State Tax Commission of Missouri
|FARMINGTON ASSOCIATES II||)|
|-vs-||)||Appeal No. 11-84005|
|)||Appeal No. 11-84006|
|DAN WARD, ASSESSOR,||)|
|ST. FRANCOIS COUNTY, MISSOURI||)|
ORDER AFFIRMING HEARING OFFICER DECISION
On January 30, 2015, Hearing Officer Maureen Monaghan issued her order setting aside the value placed upon the subject subsidized properties by the St. Francois County Board of Equalization, and finding the correct assessed value to be $367,460 on Appeal Number 11-84005 and $123,815 on Appeal Number 11-84006 for tax years 2011 and 2012. Respondent appealed.
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.
Respondent appealed raising the following issues:
- The Hearing Officer erred in giving greater weight to Complainant’s appraisal report, which did not include a cost approach to value, than to the presumption in favor of the Board of Equalization or the recent Park West v. Pruden decision, thus shifting the burden of proof to the Assessor.
- The Hearing Officer erred in rejecting competent evidence of the $5,600,000 cost of construction in Appeal Number 11-84005, evidenced by a building permit application dated close in time to the valuation date, resulting in a more than 50% discount on a new construction in contravention to Park West v. Pruden. The Hearing Officer further erred by refusing to acknowledge the Assessor’s use of the Vanguard cost estimate software in determining value.
- The Hearing Officer erred in ignoring evidence of previously stipulated value in Appeal Number 11-84006 and accepting Complainant’s position that said property had depreciated about 50% in six years between 2005 and 2011.
DISCUSSION AND RULING
The legislature has given us specific direction on the issue of valuing subsidized property. (SCS HCS HB 613, signed by the Governor on 7/6/15). That direction, in the form of a new paragraph 2 under Section 137.076 RSMo., provides as follows:
- In establishing the value of a parcel of real property, the county assessor shall use an income based approach for assessment of parcels of real property with federal or state imposed restrictions in regard to rent limitations, operations requirements, or any other restrictions imposed upon the property in connection with:
(1) The property being eligible for any income tax credits under section 42 of the Internal Revenue Code of 1986, as amended;
(2) Property constructed with the use of the United States Department of Housing and Urban Development HOME investment partnerships program;
(3) Property constructed with the use of incentives provided by the United States Department of Agriculture Rural Development; or
(4) Property receiving any other state or federal subsidies provided with respect to the use of the property for housing purposes.
For the purposes of this subsection, the term “income based approach” shall include the use of direct capitalization methodology and computed by dividing the net operating income of the parcel of property by an appropriate capitalization rate not to exceed the average of the current market data available in the county of said parcel of property. Federal and state tax credits or other subsidies shall not be used when calculating the capitalization rate. Upon expiration of a land use restriction agreement, such parcel of property shall no longer be subject to this subsection.
In short, the legislature has rejected the cost based methodology proposed by Park West v. Pruden in favor of the income based Maryville Properties valuation methodology for subsidized housing. Respondent does not assert that the Hearing Officer inappropriately applied the Maryville Properties valuation methodology in her determination of 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. Francois 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 28th day of July, 2015.
STATE TAX COMMISSION
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 28nd day of July, 2015, to: Complainants(s) counsel and/or Complainant, the county Assessor and/or Counsel for Respondent and county Collector.
State Tax Commission of Missouri
|FARMINGTON ASSOCIATES II||)||Appeal No. 11-84005|
|FARMING ASSOCIATES||)||Appeal No. 11-84006|
|DAN WARD, ASSESSOR,||)|
|ST. FRANCOIS COUNTY, MISSOURI||)|
DECISION AND ORDER
Decisions of the St. Francois County Board of Equalization are SET ASIDE. The Hearing Officer finds that the only valuation methodology fully presented is the Maryville Formula.
|Appeal No.||Parcel No.||True Value||Assessed Value|
Complainants are represented by Counsel Richard Dvorak.
Respondent is represented by counsel Patrick King.
The Commission takes this appeal to determine the true value in money for the subject properties on January 1, 2011.
