as a fee simple interest.Even if the rent or the lease terms are not consistent with market terms, the leased fee interest must be given special consideration and is appraised as a leased fee interest.

“The valuation of a leased fee interest is best accomplished using the income capitalization approach. Regardless of the capitalization method selected, the value of the leased fee represents the owner’s interest in the property.The benefits that accrue to an owner of a leased fee estate generally consist of income throughout the lease and the reversion at the end of the lease.The sales comparison approach can be used to value leased fee interests, but this analysis is only really meaningful when the sales being used as comparables are similar leased fee interests.If not, adjustments for real property rights conveyed must be considered.The cost approach is more suited to valuing a fee simply interest than a leased fee interest.If contract rent and terms are different than market rent and terms, the cost approach must be adjusted to reflect the differences.”

Therefore, the valuation of the McChinn property is most appropriately performed valuing the leased fee under the income approach.

Capitalization of Income Stream for McChinn Property

The direct capitalization income approach is developed utilizing the income and expense data presented on the property under appeal.As of January 1, 2005, the actual income the property was generating was $45,000 per year, with an increase on September 1, 2005 to $50,000 annually.For purposes of arriving at an indicated value the income for the main floor of $50,000 per year is used.Exhibits A, H, I. C-WDT-1 & Exhibit 2.A rental amount of $2.00 per square foot or $22,288 for the basement area, with a 25% vacancy accounts for projected income for the remainder of the building.Exhibits A, H, I. C-WDT-1 & Exhibit 2.Allowable expenses include insurance ($2,000 – fixed); Reserves ($2,000 – 3% EGI); Repairs and Maintenance ($1,334 – 2% EGI) and Miscellaneous ($334 – .05% EGI).The total expenses amount to $5,668, which produces a Net Operating Income of $61,048.The overall rate of 8.67 developed by Respondent’s appraiser is appropriate.The effective tax rate of 1.84 added to the overall rate produce a capitalization rate of 10.51.Capitalizing the NOI at .1051 produces an indicated value of $580,900.

Fee Simple Valuation Not Persuasive

A fee simple valuation that does not take into account the existence of the below-market, long-term lease does not properly reflect the fair market value of the subject property.The development of a cost approach which does not make a deduction and allowance for the actual economic conditions impacting the McChinn property overstates its fair market value.Relying upon a sales comparison approach utilizing sales of properties not subject to below-market, long-term leases requires an adjustment to the sale properties to account for this factor.An income approach that ignores the below-market, long-term lease does not establish the true value in money of the subject property.

Respondent’s appraiser determined an effective gross income of $117,000 for the subject property valuing it under market conditions.The use of actual income and expenses and allowing a 25% vacancy on the unleased basement area produced an EGI of only $66,700 or only 57% market.Therefore, applying this economic reality to Respondent’s fee simple cost approach produces an indicated value of $551,361 ($967,300 x .57 = $551,361).Adjusting the indicated fee simple sale comparison approach in a like manner results in an indicated value of $552,615 ($969,500 x .57 = $552,615).This brings these two approaches in line with what is shown to be fair market value under the income approach ($580,900) when the actual economic impact of the existing lease is properly considered.

Respondent’s Equalization Emphasis

Respondent’s emphasis upon valuing the subject in fee simple and ignoring the below-market, long-term lease in order that equality might be achieved is misdirected.Equalization is brought about when properties are valued at their true value in money – what a willing buyer and seller would agree to in an arms length transaction for the purchase of the property – and assessed at the statutory ratio, thirty-two percent for the property in the present appeal.Equalization does not result when a property is artificially valued in excess of its fair market value.

No knowledgeable investor on January 1, 2005, would have invested $950,000 in the subject property for an annual return on his investment of only 6.4% ($61,000 ÷ $950,000 = .0643), before taxes.Ms. Trail concedes an investor would anticipate an equity rate of 9% and would expect to pay 6% on borrowed money, although Mr. Vossen’s analysis established an interest rate of 7.5%.In short, based upon the actual performance of the property burdened by the below-market, long-term lease, and the inability to lease the basement area, the property simply would not command a sales price of $950,000.If in reality that were the property’s true value in money, then at an offering price of $700,000 basic common sense dictates it would have been purchased long ago.The fact is the income stream that existed on January 1, 2005 and which will exist for the next ten years will not support a fair market value of $950,000 or $700,000.

