State Tax Commission of Missouri
| JEANETTE L. MAZE | ) | |
| ) | ||
| Complainant | ) | |
| ) | Appeal Number 13-89501 | |
| v. | ) | |
| ) | ||
| CHUCK PENNEL, Assessor, | ) | |
| TANEY COUNTY, Missouri | ) | |
| ) | ||
| Respondent | ) |
ORDER
AFFIRMING HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
On August 7, 2014, Senior Hearing Officer Luann Johnson entered her Decision and Order (Decision) affirming the decisions of the Taney County Board of Equalization. Complainant filed its Application for Review of the Decision on September 5, 2014.
CONCLUSIONS OF LAW
Standard Upon Review
A party subject to a Decision and Order of a Hearing Officer with the State Tax Commission may file an application requesting the case be reviewed by the Commission. The Commission may then summarily allow or deny their request. The Commission may affirm, modify, reverse or set aside the decision. The Commission may take any additional evidence and conduct further hearings. See Section 138.432. RSMo.
DECISION
Complainant’s Claims of Error
Complainant alleges the Hearing Officer erroneously concluded that the evidence proffered by Complainant’s appraiser did not constitute substantial and persuasive evidence to overcome the presumption of validity afforded the Board of Equalization’s assessment. Complainant further argues that since the Assessor did not respond to discovery request or submit evidence the Complainant should prevail outright.
Background
The subject property is improved with an 86,795 square foot, four story, motel. The improvements consist of 160 units. The previous assessor determined a value of $4,279,648 (commercial assessed value of $1,369,490). The Taney County Board of Equalization, determined the value of the subject property to be $2,490,000 (commercial assessed value of $796,000)
Burden of Proof and Presumption In Appeal
The Complainant argues that since the Assessor did not respond to discovery request or present evidence, the Complainant should prevail. The Complainant is the moving party seeking affirmative relief. The Complainant bears the burden of proving the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary or capricious,” and overcome the presumption that the Board of Equalization’s valuation is correct. 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).
A review of the record shows that Complainant never sought to compel discovery or seek sanctions for failure to respond to request, therefore any issues or objections relating to discovery are waived. Complainant also argues that they were not permitted to cross examine the Assessor. The Assessor presented no evidence so there was nothing for Complainant to test or to rebut. The current Assessor was not in office at the time the valuation was determined. Further the Board of Equalization did not sustain the Assessor’s valuation so the Assessor’s valuation was not considered by the Hearing Officer. The Board’s value is presumed correct until the Complainant meets their burden of proof.
Lastly, Complainant argues that they should have been given an opportunity to present evidence to address the Hearing Officer’s findings. An Exchange Schedule was ordered in this appeal. The Exchange Order clearly states that the written direct testimony shall be in a question and answer form and must be complete and accurate as if it was oral testimony. The Complainant was provided with an opportunity to present their appraisal report and testimony from their appraiser in order to meet their burden of proof. The Complainant’s evidence failed to meet that burden.
Flaws in Valuation by Appraiser – STC Approved Methodology for Hotels
Proper methods of valuation and assessment of property are delegated to the Commission. 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). The State Tax Commission has adopted the Rushmore Model as the most appropriate for valuation of hotels.
The methodology of valuation known as the Rushmore Approach is the most persuasive valuation methodology. The Rushmore Approach has been recognized by state and federal courts, the Missouri State Tax Commission, and by hotel owners and assessors’ offices. The valuation methodology was developed by Stephen Rushmore, MAI, FRICS, CHA. Mr. Rushmore wrote all five books for the Appraisal Institute on the valuation of hotels and motels. It has been the standard for valuation of hotels for over twenty years. Hotels are specialized income producing properties with the income being derived from the land, improvements, personal property and the business operation.
Rushmore excludes the value of and any income derived from fixtures, furniture and equipment (FF&E) and adjustments are made for replacement of the property and for a return on the FF&E. Rushmore also deducts the expenses for items such as management fees, franchise fees and marketing to address the value derived from the business component.
