State Tax Commission of Missouri
DELONG’S,INC.,)
)
Complainant,)
)
v.) Appeal(s) Number 07-52009 and 07-52010
)
CHRISTOPHER ESTES, ASSESSOR,)
COLE COUNTY, MISSOURI,)
)
Respondent.)
ORDER
AFFIRMING HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
On March 9, 2009, Hearing Officer Maureen Monaghan entered her Decision and Order (Decision) setting aside the assessments by the Cole County Board of Equalization and setting the assessed value of the property in Appeal 07-52009 at $725,065 and the assessed value of the property in Appeal 07-52010 at $196,470.
Complainant timely filed its Application for Review of the Decision.Respondent timely filed his Response.
CONCLUSIONS OF LAW
Standard Upon Review
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.[1]
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 she 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.[2]
The Commission will not lightly interfere with the Hearing Officer’s Decision and substitute its judgment on the credibility of witnesses and weight to be given the evidence for that of the Hearing Officer as the trier of fact.[3]
DECISION
Complainant’s Points Argued
Complainant raises two points.The points are as follows:
1.The Hearing Officer erred in failing to value the Delong’s property using the comparable sales approach.
2.The Hearing Officer, in the Summary of the Decision, incorrectly states the appraised value and assessed value proposed by both parties in appeal number 07-52009.
Failure to Use Comparable Sales Approach
A review of the record in the present appeal provides support for the determinations made by the Hearing Officer.There is competent and substantial evidence to establish a sufficient foundation for the Decision of the Hearing Officer.A reasonable mind could have conscientiously reached the same result based on a review of the entire record. The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused his discretion as the trier of fact and concluder of law in this appeal.[4]More specifically, the Hearing Officer was not persuaded by either the sales comparison or income approaches to value as presented in the record.The reasoning for the rejection of both of these methodologies is expressed in detail in the Decision.No sound purpose is served by reiterating the Hearing Officer’s analysis.The Hearing Officer did not err in her determinations as challenged by Complainant.
Error in Summary
A review of the file shows that the corrected Complaint for Review of Assessment as filed by Complainant’s Counsel sets forth the Values Set By The Assessor:True Value (Market) – $2,187,600; Assessed Value – $700,030, and the Taxpayer’s Proposed Values:True Value (Market) – $625,000; Assessed $200,000.[5]The original Complaint filed had the following values:Assessor True Value (Market) – $3,000, 900, Assessed Value – $960,290, and Taxpayer’s Proposed Values:True Value (Market) – $1,046,200; Assessed Value – $334,784.[6]Accordingly, the Hearing Officer Decision – SUMMARY beginning on page 1 is corrected by striking the following sentences:
The Assessor, in appeal number 07-52009, determined an appraised value of$3,000,900, assessed value of $960,288, as commercial property.Complainantproposed a value of $1,046,200, assessed value of $334,784.
And inserting in lieu thereof the following sentences:
The Assessor, in appeal number 07-52009, determined an appraised value of$2,187,600, assessed value of $700,030, as commercial property.Complainantproposed a value of $625,000, assessed value of $200,000.
In all other respects the Decision is affirmed as written.
The point raised by Complainant presents no substantive issue on the ultimate determination of value made by the Hearing Officer
ORDER
The Commission upon review of the record and Decision in this appeal, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified.Accordingly, the Decision is affirmed, with the correction in the Summary heretofore made.The Decision and Order of the hearing officer, including the findings of fact and conclusions of law therein, with the correction in the Summary, is 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 Cole 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 July 22, 2009.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Jennifer Tidwell, Commissioner
Charles Nordwald, Commissioner
DECISION AND ORDER
HOLDING
Decision of the Cole County Board of Equalization sustaining the assessment made by the Assessor is SET ASIDE.Hearing Officer finds presumptions of correct assessment rebutted.
Complainant appeared by Counsel, James W. Gallaher.
Respondent appeared in person and by Counsel, John Ruth.
Case heard and decided by Hearing Officer Maureen Monaghan.
