KRAFT-HEINZ COMPANY v. KENNETH MOHR, ASSESSOR, BOONE COUNTY, MISSOURI

June 3rd, 2022

STATE TAX COMMISSION OF MISSOURI

KRAFT-HEINZ COMPANY, )
Complainant, ) Appeal Nos. 17-44500 and 19-44500
v. ) Parcel No. 2-503-00-05-001-0001
KENNETH MOHR, ASSESSOR, )
BOONE COUNTY, MISSOURI, )
Respondent. )

DECISION AND ORDER

Kraft-Heinz Company, (Complainant) appeals the Boone County Board of Equalization’s (BOE) 2017 and 2019 decisions determining the true value in money (TVM) of the subject property.  The BOE determined the TVM of the subject property was $8,300,000 January 1, 2017, and $9,331,750 as of January 1, 2019.  Complainant asserts the TVM was $3,850,000 as of January 1, 2017, and $3,950,000 as of January 1, 2019.[1]  In post-hearing briefing, Respondent asserts the BOE decision should be set aside and that the TVM of the subject property was $9,670,000 as of January 1, 2017, and $9,776,000 as of January 1, 2019.

The BOE decisions are affirmed.  The TVM of the subject property on January 1, 2017, was $8,300,000.  The TVM on January 1, 2019, was $9,331,750.

Complainant was represented by Thomas Caradonna.  Respondent was represented by Charles Dykhouse.  An evidentiary hearing was held via WebEx.  Both parties filed a post-hearing brief.

Background

The subject property is a food processing plant.  Food processing plants are a special use property with a limited number of potential users.  The appraisers for the both parties used the sales comparison approach.  The dispute centers on the selection of comparable sales.  Complainant asserts Respondent’s appraiser relies on sales that included valuable machinery and equipment and the intangible value of an assembled labor force. Respondent asserts Complainant’s appraiser relies on end-of-life food processing facilities that were put to alternate post-sale uses.  Respondent asserts the alternate post-sale uses indicate the comparable sales did not share the subject property’s highest and best use of food processing.

FINDINGS OF FACT

  1. The Subject Property. The subject property is an approximately 27 acre parcel improved with a food processing plant and six outbuildings.  The food processing plant was first constructed in 1985.  In 2016, Complainant constructed a 30,765-square-foot addition to the food processing plant, bringing the total plant area on January 1, 2017, to 236,637 square feet.  In 2017, Complainant added approximately 2,200 square feet.  Approximately 94,000 square feet (40%) of the food processing plant is devoted to refrigerated processing and packaging areas.  The outbuildings consist of a security office, four storage buildings, and a waste handling building.  The outbuildings total 6,836 square feet.

Complainant’s appraiser reported “[t]he total real estate related cost of the [2016  remodeling and addition project], including the renovations of the older areas, was slightly less than $70 million[.]”  (Ex. A 2017 at 40)  This amount included new processing machinery and equipment and $19,000,000 in engineering, project management, and similar costs.  (Id.)

The building is certified by the USDA and is certified by the National Registry of Food Safety Professionals.  The building has “food grade security with gated entries, monitored internal and external surveillance, and it has full perimeter fencing and alarm systems.”  (Ex. A 2017 at 40)  The building is average quality but is well-maintained and in good condition.

  1. Assessment and Valuation. The BOE determined the TVM of subject property was $8,300,000 as of January 1, 2017, and $9,331,750 as of January 1, 2019.
  2. Complainant’s Evidence. For both the 2017 and 2019 appeals, Complainant introduced Exhibits A and B and Rebuttal Exhibits A and B.  Complainant’s exhibits are summarized below:
Exhibit A

(2017)

 

Appraisal report prepared by Thomas McReynolds, MAI.  McReynolds concluded the highest and best use of the subject property is the “existing industrial use of the property.” McReynolds utilized the sales comparison approach to estimate the subject’s TVM as of January 1, 2017, was $3,820,000.
Exhibit A

(2019)

Appraisal report prepared by Thomas McReynolds, MAI.  McReynolds concluded the highest and best use of the subject property is the “existing industrial use of the property.” McReynolds utilized the sales comparison approach to estimate the subject’s TVM as of January 1, 2017, was $3,950,000.
Exhibit B

(2017)

McReynolds’ written direct testimony.  McReynolds testified he used the sales comparison approach to estimate the TVM of the subject property was $3,820,000 as of January 1, 2017.
Exhibit B

(2019)

McReynolds’ written direct testimony.  McReynolds testified he used the sales comparison approach to estimate the TVM of the subject property was $3,950,000 as of January 1, 2017.
Rebuttal Exhibit A

(2017 and 2019)

Letter from Jeffrey Counsell asserting Respondent’s “appraisal relies on sales that are not comparable, and concludes with improperly elevated valuations.”  Counsell asserts Respondent’s comparable sales include the value of machinery and equipment in addition to the real estate.
Rebuttal Exhibit B (2017 and 2019) Counsell’s written direct testimony stating he provided the findings, conclusions and opinions based on his background as co-founder and managing partner of a firm specializing in the sales and acquisitions of food processing plants.

