State Tax Commission of Missouri
| HAMPSHIRE TERRACE II LIMITED PARTNERSHIP, | ) | ||
| ) | |||
| Complainant(s), | ) | ||
| ) | |||
| v. | ) | Appeal Number | 16-62500 |
| ) | |||
| CONNIE HOOVER, ASSESSOR, | ) | ||
| JASPER COUNTY, MISSOURI, | ) | ||
| ) | |||
| Respondent. | ) |
DECISION AND ORDER
HOLDING
Decision of the Jasper County Board of Equalization (BOE) of July 13, 2016, is SET ASIDE. Substantial and persuasive evidence was presented by Hampshire Terrace II Limited Partnership (Complainant) to rebut the presumption of correct assessment by the BOE.
Complainant was represented by attorney Sean Clancy.
Connie Hoover, Assessor of Jasper County, Missouri, (Respondent) was represented by attorney Norman Rouse.
Case decided by Senior Hearing Officer John J. Treu. (Hearing Officer)
ISSUE
Complainant appeals, on the ground of overvaluation, the decision of the BOE, which determined a true value of $3,464,500, residential classification. The Commission takes this appeal to determine the true value in money (TMV) for the subject property as of January 1, 2015. The value as of January 1 of the odd numbered year remains the value as of January 1 of the following even numbered year unless there is new construction and improvement to the property. Section 137.115.1 RSMo
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 BOE. The appeal was submitted on the record by agreement of the parties.
- Identification of Subject Property. The subject property is identified by map parcel number 19-6.0-14-010-002-002.00. It is further identified as 2021 Hampshire Terrace, Jasper County, MO. (Complainant for Review of Assessment)
- Description of Subject Property. The subject property consists of an 84 unit subsidized housing residential apartment complex in Joplin, Missouri, which was completed in 2013. There was no new construction or improvements in 2015. The construction was funded by low income housing tax credits (LIHTC) in the amount of $9,100,000. The owners entered into an agreement subject to rent and land use restrictions. At least 40% of the units must be occupied by residents with household income at or below 60% of the area median gross income. In addition, 40% of the rents must be at or below 60% of the HUD rent amount for the area median gross income, adjusted for family size. (Written Direct Testimony (WDT) Jalen, WDT Muenks, Exhibit E and Exhibit F)
- Assessment. The BOE determined the true market value (TMV) of the subject property to be $3,464,500. (Complaint for Review of Assessment)
- Complainant’s Evidence.
| Exhibit | Description |
| WDT | Paul Jalen |
| WDT | Rick Muenks |
| A | Section 137.076 RSMo. |
| B | Declaration of Land Use Restriction Covenants for LIHTC |
| C | Financial Report for 2014 |
| D | Financial Report for 2013 |
| E | Summary of Section 137.076 RSMo. Calculation of Value |
| F | Consulting Report of Muenks |
| G | Rent Roll as of January 1, 2015 |
| Rebuttal WDT | Paul Jalen |
| H | 2014 Rent Roll and Supporting Documentation |
| I | Jasper County 2014 Tax Receipt |
| J | Financial Report to HUD, dated December 31, 2015 |
All exhibits were admitted into the evidentiary record to be given such weight as the Hearing Officer deemed just and proper.
- Respondent’s Evidence.
| Exhibit | Description |
| WDT | Larry Carsten |
| 1 | Property Record Card |
| 2 | Marked-Up Summary of Complainant’s Income for Respondent |
| 3 | Marked-Up Statement of Income and Expense |
| 4 | Marked-Up Rent Roll |
| 5 | Subject Property Web Page Printout |
| 6 | Marked-Up Notes to Financial Statements |
| 7 | News Article |
| 8 | Income Approach to Value Subject Property |
| 9 | 2016 Tax Levies |
| Rebuttal WDT | Larry Carsten |
Complainant objected to Exhibits 5, 8 and 9 and to the WDT of Larry Carsten. The objections are overruled. All exhibits were admitted into the evidentiary record to be given such weight as the Hearing Officer deemed just and proper.
- Presumption of Correct Assessment Rebutted. The evidence presented was substantial and persuasive to rebut the presumption of correct assessment by the BOE and establish the true value in money as of January 1, 2015.
- Effective Tax Rate. The effective tax rate relating to the subject property in 2014 was .8764%. Exhibit I
- Capitalization Rate. Complainant’s appraiser opined that a capitalization rate of 6.75% was the appropriate capitalization rate for use in the Income Approach to value. (Exhibits E & F)
- Net Operating Income. The net operating income (NOI) for the subject for the year 2014 was $164,997. (Exhibits B & C, WDT Paul Jalen WDT of Muenks and Exhibits E & F)
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2015, to January 1, 2016; therefore the assessed value for 2015 remains the assessed value for 2016. Section 137.115.1, RSMo.
- TMV. The following table sets forth the calculation of TMV:
| a. | 2014 Tax Levy | 4.6125% |
| b. | Effective Tax Rate | .8764% (a x 19% [assessment % on residential property]) |
| c. | Capitalization Rate | 6.75% |
| d. | Loaded Capitalization Rate | 7.6264% (b + c) |
| e. | NOI without real estate taxes included as an expense | $164,997 |
| f. | True Market Value | $2,163,498 (e /d) |
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 BOE, 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 – residential property at 19% of true value in money; commercial property at 32% of true value in money and agricultural property at 12% of true value in money.