ISSUE
The Commission takes these appeals to determine the true value in money for the subject properties on January 1, 2007.
SUMMARY
Complainant appeals, on the ground of overvaluation, the decision of the Cole County Board of Equalization, which sustained the valuation of the subject properties.The Assessor, in appeal number 07-52009, determined an appraised value of $3,000,900, assessed value of $960,288, as commercial property.Complainant proposed a value of $1,046,200, assessed value of $334,784.The Assessor, in appeal number 07-52010, determined an appraised value of $813,300, assessed value of $260,260, as commercial property.Complainant proposed a value of $421,200, assessed value of $134,780.A hearing was conducted on December 2, 2008, at the Cole County Courthouse Annex, Jefferson City, Missouri.At the hearing, the appraiser for the Complainant proposed a valuation of $1,600,000 for both parcels and the appraiser for the Respondent proposed a valuation of $5,484,000 for both parcels.The transcript was received by the Hearing Officer on January 9, 2009.All briefs were filed by March 3, 2009.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
Complainant’s Evidence
Exhibit A:Self-Contained Appraisal Report of Nunn Company
Exhibit B:Written Direct Testimony Gary Stroup
Exhibit C:Written Direct Testimony of F. Joe DeLong III.
Exhibit D:Improvements 12/12/05 to 10/25/06
Testimony of Mr. Stroup and Mr. DeLong, III.
Respondent’s Evidence
Exhibit 1:Appraisal Report of Judith Trail
Exhibit 2:Written Direct Testimony of Judith Trail
Testimony of Ms. Trail.
FINDINGS OF FACT
1.Jurisdiction over these appeals is proper.Complainant timely appealed to the State Tax Commission from the decision of the Cole County Board of Equalization.
2.The subject property is located at 301 Dix Road, Jefferson City, Missouri.The property is identified by parcel identification numbers 10-01-12-0002-002-005 and 10-01-01-0003-023.The property consists of 11.55 acres with several improvements with over 162,000 square feet of office and manufacturing space.
3.The improvements include a two-story office building, bridge fabrication area, structural fabrication area, material storage, and paint facility.The original structures were built in 1953 and additions and improvements have been added up to 2006.
4.The Complainant purchased 1723 Industrial Drive, just east of the subject property, during the pendency of this appeal.The property is a 5.34 acre site with a 132,896 square foot cinder block improvement.The property was a manufacturing facility that was closed at the time of the sale.The property sold for approximately $900,000.According to the appraiser for the Complainant, the price was below the lower end of the range indicated by an appraisal performed two years prior to the sale.The lower price was probably due to the option to purchase previously placed on the land.
5.The office building is a two-story building constructed in 1953.It has 10,200 square feet of space.It is fair quality of construction and is in average condition.This building does have forced air and heat.
6.The “Front Shop” is connected to the office building.It is a 20’ high, steel frame building with 33,370 square feet of space.The roof was replaced in 2006 at a cost of $300,000.The building has office, shop, break room and production area.There is no forced air or hearing in the production areas.
7.The Crane Bay is 18,490 square feet with 30’ ceilings, concrete flooring in a metal and steel frame building.
8.The “East Shop” is a 69,097 square foot building constructed in 1990.It is a metal on steel frame building with a concrete floor.There is no heating or air conditioning.
9.The “Paint Building” was constructed in 2000 for $779,167.It is a metal on steel frame building with concrete floor.The ceiling is 29’ high.It is good quality construction in good condition.This building is heated by hot water floor heat.
10.The “Shot Blast” was constructed in 1975 metal over steel frame, concrete floor, and 40’ ceilings.It has 8,674 square feet.It is average condition.
11.The property has sufficient support improvements such as parking, landscaping, etc.
12.There was no evidence of new construction and improvement from January 1, 2007, to January 1, 2008.
