AZTAR MISSOURI GAMING CORP., )
v. ) Appeals No. 99-76500 & 99-76501
DONNA SNIDER, ASSESSOR, )
PEMISCOT COUNTY, MISSOURI, )
DECISION AND ORDER
Decision of the Pemiscot County Board of Equalization sustaining the assessment made by the Assessor, SET ASIDE, Hearing Officer finds true value in money for the subject property for tax years 1999 and 2000 to be $5,113,280, assessed value of $1,636,250.
Complainant appeared by Counsel, Cathy Steele, St. Louis, Missouri.
Respondent appeared by Counsel, Stephen P. Sokoloff, Kennett, Missouri.
Case heard and decided by Chief Hearing Officer, W. B. Tichenor.
The Commission takes this appeal to determine the true value in money for the subject property on January 1, 1999.
Complainant appeals the decision of the Pemiscot County Board of Equalization which sustained the valuation of the subject property. The Assessor determined an appraised value of $11,970,280 (assessed value of $3,830,490, as commercial property). A hearing was conducted on July 27, 2000, at the Pemiscot County Courthouse, Caruthersville, Missouri. Counsel for each party filed briefs in these appeals.
The Hearing Officer, having considered all of the competent evidence upon the whole record, and Briefs of Counsel, enters the following Decision and Order.
The following exhibits were received into evidence on behalf of Complainant.
Exhibit A – Appraisal Report of Edward Dinan, State Certified Real Estate Appraiser.
Exhibit B – Written Direct Testimony of Edward Dinan.
Respondent submitted the Written Direct Testimony of Donna Snider (Exhibit 1) with a balance sheet attached. The exhibit was excluded from evidence and was only received as an offer of proof.
FINDINGS OF FACT
1. The Hearing Officer received into evidence Commission Exhibit 1, listing and breakdown of real estate values. Tr. 9, Lines 5-9; Tr. 46, Line 5 – Tr. 47, Line 3.
2. The subject property is located at 777 E. Third Street, Caruthersville, Missouri. It is identified by parcel numbers 16521111 and 16521112. The property is assigned two parcel numbers due to computer requirements, but the property is a single tract of land. The property consists of approximately 37.5 acres of land of which approximately 19.3 acres of unprotected flood ground. The usable area is estimated at 18.2 acres. The property is improved by a one-story, with lower level mixed-use 40,000 square foot building (pavilion), two concrete gazebo structures and ancillary site improvements, including chain link fencing and asphalt paved parking. There is also an expo or convention center (a tent structure).
3. Complainant’s appraiser did not value the convention center but considered it to be personal property. The convention center will be treated as part of the real property for purposes of valuation in this appeal. The value of the convention center as determined by the Assessor was $113,280. Commission Exhibit 1.
4. Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment and establish the true value in money for the subject land and all improvements other than the convention center as of January 1, 1999, to be $5,000,000.
5. The value of the subject property is $5,113,280, assessed value of $1,636,250.
CONCLUSIONS OF LAW
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.
Board of Equalization Presumption
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).
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. 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).
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, 1999. 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).
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).
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. Section 490.065, RSMo; Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350.
The only evidence of value on this record is that provided by Complainant. Mr. Dinan’s approach to value is the proper approach under the standard of value applicable to this appeal. The subject property cannot be valued in use as a casino, no more than a property improved by a McDonald’s restaurant can be valued based upon the income it produces as a McDonald’s franchise. The valuation of property in Missouri for ad valorem property taxes is based on value in exchange, not value in use.
Respondent’s position as expressed in her written direct testimony advances a valuation based upon value in use. Even if Exhibit 1 had been received into evidence it would not have been relevant, nor substantial and persuasive evidence to establish value. Casino property cannot be valued based upon the income stream of the gaming business conducted on the premises. The property to be valued consists of the land and its improvements. Its valuation must be based upon what a willing buyer and seller would pay for that property, not what a willing buyer and seller might agree as to a price for an operating casino. The taxation of gaming operations is controlled and administered under other statutes than those relating to the assessment of real property. The operating license for a casino cannot be bought and sold along with real property. Therefore, any consideration as to what the subject property might sell for with a gaming license attached is pure speculation. Furthermore, such speculation would be valuing more than the real property, it would be valuing the license.