Issuance of Decision Absent Evidentiary Hearing
The Hearing Officer, after affording the parties reasonable opportunity for fair hearing, shall issue a decision and order affirming, modifying or reversing the determination of the Board of Equalization, correcting any assessment which is unlawful, unfair, improper, arbitrary or capricious. Section 138.431.5 RSMo; 12 CSR 30-3.080 (2). Both parties agreed to submit this case upon the record. The filing of exhibits and written direct testimony establishes the basis upon which an evidentiary hearing can be held. The Complainant has the burden to present substantial and persuasive evidence. The Hearing Officer considered all the exhibits and written direct testimony and then proceeded to ascertain if said exhibits and written direct testimony met the standard of substantial and persuasive evidence to establish the market value of the property.
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).
Standard for Valuation/Methodology of Subsidized Housing
In the past, when valuing subsidized housing, the State Tax Commission has 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 income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use. For ad valorem purposes, the property should be valued using actual rents and expenses and looking to the market to develop a capitalization rate. The legislature has given assessors specific direction on the issue of valuing subsidized property.
Section 137.076.2 RSMo (2015) provides:
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 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.
The Hearing Officer finds the methodology set forth in the statute, which is applicable to assessors, provides a valid methodology for the STC to value subsidized properties to the extent the NOI of the subject property is appropriately vetted and “an appropriate capitalization rate” is utilized.
Complainant’s expert Rick Muenks, a certified General Appraiser, licensed in Missouri, and Paul Jalen of Miller-Valentine Group, the asset manager for Complainant, valued the subject property pursuant to the requirements of Section 137.076 RSMo utilizing the actual NOI of the subject property and a market based capitalization rate. The capitalization rate utilized by Mr. Muenks was developed utilizing the Band of Investment (Mortgage/Equity) approach. Mr. Muenks looked at market based rates for four sales in the Joplin area. The rates were between 6% and 11.6%, with an average of 7.97%. Mr. Muenks concluded on a capitalization rate of 6.75% based upon comparison of the data. Complainant’s expert then calculated a loaded capitalization rate. However, Mr. Muenks applied an improper effective tax rate based upon the actual 2015 tax levy (Exhibit F, Page 5) instead of the 2014 levy. Nevertheless, this was easily corrected via use of Exhibit I.
Respondent raised multiple issues regarding the income statement of Complainant and whether such were proper and/or accurate. However, the Rebuttal Testimony of Paul Jalen clearly and concisely addressed and explained the issues raised by Respondent regarding Complainant’s NOI. This rebuttal testimony induced belief in the Hearing Officer and thus was considered to be substantial and persuasive by the Hearing Officer.
The concerns of Respondent were set forth in the WDT of Larry Carsten, the Rebuttal WDT of Carsten, via handwritten notes on Exhibits 2 & 3 and in Exhibits 5, 6 and 7. Respondent’s concerns related to accounting adjustments and purported discrepancies in the financial statements presented by Complainant, including adjustments for rental concessions, loss of lease, other renting expenses, salary and payroll, bad debts, contracts, snow removal, vacant unit preparation, vacancy and replacements reserves. As stated above, the Rebuttal Testimony of Paul Jalen clearly and concisely addressed and explained adjustments. The Hearing Officer was persuaded that the adjustments were proper.
The original TMV set by Respondent was based upon a cost approach (Exhibit 1), but not the approach set forth in 137.076.2 RSMo. Respondent submitted a one (1) page “Income Approach” (Exhibit 8) prepared by Mr. Carsten. Exhibit 8 is not based upon the process set forth in Section 137.076.2 RSMo. Respondent additionally submitted a sheet setting forth the 2016 tax levies (Exhibit 9). Exhibit 9 is irrelevant to the determination of TMV of the subject property on January 1, 2015. Consequently, only the 2014 levy applicable to the subject property is relevant. Regarding Respondent’s “Income Approach,” such has an effective date of January 1, 2016, instead of the pertinent valuation date of January 1, 2015. It is not narrative in nature and lacks sufficient specificity regarding any market analysis by Mr. Carsten, including, but not limited to, specifically identifying the comparable properties used to reach his conclusions. Exhibit 8 did not induce belief in the Hearing Officer and thus was not substantial and persuasive.
Valuation
After review of the actual income and expenses and by utilization of the loaded capitalization rate of 7.6264%, the TMV of the subject property is set at $2,163,498.
ORDER
The valuation of the BOE is SET ASIDE. The assessed value for the subject property, for tax year 2016 is set at $411,065 (TMV $2,163,498).
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 Jasper 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 15th day of August, 2017.
STATE TAX COMMISSION OF MISSOURI
John Treu
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 15th day of August, 2017, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.
Jacklyn Wood
Legal Coordinator
Contact Information for State Tax Commission:
Missouri State Tax Commission
301 W. High Street, Room 840
P.O. Box 146
Jefferson City, MO 65102-0146
573-751-2414
573-751-1341 Fax