STATE TAX COMMISSION OF MISSOURI
|BOONE VALLEY GOLF CLUB, INC.,||)|
|)||Appeal No. 17-32761|
|Complainant,||)||Parcel/locator No. A911000003|
|SCOTT SHIPMAN, ASSESSOR,
ST. CHARLES COUNTY, MISSOURI,
DECISION AND ORDER
The assessment made by the Board of Equalization of St. Charles County (BOE) is AFFIRMED. Complainant Boone Valley Golf Club, Inc., (Complainant) did not present substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE.
Complainant appeared by Counsel Robert J. Droney.
Respondent Scott Shipman, Assessor, St. Charles County, Missouri, (Respondent) appeared by Counsel Amanda M. Jennings.
Case heard and decided by Senior Hearing Officer Amy S. Westermann (Hearing Officer).
Complainant appealed on the grounds of overvaluation and misclassification. Respondent initially set the true value in money (TVM) of the subject property, as a combination of agricultural, commercial, and residential, at $5,823,576. The BOE valued the property, as a combination of agricultural, commercial, and residential, at $5,823,576. The State Tax Commission (STC) takes this appeal to determine the TVM and the classification of the subject property as of January 1, 2017.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
FINDINGS OF FACT
- Jurisdiction over this appeal is proper. Complainant timely appealed to the STC.
- Evidentiary Hearing. The issues of overvaluation and misclassification were presented at an evidentiary hearing held on August 16, 2018, at the St. Charles County Government Administration Building, 201 N. Second Street, St. Charles, Missouri.
- Identification of Subject Property. The subject property is identified by parcel/locator number A911000003. It is further identified as 1319 Schluersburg Road, St. Charles, Missouri. (Exhibit A; Exhibit1)
- Description of Subject Property. The subject property consists of 190.20 acres (approximately 8,285,112 square feet) of land improved by a private, 18-hole golf course and driving range constructed in 1992-1993. The land also is improved by a one-story, 8,626 square foot clubhouse; a 4,224 square foot cart storage area; an 8,651 square foot maintenance building; and two cottages containing 9,941 square feet. The subject property includes an additional 227.203 acres (approximately 9,896,967 square feet) of excess land. (Exhibit A; Exhibit 1) The subject property is operated as a private golf course facility that restricts its membership. (Exhibit A) The subject property is in above-average condition. (Exhibit A; Exhibit 1)
- Respondent set a TVM for the subject property of $5,823,576, as a combination of agricultural, commercial, and residential, as of January 1, 2017.
- Board of Equalization. The BOE set a TVM for the subject property of $5,823,576, as a combination of agricultural, commercial, and residential, as of January 1, 2017.
- Complainant’s Evidence. In its Complaint for Review filed with the STC, Complainant proposed a total TVM of $4,500,000 as residential property. In its exhibits and at the Evidentiary Hearing, Complainant opined that the total TVM of the subject property as of January 1, 2017, was $3,670,000 as residential property. To support its opinion of TVM, Complainant offered as evidence the following exhibits:
|Exhibit A||Appraisal Report of William H. Heyden||Admitted|
|Exhibit B||Written Direct Testimony (WDT) of William H. Heyden||Admitted|
|Exhibit C||WDT of Bryan McMurray||Admitted|
|Exhibit D||2017 Personal Property List Payment Receipt||Admitted|
|Exhibit E||2016 Appraisal Report of Stephen R. Hughes||Admitted|
|Valuing Country Clubs for Tax Purposes, Stephen R. Hughes (2001)||Admitted|
|Exhibit G||Appraising Golf Courses for Ad Valorem Tax Purposes, Stephen R. Hughes (1993)||Admitted|
William H. Heyden (Heyden) testified on behalf of Complainant. Heyden is a commercial real estate appraiser, real estate consultant, and owner of WH Heyden & Associates. (Exhibit B) Heyden has been providing valuations for commercial real estate since 1983. Heyden holds state certified general licenses for appraisal in Missouri, Kansas, and Illinois; is a member of the American Institute of Real Estate Appraisers; is designated MAI; is a past member of the Admissions Committee for the St. Louis Chapter of the Appraisal Institute and of the Regional Ethics Committee of the Appraisal Institute. (Id.) Heyden’s primary focus as an appraiser has been to provide appraisal reports and market studies for commercial properties, including regional malls, bulk and office warehouses, strip retail centers, suburban and CBD office buildings and apartments, and golf courses. (Id.)
