Brian & Karla Hodak v. Scott Shipman, Assessor, St. Charles County

July 31st, 2020

STATE TAX COMMISSION OF MISSOURI

BRIAN & KARLA HODAK,

Complainants,

 

)

)

)

 

Appeal No. 19-32626

Parcel No. 258540A000

 

 

 

v. )    
  )    
SCOTT SHIPMAN, ASSESSOR, )    
ST. CHARLES COUNTY, MISSOURI, )    
         Respondent. )    

 DECISION AND ORDER

Brian and Karla Hodak (Complainants) appeal a decision by the St. Charles County Board of Equalization (BOE) classifying the subject property as commercial as of January 1, 2019. The BOE determined the true value in money (TVM) of the subject property was $194,865, with an assessed value of $62,357. Complainants claim the subject property should be classified as residential property. Complainants did not produce substantial and persuasive evidence proving misclassification. The BOE decision is affirmed.

Respondent appeared through Counsel Amanda Jennings. Complainant Brian Hodak appeared pro se. Complainant Karla Hodak did not appear. The evidentiary hearing was held on March 13, 2020, at the St. Charles County Administration Building.

FINDINGS OF FACT

  1. Authority. Complainant timely filed a complaint for review of assessment.
  2. The Subject Property.  The subject property is real property located at 100 Main Street in St. Peters, Missouri. The subject property is improved with a building. As of January 1, 2019, the building was used as office space. Neither party produced evidence establishing the specifications, design, or configuration of the building.
  3. Assessment. Respondent classified the subject property as commercial property as of January 1, 2019.   Respondent determined the fair market value as of January 1, 2019, was $194,865. Respondent applied the 32% statutory assessment rate applicable to commercial property to set an assessed value of $62,357.
  4. Board of Equalization. The BOE valued the subject property at $194,865 and classified the subject property as commercial property.
  5. Complainants’ Evidence. Complainants’ sole claim is that the subject property was misclassified as commercial property and should be classified as residential property. Complainants propose an assessed value of $37,024. Dividing Complainants’ proposed assessed value by the 19% statutory assessment rate applicable to residential property yields a fair market value identical to that determined by Respondent and set by the BOE; i.e., $194,865 ($37,024/0.19 = $194,865).

Complainant Brian Hodak testified Complainants leased the subject property from Texas Tea, LLC, and used the property rent-free from December 2018 through mid-February 2019. Mr. Hodak testified that prior to January 1, 2019, both the upstairs and downstairs areas of the building were used as office space by an insurance agent, the owner of Texas Tea, LLC, and two other individuals. Complainants purchased the subject property from Texas Tea, LLC, in September 2019.

Mr. Hodak testified Complainants entertained guests at the subject property in December 2018 and hosted a Christmas party for family and friends. Prior to December 2018, Complainants moved some personal items to the subject property and obtained estimates for the installation of additional residential conveniences, such as plumbing for a third bathroom. Mr. Hodak further testified that as of January 1, 2019, Complainants’ primary residence was elsewhere and they used the subject property like a second home. Aside from moving some personal items and hosting some social gatherings at the subject property, Mr. Hodak did not further specify the nature or extent of Complainants’ use of subject property.

Mr. Hodak marked Exhibits A-I, but only offered Exhibits C-I. Exhibits C, D, E, G, and H consisted of text messages and Facebook posts excluded as inadmissible hearsay. Exhibit I was admitted into evidence. Exhibit I is a spreadsheet listing bank deposits made by Texas Tea, LLC, between January 2, 2018, and December 14, 2018. Mr. Hodak testified he had personal knowledge of the contents of the spreadsheet from his role as a tax advisor for Texas Tea, LLC. Exhibit I lists a deposit for “rent 100 Main” on October 26, 2018. Mr. Hodak testified this shows the final rent deposit resulting from commercial use of the subject property. Exhibit I does not show whether the subject property was used for commercial or residential purposes as of January 1, 2019.

