Colfin Cobalt I-II Owner LLC v. David Cox, Assessor Platte County

May 18th, 2018

STATE TAX COMMISSION OF MISSOURI

 

COLFIN COBALT I-II OWNER, LLC )  
  )  
              Complainant, )  
  )  
v. ) Appeal No. 17-79035
  )  
DAVID COX,  ASSESSOR, )  
PLATTE COUNTY, MISSOURI,

Respondent

)

)

 

 

ORDER

SETTING ASIDE HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

 

On May 18, 2018, Chief Counsel Maureen Monaghan (Hearing Officer) entered her Decision and Order (Decision) setting aside the decision of the Board of Equalization of Platte County (BOE).  David Cox (Respondent) subsequently filed his Application for Review of Hearing Officer’s Decision and Order.  Colfin Cobalt I-II Owner, LLC, (Complainant), thereafter filed an Opposition to Complainant’s Application for Review.  Respondent filed his Reply in Support of Its Application for Review of the Hearing Officer’s Decision and Order.

We SET ASIDE the Decision and Order of the Hearing Officer.  Segments of the Hearing Officer’s Decision may have been incorporated into our Decision without further reference.

FACTS AND PROCEDURAL HISTORY

The subject property consists of 6.34 acres of land improved by an industrial building constructed in 1981. The improvement is a single story structure of 97,755 square feet.  The improvements are in average condition.  The roof is a gravel surfaced built-up and was replaced when it was 19 years of age in 2000.  The roof needed $1,100 in repairs in 2017.  The roof will again need to be replaced in 2020.  The owners had the roof inspected and a report was generated.  The report instructed the owner to budget $375,398 for a roof replacement.

The property was transferred from Cobalt Industrial REIT to Colfin Colbalt I-II Owner, LLC, on December 18, 2014.  It was part of a sale of 256 properties for $1.6 million.  Prior to the 2014 sale, the last transfer was in 2006.

The property is leased to one tenant.  The lease rate is $4.12 per square foot, triple net.

Both the Complainant and Respondent presented the testimony and reports of Missouri Certified General Appraisers.  Both appraisers developed the sales comparison approach, which both believed to be a reliable indicator of value.  Both appraisers also developed the income approach.

Brent Mertz (Mertz), a Missouri Certified General Appraiser, appraised the property for Complainant.  In the sales comparison approach, Mertz used five sales of warehouse properties, which sold between April 2014 and February 2016.  The comparable properties sale prices ranged from $24.56 to $45.14 per square foot.  After adjusting the sale prices for location, size, age and ceiling height, the range was $25.79 to $38.18 per square foot.  The appraiser opined a TVM of $3,000,000 after making a deduction for the replacement of the roof.

Brian McHenry (McHenry), a Missouri Certified General Appraiser and designated Member of the Appraisal Institute, appraised the property for Respondent.  In the sales comparison approach, McHenry used four sales of warehouse properties, which sold between January 2015 and January 2016.  The comparable sale prices ranged from $35.75 to $45.13 per square foot.  After adjusting the sale prices for market conditions/time, quality, age, size, site and office finish, the range was $42.43 to $45.15 per square foot.  The appraiser opined a TVM of $4,300,000 as of January 1, 2017

Respondent’s appraiser, McHenry, placed more weight on the sales comparison approach because of the quality and quantity of data.  Complainant’s appraiser, Mertz, found the sales comparison approach to provide a reliable indicator of value.  The appraisers had a common sale in their approaches.  Complainant’s sale # 5 and Respondent’s sale #3 was a property located at 6601 Universal Avenue.  The experts’ estimates of value based upon the adjusted price per square foot for the comparable property were $3,732,300 and $3,970,000, which support the BOE’s determination of TVM.

The subject roof is nearing the end of its estimated life of 2020. The roof could last longer than its expected age.  It needed repairs in 2017 and the inspection indicated it would need $1,000 in repairs in 2018.  The inspection report estimated repairs and replacement of $375,398.  Complainant’s expert testified that an investor would demand a 15% return on the outlay of capital and to cover any overruns.  The expert determined an adjustment of $449,673.

