State Tax Commission of Missouri
| CENTER 40, LLC. | ) | |
| ) | ||
| Complainant, | ) | |
| ) | Appeal No. 09-14009 | |
| -vs- | ) | |
| ) | ||
| JAKE ZIMMERMAN, ASSESSOR | ) | |
| ST LOUIS COUNTY, MISSOURI | ) | |
| ) | ||
| Respondent, | ) |
DECISION AND ORDER
HOLDING
Decision of the County Board of Equalization sustaining the assessment made by the Assessor is AFFIRMED. Complainant does not present substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization.
True value in money for the subject property for tax years 2009 and 2010 is set at $12,450,700, commercial assessed value of $3,984,220.
Complainant appeared by attorney Cathy Steele.
Respondent appeared by attorney Priscilla F. Gunn.
Case heard and decided by Senior Hearing Officer Luann Johnson.
ISSUE
Complainant appeals, on the ground of overvaluation, the decision of the St. Louis County Board of Equalization, which sustained the valuation of the subject property. The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2009. The value as of January 1 of the odd numbered year remains the value as of January 1 of the following even numbered year unless there is new construction and improvement to the property. Section 137.115.1 RSMo
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
Exhibits
Complainant filed the following exhibits:
A Appraisal Report of John C. Hottle
B Written Direct Testimony of John C. Hottle
Respondent filed the following exhibits:
1 Appraisal Qualifications of Nancy K. McGrath
2 Complainant’s Responses to Respondent’s Request to Produce Documents
3 Actual Income and Expense Template 2009 to 2011
4 PricewaterhouseCoopers national Suburban Office Market discussion
5 List of office building sales
6 Actual Income and Expense Template 2010 to 2012
7 LoopNet listing printout for subject property
8 St. Louis County printout for subject property
9 Written Direct Testimony of Nancy K. McGrath
FINDINGS OF FACT
- Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the St. Louis County Board of Equalization.
- Evidentiary Hearing. The Evidentiary Hearing was held on April 22, 2015, via video conference.
- Identification of Subject Property. The subject property is identified by parcel number 20K242282, more commonly known as 1600 South Brentwood Blvd., Brentwood, St. Louis County, Missouri. (Ex. A, p. 13).
- Description of Subject Property. The subject is a 3.09 acre irregularly shaped corner lot at a lighted intersection, on grade with Brentwood Boulevard, a six lane asphalt paved roadway. Access is via Rose Avenue. The site is improved with an asphalt paved surface parking lot and a two level, structured parking garage, attached to the subject building with multiple access points. (Ex. A, p. 12).
The subject property is further improved with a 115,627 square foot, eight floor, office building, built in 1985. The effective age of improvements is 20 years, the economic life is 60 years, the remaining economic life is 40 years. Condition is average. (Ex. A, p. 14). The overall layout and functional utility of building is considered to be average based upon market demands when the property was developed. Since that time, more functional buildings have come on the market with the subject delegated to a class C status. While overall functional utility is considered to be generally average, surface parking is somewhat distant from the building, which makes it less desirable. (Ex. A, p. 16). The highest and best use of the subject property, as improved, is its current use. (Ex. A, p. 21).
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2009, to January 1, 2010, therefore the assessed value for 2010 remains the assessed value for 2009. Section 137.115.1, RSMo.
- Presumption of Correct Assessment Not Rebutted. Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2009, to be $10,500,000, as proposed. See, Presumption In Appeal, and Decision, Complainant Failed to Prove Value, infra.
CONCLUSIONS OF LAW AND DECISION
Jurisdiction
The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the board of equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo.
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 and tangible personal property are assessed at set percentages of true value in money. Section 137.115.5, RSMo – residential property at 19% of true value in money; commercial property at 32% of true value in money and agricultural property at 12% of true value in money.
Presumption In Appeal
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).
The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the Board’s valuation is erroneous and what the fair market value should have been placed on the property. Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).
Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse, supra. 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).
Complainant’s Burden of Proof
In order to prevail, Complainan 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, 2009. Hermel, supra. There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a Commission appeal still bears the burden of proof. The taxpayer is the moving party seeking affirmative relief. Therefore, the Complainant bears the burden of proving the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary or capricious.” See, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003); Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. 1991). A valuation which does not reflect the fair market value (true value in money) of the property under appeal is an unlawful, unfair and improper assessment.
“Where the basis for a test as to the reliability of the testimony is not supported by a statement of facts on which it is based, or the basis of fact does not appear to be sufficient, the testimony should be rejected.” Carmel Energy, Inc. v. Fritter, 827 S.W.2d 780, 783 (Mo. App. W.D. 1992)
A taxpayer does not meet his burden if evidence on any essential element of his case leaves the Commission “in the nebulous twilight of speculation, conjecture and surmise.” See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980).
Standard for Valuation
Section 137.115, RSMo, requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. 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). True value in money is defined in terms of value in exchange and not value in use. Daly v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973).
It is the fair market value of the subject property on the valuation date. Hermel, supra.
Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.
Implicit in this definition are the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:
- 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.
Official and Judicial Notice
Agencies shall take official notice of all matters of which the courts take judicial notice. Section 536.070(6), RSMo. Courts will take judicial notice of their own records in the same cases. State ex rel. Horton v. Bourke, 129 S.W.2d 866, 869 (1939); Barth v. Kansas City Elevated Railway Company, 44 S.W. 788, 781 (1898).
In addition, courts may take judicial notice of records in earlier cases when justice requires or when it is necessary for a full understanding of the instant appeal. Burton v. Moulder, 245 S.W.2d 844, 846 (Mo. 1952); Knorp v. Thompson, 175 S.W.2d 889, 894 (1943); Bushman v. Barlow, 15 S.W.2d 329, 332 (Mo. banc 1929); State ex rel St. Louis Public Service Company v. Public Service Commission, 291 S.W.2d 95, 97 (Mo. banc 1956).
