State Tax Commission of Missouri
|IRON MOUNTAIN TRAP ROCK,||)|
|v.||)||Appeal Number 13-84000|
|DAN WARD, ASSESSOR,||)|
|ST. FRANCOIS COUNTY, MISSOURI,||)|
DECISION AND ORDER
Decision of the County Board of Equalization sustaining the assessment made by the Assessor ($11,769,580) is SET ASIDE. Substantial and persuasive evidence was presented to rebut the presumption of correct assessment by the Board of Equalization.
True value in money for the subject parcel for tax years 2013 and 2014 is set at $7,671,900, commercial assessed value of $2,455,008.
Complainant appeared by attorney James P Gamble.
Respondent appeared in person and by counsel Richard Reed.
Case heard and decided by Hearing Officer Maureen Monaghan.
Complainant appeals, on the ground of overvaluation, the decision of the 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, 2013. 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 County Board of Equalization.
- Evidentiary Hearing. The Evidentiary Hearing was held on April 13, 2015 in St. Francois County, Missouri. The parties requested briefing following the hearing. Parties completed briefing on July 10, 2015.
- Identification of Subject Property. The subject property is identified by map parcel number 15-90-31-00-000-0003.00.
- Description of Subject Property. Iron Mountain Trap Rock Company is a quarry operation on 2,074 acres in Iron and St. Francois County. Iron Mountain Trap Rock surface mines rhyolite. The rock face is drilled, blasted and the rock is hauled to the crushers. The first crusher processes it to an 8 inch product. The second crusher processes it to its final products. The primary product produced is rail ballast, but there are other uses including asphalt.
The property includes land used for active mining and future mining. It includes land and improvements for offices and administration as well as for processing, inventory and loading the product. The property also has areas for spoilage and buffer as well as a rail line used for transporting the product.
The subject parcel consists of 236 acres which includes future mining property (83 acres) as well as the processing, inventory and loading property (127 acres).
Historical sale information includes:
Sale of ore per ton by year
|Year||Ton of Ore|
Price per ton of ore:
|Year||Price per ton|
There is approximately X tons of trap rock reserves or about X years of mine life.
- Assessment. The Assessor appraised the parcels located in St. Francois County as follows (total of all parcels $11,889,810) and the Board of Equalization sustained the assessment.
|15-90-31-00-000-0003.00 (Subject)||236 Acres|
Iron Mountain Trap Rock includes parcels in Iron County:
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2013, to January 1, 2014, therefore the assessed value for 2013 remains the assessed value for 2014. Section 137.115.1, RSMo.
- Presumption of Correct Assessment Rebutted– The parties presented evidence rebutting the presumption of correct assessment by the Board of Equalization. The valuations differed due, among other things, to the definition of the unit or assemblage, the valuation of the unit or assemblage and lastly, the allocation of the unit or assemblage’s value to the subject parcel.
- True Value – The unit value of the land in the subject parcel and five other parcels is $6,693,434. The allocation to the subject is the value of the un-appealed properties as determined by the Board of Equalization ($76,370) subtracted from the unit value of $6,693,434 or $6,617,064. The value of the improvements is $1,054,835. The true value of the subject parcel is $7,671,899 say $7,671,900.
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.
Basis of Assessment
The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. The constitutional mandate is to find the true value in money for the property under appeal.
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 substantial and persuasive evidence is presented 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).
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).
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. Bussmann Div. of Cooper Indus. V. State Tax Comm’n of Missouri, 802 SW 2d 543 (Mo. App. E.D. 1991); P.D. George v. Daly, App. No. 99-20262 Mo. Tax Comm. 2/2/01); HYCEL Partners LLP v. Morton, App. No. 90-10798 (Mo. Tax Comm. 9/l1/93).
In Doe Run Company v. Holman, 1999 WL 1253948, App. No. 97-34016 (Mo. Tax Comm. 12/23/99), the property included a 235 acre parcel improved with a lead smelter plant. The State Tax Commission 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.”