Heyden testified that he researched the subject property and prepared his appraisal report, Exhibit A, in conformity with the Uniform Standards of Professional Practice (USPAP). Heyden personally inspected the subject property, reviewed comparable properties, and relied upon market data that existed up to the valuation date, January 1, 2017, to conclude a value of $2,650,000 for the golf course portion and $1,020,000 for the excess land. (Exhibit B)
Heyden further testified that a golf course operates as a going concern, meaning that the real property and the business operations of the golf course are sold as a unit. The sale of the real property usually includes furniture, fixtures, equipment, vehicles, supplies, merchandise, and other items of personal property that are used as part of the golf course operations. (Id.) The sale of the real property also generally includes certain intangible property, such as trademarks/intellectual property, membership agreements, reputation, and business good will. (Id.) Heyden deducted the “exact amount of the personal property as assessed by St. Charles County, Missouri, for tax year 2017 . . . the most objective way to make such deduction.” (Id.) The total value of the personal property deducted, $714,240, was assessed at $238,080. (Exhibits A and D) Heyden testified that “[g]olf courses tend to have significant value in their reputation . . . the golf course in the management and marketing. However, the value of these intangible assets tend to be subjective. Therefore, I did not make any specific deductions from the going concern value of the Boone Valley Golf Club.” (Exhibit B) He derived the numbers from the subject property’s historical revenues and expenses. In determining how to allocate the percentage of value between residential and commercial property, Heyden testified that the “rule” is that the golf course is considered residential and the clubhouse, where merchandise, food, and beverage is sold, is considered commercial. Heyden testified that the income is allocated according to the use, commercial versus residential, of each area. Heyden testified that the subject property’s excess land would be classified as agricultural.
On cross examination and in conjunction with Respondent’s Exhibit 3, Heyden testified that he had forfeited his appraisal license in Nebraska on a finding that Heyden violated USPAP in appraising property there. Heyden testified that he does not recall the violations. Heyden testified that he was placed on probation with conditions, which he did not complete; rather, he forfeited his Nebraska appraisal license. Heyden recognized Respondent’s Exhibit 3, which stated that he had violated USPAP in the appraisal of two commercial properties in 2000 and which set forth the specific requirements to successfully complete probation. (Exhibit 3)
On further cross examination, Heyden testified that he did not have any specific training for appraising golf courses; that the national golf market impacts the local scene; that, overall, the golf market has moved in a positive direction since 2016; that he reviewed the geographically closest competitors; that he spoke with the owners and/or managers of the comparable properties about one year prior to the appraisal report; that he estimated the net operating income of the comparable properties from data from other appraisers because one would not have much luck getting the information from the comparables themselves. Heyden testified that St. Albans was most comparable to the subject property. Heyden testified that the number of projected rounds per year, 26,230, was a subjective estimate based on his experience. Heyden testified that the subject property operates at a loss, so he tried to stabilize expenses for purposes of the appraisal. Heyden testified that he used a capitalization rate of 9%
Bryan McMurray (McMurray) testified on behalf of Complainant. McMurray has been the PGA General Manager of the subject property since 2011. (Exhibit C) McMurray testified that the subject property is a private, non-equity golf club, which means that the members do not own any interest in the real estate or the golf club property or share in either the profits or losses in the operations of the club. (Id.) The subject property is owned by Boone Valley Golf Club, LLC. (Id.)
On cross examination, McMurray testified that a $3,000,000 irrigation system had been installed. McMurray testified that the subject property was not encumbered by any loans for the new irrigation system. McMurray testified that a valuation of $2.6 million was “very reasonable” in comparison to other golf courses. McMurray testified that the size and equipment of the kitchen was limited in its ability to produce a volume of food. McMurray testified that the kitchen serves breakfast, lunch, and dinner to members, and meal service typically ranges from eight to 20 individuals.
On re-direct examination, McMurray testified that the subject property’s revenues do not cover its expenses. The shortfalls are paid by the owner.