 

2017 Appraisal

McReynolds concluded the improvements contribute to the subject’s value and it is not economically feasible to convert the existing structure to a different use.  Therefore, “the existing industrial use of the property is its highest and best use.”  (Ex. A at 59)

McReynolds also concluded the subject property had over 30 years of remaining economic life, (Ex. A. at 41), and that the most likely buyer would be an owner-occupied food processing entity.  (Id. at 62)  Because of the lack of market-based rental data, McReynolds used the sales comparison approach to estimate the contributory value of the land and the improvements.

McReynolds identified five comparable land sales to estimate the subject’s land value.  The five sales involved parcels ranging from 11 to 210 acres and zoned for industrial use.  The sales occurred between May 2015 and October 2017.  The sale prices ranged from $360,000 to $3,229,900, with per acres prices ranging from $12,996 to $40,000.  McReynolds adjusted for time of sale, location, size, sewer access, and topography.  The adjusted sale price per acre ranged from $31,192 to $38,906, with a median of $33,829.  (Ex. A at 78)  McReynolds concluded the subject’s land value was $35,000 per acre, resulting in a rounded land value of $940,000 ($35,000 x 26.90 acres = $941,500).  (Id. at 79)

McReynolds identified three comparable sales to estimate the subject’s value per square foot of building area.  The sales occurred in 2016, and involved properties in Georgia, Nebraska, and Wisconsin.  (Ex. A at 81-93)

The property in Sale 1 is located near Atlanta, Georgia, and consists of an 181,160-square-foot building located on 15 acres.  The building was constructed in 1980 and was in below average condition.  The seller used the building to produce frozen pastry.  (Ex. A at 81)  The property sold in February 2016 for $1,100,000, or $6.07 per square foot.  (Id. at 82)  The buyer was a large national warehouse company who used the property for refrigerated and freezer warehouse space.  (Id. at 81)

The property in Sale 2 is located approximately 65 miles from Omaha, Nebraska, and consists of a 77,400-square-foot building located on approximately 2.5 acres.  The building was constructed in 1960.  It was renovated and modernized in 2011.  The building was in good condition.  The building was used to produce prepared meat products until May 2015, when the plant closed and the property was marketed for sale.  It sold in July 2016 for $1,500,000, or $19.38 per square foot.  (Id. at 85)  The buyer used the facility to produce pet food.  (Ex. A at 84)

The property in Sale 3 is located near Kenosha, Wisconsin, and consists of an 85,630-square-foot building located on eight acres.  The building was constructed in 1985 and was in good condition.  The seller used the building to produce dips, gelatin, and desserts.  The plant closed in 2015 and was marketed for sale.  (Ex. A at 90)  The property sold in September 2016 for $2,195,000, or $25.63 per square foot.  (Id. at 91)  The buyer used the property for ice manufacturing.

McReynolds adjusted for location, size, condition, age, ceiling height, climate-controlled space, freezer space, and office space.  The adjustments totaled 140% for Sale 1, -20% for Sale 2, and -40% for Sale 3.  The adjusted sale prices ranged from $15.38 to $17.05 per square foot.  (Ex. A at 99)  McReynolds concluded the subject’s value as of January 1, 2017, was $16.15 per square foot, or $3,820,00 ($16.15 x 236,637 square feet = $3,821,688).  The final allocation is as follows:

                           Contributory Value of Land:                      $940,000

                           Contributory Value of Improvements:         $2,880,000

                           Total Property Value:                                $3,820,000

(Id. at 100)

2019 Appraisal

McReynolds used the same five comparable sales to estimate the January 1, 2017, and January 1, 2019, land values.  The only difference is the time of sale adjustment.  McReynolds concluded the subject’s land value was $36,500 per acre, resulting in a rounded land value of $980,000 ($36,500 x 26.90 acres = $ 981,850).  (Id. at 79)

In the 2019 appraisal, McReynolds used five comparable sales to estimate the subject’s improvement value.  The sales occurred in 2018 and involved properties in Iowa, Indiana, Illinois, and Missouri.  (Ex. A at 82-103)

The property in Sale 1 is located in northwest Iowa and consists of a 254,232-square-foot building located on 46 acres.  The building was constructed in 1960 and includes additions completed in 2001.  The building is in below average condition.  The seller used the building to produce lunch meats until 2014.  (Ex. A at 82)  The property was vacant until it was purchased for $2,350,000 in 2018, or $9.24 per square foot.  The buyer began using the property to process beef, pork, chicken, and lamb for retail and food service clients.  (Id.)

