Lake Sherwood Estates Association v. Wendy Nordwald, Assessor Warren County

June 22nd, 2018

State Tax Commission of Missouri

 

LAKE SHERWOOD ESTATES ASSOCIATION )  Appeal No. 17-91002
  )   17-91003
              Complainants )   17-91004
  )    
v. )    
  )    
WENDY NORDWALD, ASSESSOR )    
WARREN COUNTY, MISSOURI, )    
  )    
               Respondent. )    

 

ORDER

SETTING ASIDE HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

HOLDING

 

On June 22, 2018, Senior Hearing Officer John Treu (Hearing Officer) entered his Decision and Order (Decision) setting aside the decision of the Board of Equalization of Warren County (BOE) and made the following findings as to value and classification:

Appeal Number Parcel Number TVM Classification Assessed Value
17-91002 12-12.0-1-01-003.000.000 $262,070 Residential $49,793
17-91003 12-12.0-1-02-001.000.000 $164,950 Residential $31,341
17-91004 12-13.0-2-02-001.000.000 $5,000 Residential $950

 

Lake Sherwood Estates Association (Complainant) and Wendy Nordwald, Assessor of Warren County, Missouri (Respondent) each filed an Application for Review of Hearing Officer’s Decision and Order.  Parties filed their Response to the opposing parties’ Application for Review of the Hearing Officer’s Decision and Order.

We SET ASIDE the Decision and Order of the Hearing Officer.  Segments of the Hearing Officer’s Decision may have been incorporated into our Decision without further reference.

FINDINGS OF FACT

  1. Jurisdiction. Jurisdiction over this appeal is proper.  Complainant timely appealed to the State Tax Commission.
  2. Evidentiary Hearing. An evidentiary hearing was held on May 1, 2018, at the Warren County Administrative Building.   The STC has reviewed the hearing record and exhibits submitted.
Exhibit A Declarations and Amendments
Exhibit B Lake Sherwood Plat 1
Exhibit C Lake Sherwood Plat 18
Exhibit D Lake Sherwood Plat 30
Exhibit E Articles of Incorporation of Lake Sherwood
Exhibit F Rules and Regulations
Exhibit G Photographs
Exhibit 1 Written Direct Testimony of Wendy Nordwald
Exhibit 2 BOE Determinations
Exhibit 3 Stipulation of Facts, filed February 23, 2018

 

  1. Identification of Subject Properties. The subject properties are real property and are identified by parcel/locator numbers 12-12.0-1-01-003.000.000 (Appeal 17-91002), 12-12.0-1-02-001.000.000 (Appeal 17-91003) and Parcel 12-13.0-2-02-001.000.000 (17-91004).  All such properties are located in Warren County, Missouri. (Complaints for Review of Assessment)        4.         Owner.   Owner of the subject properties is Lake Sherwood Estates Association formerly known as Lake Sherwood Estates Homeowners Association (Association).  Members of the Association are property owners within Lake Sherwood and they benefit by Association’s ownership of the subject property.
  2. Description of Subject Properties.
  3. Appeal 17-91002 (Parcel 12-12.0-1-01-003.000.000) referred to as the Administrative Parcel is improved by a “building which serves as an administrative building containing offices for staff, storage for records, a conference room, the Association’s manager’s office, the Association’s accountant’s office, an office for the head of security, the security staff, the Association’s collections person, a security gate and a parking lot. There is also a separate building occupied by the Association’s public works department.”  The bridle path is also located on this parcel.  (Exhibit 1)
  4. Appeal 17-91003 (Parcel 12-12.0-1-02-001.000.000) referred to as the Lake parcel “contains the office of the director of public works, a mailroom, a community bulletin board, restrooms, a heated waiting room for school bus children, a dumpster, a maintenance shed, a public works area, a compactor, a recycle bin and Lake Alan, which has a dock for fishing.” (Exhibit 1)
  5. Appeal 17-91004 (Parcel 12-13.0-2-02-001.000.000) is a vacant lot. (Exhibit 1)
  6. Assessment of the Properties. The BOE valued and classified the properties as:
Appeal Number Parcel Number TVM Classification
17-91002 12-12.0-1-01-003.000.000 $262,070 Commercial
17-91003 12-12.0-1-02-001.000.000 $164,950 Commercial
17-91004 12-13.0-2-02-001.000.000 $5,000 Residential

 