Courts may take judicial notice of their own records in prior proceedings involving the same parties and basically the same facts. In re Murphy, 732 S.W.2d 895, 902 (Mo. banc 1987); State v. Gilmore, 681 S.W.2d 934, 940 (Mo. banc 1984); State v. Keeble, 399 S.W.2d 118, 122 (Mo. 1966).
Investigation by Hearing Officer
In order to investigate appeals filed with the Commission, 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. The Hearing Officer’s decision regarding the assessment or valuation of the property may be based solely upon his inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties. Section 138.430.2, RSMo. The Hearing Officer during the evidentiary hearing made inquiry of Complainant and Respondent’s appraiser.
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).
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 he 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).
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, at 615 (Mo. App. W.D. 2000); Hermel, supra; 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. Div. 2 1974).
Opinion Testimony by Experts
An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion. Missouri Pipeline Co. v. Wilmes, 898 S.W. 2d 682, 687 (Mo. App. E.D. 1995). The State Tax Commission cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach. Drey v. State Tax Commission, 345 S.W. 2d 228, 234-236 (Mo. 1961), Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 348 (Mo. 2005).
The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the trier of fact may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer, as the trier of fact, has the authority to weigh the evidence and 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 may accept it in part or reject it in part. Beardsley v. Beardsley, 819 S.W. 2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W. 2d 605, 607 (Mo. 1981); Scanlon v. Kansas City, 28 S.W. 2d 84, 95 (Mo. 1930).
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; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. SC. 2004); Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. E.D. 1992).
DECISION
Complainant Failed to Prove Value
Potential Gross Income
Complainant’s appraiser looked at six rent comparables. These rent comparables indicate an unadjusted rental rate of $16.00 to $19.46 per square foot. Complainant’s appraiser determined an economic rental rate for the subject property of $21.00 per square foot. This is in keeping with the subject’s average rent of $21.82 per square foot. (Ex. A, p. 42).
Vacancy
According to the CoStar Market Report, 4th quarter 2008 for the St. Louis market, the Clayton Office Submarket vacancy rate was 8.2%. This is slightly lower than the regional average of 10.4%. (Ex. A, p. 10). According to the CoStar Office Report, 1st quarter 2010 vacancy rate for the area was 11.0%. The subject property vacancy was 2.24% in 2008; 2.24% in 2009; 23.59% in 2010; and 19.70% in 2011. Based upon the history of the subject property, Complainant’s appraiser used a vacancy rate of 11%. (Ex. A, p. 43). Using an 11% vacancy and credit loss when the market is only 8.2% understates the net operating income and results in understating the property value.
Other Income
In addition to office rent, the property also has income from storage and parking. Potential gross income is calculated as follows:
Office rent – 105,606 s/f @ $21.00 per s/f = $2,217,726
Other Income 112,375
Total $2,330,101
Expenses
Buildings of this type typically lease on a full service basis, i.e. the property owner pays all expenses relative to the operation of the building. Complainant’s appraiser used actual expenses, less real estate taxes. (Ex. A, p. 44). No analysis was completed to determine if actual expenses were in keeping with market expenses.
Capitalization Rates
Recent sales show cap rates of 7.48% to 13.25%. Most cap rates were in the 7.48% to 8.50% range. Complainant’s appraiser averaged the capitalization rates, including the outlier 13.25%, and concluded that the average rate was 9.13%, but used a rate of 10.00%. To this, Complainant’s appraiser added an effective tax rate of 2.55% for a total capitalization rate of 12.55% for a projected value of $10,500,000. (Ex. A, p. 47).
Loading a capitalization rate with an effective tax rate is more typically found in a band of investment calculation than a market derived overall rate. When questioned by the Hearing Officer, Complainant’s appraiser asserted that this was the correct methodology, even though the market derived capitalization rates already addressed real estate taxes. In a perfect world, the capitalization rate would include an effective tax rate – but only when the appraiser also deducts the effective tax rate from his market derived overall rates. When the actual real estate taxes are restored to the equation, and like is compared to like, a market overall rate can be used without torture.
Net Operating Income (as calculated by Complainant’s appraiser) $1,319,527
Less Actual Real Estate Taxes (previously excluded from expenses) 321,720
Amount to be capitalized using overall cap rate 997,807
Capitalized / 7.48% overall rate $13,339,665
Capitalized / 8.5% overall rate $11,738,905
Capitalized / 9.13% overall rate $10,928,882
The value derived with the 9.13% capitalization rate is suspect because it includes the outlier 13.25%. More likely than not, the value for the subject property is somewhere between $11,738,905 and $13,339,665. The Board of Equalization found the value for the subject property for tax year 2009 to be $12,450,700 (assessed value $3,984,220).
The Complainant’s use of above market vacancy rates and capitalization rates results in an understatement of value. Complainant failed to present substantial and persuasive evidence tending to show that the Board’s value was erroneous and that its value was correct.
ORDER
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for St. Louis County for the subject tax day is 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
Disputed Taxes
The Collector of St. Louis 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 this 1st day of June, 2015.
STATE TAX COMMISSION OF MISSOURI
Luann Johnson
Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 1st day of June, 2015, to: Complainants(s) counsel and/or Complainant, the county Assessor and/or Counsel for Respondent and county Collector.
Jacklyn Wood
Legal Coordinator
Contact Information for State Tax Commission:
Missouri State Tax Commission
301 W. High Street, Room 840
P.O. Box 146
Jefferson City, MO 65102-0146
573-751-2414
573-751-1341 Fax