Respondent initially valued the subject property at $3,863,066, as commercial property, as of January 1, 2017.  The BOE valued the subject property at $3,863,066, as commercial property, as of January 1, 2017.  An evidentiary hearing was conducted on April 10, 2018.  After the hearing, the appeal was taken under advisement.  A Decision and Order was issued on May 18, 2018.  The TVM for the subject property was determined to be $3,413,300.

 

 

Exhibits

Complainant’s Evidence.  Complainant opined that the TVM of the subject property was $3,000,000 as of January 1, 2017.  To support the opinion of value, Complainant offered the following exhibits:

Exhibit A Appraisal Report Admitted
Exhibit B Written Direct Testimony of Brent Mertz Admitted
Exhibit C Grid of Adjustments for Sales Comparison Admitted

 

Respondent’s Evidence.  Respondent opined that the TVM of the subject property was $4,300,000 as of January 1, 2017.  To support the opinion of value, Respondent offered the following exhibits:

Exhibit 1 Appraisal Admitted
Exhibit 9 Platte County Assessor Record Excluded

 

CONCLUSIONS OF LAW

Complainant’s Points on Review

            Respondent alleged that the Hearing Officer’s Decision is erroneous and unreasonable in that:

  • The Deduction in the TVM Amounted to an Adjustment for Deferred Maintenance, which was an Improper Classification of the Expense Allegedly needed Roof Replacement Expenditure; and
  • Regardless of the proper classification of the roof expenditures, Complainant did not meet their substantial burden of proof to demonstrate the need for roof replacement.

 

STC’s Ruling

For the following reasons, the STC finds Respondent’s arguments to be unpersuasive.  The STC, having thoroughly reviewed the whole record and having considered the Hearing Officer’s Decision, the Application for Review of Respondent, Complainant’s response opposing the Application for Review, and Respondent’s Reply, affirms the Hearing Officer’s decision.

Standard of Review

A party subject to a Decision and Order of a Hearing Officer with the State Tax Commission (STC) may file an application requesting the case be reviewed by the STC.  Section 138.432 RSMo Cum. Supp. 2015.  The STC may then summarily allow or deny the request.  Section 138.432.  The STC may affirm, modify, reverse, set aside, deny, or remand to the Hearing Officer the Decision and Order of the Hearing Officer on the basis of the evidence previously submitted or based on additional evidence taken before the STC.  Section 138.432.

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).   This presumption is a rebuttable rather than a conclusive presumption.  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).

Complainant’s Burden of Proof

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).  Such must be proved by substantial and persuasive evidence.  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).

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).

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).

Appraisal

An appraisal requires an appraiser to review the land and improvements subject to the valuation.  The appraiser should inspect the property, provide a description of the property, and analyze its utility and style.  The appraiser should include an analysis of the property’s quality and condition.  The quality and condition of the property can affect “the cost estimate, the ability of the property to produce rental income, and the property’s comparability with other properties.”  The Appraisal of Real Estate, 13th Edition, p. 274.

The condition of the property may require the appraiser to determine which items are in need of immediate repair, items that may be repaired later, and items that are expected to last for the life of the improvement.  The appraiser should list the items in need of repair and may include the cost to repair the items.  For items not needing immediate repair, the appraiser should note whether the repair is necessary to reduce deterioration of other components of the structure.

“A knowledgeable buyer considers expenditures that will have to be made upon purchase of the property because these costs affect the price the buyer agrees to pay…. The relevant figure is not the actual cost that was incurred but the cost that was anticipated by both the buyer and seller.”  Id p. 331

Discussion

A retrospective true value in money (TVM) as of January 1, 2017 was the subject of this appeal.  Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the BOE.  A Hearing Officer 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.  The Hearing Officer was also free to consider the testimony of the parties respective expert appraisal witnesses and believe all, none or only parts of each experts opinions.

The Points on Review address condition of the roof and the expert opinion expressed by Mertz.  Mertz opined that a reasonable buyer/investor would consider the impending roof repair cost in the amount the buyer would pay in an arms length transaction to purchase the subject property on January 1, 2017.   Mertz relied upon the estimate of approximately $375,398 for the repair cost.  Appraisers routinely and reasonably rely upon such type information.  Mertz also believed that an investor would demand a 15% return on the outlay of capital, over approximately three years and to cover any overruns for a total adjustment of $449,673.