  1. Hearing Officer’s Findings.  The Hearing Officer valued and classified the properties as:
Appeal Number Parcel Number TVM Classification
17-91002 12-12.0-1-01-003.000.000 $262,070 Residential
17-91003 12-12.0-1-02-001.000.000 $164,950 Residential
17-91004 12-13.0-2-02-001.000.000 $5,000 Residential

 

  1. Proper Assessment of the Parcels.
Appeal Number Parcel Number TVM Classification
17-91002 12-12.0-1-01-003.000.000 $262,070 Commercial
17-91003 12-12.0-1-02-001.000.000 $164,950 Commercial
17-91004 12-13.0-2-02-001.000.000 $5,000 Residential

 

CONCLUSIONS OF LAW AND DECISION

Points on Review

            Each party submitted an Application for Review of the Hearing Officer’s Decision.  The parties raise the following issues:

  1. Complainant claims the assessment of subject properties is double taxation as the values of the subject properties are implicitly included in the value of the properties owned by members of the Lake Sherwood Estates Association[1];
  2. Respondent claims the classification of the subject properties in appeals 17-91002 and 17-91003 as residential is erroneous as the improvements located on subject properties are not structures used or intended for use for residential living.[2]

STC’s Ruling

The STC, having thoroughly reviewed the whole record and having considered the Hearing Officer’s Decision, the Parties’ Applications for Review and related responses, sets aside the Decision and Order.

Standard of Review

A party subject to a Decision and Order of a Hearing Officer with the State Tax Commission may file an application requesting the case be reviewed by the Commission.  Section 138.432 RSMo Cum. Supp. 2015; 12 CSR 30-3.080(4).  The Commission may then summarily allow or deny the request.  Section 138.432; 12 CSR 30-3.080(5).  The Commission may affirm, modify, reverse, set aside, deny, or remand to the Hearing Officer the Decision and Order of the Hearing Officer on the basis of the evidence previously submitted or based on additional evidence taken before the Commission.  Section 138.432; 12 CSR 30-3.080(5)(A).

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 that is unlawful, unfair, improper, arbitrary, or capricious.  Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo. 

Complainant’s Burden of Proof

A presumption exists that the assessed value, which is a function of TVM multiplied by the applicable property classification statutory percentage, fixed 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).

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 property and tangible personal property are assessed at set percentages of true value in money:  residential property at 19%; commercial property at 32%; and agricultural property at 12%.  Section 137.115.5 RSMo (2000) as amended.

Double Taxation

            Complainant claims the assessment of subject properties is double taxation as the values of the subject properties are implicitly included in the value of the properties owned by members of the Lake Sherwood Estates Association.  Complainant argues the circumstances of the property warrant a zero market value.  Placement of a zero market valuation on real property is an exceptional circumstance.

Real property includes land itself, building, structures, improvements and all rights and privileges belonging or appertaining thereto.  Green County v. Hermel, Inc, 511 S.W.2d 762, 770 (Mo. 1974).  An easement is an interest in land which is limited to the right to use the property and that right may be enforced. An easement is appurtenant when in its creation it is attached to a piece of land and benefits the owner of such land in his use and enjoyment thereof.  The parcel of land that benefits from the easement is the dominant tenement. The servient tenement is the parcel of land that provides the easement.  The grant of easements and the imposition of restrictions may deprive a servient estate of whatever value it might otherwise have held.  In other words, a servient estate may be so restricted that a buyer could only obtain a naked legal title with none of the advantages usually enjoyed by owners of real property.   The buyer would hold title to property from which he can derive no benefit or enjoyment, but which would be devoted entirely to the enjoyment and use of the surrounding property owners who possess the rights to the dominate estates.  In these situations, the true value in money of the servient estate is lessened and the true value in money of the dominate estate is increased.  The rights and easements appurtenant to the servient estate are relevant factors affecting value that must be taken into consideration for ad valorem taxation.

In Lakewood Village Property Owners’ Association v. Savage, Second Annual Report, Selected Decisions and Orders, page 111, 1981,  STC held that the value of the servient property was to the benefit of the owner-members’ properties and should be reflected in the value of the owner-members’ properties and a zero market value should be placed on the servient property.  The servient property in Lakewood Village consisted of five recreational green areas, swimming pool, tennis courts and a recreational building.  The owners of the lots in Lakewood Village became members of Lakewood Village Property Owners Association upon conveyance of their lot.  Lakewood Village Property Owners Association owned the property subject to the appeal.  A Declaration of Covenants, Conditions and Restrictions (Declaration) was filed with the recorder of deeds.  The subject property was designated and defined as “common area” in the Declaration.  The Declaration set forth that each owner-member of the Association had a right and easement of enjoyment in and to the common areas and pass with title to every lot or property interest.  The Declaration also set forth that the Association may only sell the property to a government agency or utility and that if the Association dissolved the property must be donated to another non-for-profit.  Based upon those facts, the STC found that the property was so encumbered it had no practical value and that the assessor failed to take into account the substantial depreciating effect of the easements.  The value of the “common area” must find expression in the values and assessments of the lots in the subdivision which benefit from the existence of the “common area.”