Leasehold Value

The standard for valuation of the leasehold has been recognized in an earlier Commission Decision, citing to Land Clearance for Redevelopment Corp. v. Doernhoefer, et al., 389 S.W.2d 780, 784 (Mo. Div. I, 1965).Broyhill, et al. v. King, STC Appeal 97-20252, 53^rd Annual Report 345 at 359-360 (9/10/1998).Broyhill involved a below-market, long-term lease.The Decision discusses in detail valuation of fee simple interest and valuation of the leased fee and leasehold interests.The evidence in Broyhill addressing these valuations was much more extensive than in the present case.However, in line with Broyhill the evidence here does not provide a substantial basis upon which it can be determined that there is a market for the leasehold.Accordingly, a detailed discussion on this point as was performed in Broyhill is not warranted.There is insufficient evidence on this record to make any claim that the value of the leased fee and the leasehold should be combined to arrive at a value for the “bundle of rights.”Therefore, for the Hearing Officer to do an analysis based on the limited evidence on this point serves no useful purpose.A brief quotation from Broyhill is applicable to the present case and will illustrate that no value can be attributed to the Central Bank leasehold.

“Quite simply, based on this record, even if it were to be assumed the lessee enjoys some rent advantage, it is not shown there is a market for this benefit.Furthermore, to take advantage of its so-called rent advantage, the lessee would have to convey its leasehold interest and turn around and pay a higher rent to the purchaser of the leasehold or vacate the premises and relocate, paying a higher rent.It has not been shown that either option is in the realm of economic reality.

“To assume the current lessee would do either would be an assumption without foundation, a speculation without a factual basis, a conjecture supported by no evidence.This Hearing Officer would not base a valuation on such an assumption, wrapped in speculation and boxed in conjecture.”Broyhill at 363.

The true value in money of the owner’s interest has been developed by means of the direct capitalization income approach as set out above.This is the assessable interest for purposes of ad valorem taxation in the present appeal.

Discrimination

In order to obtain a reduction in assessed value based upon discrimination, the Complainant must establish two elements.These are the actual assessment ratio of the property under appeal and the average assessment ratio for the same class of property within the taxing jurisdiction as of the tax date. Koplar v. State Tax Commission, 321 S.W.2d 686, 690 & 695 (Mo. 1959).Evidence of value and assessments of a few properties does not prove discrimination.Substantial evidence must show that all other property in the same class, generally, is actually undervalued.State ex rel. Plantz v. State Tax Commission, 384 S.W.2d 565, 568 (Mo. 1964).The difference in the assessment ratio of the subject property and the average assessment ratio in the subject county must be shown to be grossly excessive.Savage v. State Tax Commission of Missouri, 722 S.W.2d 72, 79 (Mo. banc 1986).No other methodology is sufficient to establish discrimination.Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696 (Mo. 1958).

Assessment Ratio on Subject

In the present case Complainant was required under the applicable case law just cited to prove the fair market value of its property so that the assessed value set by the assessor could be divided by the fair market value to establish the ratio at which the property was actually being assessed.Commercial property is to be assessed at thirty-two percent (32%) of true value in money or fair market value.§137.115.5(3), RSMo.The assessed value set by the assessor for 2005 was $295,460, based on a true value in money of $923,300.However, the true value in money which has been established in this Decision is $580,900.The assessed value, applying the 32% factor as required by law, is $185,900.Therefore, while the assessor had in fact assessed the subject property at 50.87% ($295,460 ÷ $580,900 = .5087) of its now determined fair market value, this does not establish discrimination, since the over assessment is easily corrected by simply applying the statutory assessment ratio to the true value in money determined for the subject property.

