State Tax Commission of Missouri
| GKN AEROSPACE SERVICES, | ) | |
| ) | ||
| Complainant, | ) | |
| ) | ||
| v. | ) | Appeal Number 11-10971 & 12-10306 |
| ) | ||
| JAKE ZIMMERMAN, ASSESSOR, | ) | |
| ST. LOUIS COUNTY, MISSOURI, | ) | |
| ) | ||
| Respondent. | ) |
ORDER
AFFIRMING HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
An Evidentiary Hearing was held on August 21, 2014 at the St. Louis County Administration Building, Clayton, Missouri by Hearing Officer Maureen Monaghan. On September 5, 2014, the Hearing Officer issued her Decision and Order affirming the St. Louis County Board of Equalization finding the Complainant did not present substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization.
Complainant filed an Application for Review of Appeals 11-10971 and 12-10306. Respondent filed a Response.
CONCLUSIONS OF LAW
Standard Of 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. Section 138.432. RSMo.
DECISION
Complainant’s Application for Review
Complainant’s Claims of Error
Complainant claims of error are that:
- “The Decision is erroneous, arbitrary, capricious, unreasonable, constitutes an abuse of discretion and is contrary to Missouri law in that Complainant presented competent and persuasive evidence to rebut the presumption in favor of the Board of Equalization’s determination of value.”
- “The Decision is erroneous, arbitrary, capricious, unreasonable, constitutes an abuse of discretion and is contrary to Missouri law in that the Decision imposes taxes on intangible business personal property, i.e., customized computer software or software delivered remotely.”
- “The Decision is erroneous, arbitrary, capricious, unreasonable, constitutes an abuse of discretion and is contrary to Missouri law in that the Decision classifies certain fixtures as personal property even though such fixtures constitute real property.”
Discussion
The Complainant argues that the Decision is erroneous, arbitrary, capricious, unreasonable, constitutes an abuse of discretion and is contrary to Missouri law in that Complainant presented competent and persuasive evidence through their expert to rebut the presumption in favor of the Board of Equalization’s determination of value.
Section 137.122 RSMo. provides a statutory standardized methodology for valuing business personal property relying upon the federal Modified Accelerated Cost Recovery System (MACRS) life tables to determine the appropriate “class life” of depreciable tangible personal property used in a trade or business or for production of income “to establish uniformity in the assessment of depreciable tangible personal property. . .” Said section applies to business personal property placed in service after January 2, 2006. The methodology presented by Section 137.122 RSMo. is a cost approach to value, with more than straight line (normal) depreciation. For property placed in service after January 2, 2006, valuation under Section 137.122 RSMo is presumed to be correct but can be “ . . .disproved by substantial and persuasive evidence of the true value in money under any method determined by the state tax commission to be correct . . . .”
Complainant presented an appraisal of the property. The appraiser used a cost and a sales approach to value. Such methodologies have been approved by the State Tax Commission.
The cost approach used by the appraiser does not equate to substantial and persuasive evidence in that the appraiser’s methodology is flawed and lacks authoritative sources and support for adjustments. The areas of concern include his determination of effective age as well as his adjustment for depreciation. The sales approach was also flawed with areas concerning his sources for sales and his use of listings. The sales approach is only reliable if the market is active and the sales may be verified; none of which the Complainant established.
An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion. Missouri Pipeline Co. v. Wilmes, 898 S.W. 2d 682, 687 (Mo. App. E.D. 1995). The State Tax Commission cannot ignore a lack of support in the evidence for adjustments made by the expert witness in the application of a particular valuation approach. Drey v. State Tax Commission, 345 S.W.2d 228, 234-236 (Mo. 1961), Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 348 (Mo. 2005).
Further, the trier of fact may consider the testimony of an expert witness and give it as little or as much weight and credit it deems it entitled. St. Louis County v. Boatmen’s Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992); Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981).