The Appraisal Report
The appraisal report, Exhibit A, noted that the subject property has operated at a deficit due to the low number of members. Exhibit A expanded the subject property’s membership for purposes of the appraisal and estimated the number of stabilized rounds, forecasted green fees based upon a comparison to similar golf course facilities, and projected expenses based upon a comparison to similar golf course developments in the same geographical area. (Id.)
The appraisal report concluded that the highest and best use of the excess land was its current use as a buffer for the golf course. The appraisal report concluded that the highest and best use of the golf course and improvements was their current use as a golf course with amenities. (Exhibit A) The appraisal report did not develop the cost approach because it is “rarely utilized by investors in the purchase of income-producing properties.”
With regard to the subject property’s golf course and improvements, the appraisal report utilized the direct capitalization method because it would be the technique likely employed by a potential purchaser and because the membership of the golf course and improvements is restricted, limiting the club from operating at membership capacity. The appraisal report forecasted a stabilized membership of 430 and a stabilized number of rounds of golf at 26,230. The appraisal report analyzed the income and expenses of four comparable properties and used the subject property’s historic income and expense information to make the following determinations:
|Direct Capitalization Pro Forma|
|Other Golf Income||$6.00||$157,380|
|Food & Beverage||$65.00||$1,704,950|
|Total Gross Revenue||$5,051,765|
|Less: Cost of Sales|
|Food & Beverage||$681,980|
|Pro Shop Merchandise||$183,610|
|Total Cost of Sales||$865,590|
|Golf Operations – Other||$72,130||$2.75|
|Course Maintenance – Other||$669,790||$25.54|
|Food & Beverage – Other||$104,920||$4.00|
|G&A – Other||$236,070||$9.00|
|Management Fee @5%||$209,309||$7.98|
|Total Operating Expenses||$3,835,554||$146.23|
|Net Operating Income (NOI)||$350,631|
Using the percentage division of residential and commercial assessments as reported by Respondent’s office, the appraisal report allocated the NOI as $136,628 commercial and $214,003 residential. The appraisal report determined a capitalization rate of 9.00% for the subject property based on rates from comparable properties, the Band of Investment method, and the Lenders Capitalization Method. The appraisal report determined an effective tax rate of 10.9935% for commercial property and 10.0829% for residential property. An adjusted overall rate of 10.9935% was applied to the commercial NOI and an adjusted overall rate of 10.0829% was applied to the residential NOI to conclude a combined value of $3,365,242. After subtracting the value of the personal property, $714,240, the appraiser opined the TVM of the golf course and improvements was $2,651,002 (rounded to $2,650,000).
Sales Comparison Approach
With regard to the subject property’s excess land, the appraisal report analyzed five comparable properties that had sold between September 2015 and October 2017. (Exhibit A) The sale prices of the comparables ranged from $177,188 to $1,490,000, which translated to $5,037 to $9,156 per acre. (Id.) After market-based adjustments for market conditions/time, location, size, topography, flood plain, access/visibility, the adjusted sale prices ranged from $3,626 to $6,958 per acre. (Id.) The appraisal report placed the subject property’s excess land in the lower end of the range at $4,500 per acre or $1,022,414 rounded to $1,020,000. (Id.)
With regard to the subject property’s golf course and improvements, the appraisal report analyzed six comparable properties that had sold between January 2013 and July 2016. (Exhibit A) The sale prices of the comparables ranged from $1,874,600 to $3,700,000, which translated to $6,679 to $23,418 per acre or $72,222 to 205,556 per hole. (Id.) Five of the comparables were located in Kansas; one of the comparables was located in Missouri. All of the comparables in Kansas were private golf clubs with a minimum of 18 holes, a clubhouse, and additional amenities, such as a pool, tennis court, or driving range. (Id.) The comparable in Missouri was a public golf course with 27 holes, a clubhouse, and no additional amenities. (Id.) After market-based adjustments for conditions of sale, location, and physical characteristics, the adjusted sale prices ranged from $87,389 to $168,350 per hole. (Id.) The appraisal report estimated the subject property’s golf course and improvements in the higher end of the range at $2,700,000 or $150,000 per hole. (Id.)