Average Assessment Ratio on Commercial Property

The other factor necessary to establish discrimination and have property assessed at a rate less than the statutory ratio is to establish the average assessment ratio in the county for the type of property under appeal.In this instance, since the subject property is a commercial property, it would be necessary to establish that the commercial assessment ratio for Cole County for 2005 was not in fact 32% of fair market value.In order to establish the average assessment ratio it is required that a statistically significant sample that is representative of the commercial property universe in Cole County be examined and the fair market values be determined for those properties.Once fair market values are established either by a sales ratio study or an appraisal ratio study or both, it is then possible to apply the assessed values for the properties set by the assessor to determine the actual assessment ratio for each of the sample properties.From the resulting ratios the average assessment ratio for the county can be established.Complainant failed to do this in the present case.

Exhibit B – Not Probative of Discrimination

Complainant tendered Exhibit B apparently in support of the discrimination claim.Exhibit B only contained a listing of eight properties in the Central Business District on East Capitol, High and McCarty streets with a calculation of the 2005 taxes per square foot of these properties.This information provides nothing to establish fair market value of these properties, assessed values of these properties or assessment ratios of these properties.

Six High Street Properties

Mr. McCurren calculated the per square foot fair market values as of January 1, 2005, from the Assessor’s records on six properties on East High Street.Exhibit C-WDT-3, pp. 11 – 13.The per square foot values ranged from $13.66 to 42.46, with a median of $21.26 and a mean of $25.08.The per square foot fair market value placed on the McChinn property for 2005 by the assessor calculates to $82.86.On its face such a level of disparity would appear to present a grossly excessive difference in fair market values.

However, no solid conclusion can be drawn from the limited information provided in the McCurren testimony as to the comparability or lack thereof between each of these six properties and the property at 212 East High.In short, the information does not rise to a level to establish that like properties are being compared, irrespective of the fact that this information is irrelevant to establish the average assessment ratio for commercial property in Cole County.The information does not present a statistically significant sample that is representative of commercial property in the county.Fair market values were not established for any of these properties, therefore, the median and mean of assessment ratio could not be established.

Complainant’s discrimination claim is not well taken.The subject property is to be assessed at the statutory rate of thirty-two percent of its fair market value.§137.115.5(3), RSMo.

ORDER

The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization forColeCountyfor the subject tax day is SET ASIDE.

The assessed value for the subject property for tax years 2005 and 2006 is set at $185,900.

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 Cole 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 September 13, 2006.

STATE TAX COMMISSION OFMISSOURI

W. B. Tichenor

Senior Hearing Officer

Certificate of Service

I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 13^thday of September, 2006, to:John Ruth, 601 Monroe, Suite 301, P.O. Box 537, Jefferson City, MO 65102-0537, Attorney for Complainant; Breck Burgess, Assistant Prosecuting Attorney, 311 E. High, Room 300, Jefferson City, MO 65101, Attorney for Respondent; Shawn Ordway, Assessor, 210 Adams Street, Jefferson City, MO 65101; Marvin Register, Clerk, Cole County Courthouse Annex, Room 201, Jefferson City, MO 65101; William Rich, Collector, Cole County Courthouse Annex, Jefferson City, MO 65101.

Barbara Heller

Legal Coordinator

State Tax Commission of Missouri

 

PETER W. BROWN,)

)

Complainant,)

)

v.)Appeal Number 05-73012

)

ROBERT RAINES, ASSESSOR,)

MORGAN COUNTY, MISSOURI,)

)

Respondent.)

 

 

ORDER

AFFIRMING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

 

On April 5, 2006, Senior Hearing Officer W. B. Tichenor entered his Decision and Order (Decision) affirming the assessment by the assessor of Morgan County of Complainant’s cabin cruiser.

Complainant timely filed his Application for Review of the Decision.