The Dinan appraisal is both substantial and persuasive to establish value as to the subject property. The appraiser properly viewed the property as it was improved but recognized the critical factor that his task was not to appraise a gaming facility. The appraisal problem was to simply appraise the land and improvements. Implicit in Mr. Dinan’s appraisal is the assumption that the subject property will not command a purchase price as improved as high as would be expected if it were to sell as a casino. This is a proper assumption for valuing the property in exchange – the appropriate standard. Therefore, he properly valued the property relying upon commercial land sales, commercial sales comparisons and commercial lease data, rather than looking at casino sales and casino leases, if any had even been available, or casino income.
The tent convention center might be more appropriately considered to be personal property. However, for purposes of this appeal, the Hearing Officer considers it to be real property. Mr. Dinan’s omission of valuation of this item is not fatal to his appraisal. The Hearing Officer relies upon the value determined by the Assessor on this particular item to arrive at an overall value for the property.
Counsel for Respondent put forth various arguments in his Brief relative to the valuation methodology utilized by Complainant’s appraiser. Specific challenges were presented as to each of the three approaches to values and certain aspects of each. The Respondent’s arguments can be summarized as follows:
1. Complainant’s appraiser erred in not using the actual sale price of the subject parcel when it was purchased to be developed as a casino to establish land value under the cost approach.
2. Complainant’s appraiser erred in not relying only on two sales of vacant land to establish land value under the cost approach.
3. Complainant’s appraiser erred in applying depreciation to the subject improvements under the cost approach.
4. Complainant’s appraiser erred in utilizing retail lease properties (strip malls), instead of “entertainment complexes” under the income approach.
5. Complainant’s appraiser erred in utilizing comparable sales of retail/office space properties under the sales comparison approach.
Cost Approach – Land Purchase
Counsel for Respondent criticizes the failure of Mr. Dinan to utilize the actual sale price of the subject land when it was purchased by Complainant in 1995. Counsel for Respondent asserts in his Brief that the sale price at that time was $5.9 million. However, no evidence was presented which would establish what the sale price for the subject land was when Complainant originally purchased it. Respondent’s Counsel questioned relative to this amount, however, it was not established what the actual purchase price was.
The original purchase price was clearly tied to the establishment of a casino on the subject site. Without the existence of a casino license in Complainant it is highly unlikely that the subject land would have commanded a $5.9 million purchase price in 1995, assuming that was in fact the land value. The casino license was clearly a critical factor relating to the purchase of the subject land and the price paid for same.
Without the possession of the casino license, it would be pure speculation and conjecture that the subject property would have commanded a $5.9 million price in 1995. Counsel for Respondent made no effort during cross-examination to demonstrate that in point of fact river front land in Pemiscot County was selling at the same per acre rate, without a casino license being possessed by the purchaser, as that paid by Complainant for the subject site. Neither did Respondent come forward it her case in chief to so establish what the 1995 sale price actually was or that such price was reflective of land being purchased for non-casino development. The appraiser was correct in not giving consideration to the purchase of the subject land in 1995 by Complainant. Respondent’s argument is not well taken.
Cost Approach – Comparable Sales
Counsel for Respondent points out the sale of an undeveloped tract adjacent to the subject that sold for $93,750 per acre (Vacant Land Sale # 3). Mr. Dinan used this sale but made what appear to have been appropriate adjustments, the basis of which were explained in his appraisal. Likewise, Counsel for Respondent argues that one other sale of unimproved land in St. Louis County which sold for $85,505 per acre (Vacant Land Sale # 5). Counsel, in effect, argues that Mr. Dinan should have used these two sales exclusively without any adjustments and this would have produced a land value of approximately $3.33 million.
Counsel cites to no evidence on the record which would provide a basis for whatever adjustments should have been made to each of these sales that would produce a per acre value that would result in the asserted $3.33 million value. Apparently, Counsel simply made his own adjustments to each of these sales. However, adjustments such as would be required to be made to these land sales must be made by someone with the training and experience to make such adjustments. The only evidence from an expert on this record relative to calculating the vacant land value for the subject came from Mr. Dinan. That evidence will not support Mr. Sokoloff’s (or Respondent’s) unknown adjustments or opinion. The fact that there is a difference of opinion between Counsel for Respondent/Respondent and the Complainant’s expert relative to land value does not establish an error on the part of the appraiser in valuing the land.
Mr. Dinan evaluated six different land sales to arrive at a land value for his cost approach. Four of those land sales were of properties located within Pemiscot County, one was in St. Louis County and one on the Missouri River in Buchanan County. Each sale was adjusted in order to account for differences between the comparable and the subject. Each of the sale properties represent properties which are appropriate to be utilized to establish land value under the cost approach in this particular appraisal problem. The six sales gave a much superior valuation for land value under a cost approach than simply relying on the two sales with the highest per acre value as advocated by Respondent. Three of Mr. Dinan’s comparables were impacted by casinos. The other three provided good indications of land values in Pemiscot County not directly influenced by the subject casino. This mix of land sales provides substantial and persuasive evidence to support the land valuation determined by the appraiser. Respondent’s argument is not well taken.