The property in Sale 2 is located in northwest Indiana and consists of a 292,672-square-foot building located on 23 acres.  The building was constructed in 1925 and includes additions as recently as 1999.  The building is in average condition.  The seller used the building to process tomatoes until 2017.  (Ex. A at 86)  The property was vacant until it was purchased for $5,100,000 in 2018, or $17.43 per square foot.  The buyer began using the property to produce insulated sheathing and siding.  (Id. at 87)

The property in Sale 3 is located approximately 60 miles south of downtown Chicago.  The property consists of an 111,045-square-foot building located on 18 acres.  The building was constructed in 1990 and is in average condition.  The seller used the building to manufacture sugar substitutes until 2017.  (Ex. A at 90)  The property was vacant until it was purchased for $2,300,000 in 2018, or $20.71 per square foot.  The buyer began using the property to produce frozen pizza.  (Id.)

The property in Sale 4 is located in southwest Missouri.  The property consists of a 140,000-square-foot building located on 30 acres.  The building was constructed in 1948 with additions as recently as 1998.  The building is in average condition.  The seller used the building to manufacture sweetened condensed milk until 2018.  (Ex. A at 94)  The property was vacant until it was purchased for $1,200,000 in 2018, or $8.57 per square foot.  (Id. at 95)  The buyer was a local railroad repair and construction company.   (Id. at 94)

The property in Sale 5 is located in southern Indiana.  The property consists of a 455,233-square-foot building located on 35 acres.  The building was constructed in 1958 with additions as recently as 1996.  The building is in average condition.  The seller used the building to manufacture frozen dough.  (Ex. A at 94)  The plant closed in 2016, when the property was purchased by an asset disposition firm for $5,000,000.  (Ex. A at 98)  The asset disposition firm sold the machinery and equipment and 20 acres of excess land before selling the property in 2018 for $4,750,000, or $10.43 per square foot.  (Id. at 99)  The buyer converted the property to a distillery. (Id.)

McReynolds adjusted for location, size, condition, age, ceiling height, climate-controlled space, and office space.  The adjustments totaled 40% for Sale 1, 12% for Sale 2, -5% for Sale 3, 52%for Sale 4, and 62% for Sale 5.  The adjusted sale prices ranged from $14.36 to $19.67 per square foot.  (Ex. A at 108)  McReynolds concluded the subject’s value as of January 1, 2019, was $16.50 per square foot, or a rounded value of $3,950,00 ($16.50 x 238,897 square feet = $3,941,801).  The final allocation is as follows:

                           Contributory Value of Land:                      $980,000

                           Contributory Value of Improvements:         $2,970,000

                           Total Property Value:                                $3,950,000

(Id. at 109)

Rebuttal Evidence

For both the 2017 and 2019 appeals, Complainant submitted Rebuttal Exhibits A and B, consisting of Counsell’s letter regarding his knowledge of some of the comparable sales at issue and his written direct testimony.  Counsell offered sworn oral testimony at the evidentiary hearing authenticating rebuttal exhibits A and B.

In Rebuttal Exhibit A, Counsell stated Sale 1 in Complainant’s sales comparison approach is the “most dispositive” comparable sale.  Counsell stated his firm assisted in marketing the property and the sale price of $9.24 per square foot “define[s] the current value” of the subject property.  (Ex. A at 3)  Counsell further stated “there is no credible way this transaction does not define the current value” of the subject property.  (Id.)  Counsell’s conclusion the subject property is worth $9.24 per square foot represents a value approximately 43% less than McReynolds’ estimated January 1, 2017, value of $16.15 per square foot  [$9.24 / $16.15] – 1 = -0.4278),[2] and 44% less than McReynolds’ estimated January 1, 2019, value of $16.50 per square foot.

Counsell also stated Sale 6 cited in Respondent’s 2019 appraisal is “equally compelling” and indicates a value of $12.12 per square foot.  The $12.12 per square foot value is 25% less than McReynolds’ estimated January 1, 2017, value of $16.15 per square foot ([$12.12 / $16.15] – 1 = -0.2495), and 27% less than McReynolds’ estimated January 1, 2019, value of $16.50 per square foot.

