State Tax Commission of Missouri
INLAND WESTERN HIGH RIDGE LLC, )
)
Complainant, )
)
v. ) Appeal Number 09-34007
)
TERRY ROESCH, ASSESSOR, )
JEFFERSON COUNTY, MISSOURI, )
)
Respondent. )
DECISION AND ORDER
HOLDING
Decision of the Jefferson 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 2009 and 2010 is set at $8,059,000, commercial assessed value of $2,578,880. Complainant appeared by Counsel, Richard Dvorak. Respondent appeared by Counsel David Senkel. Decision rendered by Hearing Officer Maureen Monaghan.
ISSUE
Complainant appealed, on the ground of overvaluation, the decision of the Jefferson County Board of Equalization, which sustained the valuation of the subject property. The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2009.
FINDINGS OF FACT
1. Jurisdiction. Jurisdiction over the appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Jefferson Board of Equalization.
2. Assessment. The Assessor appraised the property at $9,741,300, commercial assessed value of $3,117,200. The Board of Equalization sustained the assessment.[1]
3. Subject Property.[2] The subject property is identified by map parcel number
06-6.0-13.0-3-001-002.[3] The subject property is a retail center located off Gravois Rd., High Ridge, Missouri. There are three retail buildings with parking on 8.56 acres. There is a 59,263 square foot grocery store, 12,536 square foot multi-tenant building, and a 5,058 square foot stand alone building – a total of 76,857 square feet of rentable area. All buildings are masonry block buildings with steel beams and joists on concrete floors and are in good condition. There is an additional 1.42 acres of undeveloped land. The improvements were built in 2003-4 and sold in 2005 for $13,200,000. At the time of the sale, the site contained 11.23 acres. The site is now 9.98 acres due to a dedication of a road right-of-way to Jefferson County.[4]
4. Sales of Retail Improvements. Comparable sales were limited in the subject property’s area during a time period relative to the valuation date. Due to the limited number of sales, the appraisers broadened their search to include sales in the neighboring county. The comparable sales were divestments of a particular chain of grocery store-anchored retail or stores much older than the subject.
5. Sales of Vacant Land.[5] Sales of lots were presented. Sale prices ranged from $150,000 to $1,293,732. The lots ranged in size from 0.23 acres to 1.65 acres. The sales occurred from 2005 to 2008.
6. Income and Expenses.[6] The appraisers’ income approaches were similar. The net operating incomes were similar, $751,579 (Complainant) and $733,832 (Respondent). Both appraisers found a cap rate of 8%. The largest difference between the approaches was the handling of property taxes. Property taxes should not be included as an expense, but the effective tax rate should be considered with the capitalization rate.[7] The effective tax rate for the subject property is 2.26%.
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.[8]
Presumptions In Appeals
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization.[9] 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.[10]
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, 2009.[11] 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.”[12]
Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[13] 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.[14]
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.[15] True value in money is defined in terms of value in exchange and not value in use.[16] It is the fair market value of the subject property on the valuation date.[17] 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.[18]
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.[19]
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.[20]
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.[21]
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.[22] 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.[23]
Income Approach Appropriate for Present Appraisal Problem
The strongest and most compelling approach to value for the subject property is the income approach. The income approach is based on the theory that an investor will pay no more for a property than what income may be received from an investment with similar income and risks. The income approach is most useful when the number of sales of similar properties is limited and the age or obsolescence of the improvement makes the cost approach unreliable. The Complainant’s appraiser gave this approach the most weight and the Respondent’s appraiser gave this approach the least weight.
The Complainant’s appraiser reviewed the subject property and the market to determine the appropriate income, vacancy rates and operating income. The appraiser concluded on an estimated net operating income of $751,579.[24] A capitalization rate of 8% was used after the appraiser looked at comparable sales and completed a band of investment analysis to support his conclusion.[25] The effective tax rate for the property is 2.26%.[26] The appraiser concluded on a value of $7,500,000 for the improved property and $500,000 for the unused land for a total value of $8,000,000.[27]
The Respondent’s appraiser also reviewed the subject property and the market to determine the appropriate income, vacancy rates and operating income. The appraiser concluded on an estimated net operating income of $733,832.[28] The appraiser included property taxes in his calculation of expenses.[29] Property taxes should not be included in expenses but considered when calculating the capitalization rate. A capitalization rate of 8% was used after the appraiser looked at comparable sales and completed a band of investment.[30] The appraiser, using a rate that did not include the effective tax rate, concluded on a value of $9,172,900 for the improved property.[31] If the property taxes were properly considered, the resulting value would have been lower.
