Erb Equipment v. Holman (Jefferson)

State Tax Commission of Missouri

 

ERB EQUIPMENT,)

)

Complainant,)

)

v.)Appeal Number 07-34108

)

RANDY HOLMAN, ASSESSOR,)

JEFFERSON COUNTY, MISSOURI,)

)

Respondent.)

 

ORDER

AFFIRMING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

 

On October 26, 2009, Hearing Officer Maureen Monaghan entered her Decision and Order affirming the assessment by the Jefferson County Board of Equalization.

Complainants filed their Application for Review of the Decision.

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 or owner 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 or owners who testify on the issue of reasonable value, but may believe all or none of the expert’s or owner’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]

COMPLAINANT’S POINTS ON REVIEW

Complainants raise the following points in their application for review:

1.      Hearing Officer erred by not finding by substantial and persuasive evidence that Complainant was not the owner of the eleven pieces of construction machinery on which the Board of Equalization’s decision was based.

2.      Hearing Officer erred by finding that she was left with “no basis for adjusting the assessment on the record of this case since no valuation evidence was presented.”

3.      Hearing Officer erred by not setting aside the Board of Equalization’s assessment because the assessment was unlawful, unfair, improper, arbitrary and/or capricious.

 

FINDINGS

 

Hearing Officer erred by not finding by substantial and persuasive evidence that Complainant was not the owner of the eleven pieces of construction

machinery on which the Board of Equalization’s decision was based.

A Board’s valuation is presumed to be valid.The presumption of correct assessment is rebutted when the taxpayer, at the hearing before the State Tax Commission, 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.[4]The hearing before the State Tax Commission is a de novo case.[5] A de novo hearing is trying the matter anew; the same as if it had not been heard before as if no decision has been previously rendered.[6]

How the Board made their determination and whether or not their determination of value included eleven vehicles not owned by the Complainant was not part of the evidence before the State Tax Commission in the de novo hearing.The Hearing Officer makes a determination of value based upon the evidence presented.

Hearing Officer erred by finding that she was left with “no basis for adjusting the assessment on the record of this case since no valuation evidence was presented.”

 

Complainant is in the business of selling machinery and equipment.As part of their business, the equipment is often leased, however, all inventory is available for sale.The Complainant, for the purpose of operating their business, has business personal property such as furniture, fixtures, office equipment, tools and vehicles that are not for sale or lease and are therefore business personal property subject to property tax.

Complainant filed a declaration of personal property with the Assessor’s Office setting forth business personal property not available for sale.The Assessor’s Office determined that the Complainant’s business personal property had a market value of $250,000.The Complainant appealed to the Board of Equalization.The Board determined that the market value of the personal property was $268,760.On August 27, 2007, the Complainant filed a Complaint for Review of Assessment of Personal Property on the basis of exemption and valuation.The Complaint set forth the valuations set by the Assessor and Board and alleging that the property was exempt.

The Taxpayer has the burden to prove it has standing to appeal, that an appeal was made to the Board of Equalization, and the appeal to the State Tax Commission was timely.In an exemption case, the taxpayer will also have to prove the specific property is entitled to an exemption under the law and in a valuation case, the taxpayer will need to prove the value of the property on January 1 of the tax year.

The Complainant presented evidence of signs, placards, stickers, and lease agreements which include the language “All machinery is available for sale.”Complainant’s evidence established that it possesses property that should be deemed inventory and therefore excluded.Complainant’s evidence also established that it possesses property that is used in the operation of the business and therefore is not exempt.Complainant did not present evidence as to individual pieces of property.The Complainant did not present evidence as to valuation of the business personal property used for the operation of the business not inventory available for sale.

The presumption of correct assessment is rebutted when the taxpayer, at the hearing before the State Tax Commission, 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.[7] A taxpayer does not meet his burden if evidence on any essential element of his case leaves the Commission “in the nebulous twilight of speculation, conjecture and surmise.”[8]

Hearing Officer erred by not setting aside the Board of Equalization’s assessment because the assessment was unlawful, unfair, improper, arbitrary and/or capricious.

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, 2007.[9]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.”[10] Complainants failed to meet their burden of proof by not establishing the valuation of their property.

Conclusion

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 that Complainants failed to meet their burden of proof and therefore the presumption of correct assessment was not rebutted.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 her discretion as the trier of fact and concluder of law in this appeal.[11]

The Hearing Officer did not err in her determinations as challenged by Complainants.