  1. Respondent’s Evidence.  Respondent filed Exhibits 1 through 10, and introduced into evidence Exhibits 1 through 7.  Complainant referenced Exhibits 9 and 10 while cross-examining Respondent’s appraiser.  Exhibits 1 through 7 and Exhibits 9 and 10 were admitted into evidence and are summarized below:
Exhibit 1

 

Written direct testimony of Don Vaske, MAI.  Vaske testified he used the sales comparison approach to estimate the subject’s TVM as of January 1, 2017, was $9,670,000.
Exhibit 2

 

Appraisal report prepared by Don Vaske, MAI.  Vaske concluded the highest and best use of the subject property as improved, is for “continued use as a food/meat processing facility.”   Vaske utilized the sales comparison approach and concluded the subject’s TVM as of January 1, 2017, was $9,670,000.
Exhibit 3

 

Written direct testimony of Don Vaske, MAI.  Vaske testified he used the sales comparison approach to estimate the subject’s TVM as of January 1, 2019, was $9,776,000.
Exhibit 4

 

Appraisal report prepared by Don Vaske, MAI.  Vaske concluded the highest and best use of the subject property as improved, is for “continued use as a food/meat processing facility.”   Vaske utilized the sales comparison approach and concluded the subject’s TVM as of January 1, 2019, was $9,776,000.
Exhibit 5 Excerpt from The Appraisal of Real Estate 43 (14th ed. 2013) regarding highest and best use.
Exhibit 6 Summary of pre-sale and post-sale uses of the comparable properties utilized in McReynolds’ appraisal report.
Exhibit 7 Summary of pre-sale and post-sale uses of the comparable properties from page 73 of Vaske’s appraisal report.
Exhibit 9 Cherokee, Iowa, sale additional documentation.
Exhibit 10 Hastings, Nebraska, sale information.

Respondent requested official notice of the Uniform Standards of Professional Appraisal Practice, 2020-2021 (USPAP); Appraisal Institute, The Appraisal of Real Estate, (14th ed. 2013); and Sections 339.501, 339.535, 490.065, and 536.070(1).  Complainant did not object.  Those sources are officially noticed.

2017 Appraisal

Vaske concluded the “highest and best use of the subject property, as improved, is for its continued use as a food/meat processing facility.”  (Ex. 2 at 55)  Vaske estimated the fair market value for the subject as of January 1, 2017, was $9,670,000.   (Ex. 2 at 90)

Vaske used the sales comparison approach to estimate the land value for purposes of a potential cost approach analysis.  (Ex. 2 at 56)  Vaske analyzed five land sales in the subject’s market.  After adjustments, the sales ranged from $0.43 to $0.78 per square foot, or $585,000.   (Id. at 58)  Vaske concluded the cost approach was inconclusive due to the degree of depreciation from external obsolescence within larger scale food processing facilities like the subject.  (Id. at 69)

Vaske identified nine potentially comparable sales.  Vaske “made an effort to select sales of properties acquired for their continued food processing use.”  (Ex. 2 at 73)  Vaske concluded Sales 2, 3, 4, and 5 were most similar to the subject, and based his final value estimate on those sales.  (Id. at 74)  The sales involved properties in Iowa and Minnesota.  Two of the sales occurred in 2016 and two occurred in 2013.

The property in Sale 2 consists of a 64,800-square-foot food processing facility used for chicken slaughter and processing.  The property sold in March 2016 for $5,000,000 with a $1,750,000 deduction for the value of equipment.  (Ex. 2 at 74)  Net of equipment, this equates to sale price of $3,250,000, or $50.15 per square foot of the building area.  Consistent with the pre-sale use, the buyer used the property for chicken slaughter and processing.

The property in Sale 3 is located southwest Minnesota and consists of a 152,813- square-foot food processing facility formerly used for beef slaughter and processing.  The former owner vacated the property in December 2015 and sold in 2016 for $9,000,000, or $58.90 per square foot. The sale included beef processing equipment, but the buyer retrofitted and expanded the facility for pork slaughter and processing.  Vaske asserts the retrofit indicated the beef processing equipment had nominal value.  (Ex. 2 at 74)

The property in Sale 4 is an 84,043-square-foot egg processing facility which sold in 2013 for $2,500,000, or $29.75.  Separate consideration was given for the equipment.  (Ex. 2 at 74)  On cross-examination, Vaske testified the equipment was assigned its book value and was not included in the $2,500,000 sale price for the real estate.  Vaske did not make additional deductions for the presence of the equipment or for the assembled labor force.  The buyer continued to use the facility for egg processing.

The property in Sale 5 is an 186,968-square-foot former meat processing facility.  The real estate sold in 2013 for $4,652,800, or $24.89 per square foot.  The buyer separately purchased the equipment for $3,347,200.  (Ex. 2 at 74, 84)  Vaske did not make additional deductions for the presence of the equipment or for the assembled labor force.  They buyer used the property to produce pet food.

