Ankita, Inc. v. Nordwald (Warren)

February 27th, 2009

State Tax Commission of Missouri






v.) Appeal Number 07-91001












Decision of the Warren County Board of Equalization sustaining the assessment made by the Assessor is SET ASIDE.True value in money for the subject property for tax years 2007 and 2008 is set at $975,500, assessed value of $312,160.Complainant appeared by Counsel Erick Creach,Columbia,Missouri.Respondent appeared by Prosecuting Attorney Michael Wright.Case heard and decided by Senior Hearing Officer W. B. Tichenor.


The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2007.


Complainant appeals, on the ground of overvaluation, the decision of the Warren County Board of Equalization, which sustained the valuation of the subject property.The Assessor determined an appraised value of $1,199,130, assessed value of $383,720, as commercial property.A hearing was conducted on December 9, 2008, at the Warren County Courthouse,Warrenton,Missouri.The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.

Complainant’s Evidence

Complainant pre-filed the following Exhibits which were received into evidence.




Appraisal Report of Richard E. Thornhill,

Mo.StateCert. Gen. Real Estate Appraiser


Written Direct Testimony of Mr. Thornhill


Respondent’s Evidence

Respondent pre-filed the following Exhibits which were received into evidence.




Appraisal Report of Donald Dwain Dodd,

Mo.StateCert. Gen. Real Estate Appraiser


Written Direct Testimony of Mr. Dodd



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

2.The subject property is located at 1429 North Service Road East, Warrenton, Missouri.The property is identified by parcel number 5-22-3-9.1.It is otherwise known as the Warrenton Super 8 Motel.The property consists of a 1.22 acre (53,143 square feet) acre lot.The site is improved with a two-story brick veneer and stucco motel, constructed in 1996.The building contains approximately 19,036 square feet of total area.The motel has 48 rooms[1] with interior access, a lobby, small office and eating area.[2]

3.There was no evidence of new construction and improvement from January 1, 2007, to January 1, 2008.

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

5.The Income Approach provides a reliable methodology for arriving at the indicated value of the property under appeal.A value derived from the actual income stream of the subject property provides the strongest indicator of what a knowledgeable purchaser would have given for the property on January 1, 2007.[3]

6.Income and expense data was substantial and persuasive to establish true value in money of $975,500, assessed value of $312,160.See, Hearing Officer Finds Value, infra.



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.[4]

Presumptions In Appeals

There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof Equalization.[5]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 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.[6]Complainant’s evidence was sufficient to rebut the presumption of correct assessment in the Board’s value.

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.[7]It is the fair market value of the subject property on the valuation date.[8]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.[9]



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.[10]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.[11]

Income Approach Valid Methodology

The income approach to value is a valid and persuasive methodology for establishing true value in money of a motel property.Reliance upon the actual income stream generated by the property being appraised is a sound basis for the appraisal.The hypothetical purchaser of the subject property would give due consideration to the actual income stream being generated by the property.Both appraisers developed the income approach.The differences between the two approaches were minimal.As addressed below the income and expense data and the approaches developed by Mr. Thornhill and Mr. Dodd provide a sound foundation for the Hearing Officer to determine true value in money as of January 1, 2007.

Cost and Sale Comparison Approaches Not Persuasive

The cost and sales comparison approaches were also developed by each appraiser.However, these methodologies were not sufficiently persuasive in the face of the subject property’s actual income stream.

Cost Approaches

A cost approach on an income property such as a motel has limited value unless the actual income stream is correlated to the depreciation to be applied to the replacement cost new for the improvements.The cost approach loses its persuasive weight when the income stream is not reflected in the application of depreciation.In both appraisals, the cost approach overstates the true value in money because it concludes a value which the present income stream cannot support.

Sales Comparison Approaches

In like manner, the sales comparison approach applied to a motel has less probative weight than the income methodology.Sales of similar motels may appear at first blush to be a very sound mechanism for valuation.However, just as the cost approach must be supported by the appraised property’s income stream the same is true of the sales comparison approach.Unless there is adequate income and expense date from the comparable sales, the sales comparison approach is of limited benefit.Any number of motel properties may be very similar as far as the bricks and mortar goes.However, the true measure of comparability rests not in the physical structures on the land, but on the fiscal history of the property.If income and expenses are not comparable between the sale property and the property being appraiser, a cloud of doubt settles over the use of a sale comparable.

Both appraisers presented a number of sale properties which appear to be sufficiently similar to the subject to serve as comparable sales.However, there was no income and expense data on the comparables from which the Hearing Officer could conclude which sale properties could actually demonstrate an appropriate indicated value for the subject.The lack of economic data on the actual performance of the sale properties at the time of sale, leaves the Hearing Officer in the “in the nebulous twilight of speculation, conjecture and surmise,” on the critical issue of fiscal comparability to the subject.[12]Therefore, the Hearing Officer finds neither conclusion of value derived from the sales comparison approach to be persuasive.


The Hearing Officer’s observations relative to the development of the cost and sale comparison approaches by Mr. Thornhill and Mr. Dodd should not be construed as criticism of their expertise as general real estate appraisers.The Hearing Officer is not casting aspersions on their abilities in their chosen professional field.The foregoing commentary simply is the Hearing Officer’s analysis and conclusions from the perspective of the probative weight to be given or not given to the cost and sales comparison approaches in this particular ad valorem tax appeal.The standard which the Hearing Officer applies to reach a conclusion of value is significantly different from the standard that would generally be applied to the appraisal work of the two appraisers for other, non-judicial purposes.

