State Tax Commission of Missouri
|CROWN DIVERSIFIED IND. CORP.,
|Appeal Number 11-84556
|LINDA WAGNER, ASSESSOR,
|STE GENEVIEVE COUNTY, MISSOURI,
ORDER AFFIRMING HEARING OFFICER DECISION
On July 3, 2014, Hearing Officer Maureen Monaghan issued her order affirming the value placed upon the subject property by the Ste. Genevieve County Board of Equalization.
Standard Upon Review
A party subject to a Decision and Order of a Hearing Officer with the State Tax Commission may file an application requesting the case be reviewed by the Commission. The Commission may then summarily allow or deny their request. The Commission may affirm, modify, reverse or set aside the decision. The Commission may take any additional evidence and conduct further hearings.
Complainant appealed raising the following issues:
- The Hearing Officer erred in ruling that the presumption of the correctness of the Board of Equalization’s assessment was not overcome because the ruling was (2) not supported by competent and substantial evidence on the record, (b) unauthorized by law, and (c) arbitrary, capricious and unreasonable, in that Complainant’s Exhibit A is substantial evidence which overcomes the presumption and makes a prima facie case for Complainant.
- The Hearing Officer erred in omitting to weigh Complainant’s evidence against Respondent’s evidence, because that omission was (a) unauthorized by law, and (b) arbitrary, capricious and unreasonable, in that Complainant had made a prima facie case.
- The Hearing Officer erred in omitting to find that the Complainant prevailed by a preponderance of the evidence, because that omission was unsupported by competent and substantial evidence upon the whole record, in that Complainant’s evidence was more persuasive than Respondent’s evidence.
- The Hearing Officer erred in overruling Complainant’s objections to Respondent’s appraiser’s evidence, because that ruling was unauthorized by law in that Respondent’s appraiser acted as an advocate in this appeal and therefore Section 339.535 R.S.Mo. prohibits him from acting as an appraiser.
DISCUSSION AND RULING
- The Hearing Officer erred in finding that Complainant Failed to Overcome the Presumption in Favor of the Board of Equalization.
Complainant asserts there is a presumption that the Board of Equalization’s actions is correct; that said presumption is rebuttable, not conclusive and that it can be rebutted when the taxpayer presents substantial and persuasive evidence to establish that the Board’s value is erroneous and what fair market value should be placed upon the property. Complainant goes on to argue that “substantial evidence is a low standard: ‘Once there is something more than a spark or trace, the evidence has reached the level of substantial’”, citing to St. Charles Cine LLC v. Shipman, 2014 WL 1511544. Further, “[w]hen some substantial evidence is produced by the Complainant, ‘however slight’, the presumption disappears and the Hearing Officer, as trier of facts, receives the issue free of the presumption.” St. Charles Cine LLC v. Shipman, supra at 4, citing United Missouri Bank of Kansas City v. March, 650 S.W. 2d 678, 680-681 (Mo. App. 1983). Based upon this line of cases, Complainant argues that the submission of an appraisal report, performed by a certified real estate appraiser, established prima facie that the Board’s value was in error. Rockaway, Inc. v. Strahan, 2013 WL5572758.
Complainant argues that once it presented an appraisal report, the Board of Equalization’s presumption was gone and the Hearing Officer could no longer rely on same, but was forced to make a decision between the evidence presented by Complainant and the evidence presented by Respondent. The Complainant correctly points out that one of our Hearing Officers was of a similar opinion based upon United Missouri Bank of Kansas City v. March, 650 S.W. 2d 678 (Mo. App. 1983). To the extent that the Hearing Officer was of said opinion, he was incorrect.