Computer Software
The Complainant argues that the Decision is erroneous, arbitrary, capricious, unreasonable, constitutes an abuse of discretion and is contrary to Missouri law in that the Decision imposes taxes on intangible business personal property, i.e., customized computer software or software delivered remotely. The Complainant’s appraiser presented no information as to the property he labeled as “software.” Under Missouri law “all property, except such as is specifically exempted by the Constitution and the statutes enacted pursuant thereto, is subject to taxation.” Iron County v. State Tax Commission, 437 S.W.2d 665, 668 (Mo. 1968).
Complainant failed to present substantial and persuasive evidence identifying the property and establishing that it is “customized computer software or software delivered remotely” or is deemed to be intangible.
Fixtures
The Complainant argues that the Decision is erroneous, arbitrary, capricious, unreasonable, constitutes an abuse of discretion and is contrary to Missouri law in that the Decision classifies certain fixtures as personal property even though such fixtures constitute real property. It is a determination by the fact finder as to what is and what is not a fixture. In Missouri, three things are required for an object to become a fixture: annexation, adaptation, and intent. Sears, Roebuck and Company v. Seven Palms Motor Inn, Inc., 530 S.w.21 695, 696 (Mo. banc l975). The Complainant failed to produce substantial and persuasive evidence setting forth any of the requirements for personal property to become a fixture. “ [A] fixture, must depend largely upon the facts of each particular case.” Buchanan v. Cole, 57 Mo. App. 11, 16 (1894).
Conclusion
“Where the basis for a test as to the reliability of the testimony is not supported by a statement of facts on which it is based, or the basis of fact does not appear to be sufficient, the testimony should be rejected.” Carmel Energy v. Fritter,827 S.W.2d 780 at 783 (WD 1992) The appraisal report was not substantial and persuasive to rebut the presumption of correct valuation under Section 137.122 RSMo which was affirmed by the Board of Equalization. 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.” See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980).
The Points raised by Complainant are not well taken, as set forth above. The Hearing Officer’s Decision was neither arbitrary nor capricious, but rather a proper application of the law to the facts in the record
ORDER
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 herein verbatim, 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 Louis 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 10th day of March, 2015.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Randy B. Holman, Commissioner
Victor Callahan, Commissioner
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 12th day of March, 2015 to: Thomas Campbell, Robert Droney, 100 S. 4th St., #1000, St Louis, MO 63102, Attorneys for Complainant; Paula Lemerman, Associate County Counselor, 41 S. Central Ave., Clayton, MO 63105, Attorney for Respondent; Jake Zimmerman, St. Louis County Assessor, 41 S. Central Avenue, Clayton, MO 63105; Mark Devore, St. Louis County Collector, 41 S. Central Ave. Clayton, MO 63105.
Jacklyn Wood
Legal Coordinator
State Tax Commission of Missouri
| GKN AEROSPACE, | ) | |
| ) | ||
| Complainant, | ) | |
| ) | ||
| ) | Appeal Number 11-10971 & 12-10306 | |
| ) | ||
| JAKE ZIMMERMAN, ASSESSOR, | ) | |
| ST. LOUIS COUNTY, MISSOURI, | ) | |
| ) | ||
| ) |
DECISION AND ORDER
HOLDING
Decision of the County Board of Equalization sustaining the assessment made by the Assessor is AFFIRMED. Complainant did not present substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization.
Complainant appeared by counsel Robert Droney.
Respondent appeared by counsel Paula Lemerman.
Case heard and decided by Hearing Officer Maureen Monaghan.
ISSUE
Complainant appeals, on the ground of overvaluation, the decision of the St. Louis County Board of Equalization, which sustained the valuation of the subject property. The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2011 and January 1, 2012.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
FINDINGS OF FACT
- Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the St. Louis County Board of Equalization.
- Evidentiary Hearing. The Evidentiary Hearing was held on August 21, 2014 at St. Louis County Administration Building, Clayton, Missouri. Roger Chantal was the only witness testifying at the hearing. The parties and hearing officer directed their questions to him as to the 2011 appraisal with the understanding that if asked the same questions as to the 2012 appraisal, his answers would be the same.
- Identification of Subject Property. The subject property is identified by account number M0127491A.