Complainant’s income approach is flawed in that it does not comply with the Rushmore approach adopted by the State Tax Commission. First, income approaches to value must be based on market derived facts – not just actual income and expenses. If actual income and expenses do not reflect the market, the appraiser is required to explain why use of actual income and expenses more accurately represents value. Complainant’s appraiser failed to present this information. The comparables used by the Complainant reported higher room rates than the subject indicating that the subject motel was not being operated at market levels.
The expenses used by the appraiser were actual expenses rather than market expenses. The appraiser did not provide the necessary information to review the expenses such as information regarding the comparable properties and whether property taxes were included in the expenses.
With the personal property component of the valuation, the appraiser should make two deductions under the Rushmore approach. The first is for the value of the personal property currently in place and the second is for a reserve for replacing the property in order to remain competitive in the future. Complainant’s appraiser stated that his value estimates included furnishings and equipment. Inclusion of furniture, fixtures, and equipment is inappropriate as the issue is the valuation of land and improvements only.
We do not find that Complainant’s income approach was substantial and persuasive evidence establishing market value and rebutting the presumption of the valuation of the Board of Equalization.
ORDER
The Decision and Order of the Hearing Officer, including the findings of fact and conclusions of law therein, is AFFIRMED and incorporated by reference, as if set out in full, in this final decision of the Commission.
Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the mailing date set forth in the Certificate of Service for this Order.
If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts unless disbursed pursuant to Section 139.031.8, RSMo.
If no judicial review is made within thirty days, this decision and order is deemed final and the Collector of Taney, 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 this appeal.
SO ORDERED this 2nd day of December, 2014.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Randy B. Holman, Commissioner
Victor Callahan, Commissioner
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid this3rd day of December, 2014, to: Gary Allman, P.O. Box 5049 Branson, MO 65615, Attorney for Complainant; Chuck Pennel, Taney County Assessor, P.O. Box 612, Forsyth, MO 65653; Donna Neeley Taney County Clerk, P.O. Box 156 Forsyth, MO 65653; Sheila Wyatt, Taney County Collector, P.O. Box 278, Forsyth, MO 65653.
Jacklyn Wood
Legal Coordinator
DECISION AND ORDER
HOLDING
Decision of the Taney County Board of Equalization sustaining the assessment made by the Assessor is AFFIRMED. Complainant does not present substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization
True value in money for the subject property for tax years 2013 and 2014 is $2,490,000, commercial assessed value of $796,800.
Complainant represented by Gary W. Allman, Attorney at Law.
Respondent was not represented by counsel.
Case decided by Senior Hearing Officer Luann Johnson upon documents and direct testimony submitted by Complainant.
ISSUE
Complainant appeals, on the grounds of overvaluation, the decision of the Taney County Board of Equalization, determined value of the subject property to be $2,490,000 (commercial assessed value of $796,000). In setting said value, the Board overturned the assessor’s value of $4,279,648 (commercial assessed value of $1,369,490). Complainant appealed asserting a value of $1,600,000 (commercial assessed value of $512,000). 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 Taney County Board of Equalization.
- No Evidentiary Hearing. By agreement of the parties, this case is decided based upon documents submitted by Complainant.
- Identification of Subject Property. The subject property is identified by map parcel number 100-07-7.0-35-001-001-002.001. It is further identified 3226 Shepherd of the Hills Expressway, Branson, Taney County, Missouri and more commonly known as Cascade Inn.
- Description of Subject Property. The subject site consists of a 140,433 square foot, 3.22 acre, sloping commercial lot fronting the south side of the Shepherd of the Hills Expressway. The site averages around 532 feet deep and has about 200 foot frontage on Shepherd of the Hills Expressway. Ex. C, pg. 2, 24.
The subject property is improved with an 86,795 square foot, four story, motel. The improvements consist of 160 units. The average size of each unit is about 324 square feet. Additionally, the motel contains an indoor pool area, laundry and weight/ recreation room on the first floor; an office/lobby and 1,540 square foot coffee shop on the main floor; and a 1,564 square foot, three bedroom, two bath, manager’s apartment on the third floor. Ex. C, p. 17. Rooms are accessed by interior corridors. Ex. C, p. 2. Related site improvements include a paved parking lot, canopy, signage and landscaping.
