Harrah's Maryland Heights v. Zimmerman (SLCO)

DECISION AND ORDER 

HOLDING 

Decision of the St. Louis County Board of Equalization, as to tax year 2011 is AFFIRMED.   Decision of the St. Louis County Board of Equalization, as to tax year 2012, is SET ASIDE.  The Hearing Officer finds:

(1)           The casino barge is commercial real property;

(2)           As to real property, the value determined for tax year 2011 should be applied to tax year 2012 pursuant to Section 137.115.1 RSMo; [1]and 

(3)           True value in money for the subject property for tax years 2011 and 2012 is $141,652,500[2] (assessed value $45,328,800 as commercial real property). 

Complainant appeared by counsel, Daniel S. Peters.

Respondent appeared by Counsel, Jeremy D. Shook and Edward W. Corrigan.

Case heard and decided by Senior Hearing Officer Luann Johnson.

ISSUE

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 first step in this analysis is determining proper classification.We also look at whether or not it is appropriate to value an integrated going concern in a piecemeal manner and, whether the appraisal methodologies presented are persuasive to establish value.

HOLDING

The appropriate classification of personal property, more or less permanently affixed to real property, is as real property; and neither party presented a persuasive valuation methodology.

SUMMARY

For tax year 2011, Complainant appeals, on the ground of overvaluation and discrimination, the decision of the St. Louis County Board of Equalization, which set value at $141,652,500[3], as personal property.The Respondent proposed a value of $321,958,800 (assessed value of $103,025,860).Complainant proposed a value of $30,000,000 (assessed value of $9,600,000).

For tax year 2012, Complainant appeals, on the ground of overvaluation and discrimination, the decision of the St. Louis County Board of Equalization, which set value at $425,000,000, as personal property, approving the value previously set by Assessor.The Respondent proposed a value of $342,955,800 (assessed value of $109,745,860).Complainant proposed a value of $30,000,000 (assessed value of $9,600,000).

A hearing was conducted on August 7, 2013, via video hearing.The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.

Complainant’s Evidence

Respondent’s Evidence

SUMMARY OF RELEVANT EVIDENCE

Gaming in Missouri

In May, 1994, the Missouri Gaming Commission authorized “games of skill” on Missouri riverboats.Because only “games of skill” were authorized, and because of competition from Illinois, Missouri riverboats were not profitable.In November, 1994, voters approved a constitutional amendment which allowed for “games of chance” in Missouri.At this same time, Harrah’s constructed the first “boat in a moat” in order to complete its gambling complex that contained the state’s first land based entertainment amenities.The Gaming Commission held that “boats in a moat” were constitutional inasmuch as the legislature had defined the Missouri River as including artificial basins located within 1,000 feet of the main channel.However the Missouri Supreme Court disagreed inasmuch as the “boats in a moat” were not contiguous to the surface stream of the river.The gaming industry submitted a ballot proposal that reversed the Supreme Court decision and said amendment passed in November, 1998.

Initially, Missouri only allowed 11 casino licenses.However, in 2008 an amendment passed authorizing a maximum of 13 gaming licenses.There are no remaining licenses available in the state.Therefore, the only way to gain entry into the market is through acquisition of an existing facility and applying for the license of that property.[4]

Casino Barge

Complainant’s property consists of numerous parcels of real and personal property.The casino portion of the improvements contains approximately 120,000 square feet of gaming space and is generally shaped as two larger separated rectangles (barges) connected at a 90 degree angle, with an additional smaller square as a connection (connector barge).The casino was opened as a dual-branded casino, with two entrances, in 1997.One casino is designated “Island” (Players International’s old casino) while the other is designated “Mardi Gras”.All gaming space is located on one floor.Adequate access exists between the two separate areas.The layout of the casino is defined by its ease of access to individual gaming areas, with large walkways, and high ceiling heights.The barges contain games of skill, games of chance and multiple different food outlets.As of January 1, 2011, the casino reportedly contained 2,700 slot machines and 84 gaming tables.[5]

The subject casino platform consists of eight tank barges with dimensions of 297 feet by 54 feet each.The barges are welded together and have a reported combined gross building area of approximately 120,000 square feet of which 109,000 square feet is utilized for gaming.The hull has been utilized for mechanical equipment and storage purposes.The facility is permanently moored in two basins.The barges, prior to acquisition, had been tank barges and hauled liquids.After they were acquired they were moved in proximity to the current location then hauled from the river, over the levee, to be placed in the concrete basin where the barges were moored and retrofitted to their current use.[6]

