Atlas Iron Works v. Bushmeyer (SLCY)

State Tax Commission of Missouri

 

ATLAS IRON WORKS,))

Complainant,)

)

v.)Appeal(s) Number 05-20380 and 05-20381

)

ED BUSHMEYER, ASSESSOR,)

ST. LOUIS CITY,MISSOURI,)

)

Respondent.)

 

DECISION AND ORDER

 

HOLDING

 

Decision of the St. Louis City Board of Equalization sustaining the assessment made by the Assessor is SET ASIDE.The State Tax Commission finds that the subject property was overvalued and that the assessment is so grossly excessive as to constitute discrimination.

Complainant appeared by Counsel Thomas Campbell.

Respondent appeared by Counsel Carl Wes Yates.

Case heard and decided by Hearing Officer Maureen Monaghan.

ISSUE

The Commission takes this appeal to determine (1) the true value in money for the subject property on January 1, 2005 (overvaluation) and (2) whether there was an intentional plan by the assessing officials to assess the property under appeal at a ratio greater than 32% of true value in money, or at a ratio grossly excessive than the average 2005 commercial assessment ratio for St. Louis City (discrimination).

SUMMARY

Complainant appeals, on the ground of overvaluation and discrimination, the decision of the St. Louis City Board of Equalization, which sustained the valuation and assessment of the subject property.

The Assessor determined the value of the subject parcels at $273,749, assessed value $87,600, classified as commercial property with an assessment ratio of 32%.The Board of Equalization sustained the valuations and assessment.

A hearing was conducted on December 11-12, 2008, at the St. Louis City Hall, St. Louis, Missouri.Evidence as to the commercial assessment ratio for St. Louis City in 2005 was heard.This case was reconvened on March 26, 2009, at the St. Louis City Hall, St. Louis, Missouri to accept evidence as to the value of the subject properties.

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

Complainant’s Evidence

The following exhibits were received into evidence on behalf of Complainants.

 

Respondent objected to Exhibit B on grounds of speculation, lack of foundation, not in compliance with appraisal requirements of statutes and CSR.Objection overruled.Objection to Exhibit F as to not being filed in advance pursuant to STC’s Order overruled.

 

Respondent’s Evidence

 

Objection to Exhibits 1-3 as to not being filed in advance pursuant to STC’s Order.Objection overruled.

FINDINGS OF FACT

1.                  Jurisdiction over these appeals is proper.Complainant timely appealed to the State Tax Commission from the decision of the St. Louis City Board of Equalization.

2.                  The subject property is located at 4018 & 4020 Geraldine, St. Louis, MO.The parcel numbers are 4385-00-0320-0 and 4385-00-0310-0.The 1.96 acre lot has improvements of warehouse with cranes and office buildings built between 1922 and 1992 of approximately 20,800 square feet of steel and wood framing with metal siding.The ceiling height of the warehouse area ranges from 10’-18’.The property is in poor to fair condition.

3.                  The property’s age, additions, and unique features make it challenging for an appraiser to find comparable properties for appraisal purposes however this is typical for properties in the City of St. Louis and appraisers experienced with this market are capable of making the necessary adjustments.

4.                  The highest and best use of the property is its current use as a warehouse space with offices.Relying on the sales comparison approach, the market value of the property as of January 1, 2005, is found to be $257,000.

5.                  The Sansone Company, a property management firm, initially handled these properties before the Board of Equalization.They hired the University of Missouri, more specifically the Public Policy Research Center (PPRC), to perform a sales ratio study on the commercial properties within St. Louis City as of January 1, 2005.Steven Gardner with PPRC testified that the “purpose of a ratio study is to produce a statistically valid inference about the entire population of properties based upon an examination of sample properties…A ratio study is a statistical analysis from which a party may infer whether the same class of real property in a taxing jurisdiction is valued at the level prescribed by statute.”PPRC combined the tax rolls for 2005 and 2006.They then eliminated parcels from their samples for reasons such as new construction in 2005, tax abated property, tax exempt property, residential property.The properties were then stratified by location.

PPRC then looked at the sales information in the City via certificates of value.The sales occurred from July 1, 2004, to June 30, 2005; six months prior and six months after the assessment date of January 1, 2005.The sales were reviewed to determine that they were open market sales transactions.

PPRC had 177 sales in their study.They compared the sales with the assessments by the Assessor’s Office.They concluded that the median level of assessment for Commercial properties in the City of St. Louis is 24.2%.

6.                  The median level of assessment for commercial properties in the City of St. Louis in 2005 is 24.2%.

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.[1]

Official and Judicial Notice

Agencies shall take official notice of all matters of which the courts take judicial notice.[2]

Courts will take judicial notice of their own records in the same cases.[3]In addition, courts may take judicial notice of records in earlier cases when justice requires[4] or when it is necessary for a full understanding of the instant appeal.[5] Courts may take judicial notice of their own records in prior proceedings involving the same parties and basically the same facts.[6]

Presumptions In Appeals

There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof Equalization.[7]

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.[8]

Grounds for Appeal

Complainant appealed on the grounds of (1) overvaluation and (2) discrimination.