The exterior walls of the subject property are concrete block with brick veneer. The lower floor is concrete slab on grade. The upper floors are precast concrete. Interior walls between rooms are concrete block with gypsum board on each side. The roof is metal over wood truss. Ex. C, pg. 19. The improvements include one passenger elevator and three interior stairwells. Ex. C, p. 20. The quality of construction is much better than other motels of similar age. Ex. C, p. 2. The improvements are more particularly described in Ex. C, pgs. 20 – 23.
5. Highest and Best Use. The highest and best use of the subject property is its continued use as a motel. Ex. C, p. 25.
- Assessment. The Assessor appraised the property at $4,279,648, for an assessed commercial value of $1,369,490. The Board of Equalization reduced the value to $2,490,000, for an assessed commercial value of $796,800. Ex. A.
- Complainant’s Evidence. For the purpose of this decision, Complainant’s exhibits are identified as follows:
Exhibit A – Written Direct Testimony of Complainant
Exhibit B – Written Direct Testimony of John Roberts, Appraiser
Exhibit C – Appraisal Report of John Roberts
- 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.
- Respondent’s Evidence. Respondent produced no timely evidence.
- Presumption of Correct Assessment Not Rebutted. Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2013, to be $1,600,000, as proposed. (See, Presumption In Appeal and Discussion, Complainant Fails to Prove 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. 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. By statute real and tangible personal property are assessed at set percentages of true value in money. Section 137.115.5, RSMo – residential property at 19% of true value in money; commercial property at 32% of true value in money and agricultural property at 12% of true value in money.
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).
Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse, supra. 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. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).
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, 2013 and January 1, 2014. Hermel, supra. 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.” 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). A valuation which does not reflect the fair market value (true value in money) of the property under appeal is an unlawful, unfair and improper assessment.
“Where the basis for a test as to the reliability of the testimony is not supported by a statement of facts on which it is based, or the basis of fact does not appear to be sufficient, the testimony should be rejected.” Carmel Energy at 783.
A taxpayer 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.” See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980). 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).
Standard of Valuation
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.
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. 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.
Official and Judicial Notice
Agencies shall take official notice of all matters of which the courts take judicial notice. Section 536.070(6), RSMo. Courts will take judicial notice of their own records in the same cases.State ex rel. Horton v. Bourke, 129 S.W.2d 866, 869 (1939); Barth v. Kansas City Elevated Railway Company, 44 S.W. 788, 781 (1898).
In addition, courts may take judicial notice of records in earlier cases when justice requires or when it is necessary for a full understanding of the instant appeal. Burton v. Moulder, 245 S.W.2d 844, 846 (Mo. 1952); Knorp v. Thompson, 175 S.W.2d 889, 894 (1943); Bushman v. Barlow, 15 S.W.2d 329, 332 (Mo. banc 1929); State ex rel St. Louis Public Service Company v. Public Service Commission, 291 S.W.2d 95, 97 (Mo. banc 1956).
Courts may take judicial notice of their own records in prior proceedings involving the same parties and basically the same facts. In re Murphy, 732 S.W.2d 895, 902 (Mo. banc 1987); State v. Gilmore, 681 S.W.2d 934, 940 (Mo. banc 1984); State v. Keeble, 399 S.W.2d 118, 122 (Mo. 1966).
Investigation by Hearing Officer
In order to investigate appeals filed with the Commission, the Hearing Officer may 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 his inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties. Section 138.430.2, RSMo
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).
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.
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).
DISCUSSION
COMPLAINANT FAILS TO PROVE VALUE
Income Approach Not Reliable
“Income-producing real estate is typically purchased as an investment, and from an investor’s point of view earning power is the critical element affecting property value.” See : The Appraisal of Real Estate, 12th Edition, Appraisal Institute, pg. 471. Income producing property is bought and sold based upon its ability to generate income. The Tax Commission preferred income approach methodology is based upon a nationally recognized Rushmore model.
