Hickory Hollow v. Shipman (St. Charles)

State Tax Commission of Missouri

 

HICKORY HOLLOW,)

)

Complainant,)

)

v.)Appeal(s) Number 07-32501 thru 07-32537

)and 08-32500 thru 08-32503

SCOTT SHIPMAN, ASSESSOR,)

ST. CHARLES COUNTY, MISSOURI,)

)

Respondent.)

 

DECISION AND ORDER

 

HOLDING

Decision of the St. Charles County Board of Equalization sustaining the assessment made by the Assessor is SET ASIDE.True value in money for the subject property for tax years 2007 & 2008 is set at $1,822,120, residential, assessed value $346,200.

ISSUE

The issue in this case is the true value in money of the subject property for tax years 2007 and 2008.

SUMMARY

Complainant appeals the assessment of its subsidized housing apartment complex.In 2007, the St. Charles County Assessor determined a true value for the properties and the Board of Equalization affirmed.The Complainant appealed to the State Tax Commission and proposed a true value for the properties.In 2008, the St. Charles County Assessor determined a different true value for four of the parcels.The Board of Equalization affirmed their values.The Complainant appealed on those parcels.The following is the Assessor’s valuation, sustained by the Board of Equalization, and the value as proposed by the Complainant on their Complaints for Review of Assessment:

 

A hearing was held on December 17, 2008, at the St. Charles County Administrative Building, St. Charles, Missouri.Complainant was represented by counsel, Cathy Dean.Respondent appeared in person and with counsel, Charissa Mayes.Complainant proposed a value for all properties at $1,819,700 as residential.Respondent proposed a value $5,517,503.

Complainant filed a post-hearing brief on February 5, 2009.Respondent replied on March 9, 2009.Complainant replied on April 7, 2009.

EXHIBITS

The following exhibits were submitted by the parties and accepted into the record:

Complainant’s Exhibits

 

Respondent’s Exhibits

 

 

FINDINGS OF FACT

1.Jurisdiction over this case is proper.Complainant timely filed its appeals from the decision of the St. Charles County Board of Equalization.

2.The properties are more commonly known as Hickory Hollow and are located in Wentzville, Missouri.

3.The subject parcels are single-family ranch-style residential improvements on lots ranging in size from 0.21 to 0.27 acres.The improvements are approximately 1,280 square feet each and are three years in age.

4.All of the single-family dwellings are restricted to tenants earning 60% or less of the area median income under the Low Income Housing Tax Credit (LIHTC) program administered by the Missouri Housing Development Commission.

5.The parties stipulated to the gross rental income, vacancy and collection, effective gross income, expenses, and net operating income.The parties used the same cost of construction, amount of the loan, loan to value ratio, loan constant, amount of equity, andeffective tax rate in developing their approach to value.

6.The correct value for the subject property is calculated as follows:

Net Operating Income	$153,841
Capitalization: Loan to Value x Loan Constant[a] Equity to value x Equity Dividend Rate [b] Tax Rate[c]	2.12% 10.8% .25%
Overall Cap Rate	13.17%
Indicated Value	$1,168,120

Indicated value + Value for excess land $654,000[d] = $1,822,120.

7.The true value in money for the subject property for tax years 2007 and 2008 is $1,822,120, assessed value $346,200.

CONCLUSIONS OF LAW

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious.[1]

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 the tax day.[2]Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[3] 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.[4]

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.[5]

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 she 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.[6]

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 upon which the expert relies need not be admissible in evidence.[7]

Official Notice

Agencies shall take official notice of all matters of which the courts take judicial note.[8]

Courts will take judicial notice of their own records in the same cases.[9] In addition, courts may take judicial notice of records in earlier cases when justice requires[10] ‑ or when it is necessary for a full understanding of the instant appeal.[11]

Commission Determines Methodology

It is within the State Tax Commission’s discretion to determine what method or approach it shall use to determine the true value in money of property.[12] It is also within the State Tax Commission’s authority to ascertain the correct or modern means of determining value according to a particular method or approach that it adopts to ascertain valuation, and it is within the Commission’s discretion to determine what factors should be considered in fixing the “true value in money” for property under a valuation method or approach adopted for use in a particular case.[13] The relative weight to be accorded any relevant factor in a particular tax assessment case is for the State Tax Commission to determine.[14] State Tax Commission decisions must declare the propriety of and the proper elements to consider in adopting a valuation approach, and must provide a definite indication as to the weight accorded each approach or method, i.e., how the final decision is weighed between the various approaches, methods, elements and factors.[15] The determination of “true value in money” of any property is a factual issue for the State Tax Commission.[16]

Proper Methodology

It is within the authority and expertise of the Tax Commission to determine which valuation methodology best represents value in a given situation or for a particular category of properties.[17] After carefully considering the benefits and risks associated with subsidized housing, the State Tax Commission, in Maryville Properties[18], determined that calculating value based upon actual income, actual expenses, and actual interest and capitalization rates was the best way to recognize all benefits and risks associated with subsidized housing.