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, 2007.[13]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.”[14]

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[15]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.[16]

Complainant’s Income Approach

Complainant’s evidence under the income approach standing along was sufficient for the Hearing Officer to make a determination of fair market value.Mr. Thornhill developed his opinion of value under the income approach relying on direct capitalization.He applied a market derived capitalization rate and a market derived gross revenue multiplier.Both of these capitalization methods are recognized within the appraisal field.[17]Complainant’s appraiser stabilized the prior three years of income and expenses to develop the income methodology.[18]

The only error in the procedures utilized was the inclusion of the real estate taxes as an expense item.When seeking value for ad valorem taxation, the real estate tax expense must be accounted for as the effective tax rate and added to the capitalization rate to establish the overall rate.The failure to make this calculation is not fatal to a determination of value, as the Hearing Officer can make the correct calculations.

Respondent’s Income Approach

Respondent’s appraiser stabilized the operating expenses for the subject property relying on the actual expenses for 2004, 2005 and 2006.Mr. Dodd properly excluded real estate taxes and accounted for them as the effective tax rate in his overall capitalization rate.The critical flaw in the development of the income approach was the failure to recognize the actual occupancy rate of the subject.Based upon Mr. Dodd’s Potential Gross Income (PGI) and the actual stabilized income, the subject does not have a 50% occupancy was used in the Dodd appraisal.The stabilized income of $338,492 divided by the PGI yields an occupancy rate of only 39.9%.While Mr. Dodd felt this was low, it was what the actual income data established.

A prospective purchaser of the Warrenton Super 8 is going to be most concerned with its actual occupancy rate, not the rate that is the average for other selected motels.Just as the appraiser properly relied on the actual expenses associated with the motel, reliance on the actual income was appropriate.The use of a 50% occupancy rate was an overstatement of the effective gross income that a prospective purchaser could and would expect based on the subject’s operating history.Thus the conclusion of value derived utilizing a 50% occupancy rate simply overstated the value for the motel.

Hearing Officer Finds Value

Based upon the actual income stream the Complainant’s motel generates, a conclusion as to the property’s fair market value can be reached.The stabilized effective gross income is $338,490.[19]The stabilized allowable expenses[20] are $192,270.The Net Operating Income (NOI) is $146,220. A deduction to account for income attributable to personal property of $14,620 is appropriate.[21] The NOI to be capitalized is $131,600.

Mr. Thornhill developed a capitalization rate without an effective tax rate of 11.5%.[22]The capitalization rate without an effective tax rate utilized by Mr. Dodd was 11.9%[23]A capitalization rate of 11.7% is established.The effective tax rate of 1.7912[24] added to the capitalization rate yields an overall rate of 13.49%The NOI of $131,600 capitalized by 13.49% results in an indicated value of $975,537, rounded to $975,500.The commercial assessment of .32% establishes an assessed value of $312,160.


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

The assessed value for the subject property for tax years 2007 and 2008 is set at $312,160.

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 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 appeal is based will result in summary denial. [25]

The Collector of Warren County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending a 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 27, 2009.





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 27thday of February, 2009, to:Erick Creach, 1103 East Broadway, Columbia, MO 65201,Attorney for Complainant; Michael Wright, Prosecuting Attorney, 104 W. Main, Warrenton, MO 63383, Attorney for Respondent; Wendy Nordwald, Assessor, 105 S. Market, Warrenton, MO 63383; Barbara Daly, Clerk, 104 W. Booneslick Rd., Suite B, Warrenton, MO 63383; Linda Stude, Collector, 105 S. Market, Warrenton, MO 63383.




Barbara Heller

Legal Coordinator




[1] The current owner has converted two rooms into an “owner’s suite,” but this can be easily reconverted into two guest rooms.Exhibit A, p. 15.


[2] Exhibit A, pp. 11, 14-16 (detailed description); Exhibit 1, pp. 12, 14.


[3] Exhibit A, pp. 24 – 26, 30;Exhibit 1, pp. 33 – 41.


[4] Article X, section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo.


[5] 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).


[6] Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).


[7] 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).


[8] Hermel, supra.


[9] 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; Exhibit A, p. 8; Exhibit 1, p.8.


[10] 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).


[11] 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).


[12] See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980).

[13] Hermel, supra.


[14] 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).


[15] See, Cupples-Hesse, supra.


[16] Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).


[17] See, The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, Chapter 22, pp. 529-547.


[18] A stabilized value for purposes of this Decision represents an averaging of the actual income or expenses for the years of 2004, 2005 and 2006 reflected from the subjects financial records.


[19] Amounts have been rounded to the nearest whole $10.


[20] Actual allowable expenses including a 3% of EGI for Management Fees and3% of EGI Reserve for Replacements; See, Exhibit A, p. 35.


[21] See, Exhibit 1, p. 35.


[22] Exhibit A, p. 25.


[23] Exhibit 1, p. 39.


[24] Ibid.


[25] Section 138.432, RSMo.