Cost Approach – Depreciation
The argument advanced by Respondent on this point concerns the physical depreciation for the building and site improvements and external obsolescence factors employed by Mr. Dinan in his cost approach. Respondent’s argument on this point is that these adjustments were arbitrary and without any support. Counsel for Respondent made no cross-examination on these specific points. Neither was any evidence presented on behalf of Respondent which would rebut the assumptions and conclusions made by Complainant’s expert.
Mr. Dinan estimated a normal economic life of 50 years for the subject building, with the effective age being five years. The assumption of the expert of a 10% or approximately 2.5% per year for physical depreciation of the subject building is certainly reasonable. Mr. Dinan then depreciated the site improvements, parking lot, etc., at a higher depreciation since site improvements typically have a shorter life. This is a reasonable assumption to be made by the expert, based upon his experience. In like manner, the appraiser’s allocation of a 5% external or economic obsolescence due to the subject improvement being located in a small community is not unreasonable.
Respondent essentially argues that no depreciation should be allowed under the cost approach for any reason. This is not persuasive, since the subject building and site improvements were approximately four years old on tax date. Furthermore, the subject improvements are of a general nature that have not been shown to have been generally developed in the subject county, nor in other communities in Missouri of a similar size. If such were the case, Respondent should have come forward with evidence on this record to establish such a case to rebut the conclusion of Complainant’s appraiser on the matter of external depreciation. In addition, given that the appraiser did not place primary reliance, or any real weight on the cost approach Respondent’s arguments are not persuasive.
Income Approach – Retail Leases
Respondent next argues that Mr. Dinan’s use of retail lease data to develop his income approach was not appropriate because he found the highest and best use of the property to be an “entertainment complex,” as currently developed. Respondent’s argument ignores that Complainant’s appraiser performed his analysis and determined that the subject improvements provide a contributory value to the property. Furthermore, Respondent’s argument that there are numerous locations in Missouri being utilized for entertainment complexes ignores the critical element of whether such facilities are actually leased.
It is clear from Mr. Dinan’s appraisal report that in performing his income approach he properly considered the rental income stream that the subject property could command for a purpose other than a casino. There is no evidence that casino facilities are leased to casino operators. Mr. Dinan’s testimony was that these facilities don’t rent, they are owner occupied. No evidence was presented by Respondent to rebut this conclusion of Mr. Dinan.
The fact that there exist theaters and amusement parks in Branson, or an amusement park in Pacific, or other entertainment facilities at Lake Ozark, as argued by Counsel for Respondent, does not establish that these facilities are facilities that have a rental stream of income from which an income approach to value could be developed. It would have been improper for Mr. Dinan to have developed his income approach based on the ticket sales generated by an owner occupied theater or amusement park in Branson, Pacific or Lake Ozark. In like manner, Mr. Dinan was correct in not considering the casino stream of income for to do so would be to value the business and not the income stream which would be produced from the lease of the subject property.
The use of retail “strip mall” type facilities to develop the income approach was appropriate, since in the opinion of the appraiser this would be the type of rental use to which the subject building and supporting improvements would most likely be put in the absence of the casino. The six comparable rental properties utilized by Mr. Dinan were appropriate for arriving at the data necessary to conduct a proper income approach. There is no data to establish a rental rate and rental expenses to develop a stream of income for the lease of a facility such as the subject for use as a casino. Therefore, the appraiser did not err in not employing information which does not exist and cannot be developed from the market. Respondent’s argument is not well taken.
Sale Comparison Approach – Retail/Office Comparables
Respondent finally argues that the comparable sales relied upon by Complainant’s appraiser were also inappropriate because they were all used for retail/office space and were wholly different in character from the subject property. Respondent’s argument on this point suffers from the same difficulties as the argument against the income approach. Respondent’s insistence on wanting to value the subject property only as a casino, when the casino cannot be sold, results in the argument being fatally flawed.
Mr. Dinan appropriately determined that since the subject property cannot be bought and sold as a casino, it would be bought and sold for an alternative commercial use. That use would be for some type of retail, strip mall, office use. Therefore, he looked to sales of such properties to arrive at the necessary supporting information for the sales comparison approach. If, in fact, properties housing the land based support facilities for casino’s were bought and sold for further use as a casino, then it would be been appropriate to consider such sales. Clearly there are no such sales. Accordingly, the appraiser could not err in not relying on data which does not exist and cannot be developed. Respondent’s argument is not well taken.
