State Tax Commission of Missouri
120 SOUTH WILDWOOD DRIVE HOLDINGS,)
)
Complainant,)
)
v. ) Appeal No.11-89550
)
JAMES STRAHAN, ASSESSOR,)
TANEY COUNTY, MISSOURI,)
)
Respondent.)
DECISION AND ORDER
HOLDING
Decision of the Taney County Board of Equalization reducing the assessment made by the Assessor is SET ASIDE.Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization and establish the true value in money for the property under appeal as of January 1, 2011 to be $7,000,000.
True value in money for the subject property for tax years 2011 and 2012 is set at $7,000,000, commercial assessed value of $2,240,000.
Complainant appeared by Counsel, Thomas L. Caradonna, Lewis, Rice & Fingersh, L. C., St. Louis, Missouri.
Respondent appeared by Counsel, Jason Coatney, Keck Austin, Springfield, Missouri.
Case decided by Senior Hearing Officer W. B. Tichenor.
ISSUE
Complainant appeals, on the ground of overvaluation, the decision of the Taney County Board of Equalization, which reduced the valuation of the subject property.The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2011.The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
FINDINGS OF FACT
1.Jurisdiction.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the decision of the Taney County Board of Equalization.
2.Procedural History.
a.September 29, 2011.Complaint for Review of Assessment received by the Commission.
b.October 19, 2011.Acknowledgement of appeal by the Commission issued.
c.January 11, 2012.Order Setting Discovery and Exhibit Exchange Schedule and Procedure issued.
d.April 4, 2012.Complainant files certification of intent to prosecute appeal.
e.May 29, 2012.Consent Motion to Extend the Exhibit Exchange Schedule filed.
f.June 5, 2012.Order Granting Motion for Extension of Time issued.[1]
g.August 1, 2012.Complainant’s exhibits received by the Commission and exchanged with Respondent.Respondent did not file and exchange any exhibits or written direct testimony.
h.August 21, 2012.Deadline for filing of objections to exhibits and written direct testimony and rebuttal exhibits.No objections or rebuttal exhibits were filed by Respondent.
i.August 30, 2012.Order Assigning Hearing Officer issued.Order for Verification of Desire to Cross-Examine and Submission of Exclusionary Dates issued.
j.August 31, 2012.Complainant submits exclusion dates.
k.September 6, 2012.Deadline for Respondent to submit exclusionary dates and verification of desire to cross-examine.Respondent did not submit exclusionary dates.Respondent did not submit verification of desire to cross-examine Complainant’s expert.
l.September 17, 2012.Bench Order issued – case submitted on for Decision on Exhibits A and B.
3.Submission on Complainant’s Exhibits.By Order for Verification of Desire to Cross-Examine, Respondent was informed as follows:
Respondent shall on or before September 6, 2012, verify through Counsel that it is desired to conduct cross-examination of Complainant’s expert witness or that Respondent waives right of cross-examination and consents to submission of the appeal for decision based upon Exhibits A & B.Failure to so verify will be deemed to be a specific waiver of the right to cross-examine and specific consent to submission of the appeal for decision based upon Exhibits A & B.
Respondent failed to submit exclusionary dates or to verify desire to conduct cross-examination.Case is decided upon Complainant’s Exhibits A and B.
4.Subject Property.The subject property is identified by map parcel number 18-1-1-1-3-7.001.It is located at 120 South Wildwood Drive, Branson, Missouri.The property is otherwise known at the Radisson Hotel Branson.[2]A complete description of the property is found in Complainant’s appraisal.[3]
5.Assessment.The Assessor assessed the property at a commercial assessed value of $4,178,350, a true value in money of $13,057,340.The Board reduced the assessed value to $3,616,000, a true value in money of $11,300,000.[4]
6.Complainant’s Evidence.Complainant filed and exchanged with Respondent the Summary Appraisal Report[5] and Written Direct Testimony[6] of Bryan Younge.[7]Exhibits A and B are received into the record.There was no evidence of new construction and improvement from January 1, 2011, to January 1, 2012, therefore the assessed value for 2011 remains the assessed value for 2012.[8]
7.Younge Appraisal.The Younge Appraisal was prepared in accordance with the Uniform Standards of Professional Appraisal Practice[9] and included the elements that should be contained in a narrative appraisal report under the Appraisal Evidence Rule.[10]The appraisal was performed in accordance with generally accepted appraisal principles.Mr. Younge performed his appraisal in a manner consistent with and along the standards advanced by Stephen Rushmore.[11]It concluded a value based upon a reasonable degree of appraisal standards certainty.[12]The appraiser in arriving at his conclusion of value performed his appraisal conducting the following analyses, projections, processes, and approaches:
a.Regional Analysis (pp. 4 – 12);
b.Local Area Analysis (pp. 13 – 29);
c.Property Analysis (pp. 30 – 38);
d.U. S. Lodging Industry Overview (pp. 39 – 44);
e.Lodgin Market Supply and Demand Analysis (pp. 45 – 57);
f.Projection of Occupancy and Average Room Rate (pp. 58 – 66);
g.Highest and Best Use Analysis (pp. 67 – 68);
h.Valuation Process (pp. 69 – 70);
i.Income Capitalization Approach (pp. 71 – 105);
j.Sales Comparison Approach (pp. 107 – 113);
k.Cost Approach (p. 114);
l.Reconciliation and Final Value Opinion (pp. 115 – 116)