In Lake Ozark Village v. Whitworth[19], we stated:In this case, and all subsequent subsidized housing cases, the correct methodology for valuing subsidized housing projects is the methodology set out in Maryville Properties. That methodology is accurate because (1) rent restrictions are considered through the use of actual income rather than market income; (2) additional management requirements and expenses are accounted for through use of actual expenses which are in excess of market expenses; and (3) the actual loan‑to‑value ratio and the subsidized interest rate demonstrates and accounts for any and all risks involved in the property as well as the benefits flowing to the property.It is “economic reality.”

DISCUSSION

The risks and benefits associated with low-income housing must be measured in some fashion and, at this point in time, the best evidence of the risks and benefits of this type of endeavor is the willingness of the taxpayers to invest in same in exchange for the income and tax credits flowing from those investments.Although there has been only one sale of subsidized properties, if the subject property should sell, there is no evidence that the next purchaser would be able to obtain more favorable financing than the current owner presently enjoys.A substantial equity position would probably be required by MHDC.Our determination of value considers these factors and is consistent with the mandate of the Supreme Court in Missouri Baptist Children’s Home v. State Tax Commission[20], that we consider the “economic realities” of a particular piece of property when attempting to determine market value.

In Lake Ozark Village and Maryville Properties, we stated that the income approach should be developed using actual income and expenses realized by the subsidized property; it should use the loan-to-value ratio approved by the subsidizing agency based upon the subsidized mortgage rate; it should allow an appropriate equity dividend rate; and taxes should be included in the capitalization rate.

The parties stipulated to the actual gross rental income ($305,700), the vacancy and collection (-$21,399), effective gross income ($284,301), the actual expenses (-$130,460), and net operating ($153,841).The parties had similar “loan to value x loan constant” figures(Complainant 2.09%, Respondent 2.12%) and the same effective tax rate (.25%).The parties disagreement focused on the determination of the equity dividend rate.

In Lake Ozark Village and Moberly Plaza, we stated that the mortgage equity ratio at the time of the signing of the mortgage is controlling. The parties agree that the equity ratio is .72.

The parties disagree as to the appropriate equity dividend rate.The Assessor’s expert, Keith Hodges, testified that it was important to look at the individual housing project and its specific financial position at the time of the construction.The expert testified that some developers may have to borrow nearly all of the money required to construct the project which would put that project in a different financial position than a project that would borrow much less.The expert felt that the amount of money the developers for the subject property needed to borrow was low so the Complainant is in a better equity position than other developers.

The Assessor’s expert further testified that the Complainant has less financial risk associated with a better equity position or higher equity ratio at the start of the project because the loan is small.Since the loan was small, the debt is easier to service requiring less of an income stream to sustain timely payment of the debt service.Further, if the Complainant developer is forced to abandon the project, the Complainant is almost guaranteed to recover the loan proceeds at the time of sale and is more likely to realize a profit in the event the developer would be forced to sell the project.

The Assessor’s expert testified that a capitalization rate is developed by analyzing the market and looking at hard economic data from sales and exchanges of similar properties.The Assessor’s expert conceded that there were no sales of these types of properties in Missouri.It is his opinion that the only way reliable equity and capitalization rates can be determined is to look at the economic conditions effecting a particular property or group of properties that is under review.

The Assessor’s expert developed his equity dividend on the property by determining the cost of the annual debt service on the property and deducting form the net operating income as indicated by the actual income and actual expenses associated with running this development for a year.The expert found that the Complainant has a cash return of $25,796.He divided that return by the actual equity in the project of $4,427,684 to get the actual dividend rate of 0.58%.Using that rate with the effective tax rate and the loan-to-value x mortgage constant, results in an overall cap rate of just under 3%.

