FESTUS AVIATION, INC., )
DEWEY & DOLORES SCOTT, )
v. ) AppealS No. 01-34013 and 01-34014
RANDY HOLMAN, ASSESSOR, )
JEFFERSON COUNTY, MISSOURI, )
DECISION AND ORDER
Complainants have failed to establish that their leasehold interests in the subject properties are exempt from taxation. Complainants have further failed to show that there is an intentional plan to assess their leasehold interests at a higher rate than a statistically significant number of other similarly situated properties in the county. However, we find that Respondent’s use of rental rates from larger airports and unrelated commercial buildings, in order to establish the rate of bonus rent attributable to the said leases, is inappropriate and results in an overvaluation of the subject leasehold interests.
The correct value for the leasehold interest in Appeal No. 01-34013 (Festus Aviation) is $22,340 (assessed value $7,450).
The correct value for the leasehold interest in Appeal No. 01-34014 (Scott) is $24,910 (assessed value $8,300).
The decision of the Board of Equalization is hereby set aside. The Clerk is ordered to place new assessed values on the subject properties for the tax years 2001 and 2002.
The subject appeals involve two distinct taxpayers having substantially similar interests in airplane hangars located at the Festus Memorial Airport. At request of counsel, the cases have been consolidated for the purposes of hearing and decision.
A hearing was conducted on June 12, 2002, before Hearing Officer Aimee Smashey, at the Jefferson County Courthouse, Hillsboro, Missouri. Complainants appeared by counsel, Stephen L. Ukman. Respondent appeared by counsel, David P. Senkel.
Pursuant to Section 138.431.4 RSMo, these matters have been transferred to Hearing Officer Luann Johnson for Decision and Order.
The issues raised in these appeals are:
(1) Can lessees of city owned property be taxed for any bonus value they realize as a part of said lease?
(2) If the county fails to tax an entity which stands in essentially the same relationship with the city as do Complainants, does that indicate an intentional plan of discrimination on the part of Respondent? and
(3) If Complainants can be assessed for the bonus value arising from their leasehold interests, what is the correct bonus value that is taxable?
OFFER OF PROOF
Prior to and at hearing Complainants sought to introduce information of comparable rental rates complied by one William Pannell. Mr. Pannell was neither a certified appraiser nor an owner. Hearing Officer Smashey properly excluded said information, but allowed Complainants to make an offer of proof at hearing.
FINDINGS OF FACT
1. Jurisdiction over these appeals for 2001 are proper. Complainants timely appealed to the State Tax Commission from the decision of the Jefferson County Board of Equalization.
Appeal No. 01-34013
2. Appeal No. 01-34013 is an appeal of the Board of Equalization decision on parcel number 19-4.0-17.0-007.01B. The Board of Equalization affirmed the assessed value of $25,100 on said parcel (market value $78,400).
3. On November 1, 1994, Complainant, Festus Aviation, Inc., leased a certain tract of land from the City of Festus, Missouri for a period of 25 years with an option to renew said lease for a period of 10 years. The terms of the lease provided that Festus Aviation would construct a airplane hangar, and all other supporting improvements, on the tract. The lease rate for the subject land was $75 per month or $900 per year. The lease further provided that after improvements were constructed, the ownership of said improvements would be transferred to the City of Festus at the rate of 4% per year. Thereafter, Complainant, Festus Aviation, constructed a 4,800 square foot hangar building on said tract. On May 13, 1998, Complainant, Festus Aviation, “gifted” its entire interest in the site improvements to the City of Festus. Complainant, Festus Aviation, continues to use the hangar facilities under the terms of the lease.
4. Festus Aviation, Inc. uses the hangar facility to service airplanes and to rent space for individuals to store their airplanes.
Appeal No. 01-34014
5. Appeal No. 01-34014 is an appeal of the Board of Equalization decision on parcel number 19-4.0-17.0-007.01C. The Board of Equalization affirmed the assessed value of $26,700 on said parcel (Market value $83,400).