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.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 Commission.

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 Jefferson 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 March 23, 2010.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Jennifer Tidwell, Commissioner

 

 

 

DECISION AND ORDER

 

HOLDING

 

Decision of the Jefferson County Board of Equalization setting aside the assessment made by the Assessor is SUSTAINED.

Complainant appeared by Counsel, Patrick McLaughlin.Respondent appeared by counsel, David P. Senkel.Case heard and decided by Hearing Officer Maureen Monaghan.

ISSUE

The Commission takes this appeal to determine whether certain items of Complainant’s property are non-taxable as inventory and to determine the true value in money for such itemsdetermined not to be inventory and therefore taxable.

SUMMARY

Complainant filed an appeal with the State Tax Commission asserting that a portion of their personal property was exempt as inventory. Although Complainant apparently could identify and value those portions of its property that were not exempt as inventory and therefore taxable, the Complainant did not do so at the hearing.The Hearing Officer is thus left with no basis for adjusting the assessment. Because the burden of persuasion is on the Complainant as the moving party, the Hearing Officer must sustain the assessment.

The Assessor determined an assessed value of $250,000.The Complainant appealed to the Board of Equalization.The Board of Equalization determined an assessed value of $268,760, as personal property. The Complainant appealed to the State Tax Commission. Complainant appealed the decision of the Jefferson County Board of Equalization on the ground that a portion of their personal property is non-taxable inventory.A hearing was conducted on August 20, 2009, at the Jefferson County Administration Building, Hillsboro, Missouri.

The Hearing Officer, having considered all of the competent evidence upon the whole record and arguments and discussion presented in Briefs and Response, enters the following Decision and Order.

Complainant’s Evidence

Complainant filed the following exhibits:

 

Exhibits were received into evidence.

Robert Erb and Greg Erb were tendered for cross-examination.

Respondent’s Evidence

Respondent filed the following exhibits.

 

Exhibits were received into evidence.Exhibits 5 and 6 were introduced during cross-examination of the Complainant’s witnesses.Grant Bowen was tendered for cross-examination.

FINDINGS OF FACT

1.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the decision of the Jefferson County Board of Equalization.

2.Complainant’s property, for tax purposes, is located at 200 Erb Industrial Drive, Fenton, Missouri.It is identified by Assessor’s Account Number 093839.

3.Complainant acknowledges that they have business personal property that is not leased or available for sale.The property includes thirty-two vehicles and equipment, computer and related equipment, office furniture, service tools and testing equipment.The Complainant

completed a property declaration and declared said property to the Assessor’s Office in February 2007.

4.The disputed property consists of non-manufacturing machinery and equipment.

5.Complainant’s business is the leasing and selling of machinery and equipment.The company has a policy and arrangement for potential customers to use a rental /purchase arrangement as a part of their sales and marketing program.

6.According to the testimony of Greg Bowen with the Jefferson County Assessor’s Office, the Complainant owned or possessed 582 items on January 1, 2007.Eighty percent of those items were leased multiple times in 2006 and 2007.Fifty-three percent of the items were leased multiple times in 2007.Thirty-seven items were leased on January 1, 2007, and twenty-nine of those items were leased in 2006 and in 2007.The invoice cost of the leased items was $3,111,018.The total invoice cost of items leased in 2007 was $24,952,650.

7.Complainant’s Inventory Price List gives the sale price for each individual piece of machinery or equipment.The purchase price for each piece of equipment is reasonable and is less than the manufacturer’s suggested retail piece.

8.Complainant submitted Exhibit A regarding notices that equipment was for sale.

a.Signage: “All machinery is available for sale.”

b.Rental agreement: “Upon or before expiration of the rental term, Lessee may elect to purchase the Equipment for the Total Present Value specified in the Agreement, and may apply 100% of the rentals previously paid towards present value, with interest charges……”

 

c.Rental Agreement: “ALL MACHINERY IS AVAILABLE FOR SALE: LESSEE HAS THE FIRST RIGHT OF REFUSAL.”

 

d.Website: “Rent to Own.All machinery is available for sale; lessee has the first right of refusal.”

 

e.Rental Guidelines: “All machinery is available for sale….Furthermore, if the rental unit is converted into a sale, all non-warrantable repairs and maintenance during the rental period, will be added to the conversion price.”