The unadjusted prices for Sales 2, 3, 4, and 5 ranged from $24.89 to $58.90 per square foot.  Vaske adjusted for time of sale, location, size, age, land to building ratio, quality and finish, cooler and freezer space, mezzanine and basement space, outbuildings, and site improvements.  (Ex. 2 at 75-78)  The adjusted sales prices ranged from $40.03 to $79.52 per square foot of main building area.  (Ex. 2 at 75)  Vaske noted sales of larger food processing facilities are uncommon.  He concluded the subject’s market value was near the bottom of the range of adjusted prices, at $41.00 per square foot of main plant building area, for a rounded value of $9,670,000 ($41.00 x 235,866 sf = $9,670,506).  (Id. at 78)

2019 Appraisal

Vaske’s 2019 appraisal uses the same comparable sales as his 2017 appraisal.  The 2019 appraisal used the same adjustments as the 2017 appraisal including identical adjustments for time of sale.  Specifically, both the 2017 and 2019 appraisals utilize a 15% “market conditions” adjustment for Sales 4 and 5, both of which occurred in 2013.  (Ex. 2 at 75; Ex. 4 at 75)

The only significant difference between the two appraisals is that the 2019 appraisal reflects the additional square footage added after January 1, 2017, resulting in a building area of 238,448 square feet as of January 1, 2019.   Like the 2017 appraisal, Vaske concluded the market value fell on at the bottom of the range of adjusted prices, at $41.00 per square foot of main plant building area for a rounded value of $9,776,000 ($41.00 x 238,448 sf = $9,776,368).  (Ex. 4. at 78)

  1. Value. The TVM of the subject property on January 1, 2017, was $8,300,000. The TVM as of January 1, 2019, was $9,331,750.

CONCLUSIONS OF LAW

  1.  Assessment and Valuation.

Commercial real property is assessed at 32% of its TVM as of January 1 of each odd-numbered year. Section 137.115.5(1)(c).  “True value in money is the fair market value of the property on the valuation date, and is a function of its highest and best use, which is the use of the property which will produce the greatest return in the reasonably near future.”  Snider v. Casino Aztar/Aztar Mo. Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005) (internal quotation omitted).  The fair market value is “the price which the property would bring from a willing buyer when offered for sale by a willing seller.”  Mo. Baptist Children’s Home v. State Tax Comm’n, 867 S.W.2d 510, 512 (Mo. banc 1993).  “True value in money is defined in terms of value in exchange not value in use.” Tibbs v. Poplar Bluff Assocs. I, L.P., 599 S.W.3d 1, 7 (Mo. App. S.D. 2020) (internal quotation omitted).  “Determining the true value in money is an issue of fact for the STC.”  Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008).

“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.”  Snider, 156 S.W.3d at 346.  The three generally accepted approaches are the cost approach, the income approach, and the comparable sales approach.  Id. at 346-48.  The STC has wide discretion in selecting the appropriate valuation method but “cannot base its decision on opinion evidence that fails to consider information that should have been considered under a particular valuation approach.”  Id., at 348.

  1. Evidence.

“Although technical rules of evidence are not controlling in administrative hearings, fundamental rules of evidence are applicable.” Mo. Church of Scientology v. State Tax Comm’n, 560 S.W.2d 837, 839 (Mo. banc 1977). The finder of fact in an administrative hearing determines the credibility and weight of expert testimony.  Hornbeck v. Spectra Painting, Inc., 370 S.W.3d 624, 632 (Mo. banc 2012).

Respondent’s Objections

Respondent lodged two pre-hearing, written objections to Complainant’s Rebuttal Exhibits A and B.  Respondent specifically and timely reiterated these objections at the evidentiary hearing.

First, Respondent asserted Complainant’s Rebuttal Exhibit B – the written testimony of Jeffrey Counsell – is inadmissible pursuant to Section 536.070(1) because it is was not taken on oath or affirmation.  Section 536.070(1) provides “oral evidence shall be taken only on oath or affirmation.”  The plain language of Section 536.070(1) applies to “oral evidence,” not written testimony.  Respondent’s objection asserting Section 536.070(1) bars admission of Counsell’s written testimony is overruled.

Second, Respondent asserted Complainant’s Rebuttal Exhibits A and B – Counsell’s letter and written testimony – are inadmissible because they constitute an unlicensed and unreliable appraisal review.  Respondent notes Section 339.501 prohibits one from acting as an appraiser without a license and, further, that Section 339.535 requires that “[s]tate-certified real estate appraisers, state-licensed real estate appraisers, state-licensed appraiser trainees, and state-certified appraiser trainees shall comply with the Uniform Standards of Professional Appraisal Practice.”  Respondent asserts Rebuttal Exhibits A and B fail to comply with USPAP ethics, recordkeeping, and competency standards. Consequently, Respondent concludes Counsell’s testimony and letter necessarily fail to follow generally accepted and required appraisal principles and methods and are inadmissible pursuant to Section 490.065.