The finding 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?” The Commission 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. “[U]nder 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.” Burlington Northern Railroad Company v. Bair, 815 F. Supp. 1223, 1227 (S.D. Iowa, Central Division, 1993)
Complainant offered into evidence Exhibits A and B. Exhibit A was an appraisal report of Associated Geologists. Exhibit B was the written direct testimony of appraiser Arthur Pincomb of Associated Geologist. Both exhibits were admitted into evidence. The appraiser developed an opinion of value using the royalty income approach for approximately 980 acres of land and utilizing the cost approach for improvements. The appraiser concluded a unit value of $6,690,000 for the land and $1,054,835 for the improvements; a total of $7,744,835. The appraiser allocated the land unit value to the subject parcel by assigning a dollar amount per ton of reserve. The appraiser assigned $1,438,835 as an allocated value to the subject. ($384,000 land value and $1,054,835 improvements)
Elements of the Approach:
a. Economic Life – 30 years
b. Tons of Product Sold X – : The appraiser reviewed the subject’s history of product sold. The average sold from 2004 to 2013 was X tons per year. The high was in 20XX at X tons sold. The appraiser concluded on X tons sold per year.
c. Price per ton – The appraiser reviewed the historical price. The appraiser started with the historical price in 2013 of $X and increased the price by 3% per year.
d. Royalty Rate of 4% – The appraiser reviewed royalty rates paid in Missouri. The appraiser reports rate of 3% in Shelby County, 4% in Pike County and 4.5% in Lincoln County.
e. Royalty income – Price per ton x royalty rate x tons sold.
f. Discount Rate – 8.5%.: The appraiser used a build up method. The appraiser started with the 30 year Treasury Constant Maturity Rate of 3.08%. The appraiser reviewed the risk of the mine by looking at reserves and quality, market and annual sales, environment, operation, and management and assigning a risk factor to each. The resulting built-up discount rate concluded was 8.5%.
g. Present Value of Land- Present value of each year’s royalty income was determined. The present value of all 30 years was added together for a valuation indication for the land of $6,690,512.
h. Value of Improvements – Value was determined using the cost approach. The appraiser used the actual costs with the book depreciation to conclude a value of $1,054,835.
i. Allocation – The appraiser allocated the per-ton value of the X ton larger parcel to the X tons in the subject parcel. The per-ton value of available rhyolite at the quarry was rounded to $X/ton ($6.69 million unit value of the land/X total tons). The unit value allocated to the subject parcel was $384,000. (X tons x $.X/ton)
Respondent offered into evidence Exhibit 1 – Written Direct Testimony of appraiser Bradley Ross. Exhibit 2 was the Appraisal Report of Ross Consulting. Exhibit 3 was the Rebuttal Testimony of Bradley Ross. Exhibit 4 was the Surrebuttal Testimony of Bradley Ross. The exhibits were admitted into evidence. The appraiser developed his opinion of value, of all real property of the Complainant, using the historical profit method or Arizona Method.
The appraiser developed three projections:
a. Utilizing the 2012 operating profit margin and a 12% capitalization rate, the resulting indication of value was $X;
b. Utilizing a three year average operating profit margin and a 12% capitalization rate, the resulting indication of value was $X; and
c. Utilizing a royalty income of 10% of sales and a discount rate of 8%, the resulting indication of value for the orebody was $X. The value was used as part of his cost approach.
The valuation considered all the property – all 17 parcels, including the three parcels in Iron County. The appraiser concluded a value of $13,248,058 for the mining operation in St. Francois County. To allocate a value to the subject parcel, the appraiser deducted the “un-appealed” values of the personal property and other real property from the unit value of $13,248,058 to conclude on an allocated value of $9,387,474 to the subject parcel.
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 appraisers agreed that the cost and sales approaches to value were not applicable because of the unique nature of mines and quarries, which are seldom alike as they differ in ore, reserves, size, geology, depth, costs, and location. The peculiar nature of mining and quarry properties make the comparable sales and cost approaches unreliable for valuing mineral properties.
The appraisers agree that the income approach is most appropriate valuation approach for mines and quarries. The income approach analyzes a property’s capacity to generate revenue and income and convert this into an indication of market value. The income approach recognizes that a mine or quarry property is purchased for its ability to produce an income stream.