In Silver Lake Foundation v. Collins, Mo State Tax Appeal 85-34311 (1987 WL 51249), the STC affirmed the assessment.  The appeal was distinguished from Lakewood Village in that the property in Silver Lake Foundation was not owned by the Owners’ Association and the lot owners had no recorded easement and had no clear rights to control the use of the property or transfer it. STC found that Complainant did not present substantial or persuasive evidence that the value of the property was included in the values of the surrounding residential lots and therefore Complainant was not entitled to a placement of zero market valuation on the real property.

In this appeal, like Silver Lake Foundation, there was no evidence of any easement or recorded document establishing that the parcels are subject to restrictive easements of the owner-member to support shifting the value of the parcels to the owner-members’ properties. Although the Declarations provide that the purpose of the Association is to provide for “an outstanding residential community” and the Association “desire[s] to continue the development of sold property for such purposes, and for the creation and maintenance of a residence neighborhood possessing features of more than ordinary value as a residence community,” there were no documents that required the Association to provide any facilities on particular parcels or documenting easements or restrictions on the subject parcels.

Placement of a zero market valuation on real property is an exceptional circumstance.  Complainant failed to present substantial and persuasive evidence that the value of the subject property has been included in the values of the surrounding residential lots.  Complainant failed to prove the true value in money of the subject property on the tax day and absent any other valuation evidence, STC must affirm the assessment.

Classification

The Administrative Parcel and the Lake 17-91003 were classified by the BOE as commercial.  Complainant contends the parcels should be classified as residential.  Section 137.016  defines the classification of real property in Missouri—residential, agricultural, or commercial.

Section 137.016 RSMO defines residential property as:

“[A]ll real property improved by a structure which is used or intended to be used for residential living by human occupants, vacant land in connection with an airport, land used as a golf course, manufactured home parks, bed and breakfast inns in which the owner resides and uses as a primary residence with six or fewer rooms for rent, and time-share units as defined in section 407.600, except to the extent such units are actually rented and subject to sales tax under subdivision (6) of subsection 1 of section 144.020, but residential property shall not include other similar facilities used primarily for transient housing.  For the purposes of this section, “transient housing” means all rooms available for rent or lease for which the receipts from the rent or lease of such rooms are subject to state sales tax pursuant to subdivision (6) of subsection 1 of section 144.020;

 

Section 137.016 RSMo defines commercial property as:

“Utility, industrial, commercial, railroad and other real property”, all real property used directly or indirectly, for any commercial, mining, industrial, manufacturing, trade, professional, business, or similar purpose, including all property centrally assessed by the state tax commission but shall not include floating docks, portions of which are separately owned and the remainder of which is designated for common ownership and in which no one person or business entity owns more than five individual units. All other real property not included in the property listed in subclasses (1) [Residential] and (2) [Agricultural] of section 4(b) of article X of the Missouri Constitution, as such property is defined in this section, shall be deemed to be included in the term “utility, industrial, commercial, railroad and other real property”. (emphasis added)

 

The parcels classified as commercial are the Administrative Parcel and Lake Parcel.  The Administrative Parcel is a lot improved with by an office building and a maintenance building.   The Lake Parcel is a 6.07 acre lot improved with a storage building and Lake Alan.  The Administrative Parcel and Lake Parcel do not meet the definition of residential property as neither are improved by a structure which is used or intended to be used for residential living by human occupants.  The parcels are not used in connection with an airport, as a golf course, manufactured home park, or a bed and breakfast inn.

            Since the improvements on the parcels do not meet the definition of residential property as defined in Section 137.016, the parcels are commercial in that Section 137.016 provides that commercial property includes all other real property not included in the property listed in subclasses (1).[3]

ORDER

Appeal Number Parcel Number TVM Classification Assessed Value
17-91002 12-12.0-1-01-003.000.000 $262,070 Commercial $83,862
17-91003 12-12.0-1-02-001.000.000 $164,950 Commercial $52,784
17-91004 12-13.0-2-02-001.000.000 $5,000 Residential $950

The Decision of the Hearing Officer is set aside.  The assessment for the subject properties for tax year 2017 are set as follows:

 

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the mailing date set forth in the Certificate of Service for this Order.

