STATE TAX COMMISSION OF MISSOURI
| KAHELA HOSPITALITY, LLC | ) | |
| ) | ||
| Complainants, | ) | |
| ) | ||
| v. | ) | Appeal No. 15-16031 |
| ) | ||
| JAKE ZIMMERMAN, ASSESSOR | ) | |
| ST. LOUIS COUNTY, MISSOURI, | ) | |
| ) | ||
| Respondent. | ) |
DECISION AND ORDER
HOLDING
The assessment made by the Board of Equalization of St. Louis County (BOE) is AFFIRMED. Complainant failed to present substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE.
Kahela Hospitality, LLC, (Complainant) appeared by counsel Steven May.
Jake Zimmerman, Assessor, St. Louis County, Missouri, (Respondent) appeared by counsel Steve Robson.
Case heard and decided by Hearing Officer Maureen Monaghan (Hearing Officer).
ISSUE
Complainant appealed on the ground of overvaluation. The State Tax Commission (STC) takes this appeal to determine the true value (TMV) of the subject property on January 1, 2015.
The Complainant submitted the following exhibits:
| Exhibit | Description | |
| A | Written Direct Testimony of Michael Ebert | Admitted |
| B | Income Approach to Value | Admitted |
Michael Ebert testified on behalf of Complainant. Mr. Ebert is a managing member of Kahela Hospitality, LLC. He has managed hotels since 1987. He has owned and operated hotels since 2003. He began working with the subject property in 2009. His opinion of value, as the owner, is $2,000,000.
Complainant submitted Exhibit B which appears to be a hotel valuation. No testimony was provided supporting Exhibit B. No foundation was submitted establishing the experience and training necessary for an expert’s opinion using a hotel valuation approach.
The Respondent submitted the following exhibits:
| Exhibit | Description | |
| 1 | BOE Decision | Admitted |
| 2 | Certificate of Value dated February 25, 2014 | Admitted |
| 3 | Deed dated 2/24/14 of $3,900,000 | Admitted |
No witness testimony was submitted by the Respondent.
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 STC.
- Evidentiary Hearing. The evidentiary hearing occurred on April 28, 2017. The parties appeared at the Wainwright Building, St. Louis, Missouri. The Hearing Officer appeared at the Truman Building, Jefferson City, Missouri. The hearing was conducted using telepresence system of the State of Missouri.
- Identification of Subject Properties. The subject property is identified by parcel or locator number 17W640091, 18375 Chesterfield Airport Road, St. Louis County, Missouri.
- Description of Subject Properties. The subject property is operated as the Chesterfield Comfort Inn & Suites, a hotel. The improvement was constructed over 13 years ago.
- Assessment. Respondent set a TMV for the subject property of $2,830,500 and classified it as commercial.
- Board of Equalization. BOE made a determination of TMV for the subject property of $2,830,500 and classified it as commercial.
- Presumption of Correct Assessment Not Rebutted. Evidence presented was not substantial and persuasive to rebut the presumption of correct assessment by the BOE and establish a TMV of $2,000,000.
CONCLUSIONS OF LAW AND DECISION
Jurisdiction
The STC has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious, including the application of any abatement. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the BOE, 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.
Burden of Proof
A presumption exists that the assessment by the BOE is correct. Rinehart, 363 S.W.3d at 367; Cohen, 251 S.W.3d at 348; Hermel, Inc., 564 S.W.2d at 895. “Substantial and persuasive controverting evidence is required to rebut the presumption, with the burden of proof resting on the taxpayer.” Cohen, 251 S.W.3d at 348. Substantial evidence can be defined as such relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is evidence that has sufficient weight and probative value to convince the trier of fact. Cupples Hesse Corp., 329 S.W.2d at 702. 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). See also, 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).
There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a STC 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.” Westwood Partnership, 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. W.D. 1991).
Weight to be Given Evidence
The Hearing Officer is not bound by any single formula, rule, or method in determining true value in money and 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 deemed necessary when viewed in connection with all other circumstances. Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. W.D. 1991). The Hearing Officer, as the trier of fact, is not bound by the opinions of experts but may believe all or none of the expert’s testimony or accept it in part or reject it in part. Exchange Bank of Missouri v. Gerlt, 367 S.W.3d 132, 135-36 (Mo. App. W.D. 2012).
Opinion Testimony by Experts
The facts upon which an expert’s opinion is based, like the facts sufficient to support a verdict, must measure up to the legal requirements of substantiality and probative force; the question of whether such opinion is based on and supported by sufficient facts or evidence to sustain the same is a question of law for the court. Robinson v. Empiregas Inc. of Hartville, 906 S.W.2d 829 (S.D. 1995). The STC cannot ignore a lack of support in the evidence for adjustments made by an 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).
Methods of Valuation
Proper methods of valuation and assessment of property are delegated to the STC. 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, 615 (Mo. App. W.D. 2000); Hermel, Inc., 564 S.W.2d at 897; 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. 1974).
“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005), citing St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977). “Each valuation approach is applied with reference to a specific use of the property—its highest and best use.” Snider, 156 S.W.3d at 346-47, citing Aspenhof Corp., 789 S.W.2d at 869. “The method used depends on several variables inherent in the highest and best use of the property in question.” Snider, 156 S.W.3d at 347.
Valuing Hotel or Motel Property
In the real estate appraisal industry, the market value of a hotel is considered to consist of four components (1) value of the land; (2) value of the improvements; (3) value of the business or going concern and franchise affiliation; and (4) value of the furniture, fixtures and equipment (i.e. personal property). John Hancock Mutual Life v. Stanton, 51 STC Proceedings and Decisions, 1996, p. 394. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, January, 1993, p. 17. Hotels and motels are almost always valued by an income capitalization approach that takes the property’s stabilized net income and capitalizes it into an estimate of market value. The stabilized net income is intended to reflect the anticipated operating results of the hotel over its remaining economic life, given any or all applicable stages of buildup, plateau, and decline in the life cycle. Therefore such stabilized net income excludes from consideration any abnormal relation of supply and demand and any transitory or nonrecurring conditions that may result in unusual revenues or expenses of the property. The process of deriving the stabilized net income for a lodging facility requires the appraiser to look into the future and estimate operating revenues and expenses. This is accomplished by forecasting or predicting trends in historical performance based on the hotel’s current position in an economic life cycle.
Conclusion
Complainant did not present substantial and persuasive evidence to establish TMV of $2,000,000 as of January 1, 2015 for the subject property.
The STC recognizes the Rushmore Approach for the valuation of hotel properties. Such methodology has been recognized by state and federal courts, and by hotel owners and assessors’ offices, as the most appropriate approach for valuing hotel properties. 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. The Rushmore methodology excludes the value of 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. The Rushmore method also deducts the expenses for items such as management fees, franchise fees and marketing to address the value derived from the business component.
Complainant did not develop the Rushmore Valuation Methodology for valuation of hotels which has been recognized by the Missouri State Tax Commission. Complainant did not present the testimony of an expert with sufficient training and education for valuation of a hotel property. The Complainant failed to present substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE.
ORDER
The assessment for the subject property as determined by the BOE is SUSTAINED.
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 St. Louis 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 May 23, 2017.
STATE TAX COMMISSION OF MISSOURI
Maureen Monaghan
Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 23rd day of May, 2017, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.
Jacklyn Wood
Legal Coordinator