Laclede Gas Company v. Cathy Rinehart, Assessor Clay County & David Cox, Assessor Platte County

September 6th, 2017

State Tax Commission of Missouri

 

LACLEDE GAS COMPANY, )
)
              Complainant, )
)
v. )
)
CATHY RINEHART, ASSESSOR, ) Appeals 14-32002 through 14-32038
CLAY COUNTY, MISSOURI, ) 15-32018 through 15-32097
) (15-32059,15-32065 &
               Respondent ) 15-32092 dismissed])
)
                      and )
)
DAVID COX, ASSESSOR, ) 14-79000 through 14-79024
PLATTE COUNTY, MISSOURI ) 15-79013 through 15-79037
)
              Respondent. )

 

DECISION AND ORDER

 

HOLDING

 

The decisions of the County Boards of Equalization (Boards) of Clay County and Platte County are AFFIRMED.  Laclede Gas Company (Complainant) failed to present substantial and persuasive evidence to rebut the presumption of correct assessments by the Boards.

Complainant appeared by attorneys Carl Pesce and Matthew Landwehr.

 

Cathy Rinehart, Assessor of Clay County (Respondents)[1], appeared by attorneys Patricia Hughes.

David Cox, Assessor of Platte County (Respondents), appeared by attorney John R. Shank.

Case heard by Senior Hearing Officer John J. Treu (Hearing Officer).

ISSUE

Complainant appeals, on the ground of overvaluation, the decisions of the Boards, which sustained the valuations of the subject properties.  The State Tax Commission (STC) takes these appeals to determine the true value in money (TMV) for the subject properties on January 1, 2014, and January 1, 2015.

The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.

FINDINGS OF FACT

  1. Jurisdiction. Jurisdiction over these appeals is proper.  Complainant timely appealed to the STC.
  2. Evidentiary Hearing. The Evidentiary Hearing was held on March 29, 2017, and March 30, 2017, in Liberty, Clay County, Missouri.
  3. Identification and Description of Subject Property and Description of Accounting. Complainant owns and operates a gas utility. It is a monopoly.  Complainant is a regulated by the Federal Energy Regulatory Commission and the Missouri Public Service Commission (PSC). Public utility rates are regulated. As a regulated utility, Complainant is entitled to a reasonable return and recoupment of its investment.   Public utilities in Missouri can seek rate increases from the PSC.

Complainant has both real property and business personal property in Clay and Platte Counties. Complainant maintains taps, pipe in the streets to curb box, pipes to buildings, shut off valves, etc., for retail distribution customers.  Real property consists of underground piping and gas mains.  The mains are buried underground.  The mains are of varying age, material and size. Personal property consists of measuring and regulating equipment, meters and regulators.  Measuring and regulating equipment reduce the line pressure for distribution.  Meters vary in size from small household to large industrial meters.

In September 2013, Complainant acquired the assets of Missouri Gas Energy (MGE).  The PSC approved the acquisition of MGE.  In order to acquire MGE, Complainant had to agree to certain conditions, such as not seeking a rate increase for a period of time.  Complainant made the internal decision to accept such conditions and proceed with the acquisition of MGE.  The acquisition of MGE’s assets expanded Complainant’s operation by thirty-one additional counties in the western half of Missouri and permitted Laclede to take over delivery of natural gas to over 155 western Missouri communities, including communities in Clay and Platte counties. [2]

Complainant’s appraiser, Robert Reilly, testified that he talked with Complainant’s management to assist in his appraisal.  Reilly stated that Complainant’s management said that the MGE transaction was expected to generate “all types of going forward synergies and economies of scale and post-merger benefits and unique economies of scale.”  (Transcript, Pg. 311)   Complainant’s appraiser also stated that Laclede was close enough to MGE geographically to “realize the benefit of a shared workforce, a shared database, shared gas purchase contracts, below market purchase contracts, shared computer software, shared storage fields, shared storage tanks [and] shared city gait prices.” (Transcript Pgs. 311-12)  The prior MGE assets, which make up Complainant’s existing assets in Clay and Platte Counties, were expected to be more profitable by Complainant integrating the prior MGE’s assets into Complainant’s system, taking advantage of Complainant’s sophistication and its more favorable contracts.