With regard to the subject property’s excess land, the appraisal report placed more weight on the sales comparison approach and concluded a TVM of $1,020,000. With regard to the subject property’s golf course and improvements, the appraisal report placed more weight on the income approach and concluded a TVM of $2,650,000. (Exhibit A) Complainant opined that its evidence indicated a total TVM of $3,670,000.
- Respondent’s Evidence. Respondent opined the total TVM of the subject property as of January 1, 2017, was $6,000,000. To support his opinion of TVM, Respondent offered as evidence the following exhibits:
|Exhibit 1||WDT of Stephen R. Hughes||Admitted|
|Exhibit 2||Appraisal Report of Stephen R. Hughes||Admitted|
|Exhibit 3||Nebraska Real Estate Appraiser Board Consent Agreement, In the Matter of William H. Heyden||Admitted|
Stephen R. Hughes (Hughes) testified on behalf of Respondent. Hughes is a commercial real estate appraiser and president of Hughes & Company, Inc. (Exhibit 2) Hughes has been appraising property for 33 years. Hughes is a state certified real estate appraiser in Missouri and Kansas; is a member of the Society of Golf Appraisers; is designated MAI; and is a member of the National Golf Course Owners Association, the Golf Club of Kansas, the National Golf Foundation, and a past member of the Kansas Real Estate Appraisal Board. (Id.) Hughes has appraised over 300 golf courses and country clubs. (Exhibit 1) He has over 100 hours of golf valuation specific continuing education. (Id.) He has professional experience in golf course development, feasibility studies, and golf course brokerage. (Id.) He was commissioned by the International Association of Assessing Officers to write a seminar on Golf Course Valuation for Tax Purposes. (Id.) Hughes specializes in appraising golf courses, residential subdivisions, marinas, conservation easements, asset allocations, and special use properties. (Id.)
Hughes testified that he researched the subject property and prepared his appraisal report, Exhibit 2, in conformity with USPAP. Hughes obtained information about the subject property through a personal inspection and by speaking with the club’s ownership, Respondent’s office, area golf operators, and real estate professionals. Hughes also conducted Internet research and golf-specific sources of market research. Hughes had previously appraised the property in 2013 and 2016 for the owner’s information. (Exhibit 1) Hughes described the subject property as “upscale,” “operated as an exclusive retreat for members,” and host of “national tournaments and local charity events.” (Id.) Hughes testified that the subject property is “rated the #1 course in the state of Missouri by Golf Digest Magazine.” (Id.)
Hughes testified that he considered the income approach and the sales comparison approach and relied on the income approach to conclude the subject property’s total value was $6,000,000 as of January 1, 2017. (Exhibit 1) Hughes testified that he determined an overall capitalization rate and an adjusted capitalization rate from Society of Golf Appraisers investment surveys and from actual sales of golf properties. (Id.) Hughes testified that special factors considered were converting going concern value to real estate only for ad valorem tax value, adding value for excess land, and making assumptions for property conditions as of the tax date. (Id.)
On cross examination, in conjunction with Complainant’s Exhibit E, Hughes’ 2016 appraisal report, Hughes testified that he made changes from the 2016 appraisal to the 2017 appraisal based on research of a very similar golf club. Hughes testified that the gross rent multiplier (GRM) from the 2016 appraisal was 1.7 or 1.8 while the GRM from the 2017 appraisal was 1.6 and that the net operating income increased from the 2016 appraisal to the 2017 appraisal. Hughes testified that he did not intentionally try to make the numbers “line up.” The 2016 appraisal concluded that the subject property’s total value as a going concern was $7,000,000 as of July 2, 2016. (Exhibit E) The 2016 appraisal concluded a value of $6,000,000 for the golf course and improvements and a value of $1,000,000 for the excess land. (Id.)
On re-direct examination, Hughes testified that the subject property is intentionally under-utilized and over improved. Hughes testified that he learned of additional market data between the 2016 appraisal and the second appraisal for tax year 2017 that resulted in the conclusions of value.
The Appraisal Report
The appraisal report, Exhibit 2, provided a comprehensive discussion of the financial aspects of the golfing industry in the United States based on research from the National Sporting Goods Association, the National Golf Foundation, and golf-related data compiled by the service Pellucid, Inc., and based on interviews with representatives of the facilities named in the report.