8.Highest and Best Use.The highest and best use of the subject as if vacant would be to hold the property for future development as market conditions dictate.[13]The highest and best use of the subject as improved is as a hotel as currently improved, due to the fact that the existing improvements add value to the site as if vacant.This dictates a continuation of its current use.[14]
9.Approaches to Value.The Cost, Sales Comparison and Income Capitalization approaches to value were all considered by the appraiser, however, only the Sales Comparison and Income Capitalization approaches were deemed to be applicable to the appraisal problem.[15]
a.Cost Approach.This approach has limited utility in the valuation of an existing hotel.Along with the difficulty in accurately quantifying physical deterioration, knowledgeable purchasers of complex hotel properties are more concerned with the economics of the investment.The approach does not reflect income-related considerations used by informed hotel buyers.Typical practice does not rely on the Cost Approach. Therefore, this approach is not appropriate for a conclusion of value in this appeal.[16]
b.Sales Comparison Approach.In appraising lodging facilities, it is difficult to find an adequate number of recent sales that are sufficiently comparable to the property being appraised.It is difficult to ascertain the true motivations of buyers and sellers.Acquiring a hotel property often represents a highly ego-driven process where many external, non-market factors influence the purchase price.The degree of comparability between a subject property and a comparable sale is usually so diverse that any subjective and unsubstantiated adjustments are required.Hotel investors typically do not employ this approach in reaching their final purchase decisions.Therefore, the use of the Sales Comparison Approach in valuing hotels is primarily limited to checking the value indicated by the Income Capitalization Approach.This approach is considered but not given a high level of probative weight in concluding value.[17] Mr. Younge concluded a value of $7,100,000 under this methodology.[18]
c.Income Capitalization Approach.This approach is comparable to that employed by typical hotel investors.It was the only reliable and applicable approach in this appraisal problem and produced the most supportable market value opinion. Accordingly, it is given the greatest probative weight in concluding value.[19]Mr. Younge concluded a value of $7,000,000 under the Income Approach.[20]
10.Younge Conclusion of Value.The appraiser concluded his opinion of value within a reasonable degree of appraisal certainty to be $7,000,000 relying on the Income Capitalization Approach and utilizing the Sales Comparison Approach as a check for reasonableness.[21]Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2011, to be $7,000,000.See, Complainant Proves Value, infra.
11.Respondent’s Evidence.Respondent elected to not file any exhibits, written direct testimony or rebuttal exhibits in the appeal.[22]
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.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.[23]
Basis of Assessment
The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass.[24]The constitutional mandate is to find the true value in money for the property under appeal. By statute real and tangible personal property is assessed at set percentages of true value in money.[25]In an overvaluation appeal, true value in money for the property being appealed determined based upon the evidence on the record that is probative on the issue of the fair market value of the property under appeal.The only evidence upon which a determination of value can be made in the present appeal is Complainant’s Exhibits.
Presumption In Appeals
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization.[26]This presumption is a rebuttable rather than a conclusive presumption.It places the burden of going forward with some substantial evidence on the taxpayer – Complainant.When some substantial evidence is produced by the Complainant, “however slight”, the presumption disappears and the Hearing Officer, as trier of facts, receives the issue free of the presumption.[27]The presumption is not evidence of value.
The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the Board’s valuation is erroneous and what the fair market value should have been placed on the property.[28]Upon presentation of the Complainants’ evidence[29] the presumption in this appeal disappeared.The submission of the appraisal report, performed by a state certified real estate appraiser, established prima facie that the Board’s value was in error.The appraisal established the fair market value that should have been placed on the property.No evidence was presented that rebutted the conclusion of value in Complainants’ appraisal.The case is decided free of the presumption.
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.[30]True value in money is defined in terms of value in exchange and not value in use.[31]It is the fair market value of the subject property on the valuation date.[32]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 are 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 both 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.[33]
Complainant’s appraiser valued the property under appeal relying on the Standard For Valuation.[34]
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.[35]Missouri courts have approved the comparable sales or market approach, the cost approach and the income approach as recognized methods of arriving at fair market value.[36] Complainant’s appraiser considered all three recognized approaches to value.He developed both the market and income approaches to value.His final conclusion of value was based on the income approach, with the market approach serving as a check.See, FINDINGS OF FACT 9 & 10, supra.