  1. Appeals. Complainant appeals the following types of property in each county for the following years:
Clay County 2014 Personal Property Only
2015 Both Real and Personal Property
Platte County 2014 Real Property Only
2015 Real Property Only

 

  1. Assessment of the Appealed Commercial Real Property and Business Personal Property in 2014 and 2015.
Clay County 2014 Personal Property $11,323,556 TMV
2015 Real Property $7,931,600 TMV
2015 Personal Property $11,109,118 TMV
Platte County 2014 Real Property $20,208,345 TMV
2015 Real Property $19,026,476 TMV

 

  1. Complainant’s Evidence[3]. The following evidence was filed by Complainant:

Complainant’s Exhibits and Written Direct Testimony (WDT) (Clay County)

 

Exhibit Description Offered Admitted
WDT* Lindsey Link Yes Yes
WDT* Robert Reilly Yes Yes
Rebuttal

WDT*

Robert Reilly Yes Yes
Exhibit A

 

Declaration of Missouri Gas Energy, a division of Laclede Gas Company, Property as of January 1, 2014

(Filed as Clay County Ex. A, 14-32002-15-32097)

Yes Yes
Exhibit B FERC Uniform System of Accounts for Natural Gas Companies; Code of Federal Regulations Title 18, Chapter 1, Subchapter F, Part 201 (Filed as Clay County Ex. B, 14-32002-15-32097) Yes Yes
Exhibit C Declaration of Missouri Gas Energy, a division of Laclede Gas Company, Property as of January 1, 2015

(Filed as Clay County Ex. C, 14-32002-15-32097)

Yes Yes
Exhibit D Missouri Gas Energy Meters Purchased 2013 (Filed as Clay County Ex. D, 14-32002- 15-32097) Yes Yes
Exhibit E Laclede Gas Company’s Responses to Respondent’s First Interrogatories (Filed As Clay County Ex. E, 14-32002-15-32097) Yes Yes
Exhibit F Complaints for Review of Assessment (Filed as Clay County Ex. F, 14-32002-15-32097) Yes Yes
Exhibit G List of Real and Personal Property located in Clay County as of January 1, 2014 and January 1, 2015 (Filed as Clay County Ex. G, 14-32002-15-32097) Yes Yes
Exhibit H

2014

Robert Reilly Curriculum Vitae attached to Reilly Report re Personal Property As Of January 1, 2014 (Clay) (Filed as Clay County Ex. H, 14-32002-38) Yes Yes
Exhibit H

2015

Robert Reilly Curriculum Vitae attached to Reilly Report re Real and Personal Property As Of January 1, 2015 (Clay) (Filed as Clay County Ex. H, 15-32018-97) Yes Yes
Exhibit I

2014

Robert Reilly Fair Market Value Appraisal Report re Personal Property As Of January 1, 2014 (Clay) (Filed as Clay County Ex. I, 14-32002-38) Yes Yes
Exhibit I

2015

Robert Reilly Fair Market Value Appraisal Report re Real and Personal Property As Of January 1, 2015 (Clay) (Filed as Clay County Ex. I, 15-32018-97) Yes Yes
Exhibit I-1

2014

Supplemental Signature Page for Robert Reilly Fair Market Value Appraisal Report re Personal Property As Of January 1, 2014 (Clay) (Filed as Clay County Ex. I-1, 14-32002-38) Yes Yes
Exhibit I-1

2015

Supplemental Signature Page for Robert Reilly Fair Market Value Appraisal Report re Real and Personal Property As Of January 1, 2015 (Clay) (Filed as Clay County Ex. I-1, 15-32018-97) Yes Yes
Exhibit J

 

Deposition Transcript of Gary Maurer with

Deposition Exhibits 1, 2, 3, 4, 5, 6, 7, 13, and 14

(Filed as Clay County Ex. J, 14-32002-38 and 15-32018-97)