The estimated cost of repair is $375,398.  An adjustment to the indication of value may be required because these imminent costs affect the price a buyer would pay.  The actual adjustment figure may not be actual costs but the cost that was anticipated by both the buyer and seller. Mertz opined that a buyer would anticipate a cost of $449,673.  However, it would be reasonable for the seller to anticipate a cost of $375,398 – the amount in their inspection report.

Summary & Conclusion

            The Hearing Officer found that the parties presented evidence to support the BOE’s determination of value except that the BOE did not consider the condition of the roof.  An adjustment for the imminent replacement of a roof would be appropriate.  The owner is anticipating the replacement given the inspection report.  A buyer would demand some concession for the roof, which is 17 years old and has an estimated 20-year life.  Mertz’s opinion sets forth the position of the buyer anticipating a cost of $449,673.  However, it would be reasonable for the seller to anticipate a cost of $375,398.  The TVM for the subject property as of January 1, 2017 is $3,487,668.

ORDER

The Decision of the Hearing Officer is SET ASIDE.  The assessed value for the subject property for 2017 – 2018 is $1,116,054.

The Decision and Order of the Hearing Officer, including the findings of fact and conclusions of law therein, is incorporated by reference, as if set out in full, in this final decision of the STC.

Segments of the Decision and Order of the Hearing Officer, including the findings of fact and conclusions of law therein, have been incorporated without reference, as if set out in full, in this final decision of the STC.

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the mailing date set forth in the Certificate of Service for this Order.

If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts unless disbursed pursuant to Section 139.031.8, RSMo.

If no judicial review is made within thirty days, this decision and order is deemed final and the Collector of Platte 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 this appeal.

SO ORDERED August 7, 2018.

STATE TAX COMMISSION OF MISSOURI

 

Bruce E. Davis, Chairman

 

Victor Callahan, Commissioner

 

Will Kraus, Commissioner

 

Certificate of Service

I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 7th day of August, 2018, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.

Jacklyn Wood

Legal Coordinator

STATE TAX COMMISSION OF MISSOURI

 

COLFIN COBALT I-II OWNER, LLC )
)
              Complainant, )
)
v. ) Appeal No. 17-79035
)

)

Parcel/Locator No. 17-7.0-25-000-000-041.000
DAVID COX,  ASSESSOR, )
PLATTE COUNTY, MISSOURI,

Respondent

)

)

 

DECISION AND ORDER

 

HOLDING

 

The decision of the Platte County Board of Equalization (BOE) is SET ASIDE.  Colfin Cobalt I-II Owner, LLC, (Complainant) presented substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE.  The true value in money (TVM) for the subject parcel on January 1, 2017, was $3,413,300 commercial assessed value of  $1,092,288.

A hearing on the Complainant for Review of Assessment was held on April 10, 2018.  Complainant appeared by counsel Jason Turk.  David Cox, Assessor, Platte County, Missouri, (Respondent) appeared in person and by counsel Robert Shaw.  Case heard and decided by Maureen Monaghan, Chief Counsel (Hearing Officer).

The parties agreed to a briefing schedule.  Complainant submitted a post hearing brief.  Respondent waived briefing.

ISSUE

Respondent set the true value in money (TVM) of the subject property at $3,863,066, as commercial property, as of January 1, 2017.  Complainant appealed to the BOE.  On August 18 2017, the BOE valued the subject property at $3,863,066.  Complainant appealed to the State Tax Commission (STC) on the ground of overvaluation. STC takes this appeal to determine the TVM for 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.

EVIDENCE

Complainant’s Evidence.  Complainant opined that the TVM of the subject property was $3,000,000 as of January 1, 2017.  To support the opinion of value, Complainant offered the following exhibits:

Exhibit A Appraisal Report Admitted
Exhibit B Written Direct Testimony of Brent Mertz Admitted
Exhibit C Grid of Adjustments for Sales Comparison Admitted

 

Brent Mertz (Mertz), a Missouri Certified General Appraiser, appraised the property for Complainant.  Mertz developed the sales comparison and the income approaches to opine a value for the subject property as of January 1, 2017.