- Description of Subject Property. The subject property consists of business personal property owned by GKN Aerospace Services. It includes computer equipment, laboratory equipment, office furniture and equipment, as well as manufacturing equipment.
- Assessment. The Assessor determined an assessed value of the property in 2011 at $8,785,930 and at $8,094,600 in 2012. The Board of Equalization sustained the assessment.
- Complainant’s Evidence. The Complainant submitted an appraisal report for 2011 (Exhibit A), an appraisal report for 2012 (Exhibit B), and the written direct testimony of the appraiser (Exhibit C). All exhibits were submitted pursuant to the exchange schedule ordered by the Hearing Officer. No objections were filed as ordered by the schedule and therefore all exhibits are admitted into evidence. The original personal property declarations were produced at the hearing but were not admitted into evidence.
The appraiser developed a valuation which is plagued with various errors, defects and shortcomings which weigh against its reliability and credibility.
- Presumption of Correct Assessment Not Rebutted. Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money.
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. Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo.
Basis of Assessment
The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. The constitutional mandate is to find the true value in money for the property under appeal. By statute real and tangible personal property are assessed at set percentages of true value in money. Section 137.115.5, RSMo.
Presumption In Appeal
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).
The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the Board’s valuation is erroneous and what the fair market value should have been placed on the property. Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).
Complainants’ Burden of Proof
In order to prevail, Complainants must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2011 and January 1, 2012. Hermel, supra. There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a Commission appeal still bears the burden of proof. The taxpayer is the moving party seeking affirmative relief. Therefore, the Complainant bears the burden of proving the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary or capricious.” See, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003); Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. 1991).
Standard for Valuation
Section 137.115, RSMo, requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children’s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). True value in money is defined in terms of value in exchange and not value in use. Daly v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973). It is the fair market value of the subject property on the valuation date. Hermel, supra. Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.
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).
Section 137.122 RSMo.
Section 137.122 RSMo. provides a statutory standardized methodology for valuing business personal property relying upon the federal Modified Accelerated Cost Recovery System (MACRS) life tables to determine the appropriate “class life” of depreciable tangible personal property used in a trade or business or for production of income “to establish uniformity in the assessment of depreciable tangible personal property. . .” Said section applies to business personal property placed in service after January 2, 2006. A property is “placed in service” when it is ready and available for a specific use, whether or not actually in use. The methodology presented by Section 137.122 RSMo. is a cost approach to value, with more than straight line (normal) depreciation.
For property placed in service after January 2, 2006, valuation under Section 137.122 is presumed to be correct but can be “ . . .disproved by substantial and persuasive evidence of the true value in money under any method determined by the state tax commission to be correct . . . .” For the purposes of appeal, salvage or scrap value can only be applied to property not actually in use.
For property placed in service prior to January 2, 2006, there is no presumption that the Section 137.122 methodology is correct, although assessors are not precluded from using such a methodology.
The Complainant filed personal property lists with the Assessor in tax years 2011 and 2012. The Complainant certified that the list was true and correct. The Assessor relied upon the sworn, certified list to set value for the personal property. In 2011, the Complainant reported original cost of personal property of $102,803,721 and the property was assessed at a value of $8,785,930 using the statutorily presumed correct method. Older items of personal property with original cost of $65,476,783, were depreciated by 90% under the statutory method resulting in a market value of $6,547,680. An additional $5.5 million in original cost of personal property would be assigned a 10% good value in 2012.
Complainant’s Appraisal
Complainant’s appraisal used a cost and a sales approach to value. The appraiser made primary use of the cost approach. There were over 2000 lines in the appraiser’s valuation spreadsheet. The appraiser testified approximately 70 items were valued using a market (sales) approach. The bulk of the items were valued using the cost approach. For 2011, the appraiser reports $132,764,717.59 of original costs, $12,497,672 of depreciated value, resulting in an assessed value of $4,165,890.