Yes Yes
Exhibit K

 

Missouri Gas Energy 2012 Return for Clay County

(Filed as Clay County Ex. K, 14-32002-38 and 15-32018-97)

Yes Yes
Exhibit L Missouri Gas Energy 2013 Return for Clay County

(Filed as Clay County Ex. L, 14-32002-38 and 15-32018-97)

Yes Yes
Exhibit M Clay County Assessor Notice of Increase in Assessment for 2014 (Lafave Depo. Ex. 8) (Filed as Clay County Ex. M, 14-32002-15-32097) Yes Yes
Exhibit N Clay County Assessor Notice of Increase in Assessment for 2015 (LaFave Depo. Ex. 4) (Filed as Clay County Ex. N, 14-32002-15-32097) Yes Yes
Exhibit O* Platte Payment to M. Koyama (Koyama Depo. Ex. 8)

(Filed as Ex. O, Clay 14-32002-15-32097 and Platte 14-79000-15-79037)

Yes Yes
Exhibit P* Excerpts from Koyama Work File (Koyama Depo. Ex. 13) (Filed as Ex. P, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes
Exhibit Q* Lake Expo Article re Laclede Purchase of Missouri Gas

(Koyama Dep. Ex. 14) (Filed as Ex. Q, Clay 14-32002-15-32097 and Platte 14-79000-15-79037)

Yes Yes
Exhibit R* Moody’s Article re Laclede Gas Ratings Outlook Changes to Negative (Koyama Dep. Ex. 15) (Filed as Ex. R, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes
Exhibit S* M. Koyama Deposition Notice (Koyama Depo. Ex. 17)

(Filed as Ex. S, Clay 14-32002-15-32097 and Platte 14-79000-15-79037)

Yes Yes
Exhibit T* Koyama Platte County Employment Application (Produced on March 6, 2017, after M. Koyama Deposition) (Filed as Ex. T, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes
Exhibit U* 2016-2017 Uniform Standards of Professional Appraisal Practice (Filed as Ex. U, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes

 

Complainant’s Exhibits and WDT (Platte County)

 

Exhibit Description Offered? Admitted?
WDT* Lindsey Link Yes Yes
WDT* Robert Reilly Yes Yes
Rebuttal

WDT*

Robert Reilly Yes Yes
Exhibit A Declaration of Missouri Gas Energy, a division of Laclede Gas Company, Property as of January 1, 2014

(Filed as Platte County Ex. A, 14-79000-15-79037)

Yes Yes
Exhibit B Explanation of Overhead Costs

(Filed as Platte County Ex. B, 14-79000-15-79037)

Yes Yes
Exhibit C Declaration of Missouri Gas Energy, a division of Laclede Gas Company, Property as of January 1, 2015

(Filed as Platte County Ex. C, 14-79000-15-79037)

Yes Yes
Exhibit D Complaints for Review of Assessment

(Filed as Platte County Ex. D, 14-79000-15-79037)

Yes Yes
Exhibit E List of Real and Personal Property located in Platte County as of January 1, 2014 and January 1, 2015

(Filed as Platte County Ex. E, 14-79000-15-79037)

Yes Yes
Exhibit F

2014

Robert Reilly Curriculum Vitae attached to Reilly Report re Real Property As Of January 1, 2014 (Platte)

(Filed as Platte County Ex. F, 14-79000-24)

Yes Yes
Exhibit F

2015

Robert Reilly Curriculum Vitae attached to Reilly Report re Real Property As Of January 1, 2015 (Platte)

(Filed as Platte County Ex. F, 15-79013-37)

Yes Yes
Exhibit G

2014

Robert Reilly Fair Market Value Appraisal Report re Real Property As Of January 1, 2014 (Platte)

(Filed as Platte County Ex. G, 14-79000-24)

Yes Yes
Exhibit G

2015

Robert Reilly Fair Market Value Appraisal Report re Real Property As Of January 1, 2015 (Platte)