  1. Respondent’s Evidence. Respondent submitted Exhibits 1-4. Respondent’s appeals coordinator testified regarding the classification of the subject property and the foundations for Exhibits 1-3.   Each exhibit was admitted into evidence.

Exhibit 1 is a general warranty deed for the subject property dated September 13, 2019. The deed shows Complainants purchased the subject property from Texas Tea, LLC. The deed was recorded on September 20, 2019.

Exhibit 2 is a certificate of value recorded on September 20, 2019, showing Complainants purchased the subject property for $200,000.

Exhibit 3 is a 2019 St. Charles County business personal property declaration addressed to “Weiss Insurance” at the subject property’s address, 100 Main Street in St. Peters, Missouri. The words “Weiss Insurance” are lined out and replaced by a handwritten notation stating “Sean K. Wood agency.” The address is not lined out or edited. The declaration is dated February 5, 2019, signed by Sean K. Wood, and reports a computer as business personal property. Exhibit 3 is a public record showing that, as of February 2019, Mr. Wood declared business personal property located at the subject property. Exhibit 3 supports a finding that as of January 1, 2019, the structure was used for a commercial, business, or trade purpose.

Exhibit 4 consists of state statutes and Commission regulations pertaining to the two-year assessment cycle, the assessment date for tangible personal property, and the classification of real property.

  1. Classification. As of January 1, 2019, the structure on the subject property was used for a commercial purpose and properly classified as commercial property. The assessed value as of January 1, 2019, was $62,357.

CONCLUSIONS OF LAW

  1. Authority

The State Tax Commission (STC) has authority to hear and decide Complainants’ appeal.  Mo. Const. art. X, sec. 14; section 138.430.1, RSMo 2000.[1]

  1. Assessment

Real property is assessed at set percentages of its “true value in money” as of January first of each odd-numbered year. Section 137.115.1. Residential real property is assessed at 19% of its “true value in money.” Section 137.115.5(1)(a). Commercial real property is assessed at 32% of its true value in money. Section 137.115.5(1)(c). In this case, the relevant date for determining classification for tax purposes is January 1, 2019. Section 137.075.

  1. Complainants’ Burden of Proof

            The taxpayer bears the burden of proof and must show by a preponderance of the evidence that the property was misclassified. Westwood P’ship v. Gogarty, 103 S.W.3d 152, 161 (Mo. App. E.D. 2003). The BOE’s classification of the subject property is presumptively correct. Rinehart v. Bateman, 363 S.W.3d 357, 367 (Mo. App. W.D. 2012). “Substantial and persuasive controverting evidence is required to rebut the presumption, with the burden of proof resting on the taxpayer.” Id. (internal quotation omitted). “Substantial evidence is that evidence which, if true, has probative force upon the issues, and from which the trier of fact can reasonably decide the case on the fact issues.” Savage v. State Tax Comm’n, 722 S.W.2d 72, 77 (Mo. banc 1986) (internal quotation omitted). Evidence is persuasive when it has “sufficient weight and probative value to convince the trier of fact.” Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. E.D. 2002); see also White v. Dir. of Revenue, 321 S.W.3d 298, 305 (Mo. banc 2010) (noting the burden of persuasion is a “party’s duty to convince the fact-finder to view the facts in a way that favors that party”).

  1. Evidence

The hearing officer is the finder of fact and determines both the credibility and weight of the evidence. Kelly v. Missouri Dep’t of Soc. Servs., Family Support Div., 456 S.W.3d 107, 111 (Mo. App. W.D. 2015); Stone v. Missouri Dep’t of Health & Senior Servs., 350 S.W.3d 14, 20 (Mo. banc 2011) (noting that in a contested case, courts defer to administrative agency findings of fact); see also section 536.090 (requiring all decisions and orders in contested cases to include “findings of fact”). The hearing officer “may inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property.” Section 138.430.2.