The casino floor resembles a pre-engineered structural steel frame, clear span, warehouse type structure.It has been demised into the open game areas but also includes one restaurant, a portion of a kitchen that serves a land based restaurant, public restrooms, storage areas, back of the house areas, and some offices.The interior finish for the public space, including the casino floor, is typically commercial grade carpeting with ceramic tile floors and walls in the restrooms.The back of the house areas have a combination of commercial grade carpeting and quarry and vinyl tile floors.The ceiling is a combination of drop in acoustical tile as well as taped and painted drywall.The lighting is a combination of fluorescent and incandescent.The restrooms have a ceramic tile floor with partial ceramic tile walls and drywall ceiling with fluorescent light fixtures.The walls are taped and painted drywall with some wallpaper.

The subject property was designed and constructed for its current use as a facility for gaming to take place over water.As such, it has several items of super-adequate construction that would impact the subject property if converted to another use which includes its built-in security system, the lack of windows, higher than normal ceiling height of the structure, the need for annual inspections by a marine surveyor to maintain the water level in the basin for the anticipated load levels of the structure, and the uncertainty regarding the remaining life of the structure.[7]

Other factors negatively influencing the use of the barge structure include:the floor of the structure is not plumbed but does carry an over abundance of electrical wiring making re-use of the gaming area limited; the wall height is extensive for most other types of retail and/or office uses; and the structure is situated in a basin and must be constantly monitored to maintain its elevation with its land base. [8]

The entrance to the casino and foyer areas, including restaurants and shops, are located on the land based portion of the larger public entertain complex.[9]

Overall, the casino space at the subject is considered above average among the competitive casino properties in the greater St. Louis gaming market.[10]

Although currently assessed as personal property, the casino “barge” improvements could not be feasibly removed from the site fully intact.[11]The subject barges cannot be moved without either great expense or the possibility of damaging the structure.[12]

In the words of Complainant’s appraiser, “the license and the business are tied intrinsically to the value of the business and the value of the real estate and personal property”.[13]

The County identified Complainant’s personal property, which includes property used in the running of the hotel, restaurants, casinos, as well motor vehicles, and the boat/barge as accountnumber B01049930A.[14]

Hotel & Adjoining Facilities

Harrah’s St. Louis consists of two separate hotel towers, originally constructed in 2000 and 2004 with 291 and 211 guestrooms, respective, for a total guestroom count of 502 rooms.The hotel is connected directly with both the casino and pavilion, adding convenience for guests.The guestroom inventory includes 454 deluxe rooms (270 king rooms and 184 double beds) and 48 suites.The subject complex has eight restaurants as well as additional lounges and bars throughout the casino.Additionally, the complex has numerous offices/rooms including engineering, surveillance, employee break room and dining area, and training rooms.It has two loading docks, a warehouse, onsite laundry and bakery.Kitchen areas are located adjacent to associated restaurants.Other site improvements include surface parking, a parking garage, and pedestrian walkways.[15]

The improvements are located in Maryland Heights, Missouri, directly off I-70, adjacent to the Missouri River, approximately 22 miles northwest of downtown St. Louis, approximately 8 miles west of Lambert St. Louis International Airport, and approximately 25 miles southwest of PNG’s Argosy Casino Alton.The improvements are situated on over 294 acres along the Missouri river.There is sufficient parking for 4,644 vehicles.[16]

With the exception of the barge, the casino complex sits on seven tax parcels.Those parcels are identified as number 11P510021, which includes the hotel and the foyer areas of the structure which connects to the casino/barge structure; number 11P5100300, which is primarily improved with the parking lot; and numbers 11P240081, 12P630151, 11P210033, 12P610076, 11P540071 and 12P540083, which are generally land with some minor structures such as signage or utilities.The appraised values for the parcels for tax years 2011 and 2012 were $90,408,800.[17]

Player Reward Program

Complainant offers a player reward program and a customer data base that is known to have an advantage over the competitive gaming facilities worldwide, referred to as “Total Rewards”.In particular, the program is linked to other Caesars Entertainment gaming facilities nationwide, which is viewed as a competitive advantage compared to other properties in the market.[18]

Gaming License

According to Complainant’s appraiser, the gaming license is the “key source of value”.He states, “. . .[I]n the State of Missouri, a gaming license is not transferrable.Therefore, a licensee must obtain the Gaming Commission’s approval for an ownership transfer of a five percent or greater interest; withdrawals of capital, loans, advances or distributions of any type in excess of five percent; and the issuance of public debt or equity.In effect, a buyer acquires a property while submitting the necessary documents to obtain a gaming license without the guarantee that a license will be issued. . . .[T]he overall property cannot operate as a casino without the gaming floor.”[19]