“Section 490.065 governs the admission and exclusion of expert testimony and has four requirements: 1) the expert witness must be qualified; 2) the testimony will assist the trier of fact; 3) the expert’s testimony is based on facts or data of a type reasonably relied on by other experts in the field; and 4) the facts or data used by the expert are otherwise reasonably reliable.”  Spalding v. Stewart Title Guar. Co., 463 S.W.3d 770, 778 (Mo. banc 2015).  Regarding the threshold issue of qualification, Section 490.065.1(1) provides: “If scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness who is qualified as an expert by skill, knowledge, experience, training, or education may testify thereto in the form of an opinion or otherwise.”  (Emphasis added).  Thus, a witness may qualify as an expert if he or she possesses of any of the five disjunctive qualifying criteria; i.e., skill, knowledge, experience, training, or education.  It follows that a witness may qualify as an expert on grounds other than licensure.  Eichacker v. Eichacker, 596 S.W.3d 177, 184 (Mo. App. W.D. 2020).  “For example, substantial practical experience in the area in which the expert is testifying is a permissible source of expertise.” Id.

The record establishes Counsell’s substantial practical experience in valuing food processing plants like the subject property.  Counsell’s written testimony and letter were based on personal knowledge of the transactions at issue and his extensive experience with the market for food processing facilities.  The fact Counsell lacks an appraisal license is not dispositive and “it is error under [Section] 490.065 to exclude [his] testimony” solely due to the lack of a license or certification.  Eichacker, 596 S.W.3d at 185.  “As long as an expert is qualified on some basis set forth in Section 490.065, whether or not the expert possesses a particular certification or licensure goes to the credibility and weight of the testimony, not its admissibility.”  Id.  Counsell’s substantial practical experience in the market and his personal knowledge of the transactions is a permissible source of expertise to satisfy the threshold requirement that Counsel is qualified to offer an expert opinion pursuant to Section 490.065.

In addition to qualification, Section 490.065 also conditions the admissibility of expert testimony on whether the testimony will assist the trier of fact, is based on sufficient facts or data, is the product of reliable principles and methods, and whether the expert reliably applied those principles and methods to the facts of the case.  Section 490.065.2(1).  Respondent’s written objections assert Counsell’s testimony and letter are not based on reliable principles and methods because he did not comply with USPAP as required by Section 339.535.  Respondent concludes Counsell’s “opinion, therefore, is inadmissible under RSMo Sec. 490.065.”  The plain language of Section 339.535 does not support Respondent’s argument.

Section 339.535 applies only to “[s]tate-certified real estate appraisers, state-licensed real estate appraisers, state-licensed appraiser trainees, and state-certified appraiser trainees.”[3]  Counsell is a real estate broker, not a state-certified or state-licensed appraiser or appraiser trainee.  Counsell, therefore, is not subject to the USPAP obligations imposed by Section 339.535.  Section 339.335 does not preclude Counsell’s qualification as an expert fact witness pursuant to Section 490.065.

Finally, Respondent argued any witness offering an opinion of value is acting as an appraiser and must show compliance with USPAP as a precondition to offering expert testimony.  This argument is inconsistent with the plain language of Section 339.335 and cases holding a real estate broker may quality as an expert pursuant to Section 490.065 and testify regarding the value of real estate.[4]  Respondent’s objections to Rebuttal Exhibits A and B are overruled.

  1. Complainant’s Burden of Proof.

The taxpayer bears the burden of proof and must show by a preponderance of the evidence that the property was misclassified or overvalued.  Westwood P’ship v. Gogarty, 103 S.W.3d 152, 161 (Mo. App. E.D. 2003).  The BOE’s valuation is presumptively correct. Tibbs, 599 S.W.3d at 7.  The “taxpayer may rebut this presumption by presenting substantial and persuasive evidence that the valuation is erroneous.”  Id. (internal quotation omitted).  The taxpayer also must prove “the value that should have been placed on the property.” Id.           “Substantial evidence is that evidence which, if true, has probative force upon the issues, and from which the trier of fact can reasonably decide the case on the fact issues.”  Savage v. State Tax Comm’n, 722 S.W.2d 72, 77 (Mo. banc 1986) (internal quotation omitted).  Evidence is persuasive when it has “sufficient weight and probative value to convince the trier of fact.”  Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. E.D. 2002); see also White v. Dir. of Revenue, 321 S.W.3d 298, 305 (Mo. banc 2010) (noting the burden of persuasion is the “party’s duty to convince the fact-finder to view the facts in a way that favors that party”).

4. Complainant Did Not Produce Substantial and Persuasive Evidence of Overvaluation.

 The TVM of a property “must be determined by valuing the property at its highest and best use[.]”  Snider, 156 S.W.3d at 349.  The TVM of a property is a “is a function of its highest and best use,” and all approaches to value are “applied with reference to” the highest and best use.  Id.  346.  A “subject property’s highest and best use provides the basis for the research and analysis of comparable sales,” including the identification of “comparable properties [that] match the highest and best use of the subject property[.]”  Appraisal Institute, The Appraisal of Real Estate (14th ed. 2013) 379-80.  Identifying the highest and best use “set[s] the stage for the selection of appropriate comparable sales.”  Id. at 381.