“Although technical rules of evidence are not controlling in administrative hearings, fundamental rules of evidence are applicable.” Mo. Church of Scientology v. State Tax Comm’n, 560 S.W.2d 837, 839 (Mo. banc 1977).   The hearsay rule is a fundamental rule of evidence applicable in administrative hearings. Speer v. City of Joplin, 839 S.W.2d 359, 360 (Mo. App. S.D. 1992). “Hearsay is an out-of-court statement offered for the truth of the matter asserted.” State v. McFadden, 391 S.W.3d 408, 431 (Mo. banc 2013). “Hearsay evidence is objectionable because the person who makes the statement offered is not under oath and is not subject to cross-examination.” Saint Louis Univ. v. Geary, 321 S.W.3d 282, 291 (Mo. banc 2009). Hearsay is inadmissible unless an exception applies. Id.

Respondent timely objected to Complainants’ Exhibits C, D, E, F, G, and H as inadmissible hearsay. Each of these exhibits consisted of text messages and Facebook posts relaying statements made by individuals not present at the evidentiary hearing. The statements were offered to prove Complainants were planning residential renovations to the subject property and that they hosted a party at the subject property in December 2018. Exhibits C, D, E, F, G, and H are hearsay because they relayed statements by individuals not present at the evidentiary hearing and not subject to cross-examination. No recognized hearsay exception applies. Complainants’ Exhibits C, D, E, F, G, and H are inadmissible.

Prior to the hearing, Complainant offered two motions in limine seeking exclusion of Respondent’s exhibits. The first motion in limine asserted Respondent’s Exhibits 1-4 were inadmissible because they failed to display the appeal number and were not accompanied by an affidavit of the custodian of the records as required by section 490.682. Both claims are meritless.

First, while the scheduling order in this case requested that the parties include the appeal number on the face of each exhibit, no Commission regulation or other authority provides that the failure to display the appeal number on an exhibit renders it inadmissible.

Second, Complainant’s reliance on section 490.862 is misplaced because the business record exception codified in Chapter 490 does not apply in an administrative proceeding. Lindenwood Care Corp. v. Missouri Dep’t of Soc. Servs., 466 S.W.3d 707, 716 (Mo. App. W.D. 2015). The admissibility of business records in an administrative hearing is governed by section 536.070(10). Id.

Section 536.070(10) provides a record is admissible if it “shall appear it was made in the regular course of any business” and “that it was the regular course of such business to make such memorandum or record at the time of such act, transaction, occurrence, or event or within a reasonable time thereafter.” A “lack of personal knowledge by the entrant or maker, may be shown to affect the weight of such evidence, but such showing shall not affect its admissibility.” Id.   Respondent’s Exhibits 1, 2, and 3 are admissible as business records pursuant to section 536.070(10) because they are public records that appear to be made in the regular course of business at or near the time the event or transaction occurred. Complainants’ motion in limine and objections based on section 490.682 are overruled.

Complainants’ second motion in limine asserted Respondent’s Exhibit 3 – the business personal property declaration form – was inadmissible because it was unauthenticated and the signatory was not available for cross-examination. The motion is overruled because Respondent’s Exhibit 3 is admissible pursuant to section 536.070(10).

  1. Official Notice

“Agencies shall take official notice of all matters of which the courts take judicial notice.” Section 536.070(6). Courts take judicial notice of state statutes. Sperry Corp. v. State Tax Comm’n, 695 S.W.2d 464, 469 (Mo. banc 1985). Section 536.031.6 provides “The courts of this state shall take judicial notice, without proof, of the contents of the code of state regulations.” The state statutes and regulations in Respondent’s Exhibit 4 are officially noticed.

  1. Classification

Section 137.016.1(3) defines “Utility, industrial, commercial, railroad and other real property” as “all real property used directly or indirectly for any commercial, mining, industrial, manufacturing, trade, professional, business, or similar purpose….”  In pertinent part, section 137.016.1(1) defines “residential property” as “all real property improved by a structure which is used or intended to be used for residential living by human occupants….” “Determining whether a property’s use falls within one of the subclassification definitions set forth in section 137.016.1 is an issue of fact for the STC.” Rinehart, 363 S.W.3d at 366.

