State Tax Commission of Missouri
|INLAND AMERICAN HIGH RIDGE,||)|
|v.||)||Appeal Number 11-34019 to 11-34023|
|TERRY ROESCH, ASSESSOR,||)|
|JEFFERSON COUNTY, MISSOURI,||)|
DECISION AND ORDER
Decision of the County Board of Equalization reducing the assessment made by the Assessor is SET ASIDE. True value in money for the subject property for tax years 2011 and 2012 is set at $14,450,000, commercial assessed value of $4,624,000.
Complainant appeared by Counsel Richard Dvorak.
Respondent appeared in person and by Counsel David Senkel
Case heard and decided by Hearing Officer Maureen Monaghan.
Complainant appeals, on the ground of overvaluation, the decision of the Jefferson County Board of Equalization, which reduced 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. 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 Jefferson County Board of Equalization.
- Evidentiary Hearing. The Evidentiary Hearing was held on July 9, 2014 at the Jefferson County Administration Building, Hillsboro, Missouri. Briefing was completed on February 20, 2015.
- Identification of Subject Property. The subject property is identified by map parcel number 3-1-12-4-2-1.03, 3-1-12-4-2-1.04, 3-1-12-4-2-1.05, 3-1-12-4-2-1.07. 3-1-12-4-2-1.08. It is further identified as Dillon Plaza, 5301 – 5315 Caroline Drive, High Ridge, Jefferson County, Missouri. (Ex. 1, page 8)
- Description of Subject Property. The subject property consists of a 18.45 to 18.73 acre tract of land improved by a large multi-tenant strip retail building, 2 smaller strip retail buildings, a restaurant, and a small parking lot strip.
- Large Multi-Tenant Strip Retail Building: The property is 14.09 acres improved with a 107,863 square foot retail building. It was constructed in 1996.
- Smaller Strip Retail Building: One of the smaller retail buildings is a 12,000 square foot building on a 1.6 acre lot. The improvement was constructed in 2003.
- Smaller Strip Retail Building: The other smaller retail building is a 11,585 square foot building on a 1.05 acre lot. The improvement was constructed in 2004.
- Restaurant: The restaurant sits on a 1.21 acre lot and is improved with a 5,246 square foot building constructed in 1997.
- The remaining parcel is a .5 acre lot that serves as a parking lot for one of the smaller retail buildings.
- Sale of Subject. The subject property was purchased by Complainant on April 30, 2007 for $22,818,000.
- Assessment. The Assessor appraised the properties as follows:
The Board of Equalization reduced the valuation as follows:
- Complainant’s Evidence.
|A||Appraisal Report of Troy Smith|
|C||Written Direct Testimony of T. Smith|
|E||Rent Roll January 2014|
Exhibits A, B, C and E were admitted into evidence. Exhibit D was filed as Rebuttal Exhibit but was not offered or admitted at the hearing.
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2011, to January 1, 2012, therefore the assessed value for 2011 remains the assessed value for 2012. Section 137.115.1, RSMo.
- Respondent’s Evidence.
|1||Appraisal Report – Ed Dinan|
|2||Deed of Trust|
|3||Written Direct Testimony E. Dinan|
- Presumption of Correct Assessment Rebutted. Evidence presented at hearing was substantial and persuasive to rebut the presumption of correct assessment by the Board.
CONCLUSIONS OF LAW AND DECISION
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.
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
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.
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:
- Buyer and seller are typically motivated.
- Both parties are well informed and well advised, and both acting in what they consider their own best interests.
- A reasonable time is allowed for exposure in the open market.
- Payment is made in cash or its equivalent.
- Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.
- 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. Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.
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. St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968).
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. 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).
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).
The Supreme Court of Missouri has also held that 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. St. Joe Minerals Corp., supra
Opinion Testimony by Experts
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 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).
The appraisers for both parties developed the income approach. The Respondent’s appraiser also developed the sales comparison approach.
Complainant’s appraiser is a certified general appraiser. He considered all three approaches to value. He did not develop the cost approach due to the age of the improvements. He did not develop the sales comparable approach citing lack of comparable sales. He developed the income approach – more specifically, the direct capitalization approach. The appraiser reviewed the subject’s historic rents, income, vacancy and expenses as well as the market. The appraiser determined that the subject’s weighted average of rental rates was $11.75 and his survey indicated rates ranging from $7.00 to $19.50 per square foot. A NAI Desco survey for 4Q of 2010 reports an average rental rate of $14.81 per square foot. Complainant’s appraiser also reviewed rental listings and concluded on a rental rate of $10.77/sq. ft., a reimbursement rate of $1.20/sq. ft., a vacancy and collection rate of 8%, and expense rate of $1.95/sq. ft. The appraiser developed a capitalization rate through market surveys and developing the band of investments. He concluded on a direct capitalization rate of 9% and applied an effective tax rate of .18% after consideration of the past levy and reimbursements. His final opinion of value was $13,500,000.
Respondent’s appraiser is a certified general appraiser. He considered all three approaches to value. He developed the sales comparison approach, using the approach to verify his income approach to value. The sales comparison approach indicated a value of $15,110,000. He developed the income approach using both the direct capitalization approach and the discounted cash flow. The Respondent’s appraiser reviewed the subject’s historic information and the market to develop his income approaches. In his direct cap approach, the appraiser used a vacancy and collection rate of 3% which is closer to the historic vacancy and collection rate of the subject’s property. The appraiser also referenced the 4.9% vacancy and collection rate of 34 shopping centers in Jefferson County and other appraisals he conducted. The appraiser developed a capitalization rate of 10% (direct cap rate of 7.75% and an effective tax rate of 2.29%). The resulting indication of value under the direct capitalization approach was $14,450,000. The appraiser also developed the discounted cash flow. The resulting indication of value under the discounted cash flow approach was $15,130,000.
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 subject sold for $22,818,000 in 2007. Neither appraiser relied on the sale in their conclusion of value. In this case, the sale of the subject was too remote in time to be considered persuasive.
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. This approach is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses and capitalization rates can reasonably be estimated from existing market conditions. The initial step in applying the income approach is to find comparable rentals and make adjustments for any differences. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 347 (Mo. 2005). (citations omitted).
Discounted Cash Flow
The use of discounted cash flow can be problematic. One court 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.” University Plaza Realty Corp. v. City of Hackensack, 12 N.J. Tax 354 (N.J. Tax 1991), aff. 264 N.J. 343, 624 2d 1000 (App. Div.)
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.
Conclusion of Value
The direct capitalization approach income approach is the most appropriate and persuasive methodology for valuing the subject property as it is an investment-type property. The property has sufficient historic information and comparable market information to develop reliable rental income, operating expenses and capitalization rates to opine value. The Respondent appraiser’s approach to value was the most persuasive. His development of the other approaches supports his finding of value of $14,450,000.
The assessed valuation for the subject property as determined by the Board of Equalization for Jefferson County for the subject tax day is SET ASIDE.
The assessed value for the subject property for tax years 2011 and 2012 is set at $4,624,000.
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
The Collector of Jefferson 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 6th day of March, 2015.
STATE TAX COMMISSION OF MISSOURI
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 6th day of March, 2015, to: Complainants(s) counsel and/or Complainant, the county Assessor and/or Counsel for Respondent and county Collector.