6. On October 1, 1994, one Jeffrey Brown, leased a certain tract of land from the City of Festus, Missouri for a period of 25 years. The terms of the lease provided that Mr. Brown would construct a airplane hangar, and all other supporting improvements, on the tract. The lease rate for the subject land was $75 per month or $900 per year. The lease further provided that after improvements were constructed, the ownership of said improvements would be transferred to the City of Festus at the rate of 4% per year. Thereafter, a 5,200 square foot hangar building was constructed on said tract. Mr. Brown passed away and, on August 15, 1997, Complainants Dewey L. Scott and Dolores J. Scott, executed an Assignment and Assumption Agreement with the heirs of Jeffery Brown. On July 20, 1998, Complainants, Dewey and Dolores Scott, “gifted” their entire interest in the site improvements to the City of Festus. Complainants, Dewey and Dolores Scott, continue to use the hangar facilities under the terms of the lease.
7. Mr. and Mrs. Scott use the hangar facility to store airplanes and to rent space for individuals to store their airplanes.
As to Both Parcels
8. Both hangar buildings are fully enclosed, have concrete slab flooring and tilt-up entrance doors. The interiors have minimal finish. Exterior improvements include paved asphalt taxi way areas and chain link fencing.
9. The subject sites are located on city owned property which serves as the city airport and is served by all public utilities.
10. The Festus Municipal Airport provides services for privately owned aircraft and has a charter air service through Multi-Aero, Inc. The runway at the Festus airport is one of the shortest in the area and caters to small craft such as Cessna 152, Cessna 172 and Piper.
11. Multi-Aero, Inc., which manages the airport for the city and sells fuel, leases space to aircraft owners at a monthly rate of $150 for 900 square feet. (Tr. 50).
12. The bonus value, sometimes referred to as the leasehold savings or profit, is the difference between the economic rental and the contract rental. The economic rental is the actual market value of the use and occupancy.
13. The contract rent on each lease is $75 per month or $900 per year.
Market Rent – Airplane Hangars
14. A small aircraft utilizes 900 square feet of hangar space. Small aircraft may be parked in either a T-hangar, which has an open side, or a full enclosed hangar such as those in the subject appeals.
15. Multi-Aero, Inc. rents 900 square feet of enclosed hangar space for $150 per month, or $2.00 per square foot annual rent. Rent for similar airports such as Washington are $1.86 per square foot for a single engine aircraft and $2.93 per square foot for a twin engine aircraft. Cape Girardeau rents space at $2.00 per square for a T-hangar with doors while Farmington rents for $1.66 per square foot for inside hangar space. The correct market rent for the subject properties is $2.00 per square foot per year.
16. Larger airports, or operations within larger airports, such as Downtown Parks, Spirit of St. Louis and Mid-Coast Aviation, which have the capacity to handle larger airplanes are not similar comparables.
17. Complainants presented no evidence which would support a conclusion that an adjustment for vacancy and collection loss is appropriate.
18. The correct market rent on the Festus Aviation lease is $2.00 per square foot or $9,600 per year.
The stabilized income and expenses for the remaining term of the lease, indicates a contract rent of $6,753, (Ex. 1, p. 31) or a bonus rent of $2,847 (say $2,850).
The overall rate is 11%, calculated as a discount rate of 5%, a recapture rate of 4% on $74,344 in capital improvements for a period of 25 years, and an effective tax rate of 2%. (Ex. 1, p. 29).
Utilizing the Inwood tables, the present worth of $1 for the remaining term of the lease, 19 years, at a rate of 11% provides a factor of 7.839. (Ex. 1, p. 31). Multiplying the bonus rent by the Inwood factor indicates a market value for the leasehold interest of $22,340. ($2,850 x 7.839 = $22,340). The correct market value for the leasehold interest in this property is $22,340 (assessed value $7,450).
19. The correct market rent on the Scott lease is $2.00 per square foot or $10,400 per year.
The stabilized income and expenses for the remaining term of the lease, indicates a contract rent of $7,122, (Ex. 3, p. 32) or a bonus rent of $3,278 (say $3,280).