In developing the sales comparison approach, the appraiser looked for properties similar to the subject in use, size, and location that sold within a relevant time period.  Using the sales comparison approach, the estimated value for the subject property was $3,400,000.   Mertz made an adjustment after calculating his estimate of value.  Mertz opined that an additional adjustment was warranted due to the age of the roof.  He adjusted the opinion of value by $449,673 for a final value of $2,950,000.

In developing the income approach, the appraiser looked for rental rates of competing properties.  Mertz reviewed market data to develop vacancy and expense information.  Under the income approach, the estimated value for the subject property was $3,000,000.

Respondent’s Evidence.  Respondent opined that the TVM of the subject property was $4,300,000 as of January 1, 2017.  To support the opinion of value, Respondent offered the following exhibits:

Exhibit 1 Appraisal Admitted
Exhibit 9 Clay County Assessor Record Excluded

 

Brian McHenry (McHenry), a Missouri Certified General Appraiser and designated Member of the Appraisal Institute, appraised the property for Respondent.  McHenry developed the sales comparison and the income approaches to opine a value for the subject property as of January 1, 2017.

For the sales comparison approach, McHenry reviewed the market for sales of similar industrial properties.  He selected four sales to utilize in his approach.  Using the sales comparison approach, the estimated value for the subject property was $4,300,000.

In developing the income approach, the appraiser looked for rental rates of competing properties.  McHenry reviewed  the subject’s data and market data to develop vacancy and expense information.  Under the income approach, the estimated value for the subject property was $4,280,000.

 

FINDINGS OF FACT

  1. Jurisdiction. Jurisdiction over this appeal is proper.  Complainant timely appealed to the State Tax Commission.
  2. Evidentiary Hearing. The issue of overvaluation was presented at an evidentiary hearing on April 10, 2018, at the Platte County Government Building.
  3. Identification of Subject Property. The subject property is identified by parcel/locator number 17-7.0-25-000-000-041.000.  It is further identified as 8281 NW 107th Terr., Platte County, Missouri.  (Complaint)
  4. Description of Subject Property. The subject property consists of 6.34 acres of land improved by an industrial building constructed in 1981. The improvement is a single story structure of 97,755 square feet.  The improvements are in average condition.

The roof is a gravel surfaced built-up and was replaced when it was 19 years of age in 2000.  The roof will again need to be replaced in 2020.  The estimate to replace the roof  and install new skylights and insualation is $375,398.  It needed $1,100 in repairs in 2017.

The property is leased to one tenant.  The lease rate is $4.12 per square foot, triple net[1].

The property was transferred from Cobalt Industrial REIT to Colfin Colbalt I-II Owner, LLC, on December 18, 2014.  It was part of a sale of 256 properties fot $1.6 million.  Prior to the 2014 sale, the last transfer was in 2006.

  1. Assessment of the Property Respondent determined a TVM of $3,863,066, as commercial property, as of January 1, 2017.  The BOE determined a TVM for the subject property of $3,863,066.
  2. Presumption of Correct Assessment Rebutted. Complainant and Respondent presented substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE (TVM of $3,863,066) and establish TVM of $3,413,300.

CONCLUSIONS OF LAW AND DECISION

Jurisdiction

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, 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 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 RSMo (2000) as amended.

 

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.

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.

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:

  1. Buyer and seller are typically motivated.

 

  1. Both parties are well informed and well advised, and both acting in what they consider their own best interests.

 

  1. A reasonable time is allowed for exposure in the open market.

 

  1. Payment is made in cash or its equivalent.

 

  1. Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.

 

  1. 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.

 

Both the Complainant and Respondent presented the testimony and reports of Missouri Certified General Appraisers.  Both appraisers developed the sales comparison approach.

Mertz, Complainant’s appraiser, used five sales of warehouse properties which sold between April 2014 and February 2016.  The comparable properties sale prices ranged from $24.56 to $45.14 per square foot.  After adjusting the sale prices for location, size, age and ceiling hight, the range was $25.79 to $38.18 per square foot.  There was no adjustment for market conditions or time.

McHenry, Respondent’s appraiser, used four sales of warehouse properties which sold between January 2015 and January 2016.  The comparable sale prices ranged from $35.75 to $45.13 per square foot.  After adjusting the sale prices for market conditions/time, quality, age, size, site and office finish, the range was $42.43 to $45.15 per square foot.