Sales Approach Appropriate to Substantiate Value
The sales comparison approach is appropriate when a number of properties that are similar to the subject have been sold and the sale date is close in time to the valuation date. In other words, the sales comparison approach is only as reliable as there are sufficient sales during a relative time period and location. Both appraisers developed the sales comparison approach; both appraisers noted the lack of sales. Both selected the sale of the subject property, sale of a property within one mile, and sale of a property in St. Peters, Missouri and two additional sales for their sales comparison approach. [32]
Two of the sales include Dillion Plaza and St. Peters Square. Dillion Plaza sold in 2007 for $22,817,867. The 136,909 square feet of improvements were built in 1996 on 18.48 acres. The property sold when the market was more favorable, the location of the comparable is better, the quality of the construction and the anchor store were higher, and the anchor to other retail was better. St. Peters Square property sold in 2008 for $16,300,000. The 102,309 square feet of improvements were built in 1998. Once again the market was more favorable, the anchor store was of higher quality, the anchor to other retail was better, and the location was better. The sales prices of the comparable properties should be adjusted negatively.
All sales were adjusted for time, age, size, quality, location, and additional land. The appraisers concluded on values of $8,570,000[33] (Complainant’s appraiser) and $9,809,000[34] (Respondent’s appraiser).
Given the variations in locations and market, the sales comparison approach only provides substantiation for the conclusion of value relying on the income approach.
Sales Approach Appropriate to Substantiate Value
The sales approach is the only method for determining value of land and is appropriately used to determine the valuation of the out lot of the subject property. The Respondent’s appraiser used lots varying in size from .23 acres to 1.58 acres. The comparable properties sold in 2005 and 2006. After the appraiser made adjustments, he determined a mean price of $10.53 and median price of $9.97 per square foot. The appraiser estimated the value of the subject property to be $9.00 per square foot due to the comparables size.
The Complainant’s appraiser used lots varying in size from 1.37 acres to 1.65 acres. The comparable properties sold in 2006, 2007 and 2008. After the appraiser made adjustments, he determined a range of adjusted prices of $6.77 to $11.34 per square foot. The mean price per square foot is $9.38 and median price is $9.71 per square foot.
The out lot measures 1.42 acres or 62,155 square feet. Using the value of $9.00 per square foot, the resulting value of the out lot is $559,000 (rounded).
Cost Approach Not Appropriate for Present Appraisal Problem
The valuation of property under the cost approach is based on the estimated reproduction cost of the improvements less depreciation. The approach works best for new improvements and where sales and income data is limited. Although the subject improvements are relatively new, the age of the buildings and economic obsolescence make the cost approach less reliable to determine value but may still be valuable for reconciliation of valuation when using the income method.
The Respondent’s appraiser correctly developed this approach. The appraiser used multipliers appropriate for the location of the subject property and effective date of the appraisal. The appraiser correctly included entrepreneurial profit. The appraiser’s analysis of functional obsolescence was correct; however, the property suffers from external obsolescence due to adverse market conditions. As stated by the Respondent’s appraiser, the cost approach can reach the upper limits to value due to the inability to accurately measure and estimate depreciation and inadequacies. [35]
Conclusion
The strongest and most compelling approach to value for the subject property is the income approach. The income approach is based on the theory that an investor will pay no more for a property than what income may be received from an investment with similar income and risks. The developed income approach considered the market income and expenses as well as vacancy rates and capitalization rate. The sales approach suffers from the lack of sales near the subject property and within a relative period of time and the cost approach is not as persuasive given the age of the property. The Complainant’s appraisal presented an opinion of market value and provided substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2009. As to the vacant land, the Respondent’s appraisal provided substantial and persuasive evidence that the proposed value is indicative of the market value of the vacant lot on January 1, 2009.
ORDER
The assessed valuation for the subject property as determined by the Assessor and sustained 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 2009 and 2010 is set at $2,578,880.
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. [36]
Disputed Taxes
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 March 16, 2011.
STATE TAX COMMISSION OF MISSOURI
_____________________________________
Maureen Monaghan
Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 16th day of March, 2011, to: Richard Dvorak, 7111 W. 98th Terrrace, Suite 140, Overland Park, KS 66212, Attorney for Complainant; David Senkel, One Thurman Court, P.O. Box 800, Hillsboro, MO 63050, Attorney for Respondent; Terry Roesch, Assessor; Wes Wagner, Clerk; Beth Mahn, Collector, Jefferson County Courthouse, Hillsboro, MO 63050
___________________________
Barbara Heller
Legal Coordinator
Contact Information for State Tax Commission:
Missouri – State Tax Commission
P.O. Box 146
301 W. High Street, Room 840
Jefferson City, MO 65102
573-751-2414
573-751-1341 FAX
[9] 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).
[10] Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).
[12] See, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003); Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. 1991).
[15] 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); See Also, Exhibit A, p. 8 – Definition of True Value in Money.
[16] 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).
[18] 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; Exhibit 1, p. 8.
[19] 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).
[20] 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).
[21] Section 490.065, RSMo; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. SC. 2004); Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. E.D. 1992).
[22] 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).
[23] 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).