The appraisal report concluded that the highest and best use of the excess land would be residential home sites, agriculture, or construction of a quality golf course. The appraisal report concluded that the highest and best use of the golf course and improvements was their current use as a private club. (Exhibit 2) The appraisal report did not develop the cost approach because “a prudent prospective investor would not utilize [the approach] to provide a reliable indication of the subject’s current market value.” (Id.)
With regard to the subject property’s golf course and improvements, the appraisal report utilized the market rent method and the traditional income approach.
The market rent method values only the land and improvements of a going concern by estimating lease terms of a market-rate triple net lease with no adjustment for personal property or intangible value of the going-concern. (Exhibit 2) Using market data, the appraisal report forecasted a stabilized number of rounds of golf at 22,500, a combined market rent of $447,188, and administrative expenses of $4,472, concluding rent to capitalize of $442,716. Relying on investor survey data and market data, the appraisal report determined a leased fee capitalization rate of 9.25% to conclude an indicated value of $4,786,115 (rounded to $4,800,000). (Exhibit 2)
Using the traditional income approach, the appraisal report analyzed three years of the subject property’s historic income and expense information plus the 2017 budget to conclude a stable estimate of total members of 280 and a stable estimate of total rounds annually of 12,000. (Exhibit 2) The appraisal report determined that the total revenue generated by membership dues/assessments, pro-shop and cart fees, initiation fees, food and beverage, merchandise, and rental of the cottages totaled $301.00 per round ($3,612,000 annually). (Id.) After deducting expenses in the form of their percentage of total revenue and “adding back” real estate taxes, the appraisal report estimated NOI of $511,472. After factoring an adjusted capitalization rate of 11.02% (1.27% tax capitalization rate + 9.75% real estate capitalization rate) and deducting $1,000,000 for personal property, the appraiser opined a value of $3,600,000. (Id.)
In summary, the appraisal report reached an indication of value of $4,800,000 using the market rent method of the income approach and reached an indication of value of $3,600,000 using the traditional income approach. With the addition of the indication of value of the excess land of $1,000,000, (See Sales Comparison Approach, below) the indication of values under the income approach were $4,600,000 and $5,800,000.
Sales Comparison Approach
With regard to the subject property’s excess land, the appraisal report analyzed five comparable properties that were located within 4 miles or less of the subject property and that had sold between September 2015 and June 2016. (Exhibit 2) The sale prices of the comparables ranged from $165,000 to $1,372,532, which translated to $4,808 to $8,653 per acre. (Id.) After market-based adjustments for location, size, “usability,” and existing improvements, the adjusted sale prices ranged from $3,009 to $5,403 per acre. (Id.) The appraisal report placed the subject property’s excess land in the upper end of the range at $4,500 per acre or $1,022,310 rounded to $1,020,000. (Id.)
With regard to the subject property’s golf course and improvements, the appraisal report analyzed five comparable properties that had sold between September 2010 and January 2015. (Exhibit 1) The “going concern” sale prices of the comparables ranged from $3,400,000 to $10,200,000. The “real estate allocation” sale prices of the comparables ranged from $3,029,657 to $9,700,000, which translated to $168,314 to $444,444 per hole. (Id.) Four of the comparables were located outside Missouri in metropolitan areas; one of the comparables was located in Missouri near the subject property. Three of the comparables were private; two of the comparables were private non-equity like the subject property. All of the comparable properties had a minimum of 18 holes and a clubhouse. Four of the comparable properties also had additional amenities, such as a pool and tennis courts. (Id.) After market-based adjustments for conditions of sale, location, and physical characteristics, the adjusted sale prices ranged from $3,181,140 to $6,565,000 or $176,730 to $364,722 per hole. (Id.) The appraisal report relied heavily on Comparable Nos. 1, 2, and 5 and estimated the subject property’s golf course and improvements in the higher end of the range at $5,500,000 or $305,000 per hole. (Id.) The appraisal report then concluded a GRM of 1.66 based on nationwide research of similar golf courses, resulting in a value of $6,000,000. After subtracting $1,000,000 for the value of personal property, the GRM method indicated a TVM of $5,000,000. (Id.)