DECISION

Complainant challenges the conclusion in the Hearing Officer’s Decision that “The subject cabin cruiser is designed and is no doubt used as a temporary dwelling when used by Complainant in Morgan County.”Complainant now asserts in his Application for Review that when at the Lake of the Ozarks, he does not lodge on the boat, but lodges in the house his wife owns.This was not evidence in the record before the Hearing Officer.He only asserted the boat was not used for “lodging.”

Whether the assertion that Complainant lodges at his wife’s house is in the record or not, the Complainant’s focus on the lodging language is misplaced when applying Section 137.090.In the Bialecke case [Bialecke, et al. v. Bauer, 581 S.W.2d 35 (Mo. banc 1979)] the Missouri Supreme Court grappled with the lodging language in the statute and applied it to cabin cruisers and houseboats.However, subsequent to that decision, Section 137.090, RSMo was amended to read, in pertinent part:

All tangible personal property of whatever nature and character situate in a county other than the one in which the owner resides shall be assessed in the county where the owner resides; except that, houseboats, cabin cruisers, floating boat docks, and manufactured homes, as defined in section 700.010, RSMo, used for lodging shall be assessed in the county where they are located . . . . (Emphasis Added)

 

As the Hearing Officer pointed out on page 3 of the Decision, floating boat docks cannot be used for lodging.The insertion of “floating boat docks” in the statute (which pointedly separates “houseboats” and “cabin cruisers” from “manufactured homes”) clearly indicates legislative intent for the phrase “used for lodging” to modify only “manufactured homes” and not to modify houseboats, cabin cruisers, and floating boat docks.

In Complainant’s Statement, he also argued that “because I do not reside there” (Morgan County), his boat should not be assessed there.It is the Commission’s opinion that Section 137.090, RSMo is applied to determine which county within the state personal property is to be assessed, not whether the property is taxable.Section 137.075, RSMo makes it clear that the property is taxable.Further, because Complainant is not a Missouri resident, other factors must be considered. The general rule is set out in 71 Am Jur 2d 664 as follows:

[W]hen tangible personal property is permanently located in a state other than the state of the owner’s domicile in such circumstances as to acquire a situs there for purposes of taxation, it is taxable there; in this situation, the state of the domicile of the owner, which affords no substantial protection to the property, has no jurisdiction to tax such property.

 

This rule is restated in Bi Go Markets, Inc. v. Morton, 843 S.W.2d 916, 919, 920 (Mo. 1992). For an actual situs to exist in Missouri:

1.There must be a continuous presence in this state which supplants the home state and, thus, allows Missouri to acquire taxing power over the personalty.Peabody Coal Co. v. State Tax Commission, 731 S.W.2d 837, 839 (Mo. 1987).The property must have a more or less permanent location or situs and more than a mere temporary presence.Buchanan County v. State Tax Commission, 407 S.W.2d 910, 914 (Mo. 1966).

 

2.The due process requirements of the U.S. Constitution must be satisfied in that the tax must be related to the opportunities, benefits or protection conferred by or afforded by the taxing state. Bi Go Markets, supra

 

Under this analysis, the subject property is taxable in Missouri, has established a situs in Morgan County, and is taxable there.

ORDER

The Commission upon review of the record and Decision in this appeal, finds no grounds upon which the results of 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 May 31, 2006.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Jennifer Tidwell, Commissioner

Charles Nordwald, Commissioner

 

 

 

 

DECISION AND ORDER

 

HOLDING

 

Decision of the Assessor, AFFIRMED, Hearing Officer finds true value in money for the subject property for tax year 2005 to be $129,350, assessed value of $43,120, assessed as personal property in Morgan County, Missouri.

Case submitted on Statements and decided by Senior Hearing Officer W. B. Tichenor.

ISSUE

The Commission takes this appeal to determine whether the subject watercraft is to be assessed in Morgan County, Missouri as of January 1, 2005.

SUMMARY

Complainant appeals on the ground of improper assessment under Section 137.090, RSMo. By agreement of the parties the case was submitted on statements.Complainant’s Statement in Support of Appeal; Respondent’s Statement in Support of a Proper Assessment. The Hearing Officer, having considered the arguments advanced and the law applicable to this appeal enters the following Decision and Order.