Notwithstanding Complainant’s appraiser’s opinion, our Supreme Court has held that it is not the gambling license that gives a casino value but, rather, the public demand for the casino in that location.[20]

Casino purchasers would pay a higher multiple of EBITDA (earnings before interest, tax, depreciation, and amortization[21]) to own a casino in a restricted-license market like Missouri as opposed to a free market like Las Vegas.[22]

2012 Sale of Property

In 2012, Penn National Gaming, Inc. acquired Harrah’s Maryland Heights for $610,000,000.[23]

The gaming license was non-transferrable and did not run with the land.Therefore, Penn was not purchasing a license but, rather, was purchasing Harrah’s agreement to relinquish its rights to the license so that a new license could be applied for and possibly issued.

Complainant’s Valuation Evidence

Complainant stipulated to the Assessor’s original values on the real estate tax parcels for 2011 and 2012 and Mr. Dinan proposed a value for the casino barge of $30,000,000 based upon a depreciated cost approach to value.[24]

Mr. Dinan indicated that he had attempted to find sales of similar structures on a standalone basis but could find none.He indicated that there were sales of existing casino operations but, because those sales included personal property, intangible assets, good will and business enterprise value, he did not attempt to use them.Because he believed the principal of substitution, which states that a property cannot be worth more than the cost to produce a substitute of equal utility, was applicable, he believed that the cost approach was the best approach to use to determine the value of the barge.[25]He also indicated that an income approach was possible but, because the property was so integrated, it would be difficult to allocate EBITDA and expenses among the various operating entities and to try to assign a value to just the barge under an income approach would be “subjective at best”.[26]

Mr. Dinan used Marshall Valuation Service to calculate a $52,494,450 replacement cost new for the barges, the structure built on the barges and the basin structure.After adjustment for entrepreneurial profit, the value was $57,743,895.Mr. Dinan applied physical and external obsolescence and concluded a value of $28,680,000, rounded to $30,000,000 for tax years 2011 and 2012.

Respondent’s Valuation Evidence

Respondent’s appraiser looked at the actual sale of Harrah’s to Penn National and determined that the sale was an arms-length transaction and was within the EBITDA (earnings before interest, taxes, depreciation and amortization) multiplier parameters of other casino sales.[27]However, Respondent’s appraiser also recognized that casino sales can vary significantly due to size, location, jurisdictional gaming taxes, differences in location, profitability, market orientation, land values and buyer perceptions.[28]

Respondent’s appraiser found that using operating statements from other casinos to do an income approach would not be reliable inasmuch as variations due to size, amenities, brand and location would reduce reliability.However, Respondent’s appraiser suggested that casino investors typically used historic financial statements of a property as a basis for making investment pricing decisions.Based upon this premise, Respondent’s appraiser used the subject casino complex’s historical operating statements to prepare an income approach to value.[29]Based upon historical income and expenses, Mr. Cahill projected income and expense five years into the future.[30]The estimate of cash flow was converted into an estimate of market value using a 10-year Discounted Cash Flow Analysis.

A market derived capitalization rate was selected and a three percent mathematical adjustment was made to the overall capitalization rate to reflect a prospective purchaser’s desired return on investment and return of capital.Then Mr. Cahill looked at positive and negative factors impacting the EBITDA (earnings before interest, taxes, depreciation and amortization) rate and determined a reasonable overall capitalization rate was 13.80% or a discount rate of 16.80% for 2011 and 16.00% for 2012.[31]Mr. Cahill determined a value for the casino complex for tax year 2011 of $558,000,000 and for tax year 2012 of $578,000,000.[32]

Personal property (except for the casino barge) was removed from the indicated value by using the depreciated value of the personal property as submitted to the Assessor.[33]

Mr. Cahill compared gaming taxes in Las Vegas (free market) to Missouri (restricted market) and concluded that Missouri gaming facilities pay an approximate $52.7 million more in gaming taxes than a free market would.He deducted this from his proposed value.He also looked at the EBITDA between a free market and a restricted market and found that the EBITDA for a restricted market was about one multiple on the DCF or a difference of approximately $70,000,000.This sum was also deduced from proposed value.Between the higher taxes and the change in the DCF multiple, the total impact of the gaming license was recognized.[34]