United Missouri, which the Hearing Officer used to support this suggestion that merely presenting an appraisal report by a qualified appraiser will overcome the presumption in favor of the Board of Equalization, deals with a general common law presumption in favor of government officials. However, a long line of cases beginning in 1959 and as recently as 2012, have specifically found that a taxpayer fails to rebut the presumption in favor of the Board of Equalization if it fails to present substantial and persuasive controverting evidence. In Cupples Hesse Corporation v. State Tax Commission, 329 S.W. 2d 696 (Mo. 1959), the petitioner argued that the presumption disappeared upon the presentation of evidence suggesting that discrimination occurred. Our Supreme Court stated:
“We recognize the principle. But it requires substantial controverting evidence to obliterate the presumption . . .Substantial evidence is that evidence which, if true, ‘has probative force upon the issues * ** and from which the trier of fact can reasonable decide the case on the fact issues . . .The evidence of petitioner has failed to show either discrimination or a valuation which was excessive when compared with other real estate generally; more specifically, it did not show either of these vital elements in such a manner as even to sustain a fact finding of invalidity of the assessment. In such a situation, the presumption is not overcome. . .” (citations omitted)
More recently, in Rinehart v. Bateman, 363 S.W. 3d 357 (W.D. 2012) , the court stated:
“A presumption exists that the assessed value fixed by the [Board of Equalization] is correct. . .Substantial and persuasive controverting evidence is required to rebut the presumption, with the burden of proof resting on the taxpayer . . .
Thus, merely presenting an appraisal report will not establish that the Board’s value was in error. The appraisal report must show the vital elements in such a way that the Hearing Officer can find that the assessment was invalid. Otherwise, the presumption in favor of the Board is not overcome. To the extent that previous orders suggest otherwise, they will no longer be followed.
The Hearing Officer did not err in failing to find that the submission of an appraisal report established prima facie that the Board’s value was in error. She was not required to determine the case “free of the presumption of correctness”.
- The Hearing Officer should have weighed the evidence and found that Complainant’s evidence was more reliable than Respondent’s evidence and ruled in favor of Complainant.
- The Hearing Officer should have found that Complainant’s
Evidence was more persuasive than Respondent’s evidence.
The Hearing Officer found that neither party presented a reliable opinion of value, but she clearly weighed the evidence. She found numerous problems with Complainant’s appraisal including failure to value all of the subject improvements and basing obsolescence adjustments on inappropriate comparables. Either of these problems are enough to determine that Complainant’s appraisal was unreliable. However, the Hearing Officer pointed out that Complainant’s market extraction method for determining obsolescence was inaccurate because it was based upon sales of light commercial or industrial buildings which were not comparable in age, attributes or utility to the subject property. It is not unreasonable to conclude that using dissimilar properties will result in erroneous obsolescence adjustments.
- The Hearing Officer erred in overruling Complainant’s objection to Respondent’s appraiser’s evidence because allowing Respondent’s appraiser to act as an advocate in the appeal violates Section 339.535 R.S.Mo.
Complainant argues that Respondent’s employee/appraiser could not act as an advocate. Specifically, Complainant asserts that Mr. Bruns was observed passing notes to Respondent’s attorney during a deposition and during the hearing and participated in the hiring of an expert witness and, thus, USPAP requires that exhibits prepared by Mr. Bruns be excluded from evidence.
The Hearing Officer did not find in favor of Respondent. However, if she had, she would have been entitled to accept Bruns’ exhibits into evidence. To some degree, all appraisers act as advocates. To suggest otherwise would require that all appraisal reports be excluded from evidence. Further, as set out in Complainant’s application for review, “ . . .The only USPAP obligation is that [the appraiser] not misrepresent [his] role.”
The purpose of USPAP is to protect the clients – not some third party litigant. Bruns was hired by Respondent and was entitled to perform services on Respondent’s behalf, so long as there is no misunderstanding between Respondent and Bruns. Complainant has no standing to raise this issue.
Summary and Conclusion
The Hearing Officer did not err in affirming the decision of the Board of Equalization. Complainant has failed to state any error warranting a change in the Hearing Officer’s value.