 

f.Sticker on Equipment: ALL RENTAL EQUIPMENT IS FOR SALE.LESSEE HAS THE FIRST RIGHT OF REFUSAL.

 

9.As an example, of how leased property is sold, Complainant submitted Exhibits N, O, and P:

Exhibit N: Rental agreement with Jefferson County dated 5/19/04

Exhibit O: E-mail on 6/15/04 from Complainant to County stating that the equipment they are leasing has sold and the county must let them know if they are exercising their right to first refusal.

Exhibit P: An invoice documenting that on 6/15/04 the equipment leased by the County was exchanged because the property had sold.

10.Greg Erb, Vice President and Director of Sales, testified that Erb Equipment is in the business of selling and leasing new and used machinery and equipment.The company leases machinery as part of its sales and marketing.Its annual revenue from rental machinery is 10% but money paid for rentals that are later purchased goes into sales revenue not rental revenues.He further testified that 85% of their machinery is rented first prior to being sold.

CONCLUSIONS OF LAW AND DECISION

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious.The hearing officer shall issue a decision and order affirming, modifying or reversing the determination of the board of equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious.[12]

Presumptions In Appeals

There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof Equalization.[13]The presumption in favor of the Board is not evidence.A presumption simply accepts something as true without any substantial proof to the contrary.

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.[14]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.

Complainant’s Burden of Proof

The taxpayer in a Commission appeal 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.”[15]

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[16]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.[17]

Tax Exemptions

Tax exemptions are not favored in law, and claims therefore must be strictly but reasonable construed against the party claiming exemption.

Inventory Exempt from Taxation

The Missouri Constitution (Article X, Section 6) exempts from ad valorem property tax a merchant’s goods, wares and merchandise held for sale; distinguishing between merchandise held for sale and rental or leased can be difficult.

In Beagle’s Rental Center v. Quick[18], the State Tax Commission decided that an exemption should not be allowed for rental property which might be sold sometime in the future as it is not immediately available for sale to the general public.The term “inventory” denotes “an availability for sale in the ordinary course of business.” [19] Property should not be exempt solely because the owner expresses a willingness to sell it.Property cannot be held for resale if the right to possession is lost through rental.Property, which is both rented and held for sale, should be exempt from taxation only if the following criteria are met:

1.                  The owner posts conspicuous signs on the premises indicating that the property is for sale, and the purchase price of any particular piece of equipment is available;

 

2.                  A list of reasonable purchase prices is available at all time;

 

3.                  Rental contracts and agreements contain language that the rental property may be purchased.

 

Dean Machinery Company v. Quick[20], was similar to the case at bar.The Complainant, Dean Machinery, would rent property as part of their marketing strategy for sales.While the property was being rented to the purchaser, all income generated by the rental was designated by the Complainant as income from a sale.Further, at all times when the property was rented by the ultimate purchaser, it was held out for immediate sale to any other interested party.In that case, the State Tax Commission held that rental property which is subsequently sold to the renter does not lose its characteristic as inventory.

In Midwest Aerials & Equipment, Inc v. King[21], the Complainant maintained a sign on its premise which stated that all of the equipment was for sale.However the Complainant in that case, due to the terms of the lease, could not sell property that was leased to another.The Commission ruled that the owner cannot hold property for sale in the ordinary course of business when possession has been lost due to the item being leased.The Complainant’s property was not immediately available for sale and therefore was not inventory.

Conclusion

The Complainant presented persuasive and substantial evidence that a portion of its property was exempt as inventory.However, the Hearing Officer is left with no basis for adjusting the assessment on the record of this case since no valuation evidence was presented. Complainant apparently could identify and value those portions of its property which the Hearing Officer could conclude as taxable and those portions that were exempt; the Complainant did not do so at the hearing. The Hearing Office is unable from the evidence to surmise how much of the $268,760 assessed value is attributable to the exempt property.Because the burden of persuasion is on the Complainant as the moving party, the Hearing Officer must affirm the assessment.

ORDER

The assessed valuation for the subject property as determined by the Board of Equalization for Jefferson County for the subject tax day is SUSTAINED.

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.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, MO65102-0146, 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 appeal is based will result in summary denial. [22]

The Collector of Jefferson 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 October 26, 2009.

STATE TAX COMMISSION OF MISSOURI

Maureen Monaghan

Hearing Officer