The subject properties were appealed as Farmington Associates and Farmington Associates II. They are also known as Orchard View and Orchard View II. For purposes of the decision, the properties will be referred to in the order they were constructed as the “first property” (11-84006) and the “second property” (11-84005).
The first property was constructed in 2003. It is 3.49 acres improved with an apartment building consisting of 40 units totaling 40,400 square feet of rentable area. The improvements also include an office/clubhouse which includes a central laundry facility.
The second property was constructed in 2009-2010. It is 3.86 acres improved with an apartment building consisting of 56 units totaling 57,008 square feet of rentable area. The residents of this building have access to all the amenities of the first property.
As to both properties a “Low Income Housing Tax Credit Land Use Restriction Agreement” was recorded at the time of their construction. By the terms of the agreement, Missouri Housing Development Commission (MHDC) allocated low income housing tax credits to the project in exchange for the owner’s agreement to be regulated by MHDC. The term of the agreement was for 15 years. The owner agreed the units are to be both rent restricted and occupied by individuals or families whose income is 60% or less of the area median gross income. The owner is allowed to charge up to $675 per month for 2 bedroom units and $780 per month for 3 bedroom units. The amount of the tax credits given is unknown.
Exhibit A – An appraisal report was submitted for each property. Both appraisals were marked as Exhibit A. The Exhibit was submitted pursuant to the exchange schedule and admitted into evidence prior to the hearing.
Exhibit B – Written direct testimony of appraiser Kenneth Jaggers was submitted in each appeal. In both appeals, the exhibit was marked as Exhibit B. The Exhibit was submitted pursuant to the exchange schedule and admitted into evidence prior to the hearing.
Exhibit C – An amendment to the appraisal report, Exhibit A, was offered immediately prior to going on the record the day of hearing. The amendment was marked Exhibit C. This is not the first time Appraiser Jaggers has appeared at a State Tax Commission hearing and presented an amendment at the last hour. Respondent graciously agreed to allow Mr. Jaggers to amend his report and Exhibit C was admitted into evidence.
Exhibit 1 – A page from the property record card of the first property submitted pursuant to the exchange schedule and admitted into evidence prior to the hearing.
Exhibit 2 – A page from the property record card of the second property submitted pursuant to the exchange schedule and admitted into evidence prior to the hearing.
Exhibit 3 – Calculation of value using the income approach for both properties submitted pursuant to the exchange schedule and admitted into evidence prior to the hearing.
Exhibit 4 – Written direct testimony of Dan Ward submitted pursuant to the exchange schedule and admitted into evidence prior to the hearing.
Exhibit 5 – Order Approving the Stipulation of the Parties for the first property dated January 6, 2007 admitted into evidence without objection.
Exhibit 6 – Submission to MHDC on the improvements of the subject property. Exhibit was not submitted for admission into evidence.
Exhibit 7 – Application for Building Permit for the second property. Exhibit admitted into evidence without objection.
Exhibit 8 – USPAP 2-2. Exhibit was not submitted for admission into evidence.
Exhibit 9 – Full copy of the property record card of the first property. Exhibit admitted into evidence without objection.
Exhibit 10 – Full copy of the property record card of the second property. Exhibit admitted into evidence without objection.
FINDINGS OF FACT
- Jurisdiction over this appeal is proper. Complainants timely appealed to the State Tax Commission from the decisions of the St. Francois County Board of Equalization.
- The property in appeal 11-84005, Farmington Associates II, is also known as Orchard View II and is identified by locator number 09-70-35-00-000-0016. The property in appeal 11-84006, Farmington Associates, is also known as Orchard View, and is identified by locator number 09-07-35-00-000-0016-02.
- The properties are multi-family residential properties. The first property, built in 2003, consists of 40 units, 40,400 square feet of net rentable area on 3.49 acres. Improvements include an office/clubhouse with laundry facilities and parking. The property is in average condition with above average unit features. The second property, built in 2009, consists of 56 units, 57,008 feet square on 3.86 acres. Improvements also include parking and solar panels. The properties make use of the office and clubhouse located on the first property. The property is above average to market as to age, condition, size, layout, and unit features.