Highest and Best Use Analysis
The highest and best use analysis presented by Complainant’s appraiser is couched in and contains typical and generally appropriate boilerplate language usually found in real estate appraisals. Mr. Dinan could have made a stronger presentation in explaining how he was dealing with the fact that he was appraising a special use, whose real estate cannot be conveyed for that special use because a gaming license is not transferable.
The Hearing Officer understands that as the property is currently developed with the gaming license, the highest and best use (most economically and legally permissible use) is, of course, the operation of a casino. Take away the gaming license and the subject property’s highest and best use can no longer legally be for a casino. Since the gaming license cannot be sold, there is not a market for the casino real property, as such, for a casino.
The Hearing Officer further understands Mr. Dinan’s analysis to be that naturally, with a gaming license, the property is being utilized to its highest and best use. Without the gaming license, Mr. Dinan values the property as if it were to be utilized for the next most profitable commercial activity. The current improvements provide a contributory value and would still provide a contributory value if not being used for a casino, but for some other alternative use. While the Hearing Officer would have liked to have seen the appraiser develop this in a stronger fashion, his failure to make such a complete and detailed analysis for this special use property is certainly not fatal to his valuation so that the appraisal should be rejected. The gaming option for use of the property which provides the current highest financial return does not have a market, because the license cannot be sold, so Mr. Dinan valued the real property based upon the highest and best use which would be legally available to the property otherwise. This was certainly appropriate.
Complainant presented evidence in the form of an expert opinion to establish value. Notwithstanding the arguments made by Respondent and her Counsel, Complainant’s evidence was substantial and persuasive to establish value. Complainant’s appraiser provide an appraisal utilizing appropriate methodology upon which an opinion of value could be made.
Each appeal before the Commission must be determined based on the evidentiary record developed in a given case. The evidentiary record in this appeal, presented by Complainant, was sufficient to establish the value of the real property. This Decision should not be considered as establishing any hard and fast methodology for valuing real property utilized for casinos. It may be that market data could be presented in other cases which would demonstrate the value a prospective purchaser would pay for the real property contingent upon the granting of a gaming license. Market data might also be presented which would show what an entity in possession of a gaming license would pay for the real property. A methodology whereby an actual sale of a gaming operation, with appropriate adjustments to arrive at the value for just the real property might be presented. A valuation of the going concern, with appropriate adjustments to account for non-real property items and factors, might be developed. Such evidence could demonstrate and establish values different than those determined by this record. This record did not so establish such information upon which a value other than that proffered by Complainant’s expert could be found.
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for Pemiscot County for the subject tax day is SET ASIDE.
The assessed value for the subject property in appeal 99-76500 for tax years 1999 and 2000 is set at $818,125.
The assessed value for the subject property in appeal 99-76501 for tax years 1999 and 2000 is set at $818,125.
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 of Pemiscot 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 February 1, 2001.
STATE TAX COMMISSION OF MISSOURI
W. B. Tichenor
Chief Hearing Officer
DENYING APPLICATION FOR REVIEW
OF HEARING OFFICER DECISION
On February 1, 2001, Chief Hearing Officer, W. B. Tichenor, entered his Decision and Order (Decision) setting aside the assessments by the Pemiscot County Board of Equalization and finding value for the subject property.
Respondent timely filed her Application for Review of the Decision stating six grounds or points as the basis for her Application. Counsel for Complainant timely filed his Response to Application for Review.
The Commission upon review of the record and the Decision finds the points put forth by Respondent to be not well taken.
The Decision correctly addresses the valuation issue in these appeals. The Commission sees no value to be gained from restating the Hearing Officer’s determinations, conclusions and reasoning as they relate to each of the points asserted. There is competent and substantial evidence to establish a sufficient foundation for the analysis performed by the Hearing Officer in reaching his conclusion of value. 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 relative to any of the points raised by Respondent. 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).
The Commission upon review of the record and Decision in these appeals, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified. Accordingly, the Decision is affirmed.
Judicial review of this Order may be had in the manner provided in Sections 138.470 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.
SO ORDERED June 25, 2001.
STATE TAX COMMISSION OF MISSOURI
Sam D. Leake, Chairman
Bruce E. Davis, Commissioner
Jennifer Tidwell, Commissioner