The overall rate is 11.5%, calculated as a discount rate of 5%, a recapture rate of 4.5% on $62,530 in capital improvements for a period of 22 years, and an effective tax rate of 2%. (Ex. 3, p. 30).
Utilizing the Inwood tables, the present worth of $1 for the remaining term of the lease, 19 years, at a rate of 11.5% provides a factor of 7.596. (Ex. 3, p. 32). Multiplying the bonus rent by the Inwood factor indicates a market value for the leasehold interest of $24,914, say $24,910. ($3,280 x 7.596 = $24,914). The correct market value for the leasehold interest on this parcel is $24,910 (assessed value $8,300).
20. The county assigned no value to any possible right of renewal on either lease.
Market Rent – other commercial buildings
21. Other commercial buildings in the area which do not have airport access, do not have the same utility as the subject properties and are not reliable indicators of market rent for the subject properties.
22. Complainants assert that no assessment is being made against property leased by Multi-Aero, Inc. which operates facilities at the Festus Airport. No evidence was presented which would support this conclusion. And, even assuming that Complainants’ assertion is correct, the existence of an assessment error on one property does not establish an intentional plan of discrimination by the county.
CONCLUSIONS OF LAW
True Value in Money
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, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).
In order to prevail, a party must present an opinion of market value and then must present substantial and persuasive evidence that its proposed value is indicative of the market value of the subject property on January 1, 2001, in order to have that value accepted. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897. 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).
The value of the leasehold should be determined from the testimony of qualified expert witnesses as that value which a buyer under no compulsion to purchase the tenancy would pay to a seller under no compulsion to sell, taking into consideration the period of the lease yet to run, including the unexercised right of renewal, the favorable and unfavorable factors of the leasehold estate, the location, type and construction of the building, the business of the tenant, comparable properties in similar neighborhoods, present market conditions and future market trends, and all other material factors that would enter into the determination of the reasonable market value of the property. The bonus value, sometimes referred to as the leasehold savings or profit, is the difference between the economic rental and the contract rental. The economic rental is the actual market value of the use and occupancy. St. Louis County v. State Tax Commission, 406 S.W.2d 644 (1966). In order to avoid unjust enrichment, Missouri has adopted the principle of commuting to present worth the difference between the rent reserved and the fair rental value of the lease for the unexpired term. The universally accepted method of applying the principle of discount is through use of Inwood tables. However, some other formula, if shown by the evidence to be generally accepted, can be applied at the proper rate of interest to discount the present value of the bonus. Land Clearance for Redevelopment Corp. v. Doernhoefer, 389 S.W.2d 780 (1965).
Where there is a claim of discrimination based upon a lack of valuation consistency, Complainants have the burden to prove:
1. The level of assessment for the subject property in 2001. This is done by independently determining the market value of the subject property and dividing the market value into the assessed value of the property as determined by the assessor’s office.
2. The average level of assessment for leasehold property in Jefferson County in 2001. This is done by (a) independently determining the market value of a representative sample of leasehold properties in Jefferson County; (b) determining the assessed value placed on the property the assessor’s office for the relevant year; (c) dividing the assessed value by the market value to determine the level of assessment for each property in the sample; and (d) determining the mean and median of the results.
3. That the disparity between (1) and (2) is grossly excessive. Savage v. State Tax Commission of Missouri, 722 S.W.2d 72, 79 (Mo. banc 1986).
Examples of a few instances of undervaluation do not violate the requirements that assessments be uniform. Inappropriate assessments on a few properties surrounding the subject property are insufficient to establish a discriminatory or nonuniform assessment. Cupples Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 701 (Mo. 1959). In order for a reduction to be merited, there must be evidence that differential treatment is pervasive across the class.
The assessed valuations for the subject properties for tax year 2001, as determined by the Assessor and affirmed by the Board of Equalization, are SET ASIDE. The Clerk is HEREBY ORDERED to place a new assessed values on the books for tax years 2001 and 2002 as follows:
Appeal No. 01-34013 Assessed Value $7,450
Appeal No. 01-34014 Assessed Value $8,300
A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial.
If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) 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. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.
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 January 23, 2003.
STATE TAX COMMISSION OF MISSOURI