- The subject properties are designated as low income, rent restricted units for tenants whose income is 60% or less of the “area median gross income”, adjusted for family size. Occupancy is at 96%. This is believed to be a stabilized level. Rents have been approved for a maximum of $675 for 2 bed units and $788 for 3 bed units.
- The market rents in the area are $595 for 2 bedroom units and $695 for 3 bedroom units.
- Complainants’ appraiser relied only the “Maryville formula” income approach, as a jurisdictional exception to the standard approaches to value. Complainants’ appraiser’s value determinations were based upon actual income (with market rates applied to the vacant units), projected expenses and a capitalization rate of 9.21% derived from the property funding and market. The appraiser proposed values of $1,520,000 and $660,000.
- The Maryville formula was the only approach fully presented and relied upon by the parties. Using the formula with the actual income, actual expenses and a capitalization rate derived from the information presented, the true value of the first property is $651,600 and the true value of the second property is $1,934,000.
|Appeal No.||Parcel No.||True Value||Assessed Value|
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, 138.431, 138.431(4) RSMo.)
Official and Judicial Notice
Agencies shall take official notice of all matters of which the courts take judicial notice. (Section 536.070 (6))
Courts will take judicial notice of their own records in the same cases. State ex rel. Horton v. Bourke, 129 S.W.2d 866, 869 (1939); Barth v. Kansas City Elevated Railway Company, 44 S.W. 788, 781 (1898). In addition, courts may take judicial notice of records in earlier cases when justice requires (Burton v. Moulder, 245 S.W.2d 844, 846 (Mo. 1952); Knorp v. Thompson, 175 S.W.2d 889, 894 (1943); Bushman v. Barlow, 15 S.W.2d 329, 332 (Mo. banc 1929) or when it is necessary for a full understanding of the instant appeal. State ex rel St. Louis Public Service Company v. Public Service Commission, 291 S.W.2d 95, 97 (Mo. banc 1956). Courts may take judicial notice of their own records in prior proceedings involving the same parties and basically the same facts. In re Murphy, 732 S.W.2d 895, 902 (Mo. banc 1987); State v. Gilmore, 681 S.W.2d 934, 940 (Mo. banc 1984); State v. Keeble, 399 S.W.2d 118, 122 (Mo. 1966).
Presumptions In Appeals
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).
The presumption 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.
The presumption of correct assessment is rebutted when the taxpayer, or respondent when advocating a value different than that determined by the Board, 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). 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 a 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).
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).
Complainants’ Burden of Proof
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).
Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959 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).
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). “Objective standards should be used in determining fair market value in the market place. The particular circumstances of the owner are not a proper consideration . . . Investment value is the value of a property to a particular investor, whereas market value is not related to the needs of the individual investors but is objective, impersonal, and detached; investment value is based on subjective, personal parameters . . .” (Maryville Properties v. Nelson, 83 SW3d 608, 616 WD 2002)
In the past, when valuing subsidized housing, we have attempted to look at actual income, actual expenses, financing terms and market capitalization rates in order to try to account for risks and benefits associated with this unique type of real property, recognizing that subsidized properties do not tend to sell and costs tend to be inflated, making sales and cost approaches difficult. The State Tax Commission referred to this methodology as the Maryville Formula. After Lake Ozark Village v. Whitworth, STC Appeal Nos. 97-47000, 99-47003 and 01-47002, parties to appeals involving subsidized housing properties utilized the Maryville Properties v. Nelson, STC Appeal No. 97-74500 methodology for determining value – as modified by the Western District Court of Appeals. At that time, subsidized housing typically included extremely low interest, low equity loans which had subsidized income, subsidized mortgages, subsidized interest and non-recourse promissory notes. In attempting to follow the directive of Missouri Baptist Children’s Home to consider all relevant economic facts, the Commission instructed assessors to value subsidized housing based upon actual income, actual expenses and capitalization rates.