Cost Approach Not Appropriate To This Appeal
“The cost approach is seldom used to value existing hotels and motels because lodging facilities are particularly vulnerable to physical deterioration, functional changes, and uncontrollable external factors.Sometimes a hostelry can suffer from functional and external obsolescence before its construction is completed.As the building and other improvements age and depreciate, the resultant loss in value becomes difficult to quantify.Estimating the impact of even minor forms of obsolescence may require insupportable judgments that undermine the credibility of the cost approach.
“A more significant reason why this approach is not applied to hotels and motels is that its underlying assumptions do not reflect investment rationale of typical hostelry buyers.Lodging facilities are income-producing properties that are purchased to realize future profits.Replacement or reproduction cost has little bearing on an investment decision when the buyer is primarily concerned with the potential return on equity.”[37]See, FINDINGS OF FACT 9.a, supra.
Sales Comparison Approach Not Persuasive In This Appeal
There will generally be “many potential differences for which adjustments will be required to make the indicated sale price of the comparable hotel reflect the market value of the subject.In appraising lodging facilities, the adjustment process is often difficult and generally unsupported by market data.. . . Although the sales comparison approach is seldom given substantial weight in a hotel appraisal, it can be used to bracket a value or to check the value derived by the income capitalization approach.”[38] Accordingly, the Younge sales comparison is given weight as established a bracket or range to check his value under the income approach, but not as the determinator of value.See, FINDINGS OF FACT 9.b, supra.
Income Approach Appropriate and Persuasive In This Appeal
“The income capitalization approach converts the anticipated future benefits of property ownership (dollar income) into an estimate of present value.In hotel-motel valuation, this approach typically involves a discounting procedure.
“The Income capitalization approach is generally the preferred technique for appraising income-producing properties because it closely simulates the investment rationale and strategies of knowledgeable buyers.The approach is particularly relevant to hotel and motel properties, which involve relatively high risks and are bought for investment purposes only.The income capitalization approach is applied in three steps:
1. Forecast net income for a specified number of years.
2. Select an appropriate discount factor or capitalization rate.
3. Apply the proper discounting and/or capitalization procedure.
. . .
“Of the three valuation approaches available to the appraiser, the income capitalization approach generally provides the most persuasive and supportable conclusions when valuing a lodging facility.”[39]For all the foregoing reasons, the appropriate method of valuation to be adopted in this case is the income approach as developed by Complainant’s appraiser.See, FINDINGS OF FACT 9.c, supra.
Opinion Testimony by Experts
If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.The facts or data upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing and must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject and must be otherwise reliable, the facts or data need not be admissible in evidence.[40]
Mr. Younge is a Missouri certified general real estate appraiser.He has been appraising commercial real estate since 1998.He regularly appraises property similar to the subject of this appeal.He is an MAI Designated Member of the Appraisal Institute.He is an Accredited Senior Appraiser with the American Society of Appraisers.He is a certified General Appraiser in a number of other states.He has lectured and published articles on hotel valuation a number of times.He has been qualified as an expert witness on real estate valuations by numerous courts and commissions.[41]
The facts and data utilized by Mr. Younge in his appraisal were of the type reasonably relied upon by experts in the appraisal of hotel properties in forming opinions or inferences upon the valuation of the property under appeal.The facts and data are deemed to have been otherwise reliable
Complainant Proves Value
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, 2011.[42]There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a Commission appeal still bears the burden of proof.The taxpayer is the moving party seeking affirmative relief.Therefore, the Complainant bears the burden of proving the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary or capricious.”[43]A valuation which does not reflect the fair market value (true value in money) of the property under appeal is an unlawful, unfair and improper assessment.
Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[44]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.[45]
Complainant’s evidence to establish the fair market value of the subject property as of January 1, 2011, consisted of the appraisal report and written direct testimony of Bryan Younge.The appraiser developed both a discounted cash flow and direct capitalization methodology in his income capitalization approach, consistent with the general guidelines and standards enunciated by Rushmore.[46]The income approach put forth in the appraisal possesses sufficient weight and probative value to convince the mind of the Hearing Officer that the true value in money as of January 1, 2011, was $7,000,000.
ORDER
The assessed valuation for the subject property as determined by the Board of Equalization for Taney County for the subject tax day is SET ASIDE.
The assessed value for the subject property for tax years 2011 and 2012 is set at $2,240,000.