(Filed as Platte County Ex. G, 15-79013-37)

Yes Yes
Exhibit G-1

2014

Supplemental Signature Page for Robert Reilly Fair Market Value Appraisal Report re Real Property As Of January 1, 2014 (Platte) (Filed as Platte County Ex. G-1, 14-79000-24) Yes Yes
Exhibit G-1

2015

Supplemental Signature Page for Robert Reilly Fair Market Value Appraisal Report re Real Property As Of January 1, 2015 (Platte) (Filed as Platte County Ex. G-1, 15-79013-37) Yes Yes
Exhibit H-N Reserved to keep consistent labeling for additional Exhibits applicable to both Clay and Platte County Appeals Yes Yes
Exhibit O* Platte Payment to M. Koyama (Koyama Depo. Ex. 8) (Filed as Ex. O, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes
Exhibit P* Excerpts from Koyama Work File (Koyama Depo. Ex. 13) (Filed as Ex. P, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes
Exhibit Q* Lake Expo Article re Laclede Purchase of Missouri Gas

(Koyama Dep. Ex. 14) (Filed as Ex. Q, Clay 14-32002-15-32097 and Platte 14-79000-15-79037)

Yes Yes
Exhibit R* Moody’s Article re Laclede Gas Ratings Outlook Changes to Negative (Koyama Dep. Ex. 15) (Filed as Ex. R, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes
Exhibit S* M. Koyama Deposition Notice (Koyama Depo. Ex. 17) (Filed as Ex. S, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes
Exhibit T* Koyama Platte County Employment Application

(Produced on March 6, 2017, after M. Koyama Deposition) (Filed as Ex. T, Clay 14-32002-15-32097 and Platte 14-79000-15-79037)

Yes Yes
Exhibit U* 2016-2017 Uniform Standards of Professional Appraisal Practice (Filed as Ex. U, Clay 14-32002-15-32097 and Platte 14-79000-15-79037) Yes Yes

 

  1. Respondents’ Evidence. The following evidence was filed by Respondents:
Exhibit Description Offered? Admitted?
WDT Mika Koyama Yes Yes
WDT Shelley LaFave Yes Yes
Suppl. WDT Shelley Lafave Yes Yes
Rebuttal WDT Mika Koyama Yes Yes
Surrebuttal. WDT Mika Koyama Yes Yes
Exhibit 1 Valuation Report of Mika Koyama Yes Yes
Exhibit 1-A STC Appeal Form (Case No.14-79000 thru 14-79024) Yes Yes
Exhibit 1-B STC Appeal Form (Case No.15-32018 thru 15-32057) Yes Yes
Exhibit 1-C STC Appeal Form (Case No.15-79013 thru 15-79037) Yes Yes
Exhibit 1-D Assessment Rules -Assessor’s Manual, Code of State Regulations & Missouri Revised Statutes Yes Yes
Exhibit 1-E Laclede’s Declarations – 2015 Clay County Yes Yes
Exhibit 1-F Laclede’s Declarations – 2014 Platte County Yes Yes
Exhibit 1-G Laclede’s Declarations – 2015 Platte County Yes Yes
Exhibit 1-H Area and County Information Yes Yes
Exhibit 1-I Federal and State regulatory agency Yes Yes
Exhibit 1-J FERC Code Descriptions Yes Yes
Exhibit 1-K Natural Gas Regulation & Infrastructure Replacement Surcharge Yes Yes
Exhibit 1-L Automatic Meter Reading Systems Yes Yes
Exhibit 1-M Laclede Company Information Yes Yes
Exhibit 1-N Laclede 2015 Annual Report Yes Yes
Exhibit 1-O Asset Acquisition Statement (Form8594) Yes Yes
Exhibit 1-P Contributions in Aid of Construction (CIAC) Documents Yes Yes
Exhibit 1-Q 2012 Valuation Summary by MGE Yes Yes
Exhibit 1-R 2013 Valuation Report by Duff & Phelps Yes Yes
Exhibit 1-S Definitions Yes Yes
Exhibit 1-T Qualification Yes Yes
Exhibit 2 Report of Shelley LaFave Yes Yes
Appendix 2- A MGE/Laclede’s 2014 Declaration Yes Yes
Appendix 2-B MGE/Laclede’s 2015 Declaration Yes Yes
Appendix 2-C MGE’s 2012 Declaration Yes Yes
Appendix 2-D Comparison of Declarations Yes Yes
Appendix 2-E Excerpts from Deposition of Lindsay Link Yes Yes
Appendix 2-F Original costs by FERC code, Bates 103 Yes Yes
Appendix 2-G Calculation of Installation Costs Reported in Years Prior to 1/2/2006 Yes Yes
Appendix 2-H FERC code descriptions Yes Yes
Appendix 2-I -NONE- Yes Yes
Appendix 2-J Laclede Sept 30, 2015 10K report, pages 122 and 123 of 239. Yes Yes
Exhibit 3 Excerpts from 10K Yes Yes
Exhibit 4 Correction pages for Exhibit 1 Yes Yes
Exhibit 5 MGE 2014 annual report excerpt Yes Yes
Exhibit 6 Laclede 2014 annual report excerpt Yes Yes
Exhibit 7 Supplement to Exhibit 2C Yes Yes
Exhibit 8 Materials regarding useful life Yes Yes
Exhibit 9 Calculation summaries Yes Yes
Exhibit 10 STC Form Yes No
Exhibit 11 Portion of Assessor Manual Yes No
Exhibit 12 20 CSR 2245-9.010 Yes No
Exhibit 13 Portion of Preamble of USPAP 2016-2017 Edition Yes No
Exhibit 14 Deposition Transcript of Matthew Voelker Yes No
Exhibit 15 Gas Annual Report No No
Exhibit 16 MGE Work Order Document Yes No