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.[9]Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[10]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.[11]

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).

The Complainant’s appraiser analyzed the highest and best use of the property as vacant and “As if Improved.”In his “As if Improved” analysis, the appraiser looked at whether the existing improvements conform to the ideal, require modification, or necessitate demolition to allow construction of a new improvement.It was the appraiser’s opinion that the subject parcels existing buildings do not conform to the ideal improvement.Although the property was legally and physically permissible, the improvement’s age and condition deem it fully depreciated.The appraiser believes that the improvements do not contribute a positive return to the land and demolition would bring a higher residual land value.Therefore, the Complainant’s appraiser believes the highest and best use “As if Improved” would be to raze the improvements for future development.

The Respondent’s appraiser also conducted a highest and best use analysis.The appraiser states in her report that the existing use as improved will continue unless and until land value in its highest and best use exceeds the sum of the value of the entire property in its existing use and the cost to remove the improvements.The Respondent’s appraiser believes that the highest and best use “As if Improved” is continued use as a warehouse/office.

After review of the valuation evidence, the highest and best use of the property is continued use as a warehouse/office space as the property’s improvements do contribute to the valuation of the property and are viable in the foreseeable future.

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.[12]It is the fair market value of the subject property on the valuation date.[13]

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.[14]

 

Valuation Date

Assessment of real property in Missouri is under a two year assessment cycle.The assessor is to value property as of January 1, of the odd-numbered year.The assessed value established for the odd-numbered year, remains the value for the following even-numbered year in the absence of new construction and improvement to the property.[15]

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.[16]

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.[17]

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.[18] 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.

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….”[19] 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 “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.”[20] This approach is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis.

The commission’s choice of valuation approaches must comply with the law. Both section 137.115 and article X, section 4(b) of the Missouri Constitution require that real property in Missouri be taxed according to its true value in money. True value is a function of the property’s highest and best use.[21]

Valuation

Both appraisers developed the sales comparison approach; the Complainant’s appraiser using vacant land sales and the Respondent’s appraiser using sales of warehouse properties.The Respondent’s appraiser also developed the income approach but relied most heavily on the sales comparison approach.

The Complainant’s appraiser, having concluded that the improvements possess a lesser value to the subject property than the site as if vacant, only applied the Sales Comparison Approach to Land Value.The appraiser looked to four sales of vacant land which occurred from March to December, 2004.The subject parcel is 85,030 square feet.The comparable sales ranged in size from 89,298 square feet to 366,340 square feet.Sales 2 and 4 had superior development utility.Sales 2 and 3 were owned by the Land Reutilization Authority.The sales ranged from $0.93 to $1.75 per square foot.The appraiser determined that the subject had a market value of $1.50 per square foot or rounded value of $130,000.The appraiser made no adjustment for the cost of razing the improvements, scrap value of the metal, or the resale value of the cranes.

The Respondent’s appraiser developed the income and sales comparison approaches to value to conclude a market value of $290,000.In her sales comparison approach, the appraiser used three sales of office/warehouse spaces that sold in April to August 2006.The properties ranged in size from 5,600 to 16,978 square feet.The range of values after adjustments was $13.39 to $22.87.The appraiser concluded on a value of $16 per square foot or $308.000.

Comparable Improved Sale 2, located very near the subject property, has similar land size but its improvement size was much smaller that the subject improvement.The property sold for $176,000 on August, 2006.Comparable 2 lot size is 98,228 or $1.79 per square foot.Using this figure, the subject property’s land sale would $152,203.

Comparable Improved Sale 1 was deemed to be the most similar to the subject property by the appraiser.After adjustments to that sale, the resulting sale unit price determined by the appraiser was $13.39 per square foot of improvement.Using this sale unit price, the subject property’s value would be $257,800.

The subject property is owner occupied.The appraiser looked to the market for market rents for warehouse and warehouse/office properties.The appraiser concluded on a rent of $2.10 per square foot.The vacancy rates for industrial use properties in the City of St. Louis is 4.4% for all types of industrial property.The appraiser used a 6.6% rate.The effective gross income was estimated to be $37,763.The capitalization rate used was 9.75% with an effective tax rate of 2.74% for an adjusted cap rate of 12.5%.The resulting indication of value is $242,000.

Although the subject property’s improvements were deemed to be in fair to poor condition, the improvements still provide value for the real property.However,the appropriate value for the subject property would fall in the lower range of the values determined by the sales comparison approach developed by the Respondent’s appraiser.The market value for the subject property as of January 1, 2005 is found to be $257,000.