The Decision and Order of the Hearing Officer, including the findings of fact and conclusions of law therein, is AFFIRMED and incorporated by reference, as if set out in full, in this final decision of the Commission.
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 St. Genevieve 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 this 31st day of March, 2015.
STATE TAX COMMISSION
Bruce E. Davis, Chairman
Randy Holman, Commissioner
Victor Callahan, Commissioner
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 2nd day of April, 2015, to: Complainants(s) counsel and/or Complainant, the county Assessor and/or Counsel for Respondent and county Collector.
State Tax Commission of Missouri
|Appeal Number 11-84556
|LINDA WAGNER, ASSESSOR,
|STE GENEVIEVE COUNTY, MISSOURI,
DECISION AND ORDER
Decision of the County Board of Equalization sustaining the assessment made by the Assessor is SUSTAINED. Complainant failed to 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 2011 and 2012 is set at $6,217,820, commercial assessed value of $1,513,460 and agricultural assessed value of $178,590.
Complainant appeared in person and by counsel James Gamble
Respondent appeared in person and by counsel Richard Reed.
Case heard and decided by Maureen Monaghan, Hearing Officer.
Complainant appeals, on the ground of overvaluation, the decision of the Ste. Genevieve 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, 2011.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
FINDINGS OF FACT
- Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the St. Genevieve County Board of Equalization.
- Evidentiary Hearing. The Evidentiary Hearing was held on December 4 and 5, 2013 in Ste. Genevieve, Missouri. The parties briefed the issues after the hearing was transcribed. The final briefs in the appeal were filed on June 2, 2014.
- Identification of Subject Property. The subject property is identified by map parcel number 18-9.0-031-00-000-0004.00. It is further identified as 23589 State Route WW, Ste. Genevieve, Missouri.
- Description of Subject Property. Subject property is approximately 394.6 acres with several improvements. It is currently being used as a winery and meat (cattle, bison, elk) production operation. It also has improvements that were once used as a farmers market and commercial greenhouse. Over 385 acres are classified by the Assessor as agriculture. Over 9 acres are classified as commercial.
- Winery – The main building was constructed in 2002 for $4,060,670. It is approximately 39,505 square feet. Additional improvements were added at a cost of approximately $1,000,000. The additional improvements include a 3,750 square foot pavilion, 90 square foot guard shed, a 1,620 square foot garage, paved parking, fencing and gates.
- Loida Farm Area – The improvements to this portion of the property include a 6,000 square foot and a 1000 square foot shed, a grain bin, hopper bins, well house, 3,883 square foot barn, and a 6,000 square foot equipment shop.
- Farmers Market Area – The market is no longer in operation. The area includes property classified as commercial (4200 square foot market, 65,280 square foot greenhouse, and two 450 square feet pavilions) and property classified as agricultural (2,160 square foot shed, 6,240 square foot equipment shop and a 6,000 square foot elk shop)
d. Other improvements – The subject property is also improved with three irrigation sheds, a second well house, four livestock shelters, vine trellis, 15 wells, paved roads and fencing.
- Assessment. The Assessor appraised the property at $6,217,820, an assessed commercial value of $1,513,460 and an assessed agricultural value of $178,590. The Board of Equalization sustained the assessment.
- Complainant’s Evidence. Complainant offered the following Exhibits which were admitted into evidence:
|Appraisal by Howard Audsley $2,292,000
|Extract from Marshall Swift
|WDT Howard Audsley
|Drawings of RPM Architects
|WDT Joe H. Scott
|2010-2011 Annual Reports of Missouri Division of Tourism
Respondent objected to admission to Exhibit A. Objections were taken under advisement and ruled upon on October 11, 2013. Respondent’s objection was overruled.