To determine the appropriate deduction for business enterprise value and goodwill, Mr. Cahill prepared a second Discounted Cash Flow Analysis wherein he hypothesized a casino starting from scratch and factored in pre-opening expenses such as procuring a gaming license from the state, background investigations, etc.The difference in value attributable to the ramp up to a stabilized operation, together with the pre-opening expenses, represents the business value and goodwill assignable to the property.Mr. Cahill calls this his “dark casino” theory and results in a value deduction for tax year 2011 of $59 million and an adjustment for 2012 of $58 million.[35]

Mr. Cahill’s opinion of value, after these deductions, for the entire casino operation, was $413,000,000 for tax year 2011 and $434,000,000 for tax year 2012.[36]

Mr. Zimmerman testified that he took Mr. Cahill’s valuation estimates and deducted the $91,044,200 previously assessed for real property in 2011 to 2012 to reach a value for the barge of $321,955,800 for tax year 2011 and $342,955,800 for 2012.This was consistent with Mr. Cahill’s suggestion that some 85% of value could be allocated to the barge portion of the property.[37]

In his post-hearing brief, Respondent pointed out that New Jersey has very recently found that the income approach is the most appropriate way to value casinos.[38]

FINDINGS OF FACT

1.Jurisdiction over these appeals is proper.Complainant timely appealed from the decisions of the St. Louis County Board of Equalization.

2.The subject property is a casino barge.The barge is comprised of actual barges set in a moat which serve as the base of the casino floor.The casino structure is built on top of the barges.[39]

3.The barge is an integral part of the larger facility known as Harrah’s Maryland Heights.The overall property cannot operate as a casino without the barge.[40]

4.While located in a moat near the Missouri River and technically a barge, the casino improvements, like any normal building, cannot be feasibly removed from the site fully intact.The supportive amenities to the casino, such as the restaurants and back-of-the-house spaces are fully and seamlessly integrated.[41]The barge is a fixture and should have been classified as commercial real property rather than personal property.

5.There is no market for the barge on a stand-alone basis.[42]

6.The casino barge is an investment property which was bought and sold for its investment value, similar to hotels.[43]

7.The barge, together with its land based amenities, personal property and intangibles, was under contract for sale four months after the valuation date for $610,000,000.[44]This contract for sale appears to be an arms-length transaction.

8. Neither party presented substantial and persuasive evidence to rebut the presumption in favor of the Board of Equalization and establish value.

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.[45]

Official and Judicial Notice

Agencies shall take official notice of all matters of which the courts take judicial notice.[46]

Courts will take judicial notice of their own records in the same cases.[47]In addition, courts may take judicial notice of records in earlier cases when justice requires[48] or when it is necessary for a full understanding of the instant appeal.[49] Courts may take judicial notice of their own records in prior proceedings involving the same parties and basically the same facts.[50]

Presumptions In Appeals

There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization.[51]

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.[52]

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.[53]It is the fair market value of the subject property on the valuation date.[54]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.

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:

1.Buyer and seller are typically motivated. 

2.Both parties are well informed and well advised, and both acting in what they consider their own best interests.

3.A reasonable time is allowed for exposure in the open market. 

4.Payment is made in cash or its equivalent. 

5.Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale. 

6.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.[55]

Duty to Investigate

In order to investigate appeals filed with the Commission, the Hearing Officer has the duty to inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property.The Hearing Officer’s decision regarding the assessment or valuation of the property may be based solely upon its inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties.[56]

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.[57]

Trier of Fact

The Hearing Officer as the trier of fact may consider the testimony of an expert witness and give it as much weight and credit as he may deem it entitled to when viewed in connection with all other circumstances.The Hearing Officer 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 accept it in part or reject it in part.[58]

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.[59]

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.[60]

The Appropriateness of Assemblage

Missouri recognizes that different properties may be valued together if one is an integral part of the other and there is a marketplace for the property when sold together.[61]In Doe Run Company v. Holman,[62] we looked at a 235 acre parcel improved with a lead smelter plant and found:

The subject smelter is not likely to be purchased on a standalone basis.Rather, its specific highest and best use is as part of an integrated lead producing company.In light of the subject smelter’s specific refining process, the subject smelter’s value is maximized where it operated in an integrated process with Missouri lead mines. 