Complainant’s sale number 5 and Respondent’s sale #3 was a property located at 6601 Universal Avenue.  Complainant’s adjusted sale price was $38.18 and the Respondent’s was $45.15.  However Respondent’s appraiser started with an incorrect square footage number and therefore the price per square foot started with $44.47 rather than $42.43. Correcting the error of square footage, McHenry’s indicated range of price per square foot was $42.43 to $43.06.  Using the price per square foot estimated by the appraiser, the indication of value is $3,970,800.

Actual Sale

The Supreme Court of Missouri has held that evidence of the actual sales price of property is admissible to establish value at the time of an assessment, provided that such evidence involves a voluntary purchase not too remote in time.  The actual sale price is a method that may be considered for estimating true value.  St. Joe Minerals Corp. v. STC, 854 S.W.2d 526, 529 (App. E.D. 1993)

Neither appraiser relied on the  property transfer on December 18, 2014 or the sale in 2006.

 

Income Approach

            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:

  1. Estimate potential gross income;
  2. Deduct for vacancy and collection;
  3. Add miscellaneous income to get the effective gross income;
  4. Determine operating income;
  5. Deduct operating expenses from the effective gross income to determine net operating net operating income before discount, recapture and taxes;
  6. Select the proper capitalization rate;
  7. Determine the appropriate capitalization procedure to be used;
  8. Capitalize the net operating income into an estimated property value.

Property Assessment Valuation, IAAO, page 204.

Both the Complainant and Respondent presented the testimony and reports of Missouri Certified General Appraisers.  Both appraisers developed the income approach.

Mertz, Complainant’s appraiser, used five leases of warehouse properties in developing his income approach. He also relied on market information for vacancy and expenses.  He estimated a net operating income of $286,989.  Mertz reviewed sales and surveys to develop his capitalization rate of 8%.  After estimating a value under the income approach of $3,525,000, Mertz adjusted it by $449,673 to account for the roof nearing the end of its useful life.

McHenry, Respondent’s appraiser, used five leases, two reported and three asking lease prices, to develop his asking prices.  McHenry reviewed the actual and market to estimate vacancy and expenses.  He estimated a net operating income of $321,289.  McHenry reviewed sales and surveys to develop his capitalization rate of 7.5%.  The appraiser did not include the effective tax rate due to the reimbursement of taxes by a tenant under the likely terms of the lease in similar type properties.  The resulting indication of value under the income approach was $4,280,000.

Reconciled Valuation

            Respondent’s appraiser, McHenry, placed more weight on the sales comparison approach because of the quality and quantity of data.  Mertz found the sales comparison approach to provide a reliable indicator of value.  The appraisers had a common sale in their approaches.  After adjusting for the square footage of the similar comparable property, the adjusted price per square footage was $40.62 resulting in an estimated of value was $3,970,800.      Complainant’s adjusted sale price for the common property was $38.18 per square foot or an estimate of value for the subject of $3,732,300.  Reviewing those sales properties supports, the opinion of value of the BOE of $3,863,066 prior to the adjustment for the roof.

Roof Condition

            The subject roof is nearing the end of its estimated life of 2020.  Although the inspection indicates it will only need $1000 in repairs in 2018 and could last longer than its expected age, a buyer would consider such replacement estimates when making an offer.  Estimate of repair is $385,000.  Complainant seeks additional deduction advocating that an investor would demand a 15% return on the outlay of capital and to cover any overruns for a total adjustment of $449,673.

ORDER

The TVM for the subject property as determined by the BOE is SET ASIDE.    The assessed value for the subject property for tax year 2017 is set at $1,092,288, commercial classification.  (TVM of $3,413,400).

 

Application for Review

A party may file with the STC 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 Platte 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 May 18, 2018.

STATE TAX COMMISSION OF MISSOURI

Maureen Monaghan

Chief Counsel

Certificate of Service

I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 18th day of May, 2018, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.

 

Jacklyn Wood

Legal Coordinator

 

[1] “Triple net” is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance on the property in addition to any normal fees that are expected under the agreement (rent, utilities, etc.).