 

Respondents’ Exhibits 10 through 16 were excluded from the evidentiary record as they were not pre-filed and because they did not comply with the provisions for filings of certain specific documents after the evidentiary hearing as set forth by the Hearing Officer and agreed to by the parties.

  1. Presumption of Correct Assessment Not Rebutted. Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Boards and establish the TMV as of January 1, 2014, or January 1, 2015.
  2. Complainant’s Appraisals. The Hearing Officer herein did not find Complainant’s appraisals persuasive.  The appraisals did not induce belief in the Hearing Officer.  As discussed further below, Complainant’s appraisal approach included the use of an income shortfall method, which Complainant’s appraiser deducted as economic obsolescence in his cost approach to value.  Complainant’s appraiser’s income approach presumed a zero percent growth rate.  Complainant’s appraiser failed to provide a persuasive explanation for this presumption in light of Complainant’s own management’s expectations of additional profitability on the assets in place on the tax dates.

Specific to Complainant’s appraisal regarding Platte County Real Property in 2015, Complainant’s appraiser opined TMV of $20,800,000.  This amount exceeds the Platte County Board of Equalization TMV determination of $19,026,476.  Consequently, Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment.

CONCLUSIONS OF LAW AND DECISION

Jurisdiction

The STC has jurisdiction to hear these appeals and correct any assessments which are shown to be unlawful, unfair, arbitrary or capricious.  The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determinations of the Boards, and correcting any assessments which are 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 –commercial property at 32% of true value in money.

Personal Property

            Section 137.122 RSMo. provides a statutory standardized methodology for county assessors to “estimate the value of depreciable tangible personal property for mass appraisal purposes” relying upon the federal Modified Accelerated Cost Recovery System (MACRS) life tables to determine the appropriate “class life” of depreciable tangible personal property used in a trade or business or for production of income “to establish uniformity in the assessment of depreciable tangible personal property. . .”  Section 137.122 RSMo applies to business personal property placed in service after January 2, 2006.  A property is “placed in service” when it is ready and available for a specific use, whether or not actually in use.  The methodology presented by Section 137.122 RSMo is a cost approach to value, with more than straight line (normal) depreciation.  The statute provides that if the personal property valuation is appealed,  “the estimation may be disproved by substantial and persuasive evidence of the true value in money under any method determined by the state tax commission to be correct, including, but not limited to, an appraisal of the tangible personal property specifically utilizing generally accepted appraisal techniques, and contained in a narrative appraisal report in accordance with the Uniform Standards of Professional Appraisal Practice…” Section 137.122 RSMo.