We defined the issue not as what would an informed investor pay for the lead smelter, but “what would an informed investor pay for an integrated lead producing company, and what portion of that price is attributable to the subject smelter?”Not only did we value the subject property along with other property to which it was fully integrated, but we valued the subject property as part of a going concern of an entire lead producing company that included assets and properties that were not included in the appeal with the subject property nor located anywhere near the subject property.

We found that “under the concept of value, the fair market value of relevant property is measured by appraising the whole property as a going concern because it derives its true value not from the sum of its parts, but from the integrated use of the parts to perform its integrated functions and from the investors’ standpoint, generate income.Under such an approach, the appraiser estimates the value of the integrated system and allocates a portion of the value to the specific unit in question.[63]Under this approach, the entire value of the company was determined and 25% of that value was allocated to the smelter based upon “its representative portion of non-current assets,” and then, among other calculations, “made deductions for the undisputed values of the personal property and the office and lab.”[64]

USPAP recognizes that “although the value of the whole may be equal to the sum of the separate parts, it also may be greater than or less than the sum of the parts.”[65]

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.[66]

Respondent’s Burden of Proof

Respondent, when advocating a value different from that determined by the original valuation or a valuation made by the Board of Equalization, must meet the same burden of proof to present substantial and persuasive evidence of the value advocated as required of the Complainant under the principles established by case law.[67]

Complainant’s Burden of Proof

In order to prevail, Complainant 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 2012.[68]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.”[69]

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[70]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.[71]

Sale of Subject

Evidence of the actual sales price of property is admissible to establish value at the time of an assessment, provided that such evidence involves a voluntary purchase not too remote in time.The actual sale price is a method that may be considered for estimating true value.The actual sales price, between a willing seller who is not obligated to sell and a willing buyer who is not compelled to buy, establishes an outer limit on the value of real property.[72]

Discrimination

In order to obtain a reduction in assessed value based upon discrimination, the Complainant must (1) prove the true value in money of their property on January 1, 2011 and January 1, 2012; and (2) show an intentional plan of discrimination by the assessing officials resulting in an assessment of that property at a greater percentage of value than other property, generally, within the same class within the same taxing jurisdiction.[73]Evidence of value and assessments of a few properties does not prove discrimination.Substantial evidence must show that all other property in the same class, generally, is actually undervalued.[74]The difference in the assessment ratio of the subject property the average assessment ratio in the subject county must be shown to be grossly excessive.[75]No other methodology is sufficient to establish discrimination.[76]

Complainant Fails To Prove Discrimination

Where there is a claim of discrimination based upon a lack of valuation consistency, Complainant has the burden to prove the level of assessment for the subject property in 2011 and 2012. 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.

Complainant must then prove the average level of assessment for similar property in St. Louis County for 2011 and 2012.This is done by (a) independently determining the market value of a representative sample of properties in St. Louis County; (b) determining the assessed value placed on the property by 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.

The difference between the actual assessment level of the subject property and the average level of assessment for all similar property, taken from a sufficient representative sample in St. Louis County must demonstrate a disparity that is grossly excessive.[77]

Without establishing its market value, it cannot establish its assessment ratio.Without establishing its ratio, it cannot establish that it is being assessed at a higher percentage of market value than any other property in St. Louis County.

However, even if Complainant had established its market value, its discrimination claim would still fail because it has not demonstrated that a statistically significant number of other similar properties within St. Louis County are being assessed at a lower ratio of market value than its property.The way St. Louis County treated one other property cannot form the basis for a discrimination claim.

Because Complainant has failed to establish the market value of their property and has failed to establish that it is being assessed at a higher percentage of market value than a statistically significant number of other similar properties in St. Louis County, it has failed to establish discrimination. 

Subject Property is Real Property

Property which is otherwise personal property, can be treated as real property when it is attached to land or a building and is regarded as an irremovable part of the real property.[78] Section 137.010(3) defines “real property” to include “land itself, whether laid out in town lots or otherwise, and all growing crops, buildings, structures, improvements and fixtures of whatever kind thereon.” In Missouri, three things are required for an object to become a fixture: annexation, adaptation, and intent. [79]

Annexation

Black’s Law Dictionary states as follows:

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. (5th ed., p. 574)

This is the traditional view of the type of annexation required to make an item a fixture. Some type of more or less permanent annexation has traditionally been required, for example, cabinets nailed to walls,[80]floors with hydraulic lifts embedded in cement[81], or insulated doors installed in made-to-measure openings.[82]

Adaptation

This refers to the adaptation of the article to the real property. In other words, is the property adapted to the building?Trade fixtures, which are considered to be personal property, have been considered to be fixtures of real property if they were placed in the building in order to make the building particularly adapted to a certain type of business.[83]A key consideration seems to be whether an item is particularly adapted to a certain building or whether it may be used with equal facility elsewhere.[84] Potential use elsewhere would indicate that the items are personal property. In Buchanan v. Cole, the court went one step further and indicated that when building and machinery are built for each other to achieve a specific purpose, in that case, carrying on a mining operation, the machines necessarily become fixtures. This was so in spite of the fact that the improvements were constructed on leased land, and that the improvements could have been severed from the land without damage to either.