McReynolds concluded “the existing industrial use of the property is its highest and best use.”  (Ex. A at 59)  The existing industrial use of the property as of both valuation dates was as a food or meat processing facility.  However, none of the three comparable sales McReynolds utilized in the 2017 appraisal involved properties sold for use as a food or meat processing facility.  While the property in each sale was previously used for food processing, each was put to a different post-sale use.  Sale 1 was used for refrigerated warehouse space.  Sale 2 was converted to pet food processing.   Sale 3 was converted to ice manufacturing.

Because the sales comparison approach is “applied with reference to” the highest and best use, Snider, 156 S.W.3d at 346, the strength of the inference of value drawn from comparable sales is, at the outset, a function of the extent to which the comparable properties and the subject property share the same highest and best use.   It follows that the probative value of comparable sales is diminished to the extent the market indicates a deviation in the highest and best uses of the comparable properties and the subject property.           While each of McRenolds’ comparable sales used in the 2017 appraisal was put to a post-sale, food-related use, none were used for food and meat processing in a manner fully consistent with the highest and best use determined by the appraisers for both parties.  The post-sale conversion to different uses indicates market participants did not view the maximally productive use of those properties as continued use for food and meat processing.  The fact each of the three comparable sales were put to a different post-sale use than the subject’s highest and best use indicates the real estate comprising the three comparable sales may be affected by different market dynamics and may not share the same highest and best use as the subject.  This conclusion is consistent with McReynolds observation it is not economically feasible to convert subject property to a different use and that “the existing industrial use of the property is its highest and best use.”  (Ex. A at 59)  Finally, to the extent the conversion from food processing to food storage, pet food processing, and ice manufacturing are similar to the subject’s highest and best use of food processing, the sale price would likely reflect the costs of conversion or remodeling.  These factors diminish the persuasiveness of the inference of value drawn from the three comparable sales in Complainant’s 2017 appraisal.

The persuasiveness of Complainant’s 2019 appraisal is undermined by the same issue.  While two of the five comparable sales involved properties sold for use as a food or meat processing facility, the remaining three were sold for different uses.  The property in Sale 2 was converted from food processing to the manufacture of insulated siding.  The property in Sale 4 was purchased by a railroad repair company and construction company. The property in Sale 5 was acquired by an asset disposition firm and sold to a buyer who converted the property to a distillery.  Consequently, Sales 2, 4, and 5 do not provide persuasive evidence of the market value of those physical attributes of the subject that result in its highest and best use being continued use as a food processing facility.

The remaining two sales, Sales 1 and 3, involved properties where the post-sale use was food processing.   Sale 1, however, was vacant for four years before it was sold and the new owner resumed food processing activities.  The extended vacancy indicates a lack of market demand for that comparable property relative to McReynolds’ estimate that the subject had a “12 to 15 month marketing time.”  (Ex. A at 110)  Sale 3 sold for $20.71 per square foot and is Complainant’s most relevant comparable sale.  It is, however, a single data point insufficient to persuasively establish the subject’s market value.

Finally, while McReynolds concluded the subject’s respective 2017 and 2019 fair market values were $16.15 and $16.50 per square foot, Complainant’s rebuttal witness, Counsell, stated “there is no credible way” the sale of the Cherokee, Iowa, facility for $9.24 per square foot “does not define the current value” of the subject property.  The net result is that Complainant’s rebuttal witness advocates a 2017 value approximately 43% less than that proposed by Complainant’s appraiser.  Of course, Counsell’s lower value could support a finding that the BOE value is incorrect.  However, Counsell’s unequivocal assertion “there is no credible way” the sale of the Cherokee, Iowa, property for $9.24 per square foot “does not define” the market value of the subject property also conflicts with McReynolds’ conclusion the subject was worth $16.15 per square foot in 2017 and $16.50 per square foot in 2019.  Thus, while Counsell’s letter may support a finding that the BOE valuation is erroneous, it is also inconsistent with Complainant’s proposed value based on McReynolds’ appraisal.

In sum, as Respondent notes, Complainants’ comparable sales are drawn largely from end-of-life properties no longer used as food processing facilities.  This fact distinguishes the comparable properties from the subject because both experts concluded the highest and best use of the subject property was continued use as a food or meat processing facility.  The fact most of the comparable sales in used in Complainants’ 2017 and 2019 appraisals were converted to other uses is also inconsistent with McReynolds’ conclusion the most likely buyer would utilize the subject property as an owner-occupied food processing facility.  By relying mostly on sales of food processing facilities converted to different uses, Complainant’s proposed values do not reflect the concluded highest and best use of the subject or the operative assumption that the most likely buyer would use the property as an owner-occupied food processing facility.  Finally, Complainant’s appraisal evidence and rebuttal evidence is inconsistent regarding the necessary showing of the “value that should have been placed on the property.”  Tibbs, 599 S.W.3d at 7.  The net result is that Complainant did not produce substantial and persuasive evidence establishing its overvaluation claim.