Fixtures

Property which is otherwise personal property can be treated as real property when it is attached to land or a building and is regarded as an irremovable part of the real property.  Black’s Law Dictionary, 7th Edition, 199 p. 652.   A pipeline may be considered a fixture as it may be regarded as an irremovable part of the real property.  Missouri has codified that interpretation in Section 137.010 RSMo in the definition of real property:

137.010.  (4) “Real property” includes land itself, whether laid out in town lots or otherwise, and all growing crops, buildings, structures, improvements and fixtures of whatever kind thereon, hydroelectric power generating equipment, the installed poles used in the transmission or reception of electrical energy, audio signals, video signals or similar purposes, provided the owner of such installed poles is also an owner of a fee simple interest, possessor of an easement, holder of a license or franchise, or is the beneficiary of a right-of-way dedicated for public utility purposes for the underlying land; attached wires, transformers, amplifiers, substations, and other such devices and appurtenances used in the transmission or reception of electrical energy, audio signals, video signals or similar purposes when owned by the owner of the installed poles, otherwise such items are considered personal property; and stationary property used for transportation or storage of liquid and gaseous products, including, but not limited to, petroleum products, natural gas, propane or LP gas equipment, water, and sewage; (emphasis added).

 

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, 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).

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).

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 STC 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).

Presumption In Appeal

There is a presumption of validity, good faith and correctness of assessment by the County BOE.  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 BOE’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).

Economic Obsolescence (External Obsolescence)

 Economic obsolescence, also called external obsolescence, is a term of art within the appraisal industry and “is the impairment of desirability or useful life arising from economic forces, such as changes in highest and best use and legislative enactments that restrict or impair property rights and changes in supply and demand relationships.  It is sometimes referred to as locational obsolescence.”  Economic obsolescence is generally not curable.  Property Assessment Valuation, International Association of Assessing Officers, 1977, p. 160. External obsolescence is a temporary or permanent impairment of the utility or salability of an improvement or property due to negative influences outside the property.  The Appraisal of Real Estate, 12th Edition, Appraisal Institute, 2001, pg. 363.  It must be external to the property and outside the control of Complainant.

Complainants’ Burden of Proof and Evidence

In an appeal before the STC, the taxpayer is the moving party seeking affirmative relief.   The taxpayer bears the burden of proof.  Complainant bears the burden to show the Boards’ values to be erroneous.  Additionally, in order to prevail, Complainant must present an opinion of TMV and evidence which is both 1) substantial and 2) persuasive that the proposed value is indicative of the market value of the subject property on applicable tax date.   Hermel, supra.  A valuation which does not reflect the TMV of the property under appeal is an unlawful, unfair and improper assessment.  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).

“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).

In the present appeal, Complainant did not meet its burden of proof.  The Hearing Officer was not persuaded by Complainant’s evidence, independent of any evidence presented by Respondent, that the Boards’ valuations were erroneous.

Complainant’s Methodology

Complainant’s appraiser developed the cost approach, the income approach and the sales comparison approach.  As stated above, 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). Nevertheless, the Hearing Officer gave such consideration to Complainant’s appraiser’s opinions as deemed appropriate.

Complainant appraiser stated that “this is a textbook example of a special purpose property and a special purpose property you give more weight to the cost approach.”  He went on to state “[a]so this is an income producing property.  With an income producing property you give more weight to the income approach.” (Transcript, Pgs. 320-21).  Complainant’s appraiser gave 40% weight to the cost and 40% weight to the income approach.