Complainant’s Argument

Complainant argues that the plan language of Section 137.090, RSMo requires that his watercraft not be assessed and thereby taxed in Morgan County, Missouri since it is not “used for lodging.”

FINDINGS OF FACT

1.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the assessment made by the Morgan County Assessor.

2.The subject property is identified in the assessor’s records by account number 20 2311520600.The property is a 2003 Tiara.It is a 31’ 6” fiberglass inboard cruiser with vehicle identification number of SSUS1827B303.It has a galley, dinette, head and bedroom.The September 2004 N.A.D.A Marine Appraisal Guide gave a trade in value of $129,350.The assessor assessed the watercraft at $43,120.Valuation was not at issue.Complainant’s Statement in Support of Appeal;Respondent’s Statement in Support of a Proper Assessment.

3.Complainant lives in Overland Park(Johnson County)Kansas.

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.The hearing officer shall issue a decision and order affirming, modifying or reversing the determination of the assessor, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious.Section 138.431.4, RSMo.

 

 

Presumption on Assessor’s Value

TheSupreme Court of Missouri has held, “A tax assessor’s valuation is presumed correct.”Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, (Mo. 2005).Citing to Hermel, supra; and Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

DECISION

The issue in this appeal is a matter of law as to the application ofSection 137.090, RSMo.The owner’s contention is that the plain language of Section 137.090 requires that his watercraft be assessed in the county where the owner resides.

Section 137.090, RSMo provides in relevant part as follows:

“All tangible personal property of whatever nature and character situated in a county other than the one in which the owner resides shall be assessed in the county where the owner resides; except that, houseboats, cabin cruisers, floating boat docks, and manufactured homes, as defined in section 700.010 RSMo, used for lodging shall be assessed in the county where they are located, ….”

 

Complainant asserts that the phrased “used for lodging” modifies the listing of houseboats, cabin cruisers, floating boat docks and manufactured homes.Mr. Brown argues that since his residence is not inMorganCountyand he does not “lodge” in his cabin cruiser, his boat should not be assessed inMorganCounty.The phrase “used for lodging” appears to modify manufactured homes, since it does not appear that one could “lodge” on a floating boat dock.However, if applied to houseboats and cabin cruisers it will not support Complainant’s argument.

The ordinary dictionary definition of lodging is “to serve as a temporary dwelling.”It is obvious that the subject cabin cruiser, being equipped with a galley, dinette, head and bedroom is designed and intended to serve as a place of temporary dwelling.Given the fact that Complainant lives in Johnson County, Kansas and his cabin cruiser is located in Morgan County, Missouri, a driving distance of approximately 3 hours, more or less, it is highly unlikely that Complainant drives down to the Lake of the Ozarks once in a while to go out on his boat and then drives back home the same day.

The word lodging is not the same as residing.No assertion is made that Mr. Brown resides on the watercraft.The applicable statute does not call for a person to reside in the cabin cruiser or house boat.The subject cabin cruiser is designed and is no doubt used as a temporary dwelling when used by Complainant inMorganCounty.Therefore, it is “used for lodging” and as a matter of law comes within the purview of the statutory requirement that it be assessed in the county where it is located.

The issue raised by Complainant has previously been addressed by the Missouri Supreme Court in the case of Bialecke, et al. v. Bauer, 581 S.W.2d 35 (Mo. banc 1979).In Bialecke, non-residents ofSt. Charles County,Missouri challenged whether cabin cruisers and houseboats moored and docked inSt. CharlesCounty could be assessed as personal property inSt. CharlesCounty under Section 137.090, RSMo.The Court held such assessment was proper under the statute.

ORDER

The assessed valuation for the subject property as determined by the Assessor forMorganCountyfor the subject tax day is AFFIRMED.

The assessed value for the subject property for tax year 2005 is set at $43,120.

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 Morgan 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 April 5, 2006.

STATE TAX COMMISSION OFMISSOURI

W. B. Tichenor

Senior Hearing Officer