  1. Respondent Did Not Produce Substantial and Persuasive Evidence Supporting a Higher Value.

 Respondent’s proposed January 1, 2017, and January 1, 2019, values are higher than those determined by the BOE.[5]  Respondent’s appraiser, Vaske, analyzed and adjusted four sales but relied primarily on Sales 4 and 5 to estimate the TVM of the subject property as of January 1 of both the 2017 and 2019.   (Ex. 2 at 74, 78)  The persuasiveness of these sales as evidence of the value of the subject on the relevant valuation dates is diminished by at least two factors.

First, both sales occurred in 2013, several years prior to the relevant valuation dates.  While Vaske made time-of-sale adjustments, the adjustments were the same for both valuation dates.  The necessary assumption is there was no change in market conditions between January 1, 2017, and January 1, 2019.  The lack of a time-of-sale adjustment for the 2019 appraisal or an explanation as to why no such adjustment was required undermines the persuasiveness of the 2019 appraisal report.

Second, and most importantly, Vaske emphasized Sales 4 and 5, both of which included in-place equipment.  The assessments at issue must be limited to the value of the subject’s real property.  Section 137.115.1.   Thus, the persuasiveness of the estimated real property value is bound inextricably to the persuasiveness of the personal property deduction in both sales.

Sale 4 involved an 84,000-square-foot facility – approximately one-third the size of the subject property – in which the buyer paid “$2,500,000 for the real estate component with separate consideration given for the equipment.”  (Ex. A at 74)   While Vaske reports “separate consideration” was paid for the in-place equipment, his appraisal report does not specify how the allocation between the real estate and personal property was determined.  Vaske was unaware of any appraisal of the personal property attending the sale.

The persuasive value of Sale 5 is beset by the same problem.  The $8,000,000 purchase price included both real and personal property.  Vaske deducted $3,347,200 for the personal property.  There was no appraisal.  The sole basis for the allocation was that the “[m]arketing agent indicated equipment allocation reasonable considering the level of equipment involved.” (Ex. 2 at 84)  A marketing agent’s opinion the allocation is “reasonable” is not persuasive given the central importance of accurately deducting the fair market value of the personal property from the purchase price to determine the TVM of the real property as of the valuation date.

CONCLUSION AND ORDER

The BOE’s decisions are affirmed. The TVM of the subject property on January 1, 2017, was $8,300,000.  The TVM as of January 1, 2019, was $9,331,750.

Application for Review

A party may file an application for review of this decision within 30 days of the mailing date set forth in the certificate of service for this decision.  The application “shall contain specific detailed grounds upon which it is claimed the decision is erroneous.”  Section 138.432.  The application must be in writing, and may be mailed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, or emailed to Legal@stc.mo.gov.  A copy of the application must be sent to each person 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.

Disputed Taxes

The Collector of Boone County, and 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 the disputed taxes have been disbursed pursuant to a court order under the provisions of section 139.031.

SO ORDERED June 3, 2022.

Eric S. Peterson

Senior Hearing Officer
State Tax Commission

Certificate of Service

I hereby certify that a copy of the foregoing has been electronically mailed and/or sent by U.S. Mail on June 3, 2022, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.

Amy S. Westermann

Chief Counsel

[1] Complainant timely filed a complaint for review of assessment. The State Tax Commission (STC) has authority to hear and decide Complainant’s appeals.  Mo. Const. art. X, sec. 14; Section 138.430.1, RSMo 2000.  All statutory citations are to RSMo 2000, as amended.

[2] Alternatively, ([$16.15 – $9.24] / $16.15 = 0.4278).

[3] Section 339.535 was enacted to comply with Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which imposed federal regulation of appraisers in response to the savings and loan crisis of in the 1980’s.  Dwiggins v. Missouri Real Est. Appraisers Comm’n, 515 S.W.3d 765, 767 (Mo.  App. W.D. 2016).  The plain language of the statute reflects that purpose.

[4] State ex rel. Missouri Highways & Transp. Comm’n v. Stewart, 156 S.W.3d 496, 498 (Mo. App. S.D. 2005) (holding circuit court did not abuse its discretion in permitting a “licensed real estate professional” to testify as an expert witness regarding property value in an eminent domain case); see also Colt Invs., L.L.C. v. Boyd, 419 S.W.3d 194, 198 (Mo. App. E.D. 2013) (holding a real estate broker called as a “valuation expert” qualified as an expert pursuant to Section 490.065 and could testify as to the fair rental value of property).

[5] Section 138.060.1 applies only to first-class charter counties and the City of St. Louis.  The statute does not prohibit Respondent from advocating a value higher than that determined by the BOE.