  1. Complainants Did Not Prove Misclassification

Complainants did not produce substantial and persuasive evidence proving the structure on the subject property was used or intended to be used for residential living as of January 1, 2019.   Mr. Hodak testified the structure on the subject property was used as commercial office space until December 2018. This testimony is a concession establishing that prior to January 1, 2019, the subject property was used for commercial office space.

Respondent’s Exhibit 3 shows Mr. Wood declared business personal property located at the subject property as of January 1, 2019.   Mr. Hodak asserted Exhibit 3 is “highly prejudicial” because Mr. Wood’s actual office was at 111 North Main, but provided no evidence supporting this assertion. Given the absence of evidence supporting the assertion Exhibit 3 is inaccurate, Mr. Hodak’s assertion that Exhibit 3 is “highly prejudicial” distills to a tacit admission that Exhibit 3 is highly relevant because it is a public record showing that on February 5, 2019, Mr. Wood declared business personal property at the subject property.   Exhibit 3 is persuasive evidence that as of January 1, 2019, the subject property was used as commercial office space.

Complainants did not produce substantial and persuasive evidence showing the discontinuation of commercial use and a transition to residential use as of January 1, 2019.   Mr. Hodak asserted that the fact Complainants hosted social gatherings at the subject property demonstrates residential use. A commercial property can host a social gathering.   Thus, hosting one or more social gatherings does not prove the discontinuation of commercial use or that Complainants used the structure for residential living as of January 1, 2019.

Mr. Hodak also asserted a residential classification is warranted because Complainants were granted permission to use the subject property “rent-free” from December 2018 through mid-February 2019 while undertaking steps to add residential amenities. Given the evidence of continuing commercial use and the lack of evidence of residential use, the most plausible inference from Complainants’ rent-free use and renovation efforts is that as of January 1, 2019, the structure was not “used or intended to be used for residential living by human occupants” so as to qualify as “residential property” pursuant to section 137.016.1(1). Mr. Hodak’s general, uncorroborated testimony is not persuasive evidence showing the structure on the subject property was used or intended to be used for residential living as of January 1, 2019.

Finally, Mr. Hodak testified Exhibit I shows Texas Tea, LLC, made the final rent deposit for the subject property on October 26, 2018. Mr. Hodak testified this was the final deposit resulting from commercial use of the subject property. Exhibit I shows only that Texas Tea, LLC, deposited a rent payment on October 26, 2018. The fact rent was deposited on October 26, 2018, does not establish the discontinuation of commercial use or show the structure was used or intended for residential use as of January 1, 2019.

CONCLUSION AND ORDER

The BOE’s decision is affirmed. Complainants did not produce persuasive evidence establishing the structure on the subject property was used or intended to be used for residential purposes as of January 1, 2019. The subject property was properly classified as commercial property. The assessed value as of January 1, 2019, was $62,357.

Application for Review

A party may file with the STC an application for review of this decision within 30 days of the mailing date set forth in the certificate of service for this decision. The application “shall contain specific detailed grounds upon which it is claimed the decision is erroneous.” Section 138.432. The application must be in writing, and may be mailed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, or emailed to Legal@stc.mo.gov. A copy of the application must be sent to each person listed below in the certificate of service.

Disputed Taxes

The Collector of St. Charles County, and 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 the disputed taxes have been disbursed pursuant to a court order under the provisions of section 139.031.

SO ORDERED July 31, 2020.

Senior Hearing Officer

State Tax Commission

 

 

Certificate of Service

On July 31, 2020, a copy of the foregoing was emailed to Complainant, brianhodak@sbcglobal.net; Counsel for Respondent, ajennings@sccmo.org; Respondent, sshipman@sccmo.org; St. Charles County Collector of Revenue, mmcbride@sccmo.org

 

Elaina McKee

Legal Coordinator

 

 

[1] All statutory citations are to RSMo 2000, as amended.