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.[7]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.[8]
Presumptions In Appeals
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization.[9] The presumption in favor of the Board is not evidence.A presumption simply accepts something as true without any substantial proof to the contrary.In an evidentiary hearing before the Commission, the valuation determined by the Board, even if simply to sustain the value made by the Assessor, is accepted as true only until and so long as there is no substantial evidence to the contrary.
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.[10]It is the fair market value of the subject property on the valuation date.[11]
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 is 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.
2.Both parties are well informed and well advised, and each acting in what they consider their own best interests.
3.A reasonable time is allowed for exposure in the open market.
4.Payment is made in cash or its equivalent.
5.Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.
6.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.[12]
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.[13]
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.[14]
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.[15] While reproduction cost is the best indicator of value for newer properties where the actual costs of construction are available, replacement cost may be more appropriate for older properties.
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….”[16] 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 “comparable sales approach” uses prices paid for similar properties in arm’s-length transactions and adjusts those prices to account for differences between the properties. “Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.”[17]. This approach is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis.
The commission’s choice of valuation approaches must comply with the law. Both Section 137.115 and article X, section 4(b) of the Missouri Constitution require that real property in Missouri be taxed according to its true value in money. True value is a function of the property’s highest and best use.[18]
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.[19]
Valuation Date
Assessment of real property in Missouri is under a two-year assessment cycle.The assessor is to value property as of January 1, of the odd-numbered year.The assessed value established for the odd-numbered year, remains the value for the following even-numbered year in the absence of new construction and improvement to the property.[20]
Complainant’s Burden of Proof
In order to prevail, Complainant 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, 2007.[21]Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[22]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.[23]
Subject Property
The subject property presents difficult appraisal issues as the property is a special purpose property, the improvements are old, the zoning for the subject property is industrial in an area that is surrounded by commercial and residential, and there is not an active market for this type of property.The property is a special purpose property but it is not an interim use property as proposed by the Complainant. The current use of the property does not have a foreseeable end in the near future; the property’s current use as a manufacturing facility appears to be its most likely use.
The Complainant argues that the Respondent is valuing the property as value in use rather than value in exchange.Value in exchange is defined as “[t]he value of a commodity in terms of money to persons generally, as distinguished from use value to a specific person.”[24]Value in use is defined as the value a specific property has for a specific use[25] and the value of property which reflects a value to a specific user, recognizing the extent to which the property contributes to the personal requirements of the owner.” [26]
An exchange value is an objective value determined by transactions between buyers and sellers in the open market.A use value is a subjective value of an owner, user, or potential owner based solely upon his or her personal needs for the property.Market value is the value determined by the exchange of property between an informed seller and an informed buyer after exposure in the open market and not a subjective opinion of some individual or entity.However, there is a distinction between a value in use to a specific user and a value recognized by a group of informed potential buyers that a property has for a specific use.The latter should be fully considered under a market value appraisal.Further, if there is sufficient demand for the property for the use to which it is being put by the owner, exchange value can be equivalent to the use value to the owner.The market value standard does not require appraisers to discard transactions or market demand for the improvement just because the market finds the property valuable for the same use that it is being put to by the owner.Such evidence should be fully considered in a market value appraisal.[27]
Respondent’s appraiser had a more defined market than the Complainant’s appraiser but the Respondent’s appraiser did not value the property as to use only by the owner or inconsistent with the market.Both appraisers conclude that the property is special purpose and therefore the market may be limited just as there are limited comparable properties.
Income Approach
The income approach was developed by the Respondent’s appraiser.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 Respondent’s appraiser conceded that property like the subject property is rarely purchased based upon income production of the property.Further, the quality and completeness of the information to develop an income approach to value was lacking.
The Respondent’s appraiser did research the market for income information even though the data was limited.The comparable properties she found were listings and not “contracts in place”.The appraiser only allowed for a 2% vacancy since the subject property had been owner occupied for forty years.The Respondent’s appraiser then determined a capitalization rate from the limited market information.The concluded value determined was $4,425,000.The appraiser used this calculation as support or a check on her value calculation using the cost approach.
The Complainant’s appraiser did not develop an income approach as the appraiser felt that properties like the subject property in Central Missouri are owner-occupied and therefore rental data was non-existent.