Discrimination

In order to obtain a reduction in assessed value based upon discrimination, the Complainant must (1) prove the true value in money of their property on January 1, 2005; and (2) show an intentional plan of discrimination by the assessing officials resulting in an assessment of that property at a greater percentage of value than other property, generally, within the same class within the same taxing jurisdiction or show that the level of an assessment is so grossly excessive as to be inconsistent with an honest exercise of judgment. [22]

There is no evidence that there was an intentional plan of discrimination by the assessing officials so we must determine if the Complainant has presented substantial and persuasive evidence to show that the level of their assessment is so grossly excessive as to be inconsistent with an honest exercise of judgment.“By requiring that the level of an assessment be so grossly excessive as to be inconsistent with an honest exercise of judgment in cases in which intentional discrimination is not shown, the courts and the Commission refrain from correcting assessments which reflect no more than de minimus errors of judgment on the part of assessors. Such a standard recognizes that ‘[w]hile practical uniformity is the constitutional goal, absolute uniformity is an unattainable ideal’.” [23]  

DECISION

Where there is a claim of discrimination based upon a lack of valuation consistency, Complainant must first prove the level of assessment for the subject property in 2005. This is done by independently determining the market value of the subject property and dividing the market value into the assessed value of the property as determined by the Assessor’s office.

Complainant must then prove the average level of assessment for commercial property in St. Louis City for 2005.This is done by (a) independently determining the market value of a representative sample of commercial properties in St. Louis City; (b) determining the assessed value placed on the property by the Assessor’s office for the relevant year; (c) dividing the assessed value by the market value to determine the level of assessment for each property in the sample; and (d) determining the mean and median of the results.

The difference between the actual assessment level of the subject property and the average level of assessment for all commercial property, taken from a sufficient representative sample in St. Louis City, must demonstrate a disparity that is grossly excessive.[24]

In this instance, the subject property was overvalued on the tax day and that the correct market value of the subject property was $257,000 on January 1, 2005. (see Valuation).Complainant then established that the median assessment ratio for the city for January 1, 2005 was 24.2% rather than the statutorily mandated 32%.At 24.2%, the assessed value for the subject property should have been $62,194.Instead, the assessed value for the subject property, as determined by the Board of Equalization, was $87,600, or 34%.The question issue is whether the difference between the median assessment level for the city (24.2%) and the assessment level for the taxpayer’s property (34%) is grossly excessive.

In Savage, the Supreme Court ruled that the State Tax Commission was amply justified in determining that the difference between the average assessment level for the county and the assessment level for the taxpayer’s property was grossly excessive and therefore unconstitutionally discriminatory. The State Tax Commission, in Savage, found that the average level of assessment for Greene County was 20.9%.It further found that the Taxpayer’s property was assessed at 33 1/3 %.The State Tax Commission found that the assessment was grossly excessive.The Court agreed that the disparity in that case was so grossly excessive as to be entirely inconsistent with an honest exercise of judgment and therefore had the effect of intentional discrimination.

The “average level of assessment” means the “arithmetical median of the varying percentages of true value applied by … the assessor in assessing properties within a taxing district.”In the case at bar, the arithmetical median of the varying percentages of true value applied by the assessor in assessing properties within St. Louis City in 2005 is 24.2%.The Complainant’s property was assessed at 34% of its true value.

The next step is to compare the average level of assessment for St. Louis City for the 2005 assessment cycle (24.2%) with the Complainant’s assessment (34%) to determine if the disparity in this case is so grossly excessive as to be entirely inconsistent with an honest exercise of judgment or simply a “de minimus error of judgment on the part of assessor” recognizing that absolute uniformity is an unattainable ideal.

 The Complainant’s assessment ratio of 34% is so grossly excessive as to be entirely inconsistent with an honest exercise of judgment or inconsistent with a “de minimus error of judgment on the part of assessor” recognizing that absolute uniformity is an unattainable ideal.[25]

ORDER

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

The assessed value of the subject parcels for 2005-2006 is set at $62,194.

A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing date shown in the Certificate of Service.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. [26]

The Collector of St. Louis City, 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 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 April 29, 2009.

 

STATE TAX COMMISSION OFMISSOURI

 

 

______________________________________

Maureen Monaghan

Hearing Officer

 

 

 

 

Certificate of Service

 

I hereby certify that a copy of the foregoing has been mailed postage prepaid this 29^th day of April, 2009, to:Thomas Campbell, 101 South Hanley Road, Suite 1700, St. Louis, MO 63105, Attorney for Complainant; Carl W. Yates III, Associate City Counselor, 314 City Hall, St. Louis, MO 63103, Attorney for Respondent; Ed Bushmeyer, Assessor, 120 City Hall, St. Louis, MO 63103; Gregory Daly, Collector, 110 City Hall, St. Louis, MO 63103.

 

 

 

_________________________________

Barbara Heller

Legal Coordinator