Cost Approach
The cost approach by Mr. Chantal was a very basic procedure with little or no sources of authority. First, he set forth costs using the historical cost or reproduction cost. Second, he applied an index or trend factor to the cost. Third, he applied a depreciation factor, or percent good factor, using either the Marshall & Swift tables or MACRs. Mr. Chantel then applied economic obsolescence adjustment and an adjustment due to the production facility requiring custom production items. For example, one item of personal property was acquired in September 2008 for $93,768.14. The appraiser applied an index of 1.047 resulting in what he referred to as reproduction cost new of $98,175.24. He complied with the procedure of Section 137.122 RSMo. resulting in a determination of 55.13% good factor. The appraiser then took the presumed correct valuation and applied a 15% deduction for economic obsolescence, and a 50% deduction for a custom built factor. In other words, the appraiser determined the property to be 20.06% good for a value of $19,694 while the statutory presumed correct method using accelerated depreciation would find the item 55.13% good for a value of $54,124. However, for any assets acquired in 2005 or earlier, the appraiser simply applied a 5% good factor to arrive at his fair market value.
Mr. Chantal’s approach is only slightly removed from a general mass valuation employed by assessors. This methodology does not meet the required proof of substantial and persuasive required to rebut the presumed correct valuation as determined by the County Board of Equalization.
The appraiser’s determination of costs lacked reliability. He used some actual costs and derived some reproduction cost new. He explained that many of the assets were acquired many years prior to the tax year and the Complainant did not know its original costs. The Complainant filed personal property declarations with the assessor in 2011. The declarations included a reported original cost of all items. The declaration was signed and the owner or preparer certified that the list was true and correct. It is unknown why the original costs figures were not available to the appraiser.
As part of the cost approach, the appraiser needs to determine the age of the property. The age might be its chronological age or it might be the property’s effective age. Maintenance, refurbishment and upgrades are reviewed by an appraiser in making the calculation. The appraiser stated that for most of the items, he could not recall if he determined an effective age. When asked how he might determine an effective age, he stated that he would make a determination of age, ask the Complainant as to their opinion of effective age and average the two. The appraiser’s methodology lacks support and a basis of theory.
As to newer property for which the actual cost was known, the appraiser testified that he deducted any freight, installation and taxes (FIT). The appraiser testified that all the information was reported by the Complainant and is on the spreadsheet as part of his appraisal. He could not match the items to any of the dollars deducted and purported to be FIT of property declared as the number of items of personal property was too voluminous. He did not know if FIT was removed from the values as reported to the county.
Under either method of determining costs, the appraiser applied an index or trending factor. The appraiser did not conduct any market analysis to arrive at cost indexes for the personal property. He relied solely on the Marshall & Swift index by industry. Trending can lead to errors in valuation of assets. The indexes provided by Marshall & Swift are a broad base and not detailed based upon market research.
The appraiser also made an adjustment for economic obsolescence. External obsolescence is a temporary or permanent impairment of the utility or salability of an improvement or property due to negative influences outside the property. The Appraisal of Real Estate, 12th Edition, Appraisal Institute, 2001, pg. 363. In application to personal property, it may include the style of machine, demand for specific equipment or demand for the product which the machine produces. It can be determined by either contacting the manufacturer to investigate the demand for a given piece of equipment, or by looking at equipment of a similar type and comparing the market price for such equipment to the cost new where physical and functional obsolescence are known.
The Complainant supplies parts to aircraft manufacturers, both civilian and military. The appraiser set forth in his appraiser that the company told him that there was a decrease in production hours of 58.1% in 2011 due to discontinuation of contracts with the Department of Defense. The appraiser made a downward adjustment of 15% . The appraiser’s methodology is flawed in many respects. First, the appraiser could not explain the basis of his determination that 15% was an appropriate reduction. Later he testified that there may have been some range provided on the industry in a publication and he selected a number in the range – although he could not cite his authoritative source for this range. Further the appraiser applied this obsolescence factor to all property. He applied it to everything including office furniture and equipment and all other items of personal property. He never made a determination what production items were involved in Department of Defense contracts and which were not. He did not make a determination if the production equipment would have other uses. The Complainant produces parts for the military and civilian aircraft. The appraiser testified that he was not privy to who they supply parts to, which contracts were coming to an end, whether any new contracts would be in place or any basis to establish the decrease in production hours – he simply accepted a fact as true without supporting documentation.