In Sixth Street Partners[21] the State Tax Commission stated that “someone familiar with the process of determining capitalization rates must review the market and estimate the appropriate capitalization rate for the equity portion of this equation.”The Complainant’s expert complied with the prior decisions of the State Tax Commission when determining an equity dividend rate.

The Complainant’s expert testified that he researched the market capitalization rates by interviewing developers and investors in tax credit properties.He also attended the Workforce and Affordable Housing Counsel Spring Meeting.He also spoke with other developers and relied on his years in the real estate market.He determined a range from 15% to 20% and then concluded that the appropriate rate in this situation was 15% given the location and the type of housing.The expert used his concluded rate to determine an overall capitalization rate of 13.2%.

The Complainant argues that determining the rate by looking at the market rate, in compliance with prior State Tax Commission decisions, is appropriate.The restrictions on the property would affect the sale of the property because the purchaser would consider the following when determining what price of the property would provide for a return on and return of his investment:(1) the below-market rents; (2) the favorable loan; and (3) the restrictions as to use of the property.

The long term restrictions are taken into consideration by using the actual income and expenses of the particular property.The favorable loan is taken into consideration by using the actual loan terms in the loan portion of the capitalization rate.The equity rate is based upon market analysis following the decision of the Court of Appeals – Western District that the tax credits not be considered in valuing the property[22] and the State Tax Commission’s determination that “someone familiar with the process of determining capitalization rates must review the market and estimate the appropriate capitalization rate for the equity portion of this equation.” [23]

 

ORDER

The value placed upon the subject property for tax years 2007 and 2008 is hereby SET ASIDE.The clerk is hereby ordered to place the correct value of $1,822, 120 (assessed value $346,200, residential) on the subject property for tax years 2007 and 2008 divided between the parcels as follows:

Appeal Number	Parcel Number	Assessed Value
07-32501	TO60100482	$9,820
07-32502 & 08-32503	TO60100483	$9,430
07-32503	TO60100484	$9,185
07-32504	TO60100485	$9,200
07-32505	TO60100486	$9,200
07-32506	TO60100487	$9,200
07-32507	TO60100488	$9,645
07-32508	TO60100489	$9,645
07-32509	TO60100490	$9,335
07-32510	TO60100491	$9,200
07-32511	TO60100492	$9,200
07-32512	TO60100493	$9,200
07-32513	TO60100494	$9,000
07-32514	TO60100495	$9,200
07-32515	TO60100496	$9,000
07-32516	TO60100497	$9,200
07-32517	TO60100498	$9,200
07-32518	TO60100499	$9,200
07-32519	TO60100500	$9,200
07-32520	TO60100501	$9,275
07-32521	TO60100502	$9,200
07-32522	TO60100503	$9,200
07-32523	TO60100504	$9,580
07-32524	TO60100505	$9,200
07-32525	TO60100506	$9,200
07-32526	TO60100507	$9,200
07-32527	TO60100508	$9,200
07-32528	TO60100509	$9,510
07-32529	TO60100510	$10,435
07-32530	TO60100511	$9,510
07-32531 & 08-32502	TO60100512	$9,385
07-32532	TO60100513	$9,510
07-32533	TO60100514	$9,510
07-32534 & 08-32501	TO60100515	$9,510
07-32535	TO60100516	$9,510
07-32536	TO60100517	$9,510
07-32537 & 08-32500	TO60100518	$9,515

 

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.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, MO65102-0146, 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.

If an application for reviewof a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with these appeals shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of St. Charles 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 these appeals.If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED April 24, 2009.

 

STATE TAX COMMISSION OFMISSOURI

 

 

_____________________________________

Maureen Monaghan

Hearing Officer

 

 

 

 

 

Certificate of Service

 

I hereby certify that a copy of the foregoing has been mailed postage prepaid this 24^thday of April, 2009, to:Cathy Dean, Twelve Wyandotte Plaza, 120 West 12^th Street, Kansas City, MO 64105, Attorney for Complainant; Charissa Mayes, Assistant County Counselor, 100 North Third Street, Room 216, St. Charles, MO 63301, Attorney for Respondent; Scott Shipman, Assessor, 201 North Second, Room 247, St. Charles, MO 63301-2870; Amy Gann, Registrar, 201 North Second Street, Room 529, St. Charles, MO 63301; Michelle McBride, Collector, 201 North Second Street, Room 134, St. Charles, MO 63301.

 

 

 

 

______________________________

Barbara Heller

Legal Coordinator