Complainant’s appraiser also considered the market approach (sales comparison approach) and noted the comparables he utilized are different from Complainant’s in that they are first physically different and secondly geographically different, thus impacting the longevity of the assets based upon such geography.  He further observed that his comparables are different from Complainant’s because they are subject to different regulatory regimes.  Thus, Complainant’s appraiser only gave 20% weighting to the market approach.  (Transcript, Pg. 320)

The Hearing Officer, after considering the comments of Complainant’s appraiser regarding the market approach, determines that in the present appeals, the sales comparison (market) approach is not an appropriate or reliable indicator of value.  Rather, the Hearing Officer determines the cost approach is the most appropriate, accurate and representative method to reach TMV in these appeals, while factoring in the income approach as a consideration.

Cost Approach

Regarding Complainant’s proffered cost approach, Complainant’s appraiser calculated an Income Shortfall (Income Deficiency) Deduction as External Obsolescence.  Missouri Courts have not recognized or approved an income shortfall methodology.  Furthermore, the Hearing Officer finds this deduction to be unpersuasive and improper.  The following has been stated about such approach:

At best [the] income deficiency method is illogical … [and] at worst [the] income-deficiency method strips the cost approach of its use as an independent determiner of value, because it always will track the result under the income approach.”  Delta Air Lines, Inc. v. Dept. of Revenue of Oregon, 291 P.2d 836 (Oregon 1999)

 

“A significant problem with [the] income shortfall methodology is that it converts what should be two separate, stand-alone indicators of value (cost approach and income approach), into one indicator of value by adjusting the cost approach with [an] income shortfall.”  Puget Sound Energy, Inc. v. Department of Revenue of the State of Montana, 2012 WL 5906944 (Mont.Tax.App.Bd.)

 

Additionally in State of Alaska, Department of Revenue v. BP Pipelines, Inc., 354 P.3d 1053 (Alaska 2015), the Court noted a lack of wide recognition of the Income Shortfall Method in authoritative sources.  In Transcontinental Gas Pipe Line Corp. v. Bernards Township, 545 A.2d 746 (New Jersey 1988), the Court questioned the practice of comparing rate base return to actual return to show economic obsolescence.

First, Complainant did not offer evidence which the Hearing Officer found persuasive, that the income shortfall was external from the properties.  The Hearing Officer would be required to participate in speculation, conjecture and surmise to determine the income shortfall was external of the properties and not due to factors within the control of Complainant, including, but not limited to, information Complainant’s appraiser obtained from Complainant’s management, and relied upon, to prepare his appraisal.  Such factors would include exploitations of synergies, economies of scale, post-merger benefits, shared workforce, shared database, shared gas purchase contracts, below market purchase contracts, shared computer software, shared storage fields, shared storage tanks, and shared city gate prices which were expected due to the MGE acquisition in September of 2013.

Complainant’s management decision, to agree with the PSC that Complainant would not seek rate increases for a period of time, in order to obtain the PSC approval of the proposed acquisition of MGE was within the sole control and discretion of Complainant.  Again, Complainant’s evidence was not persuasive and did not instill belief in the Hearing Officer.

By simply reversing out the income shortfall deduction, the resulting TMV of the real and personal properties, if appealed, in Clay and Platte Counties on 1/1/2014 and 1/1/2015 support the independently determined values by the Boards.  (See Chart Below).  As to the subject properties, the Hearing Officer finds the cost approach to be highly persuasive.

County Year Prop. Type Boards Values Comp. Appraiser Recalculated Value
Clay County 2014 Personal Prop. $11,323,556 $7,100,000 $15,117,529
2015 Real Prop. $79,310,600 $52,500,000 $81,249,186
2015 Personal Prop. $11,109,118 $8,900,000 $13,668,089
Platte County 2014 Real Prop. $20,208,345 16,700,000 $35,523,653
2015 Real Prop. $19,026,476 20,800,000 $32,093,205

 

Income Approach

Regarding Complainant’s proffered income approach, Complainant’s appraiser made a simplified presumption of a zero percent growth rate based upon a conclusory premise that a fixed set of assets in a rate-based regulated utility can have no growth and that growth can only be realized by expansion of Complainant’s rate base and through additional capital expenditures.    Complainant provided no authoritative documentary evidence in support of the conclusory premise.  Consequently, the Hearing Officer did not find Complainant’s appraiser’s simplified presumption to be substantial and persuasive.