Intent

Traditionally, the element of intent has been weighted most heavily by the courts. If the annexor intended that the item be permanently affixed to the land, it was considered to be a fixture. Intent is demonstrated generally by the annexor’s acts and conduct. [85]The intention of the landowner to permanently affix an item has been inferred by the fact that the object as affixed was “a useful adjunct or convenient accessory to the business conducted on the premises.”[86]

Although currently assessed as personal property, the casino “barge” improvements could not be feasibly removed from the site fully intact.[87]The subject barges cannot be moved without either great expense or the possibility of damaging the structure.[88]The barges are permanently moored in two concrete basins. The hotels and other properties are connected directly to the property and casino property and pavilion.The Assessor incorrectly classified the barge improvements as personal property.

PARTIES FAIL TO PROVE VALUE

In order to set aside the Board of Equalization decision, a party must present substantial and persuasive evidence that the Board’s assessment was “unlawful, unfair, improper, arbitrary or capricious.”[89]

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[90]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.

Complainant’s appraiser’s flaw was failing to recognize any added value to the barge because of its location and integration into the larger casino property.[91]Under Complainant’s cost approach the barge value would have been the same, no matter where the barge was located on the river when, in fact, we know that the barge is uniquely located to function only as a gambling casino.As stated in Aztar, it is not the gambling license that gives a casino its value – it is the demand for the casino in that particular location.It is part of the site value of the improvements which was not adequately addressed merely because Complainant had stipulated to the value of the adjoining real property.

It is also not a good defense that, because Respondent had classified the barge as personal property, its’ site value was not relevant.[92]We don’t know why Respondent classified the barge this way, but all parties agreed that it could not reasonably be moved.It would be difficult to find a better example of a fixture, and the appraisers should have valued the property accordingly.

On the other hand, Respondent’s appraiser’s value is based upon one discounted cash flow analysis on top of another.The use of discounted cash flow can be problematic.One court[93] held:“The DCF method, as applied to tax valuation proceedings, is an amalgam of interdependent, attenuated assumptions of limited probative value.Whatever may be its utility in other contexts, its use in this case can only be described as an exercise in financial haruspication.” [94] In short, there is a great deal of guesswork that goes into a discounted cash flow analysis.The fact that some investors rely on this methodology, does not increase its accuracy or reliability.

Respondent’s appraiser suggests that potential intangibles can be removed from his value determination based upon his “dark casino” methodology.He argues that this methodology is a “Rushmore” type approach to value.We frequently use Stephen Rushmore’s methodology to value hotels and motels, and it may be something useful to consider when valuing casinos in the future.However, Rushmore’s methodology is predicated on using stabilized income and expenses rather than a discounted cash flow.Additionally, while hotels and motels have some revenue generated by intangibles that must be deducted from market value, the extent of those intangibles may not rise to the level of intangible generated revenue in a casino.

A party 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.”[95][iv]  Both parties’ presentation of evidence fell exceedingly short of their burden of proof.  Neither party presented evidence to provide a basis or even guidance for determination of true value of the property.  The fact that the parties have failed to meet their burden of proof in presenting substantial and persuasive evidence, requires acceptance of the presumption in favor of the Board of Equalization.  And, inasmuch as the subject property is real property that is valued in the odd numbered year,[96] the 2011 BOE value of $141,652,500[97](assessed value $45,328,800) must be applied in the subsequent even year absent evidence of new construction.

ORDER

The market value for the subject property as determined by the Board of Equalization for St. Louis County for 2011 is AFFIRMED .The market value for the subject property as determined by the Board of Equalization for St. Louis County for 2012 is SET ASIDE.The clerk is hereby ordered to place the commercial real property assessed value of $45,328,800 on the subject barge property for tax years 2011 and 2012.

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. [98]

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 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 24^th day of February, 2014.

STATE TAX COMMISSION OF MISSOURI

Luann Johnson

Senior Hearing Officer