In Park West v. Pruden, Bate County STC Appeal No. 11-43000 to 11-43036 and 13-43001 to 13-43002, decision dated 11/4/14, the Hearing Officer found with the facts presented in that appeal that the Maryville formula was not persuasive evidence for determining the true value of the property. The Hearing Officer found that the equity positions were no longer the 3% to 5% found in the Maryville Properties/Lake Ozark cases but had now skyrocketed to over 80%. The Maryville formula methodology contemplated a low equity position with a market return rate and a high financed position with an extremely low interest rate. Under the Maryville formula, an increase in the equity position of the newer improvement resulted in it being valued substantially less than the older improvement.
In Park West Estates I and II, the original construction cost of recently completed improvements was presented. The Hearing Officer compared the actual cost of the properties to the indication of value as determined by the Maryville formula. The Hearing Officer asked “Would a typical investor spend almost $3 million for a property that only had a market value of $490,000 before it is even completed?” The Hearing Officer concluded:
“[e]ither the benefits and burdens under the Maryville formula are not being measured appropriately; or the income approach substantially distorts market value to a point of no longer being a good indicator of value. Arguably, facts surrounding subsidized housing and its financing have gone so far beyond typical market behavior that an income approach based upon subjective facts associated with these properties can never reasonably capture value.”
No information as to the actual cost to construct was presented in this appeal. The Hearing Officer was only provided with the income and expenses of the subject properties.
Maryville formula uses actual rents, actual expenses, actual and market financings. The appraiser used actual rents and referred to market rents for the 1 two bed and 1 three bed vacant units to determine the potential gross income. The appraiser did not use actual expenses but used projections. The appraiser did not provide support or reference for his projections and they are high in comparison to actual. For example in the second property, the actual expenses for repairs was $19,600 but the appraiser used a projected expense figure of $28,000. The appraiser projected advertising cost to increase to $1400 from $154, which is suspect given the apartment is near 100% occupied. The appraiser projected administrative costs to increase to $33,600 from $28,369; payroll to increase to $61,600 from $40,020. If we adjust his formula to reflect actual expenses, the resulting indications of values are:
|Vacancy & Collection||5%||(9,975)|
|Effective Gross Income||$211,518|
|Indication of Value||$651,660|
|Farmington Associates II|
|Vacancy & Collection||5%||(15,552)|
|Effective Gross Income||$341,390|
|Indication of Value||$1,933,876|
Commission rejected Maryville Formula in Park West Estates (11-43000 to 11-430036). The properties in those appeals were new construction. The cost approach is an effective approach to develop market value in those circumstances. The reconciliation of cost approach and income approach lead the Hearing Officer to place more weight on the cost approach.
In this appeal, the appraiser did not develop the cost approach even though the improvements of the second property were recent. The appraiser developed sales comparison approach but did not place reliance on the method or value developed. The income approach using the Maryville formula was developed. As that information was the only information presented to develop value and since the actual costs and the capitalization rate utilized were not contested; the indications of value using that approach is deemed substantial and persuasive evidence.
The Board’s market value for the subject properties is SET ASIDE. The following valuations are concluded:
|Appeal No.||Parcel No.||True Value||Assessed Value|
A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing date shown in the Certificate of Service. The application shall contain specific 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 appeal is based will result in summary denial. (Section 138.432 RSMO. 2000)
The Collector of St. Francois County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending a filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of 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 30th day of January, 2015.
STATE TAX COMMISSION OF MISSOURI
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 30th day of January, 2015, to: Richard Dvorak, 7111 W. 98th Terr., #140, Overland Park, KS 66212, Attorney for Complainant; Patrick King, Assistant Prosecuting Attorney, 1 N. Washington, Suite 301, Farmington, MO 63640, Attorney for Respondent; Dan Ward, Assessor, County Courthouse Annex, 1 W. Liberty, Suite 200, Farmington, MO 63640; Mark Hedrick, Clerk, Courthouse Annex, 1 W. Liberty, Suite 300, Farmington, MO 63640; Pamela Williams, Collector, Courthouse Annex, 1 W. Liberty, Suite 201, Farmington, MO 63640.