Complainant’s income approach is flawed. First, income approaches to value must be based on market derived facts – not just actual income and expenses. If actual income and expenses do not reflect the market, the appraiser is required to explain why use of actual income and expenses more accurately represents value. Complainant’s appraiser has failed to present this information.
Complainant’s appraiser used an actual gross income of $545,000 which calculates to a per room income of about $3,430, not including the manager’s quarters or a suite leased for massage therapy. In support of his calculation, he presented 22 “Branson Area Income Comparables” with some room history for one or more of the years 2007 through 2012. None of the comparables were further identified. Of those comparables, only one showed a per room income as low as he proposed for the subject property. All other comparables were higher, including some as high as $16,000 per room. Five of his comparable motels were on Shepherd of the Hills Expressway like the subject property. Those comparables had room income of $4,100, $5,600, $7,800, $7,200, $10,000 and $7,900, all higher than $3,430 per room rate utilized by the appraiser. Ex. C, pg. 47-48.
The fact that comparables were reflecting much higher room rates than the subject, in and of itself, should tell the appraiser that the subject motel was not being operated at market levels and should have taken actual income out of the equation all together.
Likewise, the appraiser’s expenses “are based mainly on the historical expenses, and to a much lesser degree, on Branson motel expense comparables”. Ex. C, p. 50. The expense comparables are not identified. Three of the comparables have 2010 expense information, while one has 2011 expense information. Most are older and smaller than the subject property. Two of them have high “taxes and insurance” which might indicate that property taxes have not been removed; but we have been given no information to test this possibility. We also don’t know whether real estate taxes were excluded from the appraiser’s expense calculations for the subject property.
The comparables indicate expense ratios between 63.7% to 80.7%. Complainant’s appraiser used a 79% expense ratio for the subject. Complainant’s actual expenses were adjusted with a 4.7% reserve, although noting that none of the comparables used a reserve. The appraiser also included a 5% off-site management fee, which the subject property doesn’t actually have, but which the appraiser asserts is “typically done by a general office for other motels”. Actual expenses for accounting and legal services were reduced as the appraiser believed they fell into this category. However, actual accounting and legal expense were less than the 5% off-site management fee he utilized. Ex. C, pg. 50-51.
Complainant’s appraiser calculated a capitalization rate from 11 sales of motels between February 2007 and September 2010. Six of the sales occurred in 2007. Three of the sales occurred in 2008. One sale occurred in 2009 and one sale occurred in 2010. He also checked capitalization rates from a Korpacz Real Estate Investor Survey for first quarter 2007 through first quarter 2009. The tax day in question is January 1, 2013. Complainant’s appraiser did not indicate why he used such old sales. Ex. C, p. 53.
He concluded that the appropriate capitalization rates were between 7% and 13% and that an 8.5% capitalization rate for the subject property would be consistent with other properties which had similar expense ratios. There was no analysis to determine whether the cap rate comparables included real estate taxes or reserves for replacement. Based upon his use of actual income, actual expenses and the dated capitalization rate, Complainant’s appraiser determined the value of the subject property to be $1,400,000 for tax year 2013. Ex. C, p.54.
Complainant’s appraiser also attempts to check value using a gross income multiplier. He uses six old sales, at least two of which were foreclosed, to show multipliers between 1.5 and 2.9. He divides his estimated value of $1,600,000 by the gross income of $555,573 of the subject for 2012 and ends up with a gross revenue multiplier of 2.88. Ex. C, p. 45. This conclusion only has value if the sales are sufficiently comparable and near in time, if the gross income is correct, and if the market value is correct. We cannot apply any of these attributes to his analysis.
Complainant’s appraiser acknowledges that management can have a significant impact on income and expenses. Ex. C, p. 51. Given the low room rates and high expenses, it seems more likely than not that management was an issue in this case.
Additionally, the appraiser stated that most motels in the area closed for two months in January and February. However, the subject property was closed for three months a year. Ex. C, p. 47. Why this property did not follow the trend of the majority of motels in the area was not explained.