The general formula under the income approach is , with “g” representing the growth rate.   Under this formula, any failure to account for “g,” if any, in the denominator may have a great impact on the ultimate determination of TMV of a property.  Complainant’s appraiser testified that Complainant did not realize the rate of return Complainant had expected, which expected rate was less than the rate of return allowed by the Missouri PSC.   However, Complainant’s appraiser also stated Complainant’s management expected synergies, economies of scale, post-merger benefits (shared workforce, shared database, shared gas purchase contracts, below market purchase contracts, shared computer software, shared storage fields, shared storage tanks and shared city gate prices) due to the MGE acquisition in September of 2013.

Despite this evidence and other evidence indicating additional positive expectations of Complainant, Complainant’s appraiser made a simplified presumption of a zero percent growth rate to determine TMV on 1/1/2014 and 1/1/2015. Complainant’s appraiser testified he had discussion with Complainant’s management in order to prepare his appraisal.  Complainant’s appraiser did not testify that Complainant’s management or that he determined through independent analysis, that all growth would be derived solely from expansion of the rate base and through additional capital expenditures.  Consequently, Complainant’s conclusory evidence was not persuasive to the Hearing Officer.  Ultimately, Complainant’s proffered income approach was of little value.[4]

Respondents’ Evidence

Respondents offered the Valuation Report of Mika Koyama (Exhibit 1) as well as other WDT and Exhibits.  Complainant specifically challenges whether Ms. Koyama qualifies as an expert witness for multiple reasons, including, but not limited to, the limited number of appraisals she has performed, that her Valuation Report was not USPAP compliant and the circumstances and timing of her employment with Platte County[5].  Complainant contends Respondents’ evidence was not substantial and persuasive.

As determined above, Complainant’s evidence was not substantial and persuasive.  No determination, by the Hearing Officer, whether Respondents’ evidence was substantial and persuasive is necessary.

Conclusion

The presumption of correct assessments by the Boards were not rebutted with substantial and persuasive evidence.   The methodology of Complainant’s appraiser did not induce belief in the Hearing Officer.  Consequently, the valuations by the Boards are AFFIRMED.

ORDER

The assessed valuations for the subject properties, as determined by the Boards, are AFFIRMED.

Judicial Review

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 County Collectors, 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, September 6, 2017.

STATE TAX COMMISSION OF MISSOURI

 

John J. Treu

Senior Hearing Officer

 

Certificate of Service

 

I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 6th day of September, 2017, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.

Jacklyn Wood

Legal Coordinator

 

[1] Due to consolidation of the appeals for hearing, “Respondents” references both assessors.

[2] Laclede Gas Company is a wholly owned subsidiary of Laclede Group, Inc. (Spire as of March 2016) which is a public utility holding company.  Laclede Group, Inc. is traded on the stock exchange.  It reported record net economic earnings per share in the first half of fiscal year 2015 and reported it was on pace to achieve 6%+ growth in fiscal year 2015 and 2016.  It also announced its dividend would be raised by 4.5% constituting its 12th consecutive increase in dividends and that it had significant growth in the first half of fiscal year 2015 with EBITDA up 62%.   Laclede Group, Inc. has two principal business segments, such being gas utility and gas marketing.  The gas utility segment accounts for approximately 83% of all revenue.  (Transcript, Pgs. 235-36 & Exhibit G, Pg. 13).

[3] *Same exhibit applicable to both counties.

[4] Assuming even a small growth rate, and inserting such into the formula for determining TMV, the resulting TMV of the real and personal properties in Clay and Platte Counties on 1/1/2014 and 1/1/2015 would support the BOE valuations as did the cost approach proffered by Complainant’s appraiser after corrected.

[5] As to whether Ms. Koyama, fell under the exemption under Section 339.501.5 RSMo