Given the lack of market data forcing the appraiser to use listing information and not actual contract in place information and the lack of vacancy information (and possibly underestimating the vacancy rate), the income approach does not appear to be the best methodology for calculating market value for the subject property and both appraisers were correct in not relying on this methodology.
Sales Comparison
The Complainant’s appraiser developed the sales comparison approach considering the land as zoned industrial and if zoned commercial.The sales comparison approach uses prices paid for similar properties in arms-length transactions and adjusts to those prices to account for differences in the property.
When considering the current industrial zoning, the Complainant’s appraiser used four sales, two of the sales were properties located in Jefferson City and two of the sales were properties in other counties.Besides location, other concerns include that Sale number one was a distressed sale due to bankruptcy, also, sale number 1 involved a building three times the size as the subject property.Sale number 3 was a sale of land to the Complainant.The price was below market due to an option to purchase the Complainant had on the property.Another concern was the range of values placed on the land for all comparable sales was $114,000 to $1,006,000.Lastly, the adjustments or the amount of the adjustments made by the appraiser were not deemed appropriate.For example, the appraiser made adjustments for effective age on the improvements but the effective ages were similar to the subject property.
The Complainant’s appraiser also developed a sales comparison approach as if the subject property was zoned commercial and there were no improvements.The appraiser looked at five sales of properties with C1 zoning.Two of the sales were in Jefferson City and three of the sales were in Columbia, Missouri.The sales in Columbia were in $3 per square foot range and the sales in Jefferson City were in the $7 per square foot range before adjustments.The sales in Jefferson City, after adjustments, provided a range of $4.36 – $4.45 per square foot or an indicated value range for the subject property of $2,193,594 to $2,238,875.After a review of the sales and adjustments, the appraiser concluded on a value of $2,100,000.The appraiser then needed to deduct the cost of the demolition of the current improvements.The appraiser used Marshall and Swift for an estimate of the cost of demolition but then adjusted the estimate due to the income from salvage of the materials for a resulting value of approximately $1,800,000.
The sales comparison approach is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis.The subject property is unique and the market information is lacking. Reliance on this method is questionable given the specific characteristics of this property but may provide a check on the value determination by another approach.
Cost Approach
Although there are disadvantages to using this approach, the cost approach is the best approach for the subject property given the lack of comparables and income information in the market.The cost approach was developed by both appraisers and both appraisers developed two cost approaches: one approach was for the land as it is currently zoned with its current improvements (M-2 industrial zoning) and the other approach was for the land as if it was vacant and the zoning changed to commercial.Both appraisers stated that the land is currently zoned M-2 manufacturing but given the location and neighborhood characteristics of the subject property, changing to the zoning to commercial and removing the current improvements might be advisable when the current owner is no longer using the property.
Value of Land and Improvements as Zoned as Manufacturing
Both appraisers first looked at the market for properties zoned M-2 for land pricing.The Complainant located three vacant land sales in the Jefferson City for properties zoned M-2.Given the size of the subject property and its location, the most similar property used by the Complainant was land sale 2.However, the property was more rural and less visible and accessible.The appraiser did make an upward adjustment of 30% for the location.The resulting value for the land was $400,000.
Respondent’s appraiser also looked to market for vacant land sales with M2 zoning within an urban setting and found three properties.Two of the properties were still on the market, not sold, and the properties were smaller in size than the subject property.M2 land sale #1 was a three acre property near the subject property and was zoned industrial.The property sold in 2004 for $2.78 per square foot.The appraiser made adjustments for time, size and topography due to the fill needed to use some of the land of the comparable property.The resulting value after adjustments was $2.60 per square foot.After review of all the properties by the appraiser, she concluded on a $2.50 square foot value or $1,260,000.
The Complainant purchased property zoned M2 adjacent to the subject property in 2007.The Complainant purchased the property for $5.94 per square foot for 5.3 acres
of land with an improvement.The Complainant’s apprais