The appraiser also made an adjustment of 50% due to the machinery being custom built.
The appraiser did not assess the degree of customization. He did not investigate which property was customized and which property was not customized. He also testified that this adjustment and the economic obsolescence adjustment were appropriate because the Complainant would need to destroy the equipment rather than putting it in the market for their competitor to purchase and use if they were awarded a contract – which suggests that the property does have a market value, but the Complainant does not wish to enter the market. The Complainant’s business strategy should not impact the appraiser’s determination of value.
The appraiser’s methodology lacks foundation and persuasiveness. The appraiser was engaged to conduct a fee appraisal but instead conducted some type of cursory mass appraisal which he performed without market information.
Sales Comparison Approach
The appraiser testified that he used the sales or market comparable approach to value a small fraction of the items. He was unable to establish a reason why it was used for some items but not others. Office furniture would be an appropriate use of a sales comparison approach but the appraiser testified that the spreadsheet lacks details and the property was on the spreadsheet in a lump sum so he could not do market research. It begs the question of how much the appraiser actually inspected and accounted for all the items of personal property at the tax situs.
As to the items he chose to do a sales comparison approach, the appraiser’s approach was woefully deficient. The “market sales” were often listings and for most of the items there was only one listing used. Further the sources of the listings are questionable as to their authority. The appraiser spent much time discussing the nature of the personal property and its specialty and uniqueness as, among other production, it produces aircraft parts for the US Air Force, however, and the appraiser is citing Craig’s List and EBay as his authoritative listings for items. As to the properties the appraiser found sales for valuation purposes, the appraiser failed to establish the sales as appropriate. To perform a credible market analysis the appraiser first needs to find actual sales and then the appraiser must analyze the sales. Appraisers developing a proper sales approach will set forth in the report information such as the number of sales that occurred, the number of units in the sale, the condition of the property sold, the location of the sales, the type of sale – ad based, auction, etc, interview of the buyer and interview of the seller. The sales approach is only reliable if the market is active and the sales may be verified.
Construction Work in Progress
The appraisal reports states that the percent good for construction work in progress has been defined by St. Louis County as 65% taxable of original cost until placed into production. Section 137.122 RSMo defines property placed in service “when it is ready and available for a specific use….” The appraiser, however, does not establish whether or not the property is available for use. The appraiser may have categorized items as construction in progress rather than an asset that should be valued using the methodology set forth in Section 137.122 RSMo.
Real Estate
“It would serve no good purpose to review the decisions of this court and the supreme court on the subject of fixtures. Nothing would be gained by this, as the question of what is, and what is not, a fixture, must depend largely upon the facts of each particular case.” Buchanan v. Cole, 57 Mo. App. 11, 16 (1894). With this one statement, Judge Biggs set forth the cardinal rule of the law of fixtures, that is, that there are no hard and fast rules to determine what is or is not a fixture.
In Missouri, three things are required for an object to become a fixture: annexation, adaptation, and intent. Sears, Roebuck and Company v.Seven Palms Motor Inn, Inc., 530 S.w.21 695, 696 (Mo. banc l975). Although all three elements are required to be present, the courts weigh each element differently in different circumstances. A thing is deemed to be affixed “annexed” to land when it is attached to it by roots, embedded in it, permanently resting upon it, or permanently attached to what is thus permanent, by means of cement, plaster, nails, bolts, or screws. (Black’s Law Dictionary 5th ed., p. 574) Adaption refers to whether the property has been adapted for the property. Even if an item is only tenuously attached to the realty, if it is particularly adapted to the purpose for which the building was constructed, it may very well be considered a fixture. The last element is intent – whether the annexor intended that the item be permanently affixed to the land. Intent is demonstrated generally by the annexor’s acts and conduct. Handlan v. Stifel, 232 S.W. 245 (App. 1921).
The appraiser testified that he classified the items as real estate if either the Complainant classified them as such or if they were a “non-production item.” Such fails to meet the legal test set forth by the courts in Missouri and the appraiser failed to provide sufficient information to review the items, their placement, intent, etc.in order to complete the analysis for proper classification of the property.