With regard to the subject property’s excess land, the appraisal report utilized the sales comparison approach and concluded a TVM of $1,000,000. With regard to the subject property’s golf course and improvements, the appraisal report placed more weight on the sales comparison approach utilizing the GRM method and concluded a TVM of $5,000,000. (Exhibit 2) The appraiser concluded the subject property’s total TVM was $6,000,000 as of January 1, 2017. (Id.)
- Presumption of Correct Assessment Not Rebutted by Complainant – True Market Value Established. Complainant did not present substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE. Respondent presented substantial and persuasive evidence to rebut the presumption of correct valuation by the BOE and to establish the total TVM of the subject property as of January 1, 2017, was $6,000,000. However, the BOE’s valuation of the subject property, $5,823,576, will not be increased, pursuant to Section 138.060.
The STC has jurisdiction to hear this appeal and correct any assessment, which is shown to be unlawful, unfair, arbitrary, or capricious, including the application of any abatement. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the BOE, and correcting any assessment that is unlawful, unfair, improper, arbitrary, or capricious. Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4.
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. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. The constitutional mandate is to find the true value in money for the property under appeal. By statute, real property and tangible personal property are assessed at set percentages of true value in money: residential property at 19%; commercial property at 32%; and agricultural property at 12%. Section 137.115.5.
Board Presumption and Computer-Assisted Presumption
There exists a presumption of correct assessment by the BOE. As will be addressed below in the section describing Respondent’s Burden of Proof, there exists by statutory mandate a presumption that the assessor’s original valuation was made by a computer, computer-assisted method, or a computer program – this is known as the computer-assisted presumption. These two presumptions operate with regard to the parties in different ways. The BOE presumption operates in every case to require the taxpayer to present evidence to rebut it. If Respondent is seeking to prove a value different than that set by the BOE, then it also would be applicable to the Respondent. The computer-assisted presumption only comes into play if the BOE lowered the value of the assessor and Respondent is seeking to sustain the original assessment and it has not been shown that the assessor’s valuation was not the result of a computer assisted method. The BOE’s valuation is assumed to be an independent valuation.
The computer-assisted presumption can only come into play in those instances where Respondent is seeking to have the valuation of the subject property returned to the assessor’s original valuation. If in a given appeal the Respondent is offering evidence that would establish a value less than the original valuation, then the computer-assisted presumption is not applicable to that appeal. Even if the BOE has reduced the valuation and Respondent’s evidence is offered to increase the value, but not to the level of the original valuation, the computer-assisted presumption does not come into play.
If the BOE sustained the valuation of the assessor, such does not negate the fact that the BOE presumption remains operative as to evidence which is presented by the taxpayer and Respondent. The computer-assisted presumption only comes into play if the BOE lowered the value of the Assessor and Respondent is seeking to sustain the original assessment and it has not been shown that the Assessor’s valuation was not the result of a computer assisted method. The Board valuation is assumed to be an independent valuation.
In the present appeal, the BOE sustained the initial valuation of Respondent. Both Complainant and Respondent are seeking to change the BOE’s assessment; therefore, the BOE presumption applies to both Complainant and Respondent.
Complainant’s Burden of Proof
To obtain a reduction in assessed valuation based upon an alleged overvaluation, the Complainant must prove the true value in money of the subject property on the subject tax day. Hermel, Inc., v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978). True value in money is defined as the price that the subject property would bring when offered for sale by one willing but not obligated to sell it and bought by one willing or desirous to purchase but not compelled to do so. Rinehart v. Bateman, 363 S.W.3d 357, 365 (Mo. App. W.D. 2012); Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008); Greene County v. Hermel, Inc., 511 S.W.2d 762, 771 (Mo. 1974). True value in money is defined in terms of value in exchange and not in terms of value in use. Stephen & Stephen Properties, Inc. v. State Tax Commission, 499 S.W.2d 798, 801-803 (Mo. 1973). In sum, true value in money is the fair market value of the subject property on the valuation date. Hermel, Inc., 564 S.W.2d at 897.