Application for Review
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 for this Decision.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, MO65102-0146, 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 application for review is based will result in summary denial. [47]
Disputed Taxes
The Collector of Taney 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 October 3, 2012.
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 3rd day of October, 2012, to:Thomas Caradonna, 600 Washington Avenue, Suite 2500, St. Louis, MO 63101, Attorney for Complainant; Jason Coatney, 1112 E. Walnut, Springfield, MO 65806, Attorney for Respondent; James Strahan, Assessor, P.O. Box 612, Forsyth, MO 65653; Donna Neeley, Clerk, P.O. Box 156, Forsyth, MO 65653; Sheila Wyatt, Collector, P.O. Box 278, Forsyth, MO 65653.
___________________________
Barbara Heller
Legal Coordinator
Contact Information for State Tax Commission:
Missouri State Tax Commission
301 W. High Street, Room 840
P.O. Box 146
Jefferson City, MO 65102-0146
573-751-2414
573-751-1341 Fax
[3] Exhibit A – Summary of Salient Facts and Conclusions; Property Photographs (pages v – xxiv); Identification of Property, p. 2; Site Description, pp. 30-31; Improvements Description, pp. 32-33
[4] Board of Equalization Decision Letter dated 7/29/11.Commercial property is assessed at 32% of its true value in money (appraised value, fair market value)
[11] Hotels and Motels – A Guide to Market Analysis, Investment Analysis and Valuations, Stephen Rushmore, MAI, Appraisal Institute, 1997 – Market Value and the Valuation Process, pp. 207 – 236
[17] Exhibit A – Valuation Process – Sales Comparison Approach, pp. 69 – 70; Sales Comparison Approach, pp. 107 – 113; Exhibit B: Q & A 26
[19] Exhibit A – Valuation Process – Income Capitalization Approach, p. 70; Income Capitalization Approach, pp. 71 – 106; Reconciliation and Final Value Opinion, p. 115; Exhibit B: Q & A 26
[26] 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)
[27] United Missouri Bank of Kansas City v. March, 650 S.W.2d 678, 680-81 (Mo. App. 1983), citing to State ex rel. Christian v. Lawry, 405 S.W.2d 729, 730 (Mo. App. 1966) and cases therein cited.
[28] Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959)
[30] 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).
[31] Daly v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973).
[33] 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.
[35] 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).
[36] St. Joe Minerals Corp. v. STC, 854 S.W.2d 526, 529 (App. E.D. 1993); Aspenhof Corp. v. STC, 789 S.W.2d 867, 869 (App. E.D. 1990); Quincy Soybean Company, Inc., v. Lowe, 773 S.W.2d 503, 504 (App. E.D. 1989), citing Del-Mar Redevelopment Corp v. Associated Garages, Inc., 726 S.W.2d 866, 869 (App. E.D. 1987); and State ex rel. State Highway Comm’n v. Southern Dev. Co., 509 S.W.2d 18, 27 (Mo. Div. 2 1974).
[37] Hotels and Motels – A Guide to Market Analysis, Investment Analysis and Valuations, Stephen Rushmore, MAI, Appraisal Institute, 1997 – Market Value and the Valuation Process – Cost Approach, p. 208
[40] Section 490.065, RSMo; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. SC. 2004); Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. E.D. 1992).
[41] Exhibit A – Addendum E: Qualifications of the Appraisers, pp. 130 et. seq. ; Exhibit B: Q & A 5 – 12
[43] See, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003).Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. 1991).
[44] See, Cupples-Hesse, supra.
Substantial and persuasive evidence is not an extremely high standard of evidentiary proof.It is the lowest of the three standards for evidence (substantial & persuasive, clear and convincing, and beyond a reasonable doubt).It requires a small amount of evidence to cross the threshold to rebut the presumption of correct assessment by the Board.The definitions, relevant to substantial evidence, do not support a position that substantial and persuasive evidence is an extremely or very high standard.
“Substantial evidence: Evidence that a reasonable mind would accept as adequate to support a conclusion; evidence beyond a scintilla.”Black’s Law Dictionary, Seventh Edition, p. 580.
The word scintilla is defined as “1. a spark,2. a particle; the least trace.” Webster’s New World Dictionary, Second College Edition.Black’s definition at 1347 is “A spark or trace <the standard is that there must be more than a scintilla of evidence>.”There must be more than a spark or trace for evidence to have attained the standard of substantial.Once there is something more than a spark or trace the evidence has reached the level of substantial.Substantial evidence and the term preponderance of the evidence are essentially the same.“Preponderance of the evidence.The greater weight of the evidence; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”Black’s at 1201.Substantial evidence is that a reasonable mind would accept as adequate to support the conclusion.Preponderance is sufficient to incline a fair and impartial mind to one side of the issue rather than the other, i.e. support the proposed conclusion.