- Respondent’s Evidence. Respondent offered the following Exhibits which were admitted into evidence:
|WDT Linda Wagner
|Accumulated Costs as of January 1, 2002
|Accumulated Costs as of January 1, 2003
|WDT Robert Bruns
|Appraisal of Robert Bruns $6,670,000
|Photograph of Subject’s Lowest Level
|Photograph of Subject’s Main Level
|Photograph of Subject’s Upper Level
|Federal Depreciation Table
|Map of Subject Property Segments
|Gallons Sold Chart
|Les Bourgeois Winery Photos
|Cave Winery Photographs
|Chaumette Winery Photographs
|Charleville Winery Photographs
|Twin Oaks Winery Photographs
|Ste. Genevieve Winery Photographs
|Barrens Restaurant Photographs
|River Auxvasse Winery Photographs
|Sand Creek Winery Photographs
|Pa Pa’s Wine Bar Photographs
|Weingarten Vineyard Photographs
|Written Direct Testimony Edward Boyer
|E.A. Boyer’s Estimate #49
|WDT Rick Schaefer
|CV Rick Schaefer
|Les Bourgeois Winery Photographs
|Cave Winery Photographs
|Chaumette Winery Photographs
|Charleville Winery Photographs
|Twin Oaks Winery Photographs
|Ste Genevieve Winery Photographs
|Barrens Restaurant Photographs
|River Auxvasse Winery Photographs
|Sand Creek Winery Photographs
|Pa Pa’s Wine Bar Photographs
|Photographs of Mt. Pleasant Estates, Augusta
|Article from Wine Business.com
|Photographs of Balducci Winery
|Photographs of Native Stone Winery
|Photographs of Summit Lake Winery
|Map of Location of Comparable Sales
|Howard Audsley’s Deposition Exhibit 2
|Howard Audsley’s Deposition Exhibit 3
|Howard Audsley’s First Appraisal of Winery
|Howard Audsley’s First Appraisal of Brewery
|Howard Audsley’s Second Appraisal of Brewery
|Rebuttal Testimony of Robert Bruns.
Complainant objected to admission to Exhibits 4 to 9 and 11-23. Objections were taken under advisement and ruled upon on October 11, 2013. Complainant’s objections were overruled.
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2011, to January 1, 2012, therefore the assessed value for 2011 remains the assessed value for 2012. (Section 137.115.1 RSMo)
- Presumption of Correct Assessment Not Rebutted. The evidence presented by Complainant was not substantial and persuasive to both rebut the presumption of correct assessment by the Board and to establish the fair market value of the subject property to be $2,292,000.
CONCLUSIONS OF LAW AND DECISION
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 and 138.431 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. Art. X, Section 4(a) and (b), Mo. Const. The constitutional mandate is to find the true value in money for the property under appeal. By statute, real and tangible personal property is assessed at set percentages of true value in money. Section 137.115.5 RSMo.
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. It places the burden of going forward with evidence on the taxpayer – Complainant.
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
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.
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
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).
Highest and Best Use
The highest and best use analysis determines the properties optimal use, when the property may achieve optimal use and who would be most likely the buyer or user of the property. It should be the probable and legal use of vacant land or improved property that is legally permissible, physically possible, appropriately supported, financially feasible, and that results in the highest value.
Highest and best use analysis is difficult on special use properties. As improved, the highest and best use is probably continuation of the special use if that use is viable. If there are no buyers for the special use property in its current use, an alternative use must be considered.
Complainant’s appraiser concluded that the property’s highest and best use if vacant, was as residential use and Respondent’s appraiser concluded it could be a “variety of rural development options.” As to the highest and best use as improved, both appraisers concluded that it would be as a commercial winery.
Both appraisers reviewed the sales and income approach and concluded that neither approaches were applicable in this situation. Both appraisers developed the cost approach. In the cost approach, value is estimated as the current cost of reproducing or replacing the improvements minus the loss in value from the depreciation plus land or site value. The cost approach is most appropriate when the property being valued has been recently improved with structures that conform to the highest and best use of the property or when the property has unique or specialized improvements for which there are no comparables in the market. Stephen and Stephen Properties, Inc. v. State Tax Commission, 499 S.W.2d 798 (Mo.1973). Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341 (Mo. 2005).As the Complainant’s appraiser states in his report, the cost approach is based upon the proposition that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility as the subject property.