“’True value’ is never an absolute figure, but is merely an estimate of the fair market value on the valuation date.” Drury Chesterfield, Inc., v. Muehlheausler, 347 S.W.3d 107, 112 (Mo. App. E.D. 2011), citing St. Joe Minerals Corp. v. State Tax Comm’n of Mo., 854 S.W.2d 526, 529 (Mo. App. E.D. 1993). “Fair market value typically is defined as the price which the property would bring when offered for sale by a willing seller who is not obligated to sell, and purchased by a willing buyer who is not compelled to buy.” Drury Chesterfield, Inc., 347 S.W.3d at 112 (quotation omitted).
A presumption exists that the assessed value fixed by the BOE is correct. Rinehart, 363 S.W.3d at 367; Cohen, 251 S.W.3d at 348; Hermel, Inc., 564 S.W.2d at 895. “Substantial and persuasive controverting evidence is required to rebut the presumption, with the burden of proof resting on the taxpayer.” Cohen, 251 S.W.3d at 348. Substantial evidence can be defined as such relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is evidence that has sufficient weight and probative value to convince the trier of fact. Cupples Hesse Corp., 329 S.W.2d at 702. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975). See also, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003).
There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a STC 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.” Westwood Partnership, 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. W.D. 1991).
Respondent’s Burden of Proof
Respondent, when advocating a value different from that determined by the BOE, must meet the same burden of proof to present substantial and persuasive evidence of the value advocated as required of the Complainant under the principles established by case law. Hermel, Inc., 564 S.W.2d at 895; Cupples-Hesse, 329 S.W.2d at 702; Brooks, 527 S.W.2d at 53.
Evidence of Increase in Value
In any case in charter counties or the City of St. Louis where the assessor presents evidence that indicates a valuation higher than the value finally determined by the assessor or the value determined by the BOE, whichever is higher, for that assessment period, such evidence will only be received for the purpose of sustaining either the assessor’s or board’s valuation and not for increasing the valuation of the property under appeal. Section 138.060.
Respondent presented the testimony and appraisal report of Hughes in an effort to rebut the presumption of correct assessment by the BOE and to establish the TVM of the subject property, as of January 1, 2017, was $6,000,000. However, the assessed value cannot be increased above the assessor’s original valuation of $5,823,576 in this particular appeal. See Section 138.060; State ex rel. Ashby Road Partners, LLC et al. v. STC and Muehlheausler, 297 S.W.3d 80, 87-88 (Mo. banc 2009).
Weight to be Given Evidence
The Hearing Officer is not bound by any single formula, rule, or method in determining true value in money and is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled. The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide. St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968).
The Hearing Officer, as the trier of fact, may consider the testimony of an expert witness and give it as much weight and credit as deemed necessary when viewed in connection with all other circumstances. Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. W.D. 1991). The Hearing Officer, as the trier of fact, is not bound by the opinions of experts but may believe all or none of the expert’s testimony or accept it in part or reject it in part. Exchange Bank of Missouri v. Gerlt, 367 S.W.3d 132, 135-36 (Mo. App. W.D. 2012).
Methods of Valuation
Proper methods of valuation and assessment of property are delegated to the Commission. It is within the purview of the Hearing Officer to determine the method of valuation to be adopted in a given case. See, Nance v. STC, 18 S.W.3d 611, 615 (Mo. App. W.D. 2000); Hermel, Inc., 564 S.W.2d at 897; Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975). 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. 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. 1974).
“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005), citing St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977). “Each valuation approach is applied with reference to a specific use of the property—its highest and best use.” Snider, 156 S.W.3d at 346-47, citing Aspenhof Corp., 789 S.W.2d at 869. “The method used depends on several variables inherent in the highest and best use of the property in question.” Snider, 156 S.W.3d at 347.
“Each method uses its own unique factors to calculate the property’s true value in money.” Id.
The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use.
When applying the income approach to valuing income producing property for ad valorem tax purposes, it is not proper to consider income derived from the business and personal property; only income derived from the land and improvements should be considered. This approach is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses, and capitalization rates can reasonably be estimated from existing market conditions. The basic steps in the income approach are as follows:
- Estimate potential gross income;
- Deduct for vacancy and collection;
- Add miscellaneous income to get the effective gross income;
- Determine operating income;
- Deduct operating expenses from the effective gross income to determine net operating net operating income before discount, recapture and taxes;
- Select the proper capitalization rate;
- Determine the appropriate capitalization procedure to be used;
- Capitalize the net operating income into an estimated property value.