The actual income of the subject property dropped more than $100,000 between 2010 and 2011, and Complainant’s appraiser didn’t address this unusual occurrence. In this same time period, expenses also dropped almost $100,000, a little more than half of which is attributable to salaries and payroll taxes. In his “adjusted” income and expense report, Complainant’s appraiser further reduced expenses, seeming to indicate that he believed Complainant’s expenses were overstated.
In short, Complainant’s appraiser used the lowest possible income and nearly the highest possible expense ratio with little actual market analysis. By using actual income and expenses, Complainant’s appraisal gives an indication of value in use, but not necessarily value in exchange, which is the standard required in Tax Commission appeals. (See Standard of Valuation).
The subject is a very nice motel, with nice amenities, sitting between the Shoji Tabuchi Theatre and the Hamner Barber Variety Show Theater and across the street from the Pierce Arrow Theater, with easy access to restaurants. Ex. C, p. 18. The appraiser failed to articulate any reason why the motel was not operating competitively with other motels in the area.
We cannot find that Complainant’s income approach is sufficiently reliable to rebut the presumption in favor of the Board of Equalization.
Sales Comparison Approach Not Reliable
Complainant’s appraiser principally relied upon his sales comparison approach to determine a value for the subject property of $1,600,000. He presented a number of old sales but relied upon three sales that occurred in 2012. Those were (1) Welcome Inn; (3) Ramada Inn; and (3) Econo Lodge.
Each one of these comparable sales sold out of foreclosure; no information concerning income for prior years was available; and at least one of them had not been operating for the six months prior to sale. In Value Properties of Branson LLC v. Pennel, Appeal No. 13-89504, another appraiser indicated that foreclosure-related sales in Branson may need to be adjusted as much as 25% to account for a bank’s discounted selling price. Complainant’s appraisal makes no adjustments for these issues and no paired sales analysis was made to determine if sales out of foreclosure were comparable to market sales. These foreclosed sales indicated a per room value of $8,654 to $14,835 per room. These values might require adjustment to $10,000 per room to $18,500 per room just to account for the fact that they were being sold out of foreclosure by the holding banks.
The most similar to the subject in age, size, condition and type of construction was the Ramada Inn sale with 91 guest rooms. However, Complainant’s appraiser adjusted that sale by a negative 25% to account for what he believed to be better age and condition, apparently to account for some remodeling and new FF&E. This property had not been operational for six months prior to its sale in February, 2012. Its sale price indicated a per room value of $14,000. Complainant’s appraiser estimated an adjusted room value of $11,000, to make it comparable to the subject.
The appraiser made no adjustments for financing, condition of sale, market conditions, time or location.
After he made all of his adjustments, Complainant’s appraiser had a range of room value between $9,519, $10,826 and $11,126 based on these three sales. Again, going for the low end of his scale, he adopted a value for the subject property of $10,000 per room, or $1,600,000. He then added a contributory value of $30,000 for excess land for a final value under the sales comparison approach of $1,630,000. Ex. C, p. 28- 45.
Without some evidence that it was appropriate for the appraiser to used unadjusted foreclosure-related sales, we cannot find that his sales comparison approach was substantial and persuasive to rebut the presumption in favor of the Board of Equalization.
ORDER
The assessed valuation for the subject property as determined by the Board of Equalization for Taney County for tax years 2013 and 2014 is AFFIRMED.
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
Disputed Taxes
The Collector of Taney 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 7th day of August, 2014.
STATE TAX COMMISSION OF MISSOURI
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid this 7th day of August, 2014, to: Gary Allman, P.O. Box 5049 Branson, MO 65615, Attorney for Complainant; Chuck Pennel, Taney County Assessor, P.O. Box 612, Forsyth, MO 65653; Donna Neeley Taney County Clerk, P.O. Box 156 Forsyth, MO 65653; Sheila Wyatt, Taney County Collector, P.O. Box 278, Forsyth, MO 65653.
Jacklyn Wood
Legal Coordinator