Both appraisers performed a unit valuation. Both appraisers concluded that there is little to no residual value of the land when the mining is complete. The differences in the approaches included the definition of the unit or assemblage, the allocation of the unit to the subject, and the valuation methodology. The Complainant’s appraiser utilized the royalty income to develop an opinion of value for the land and then used the cost approach to determine the valuations for the improvements. The Respondent’s appraiser utilized the Arizona method to determine the value for the business.
The Complaint’s appraiser’s income approach utilized a royalty income to determine the value of land and then added in the market value of the improvements. The market value of the improvements was determined using the cost approach. Royalty income is based on a lease agreement in which the property owner is paid for every ton excavated and sold from the quarry. Future royalty earnings are discounted at a rate which accounts for the risk in mining, including risk of reserves and quality, the future market, environment, operation and management. The discounted royalty income the owner receives over the economic life of the mine represents the value. Typically the economic life of a quarry is limited to 25 or 30 years beyond which the discounted royalty income does not contribute significantly to value.
The Respondent’s appraiser’s income approach utilized the “Arizona Method”. It is a business enterprise approach for valuing properties utilizing discounted cash flow. In this method, one uses the income method to determine the value of all income producing property, including improvements, personal property, management, good will, etc. Once the valuation is concluded, the appraiser makes deductions for income not attributable to the subject property included in the appeal.
Both valuation models, which are based upon future earnings, rely on assumptions and speculation, albeit by experts within the field. The more assumptions made and the more variables used, increase the speculative nature of the conclusion. The more historic and actual market information utilized, the more reliable the approach.
Complainant’s methodology – royalty income approach – is more persuasive as it relied more heavily on historical information of the subject; it required less subjective determinations and did not require adjustments to account for income derived from other portions of the business enterprise such as income generated by personal property, intangibles, etc. The royalty rates and discount rates utilized were based upon actual market rates.
Respondent’s calculation of true value included information not from the market. For example, the royalty rate utilized by the Respondent was not based upon market rates based upon the location and type of mining in this appeal. The valuation in this appeal captured the enterprise value from the extraction and production of final product, as well as from personal property and intangibles. Respondent’s analysis provided a range of valuation from $X to $X.
Although Respondent’s valuation was not as persuasive as Complainant’s, Respondent’s methodology for allocation was deemed more persuasive than Complainant’s.
The appraisers allocated their value to the subject parcel under appeal. The Complainant advocated that the parcel numbers/cadastral maps require allocation by dividing the valuation by ore found within the subject’s parcel number. The Respondent’s appraiser determined a unit value and then made a deduction equal to the valuation of any property within the county not appealed.
Assessors use cadastral maps which represent legal descriptions of real property graphically. The mapping process ensures all property is assessed and no property is assessed twice. The maps are used to generate identification, locator, parcel or account numbers. The numbers link the location of the property, ownership information, assessment roll, and collector’s records. The parcel numbers provide no valuation information nor do they tie the hands of an appraiser in defining the appraisal problem.
The valuation of the unit, as defined by the appraiser, is what is of importance – not the number assigned by the assessor for record keeping purposes. The allocation of valuation to mapping areas within a county does not define the true value of an integrated unit. Other than to identify the property and allocate a valuation to the taxing entities within each map designation, the parcel numbers provide no guide to valuation or the assessment process.
The allocated true value in money for the subject parcel for tax years 2013 and 2014 is set at $7,671,900, commercial assessed value of $2,455,008.
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for St. Francois County for the subject tax day is SET ASIDE.
The assessed value for the Complainant’s real property for tax years 2013 and 2014 is set at $2,455,008.
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 St. Francois 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 10th day of November, 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 10th day of November, 2015, to: Complainants(s) counsel and/or Complainant, the county Assessor and/or Counsel for Respondent and county Collector.
Contact Information for State Tax Commission:
Missouri State Tax Commission
301 W. High Street, Room 840
P.O. Box 146
Jefferson City, MO 65102-0146
 Parcel is included in Complainant’s appraiser’s unit valuation