Property Assessment Valuation, IAAO, page 204.
One income method is the gross income multiplier, also called the gross rent multiplier. It is the quotient of the property’s true value in money divided by the property’s gross income or rent. Property Assessment Valuation, International Association of Assessing Officers, 1977. The use of the gross rent multiplier requires assumptions. First, the highest and best use of the subject property will not change over the economic life of the property. The property will remain rented at a constant rate without any unusual vacancy factor. The subject property and the comparables are truly comparable in that they are subject to the same market influences, they are competitive with one another, they have similar operating expenses, and they have similar utility and amenities. Finally, any differences in the subject and comparables are reflected in the rents of each property. The gross rent multiplier does not allow for abnormal physical deterioration, or unusual operating expenses, or differences in zoning.
Comparable Sale Approach
“The ‘comparable sales approach’ uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties.” Id. at 348. “Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.” Id. (quotation omitted). “This approach is most appropriate when there is an active market for the type of property at issue such that sufficient data [is] available to make a comparative analysis.” Id.
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:
- Buyer and seller are typically motivated.
- Both parties are well informed and well advised, and both acting in what they consider their own best interests.
- A reasonable time is allowed for exposure in the open market.
- Payment is made in cash or its equivalent.
- Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.
- The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction.
Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; see also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.
In this appeal, both parties presented substantial evidence to support their opinions of the TVM of the subject property as of January 1, 2017. Substantial evidence is that which is relevant, adequate, and reasonably supports a conclusion. Cupples Hesse Corp., 329 S.W.2d at 702. However, upon close inspection, only Respondent’s evidence of value was substantial and persuasive. Persuasive evidence is that which causes the trier of fact to believe, more likely than not, the conclusion advocated is the correct conclusion. Id.
Complainant and Respondent presented the testimony of certified appraisers along with their appraisal reports. Respondent’s evidence was more persuasive under the circumstances. Particularly persuasive was the fact that Hughes’ opinion of TVM was based primarily on the income approach but also supported by the sales comparison approach that referenced the GRM method to account for the income produced by the food and beverage sold and the cottages rented to members of the golf club and guests. The evidence established that the subject property’s income is stable. The subject property has always operated as a not-for-profit, members-only facility. As of January 1, 2017, the subject property operated as a not-for profit, members-only facility. There was no evidence implying that the operation and use of the subject property would change in the future; rather, the evidence established that annual revenue is based primarily on membership fees and secondarily on the food and beverage sold and the cottages rented to members of the golf club and guests. The income from fees is stable even though net income is weak, i.e., the subject property operates at a deficit, which is made up by the owner.
Interestingly, Complainant’s witness McMurray testified that a $3,000,000 irrigation system had been installed on the golf course, yet the subject property was not encumbered by any loans for the new irrigation system. The cost of the irrigation system was nearly the same as Complainant’s opinion of the subject property’s TVM. Additionally, Complainant’s own Exhibit E, Hughes’ 2016 appraisal of the subject property, concluded that the subject property’s total value as a going concern was $7,000,000 as of July 2, 2016, 16.8% higher than the BOE’s determination of total TVM for purposes of ad valorem taxation as of January 1, 2017. (Exhibit E) Given that (1) the value as a going concern would include personal property and intangibles; (2) Hughes specifically deducted $1,000,000 to account for an estimate of the value of personal property and intangibles in his appraisal report; and (3) the evidence established that St. Charles County valued the personal property at $714,240 as of January 1, 2017, Hughes’ valuation of the real property for ad valorem taxation as of January 1, 2017, was reasonable.
The valuation and classifications for the subject property as determined by the BOE for the subject tax day are AFFIRMED.
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, MO 65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.
Failure to state specific facts or law upon which the application for review is based will result in summary denial. Section 138.432, RSMo
The Collector of St. Charles 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 December 26, 2018
STATE TAX COMMISSION OF MISSOURI
Amy S. Westermann
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 26th day of December, 2018, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.
 The evidence in the record focused on the issue of overvaluation. Given the lack of substantial and persuasive evidence to rebut the BOE’s determinations of the subject property’s division into classifications of agricultural, commercial, and residential property, the BOE’s determinations of classification are affirmed and will not be addressed in this Decision.