The general process for developing the approach is (1) determine the cost new using reproduction or replacement cost (using either comparative unit, unit in place or quantity survey for estimating costs); (2) deduct depreciation (physical, functional and external) using either the market extraction, economic age-life, or breakdown methods; (3) conclude value of improvements; (4) add in contributory value of other site improvements; and (5) add land value.
Depreciation may be deducted in a lump sum or breaking out the three types of depreciation. Even if using a lump sum deduction, the appraiser must consider or account for all types of depreciation without considering the depreciation more than once.
Physical depreciation is the wear and tear from regular use, elements or damage.
Functional obsolescence is either a deficiency or super adequacy of the improvements. This type of depreciation results from a flaw in the structure, materials, or design that diminishes the function, utility and value of the improvement.
External depreciation is a temporary or permanent impairment of the utility or sale of improvement due to negative influences outside the property. An example of external depreciation is adverse market conditions.
To calculate depreciation, an appraiser will look to the three methods – market extraction, economic age-life, and breakdown. Economic age life and market extraction methods are limited in that they produce a straight-line depreciation and they produce a lump sum depreciation amount. The Complainant’s appraiser used the market extraction method and then broke the depreciation into types.
The market extraction method of determining depreciation relies on the availability of comparable sales from which depreciation may be extracted. The appraiser should use direct comparisons with market sales. It should only be used if sufficient data exists and the quality of that data is adequate to permit meaningful analysis. The comparable properties must have physical, functional and external characteristics similar to subject and have incurred similar amounts and types of depreciation. This method can be used to extract total depreciation, total life expectancy and identify other types of obsolescence or excess physical deterioration. If sales are plenty, the market extraction method provides a reliable and convincing estimate. To utilize this methodology an appraiser must be able to develop an accurate site value estimate and a defensible cost estimate.
Break Down Method
The break down method separates the depreciation into physical, functional and external categories. The process is cumulative in that the subsequent step builds on the result of the prior step.
An appraiser may start with market extraction method and then go to break down method to categorize the depreciation. An appraiser must be careful in not considering depreciation more than once for each type of property.
Complainants’ Burden of Proof
In order to prevail, Complainants 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, 2011. 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)
The differences between the two appraisers can be categorized as (1) development of the cost new, (2) the contributory value of various agricultural improvements and (3) their opinion as to the depreciation to be applied to the winery and other improvements.
Both appraisers stated that they used the reproduction cost new approach to estimate the valuation for the subject property. The approach is appropriate for the subject property as the subject property is relatively new construction and it’s improvements are unique or specialized for which there are no comparables in the market. The Complainant’s appraiser used less square footage when developing the reproduction cost new for the winery building. This may be due to the appraiser believing the property suffered from super adequacy. The appraiser used more of a replacement cost new rather than making cost determinations based upon replicating the improvements. The approach would have been appropriate for the appraiser whom believed the improvements suffered from functional obsolescence by super adequacy. The Complainant’s appraiser made the adjustments in reproducing costs and adjusted again in his functional obsolescence determination thereby over estimating the depreciation. (Ex A 78-79).
The Complainant’s appraiser did not include some improvements in developing his cost new. The appraiser acknowledges that he failed to include them in his appraisal; however he claims they would have no impact on his resulting opinion of value. He testified that he should have included the improvements and then adjusted for this impact, or lack thereof, on the market value of the property. The appraiser for the Complainant did not include items such as the patios, walkways, fire pits, fencing, exterior lighting, gates, paved roads, signage, wells, grain bins, feed shelters, livestock enclosures, etc. The Complainant’s appraiser set a contributory value of $429,983 of additional improvements outside of the buildings while the Respondent’s appraiser set a value of $2,098,927 on the improvements.