Not Belonging to Complainant
The appraiser excluded items of personal property at the Complainant’s location, used by the Complainant in production, because the items were leased by the Complainant. Pursuant to Section 137.122 RSMo, “depreciable tangible personal property in all recovery periods shall continue in subsequent years to have the depreciation factor last listed in the appropriate column so long as it is owned or held by the taxpayer” Further, the Complainant is required to submit a list of their property and affirm that the list of property “contains a true and correct statement of all the tangible personal property, made taxable by the laws of the state of Missouri, which I owned or which I had under my charge or management….” (Section 137.360 RSMo.) The appraiser excluded items that are subject to ad valorem taxation.
Software
The appraiser did not value software belonging or in the possession of the Complainant. The appraiser, in his report stated that “computer programs, routines, and language that control the functioning of computer hardware or process, analyze, assimilate, array or otherwise manipulate electronic data. Software may be contained on a computer disc or other medium but is separate and apart from the actual tangible personal property….Software is not valued.”
The Complainant provided no legal authority for their position of excluding all software.
Experts – Requirement for Substantial Evidence
An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion. Missouri Pipeline Co. v. Wilmes, 898 S.W. 2d 682, 687 (Mo. App. E.D. 1995). The facts upon which an expert’s opinion is based, like the facts sufficient to support a verdict, must measure up to the legal requirements of substantiality and probative force; the question of whether such opinion is based on and supported by sufficient facts or evidence to sustain the same is a question of law for the court. Robinson v. Empiregas Inc. of Hartville, 906 S.W.2d 829 (S.D. 1995).
The State Tax Commission cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach. Drey v. State Tax Commission, 345 S.W.2d 228, 234-236 (Mo. 1961), Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 348 (Mo. 2005).The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the trier of fact may deem it entitled to when viewed in connection with all other circumstances. The hearing officer, as the trier of fact, has the authority to weigh the evidence and 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 may accept it in part or reject it in part. Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. 1981); Scanlon v. Kansas City, 28 S.W.2d 84, 95 (Mo. 1930).
Conclusion
The appraiser has testified before the State Tax Commission in other appeals. Each time, including in this appeal, he used a similar methodology and each time his methodology has been rejected. “Where the basis for a test as to the reliability of the testimony is not supported by a statement of facts on which it is based, or the basis of fact does not appear to be sufficient, the testimony should be rejected.” Carmel Energy at 783.
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.” See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980). The appraiser developed a valuation which is plagued with various errors, defects and shortcomings which weigh against its reliability and credibility. The appraisal report was not substantial and persuasive to rebut the presumption of correct valuation under Section 137.122RSMo which was affirmed by the Board of Equalization.
ORDER
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for St. Louis County for the subject tax day is AFFIRMED.
The assessed value for the subject property for tax year 2011 is set at $8,785,930 and for tax year 2012 is set at $8,094,600.
Application for Review
A party may file with the Commission an application for review of this decision within thirty days of the mailing date set forth in the Certificate of Service for this Decision. The application shall contain specific facts or law as grounds upon which it is claimed the decision is erroneous. Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.
Failure to state specific facts or law upon which the application for review is based will result in summary denial. Section 138.432, RSMo
Disputed Taxes
The Collector of St. Louis County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8, RSMo.
Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.
SO ORDERED this 5th day of September, 2014.
STATE TAX COMMISSION OF MISSOURI
Maureen Monaghan
Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 5th day of September, 2014 to: Thomas Campbell, Robert Droney, 100 S. 4th St., #1000, St Louis, MO 63102, Attorneys for Complainant; Paula Lemerman, Associate County Counselor, 41 S. Central Ave., Clayton, MO 63105, Attorney for Respondent; Jake Zimmerman, St. Louis County Assessor, 41 S. Central Avenue, Clayton, MO 63105; Mark Devore, St. Louis County Collector, 41 S. Central Ave. Clayton, MO 63105.
Jacklyn Wood
Legal Coordinator