The functional and external obsolescence was the most marked differences in the appraisers’ opinions. Complainant’s appraiser used the market extraction method. If sales are plenty, the market extraction method provides a reliable and convincing estimate. To utilize this methodology an appraiser must be able to develop an accurate site value estimate and a defensible cost estimate. The comparable properties must have physical, functional and external characteristics similar to subject and have incurred similar amounts and types of depreciation. None of this was found in this case. The comparable properties were light commercial or industrial properties and were not comparable in age, attributes or utility. The Complainant’s appraiser testified that he found the best comparables sales he could in the market and his only alternative was to use no sales. The appraiser should have considered his options more carefully when opting to use the market extraction approach to calculate depreciation since the sale of like properties were limited or nonexistent. Using a different methodology may have produced persuasive evidence as to depreciation.
Once the appraiser selected sales and determined not to make any adjustment to the sale prices, he needed to subtract the contributory value of the land. To do so, the appraiser must be familiar with land prices. Since the appraiser selected properties throughout the State of Missouri, the appraiser needed to be familiar with the market in many areas. There was no evidence the appraiser was familiar with commercial land sales in various areas in Missouri. His site value estimates of comparables are compromised as the appraiser was outside his market area and area of expertise. Further, the appraiser is not familiar with the market in which the subject is located. He has had only one listing in Ste. Genevieve – a house on 531 acres.
The next step for the appraiser was estimating cost of improvements for each comparable property. This step necessarily means developing a cost approach for each comparable property’s improvements. This approach requires subjective judgments on reconstructing cost. His cost estimates are not defensible. The Complainant’s appraiser’s qualifications did not indicate familiarity with properties in many areas of the state. He has limited experience with commercial or industrial properties. Developing this type of approach without understanding of the properties or the markets cannot establish substantial and persuasive evidence.
The last area of concern is the appraiser’s deduction for external obsolescence. He used his comparable properties to attempt to establish an estimate for deduction. The Complainant produced information from the tourist division regarding tourism in the area and Mr. Scott, the owner, claims not enough people coming to support investment, therefore there must be external obsolence. He has spoken to others in the business who told him that similar businesses operate in smaller buildings. The information presented may or may not be true, but the testimony does not provide true estimate for deduction.
The cost approach is most appropriate when the property being valued has been recently improved with structures that conform to the highest and best use of the property or when the property has unique or specialized improvements for which there are no comparables in the market. The reproduction cost is appropriate in this appraisal problem given the property’s specialized or unique improvements, age, and highest and best use.The Complainants have the burden of proof. The Complainant must present substantial and persuasive evidence that the Ste. Genevieve Board of Equalization erred in the valuation and the market value of the subject property on January 1, 2011. The Complainants did not meet their burden of proof.
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for Ste. Genevieve County for the subject tax day is SUSTAINED.
The assessed value for the subject property for tax years 2011 and 2012 remains set at
$6,217,820, commercial assessed value of $1,513,460 and agricultural assessed value of $178,590.
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 Ste Genevieve 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 3rd day of July, 2014.
STATE TAX COMMISSION OF MISSOURI
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 3rd day of July, 2014, to: James Gamble, 231 S. Bemiston Ave., #1111, St Louis, MO 63105, Attorney for Complainant; Richard Reed, 136 E. Michigan Ave., #800, Kalamazoo, MI 49007, Attorney for Respondent; Linda Wagner, Ste. Genevieve County Assessor, 55 S. Third St., Ste. Genevieve, MO 63670; Kay Basler, Ste. Genevieve County Clerk 55 South Third St., Ste. Genevieve, MO 63670; Phyllis Vessell Ste. Genevieve County Collector 55 S. Third Ste. Genevieve, MO 63670.
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