If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts unless disbursed pursuant to Section 139.031.8, RSMo.

If no judicial review is made within thirty days, this decision and order is deemed final and the Collector of  Warren County, 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 October 30th, 2018.

STATE TAX COMMISSION OF MISSOURI

 

Bruce E. Davis, Chairman

 

Victor Callahan, Commissioner

 

Will Kraus, Commissioner

 

Certificate of Service

 

I hereby certify that a copy of the foregoing has been emailed on this 30th day of October, 2018 to:  wnordwald@warrencountymo.org; kesmith@sandbergphoenix.com  jwu@lewisreedallen.com;

dreed@lewisreedallen.com; jschaumberg@warrencountymo.org

 

Jacklyn Wood

Legal Coordinator

 

Contact Information for State Tax Commission:

Missouri State Tax Commission

301 W. High Street, Room 840

P.O. Box 146

Jefferson City, MO 65102-0146

573-751-2414

573-751-1341 Fax

[1] Complainant’s Points for Review

[2] Respondent’s Points on Review

[3] “Residential property”, all real property improved by a structure which is used or intended to be used for residential living by human occupants, vacant land in connection with an airport, land used as a golf course, manufactured home parks, bed and breakfast inns in which the owner resides and uses as a primary residence with six or fewer rooms for rent, and time-share units as defined in section 407.600, except to the extent such units are actually rented and subject to sales tax under subdivision (6) of subsection 1 of section 144.020, but residential property shall not include other similar facilities used primarily for transient housing.  For the purposes of this section, “transient housing” means all rooms available for rent or lease for which the receipts from the rent or lease of such rooms are subject to state sales tax pursuant to subdivision (6) of subsection 1 of section 144.020;

(3)  “Utility, industrial, commercial, railroad and other real property”, all real property used directly or indirectly for any commercial, mining, industrial, manufacturing, trade, professional, business, or similar purpose, including all property centrally assessed by the state tax commission but shall not include floating docks, portions of which are separately owned and the remainder of which is designated for common ownership and in which no one person or business entity owns more than five individual units.  All other real property not included in the property listed in subclasses (1) and (2) of Section 4(b) of Article X of the Missouri Constitution, as such property is defined in this section, shall be deemed to be included in the term “utility, industrial, commercial, railroad and other real property”.

 

State Tax Commission of Missouri

 

LAKE SHERWOOD ESTATES ASSOCIATION )  Appeal No. 17-91002
) 17-91003
              Complainants ) 17-91004
)
v. )
)
WENDY NORDWALD, ASSESSOR )
WARREN COUNTY, MISSOURI, )
)
               Respondent. )

 

DECISION AND ORDER

 

HOLDING

 

The decision of the Warren County Board of Equalization (BOE) is SET ASIDE.  The evidence presented was substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE.

Lake Sherwood Estates Association (Complainant) appeared by counsel Kevin Smith.

Wendy Nordwald, Assessor, Warren County, Missouri, (Respondent) appeared in person and by counsels Dick Reed and Jennifer Wu.

Case heard and decided by John Treu, Senior Hearing Officer (Hearing Officer).

ISSUE

Complainant appealed on the grounds of misclassification, exemption and overvaluation.  The parcels’ true value in money (TVM) and classification as set by the Respondent were:

Appeal Number Parcel Number TVM Classification
17-91002 12-12.0-1-01-003.000.000 $262,070 Commercial
17-91003 12-12.0-1-02-001.000.000 $164,950 Commercial
17-91004 12-13.0-2-02-001.000.000 $5,000 Residential

 

The BOE similarly assessed the parcels, thereby sustaining Respondent’s assessment.

The State Tax Commission (STC) takes these appeals to determine the proper classification of the subject properties as of January 1, 2017 and whether the parcels had no value for ad valorem purposes.

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

EVIDENCE

Complainant’s Evidence

Complainant offered the following exhibits:

Exhibit A Declarations and Amendments Admitted w/o Objection
Exhibit B Lake Sherwood Plat 1 Admitted w/o Objection
Exhibit C Lake Sherwood Plat 18 Admitted w/o Objection
Exhibit D Lake Sherwood Plat 30 Admitted w/o Objection
Exhibit E Articles of Incorporation of Lake Sherwood Admitted w/o Objection
Exhibit F Rules and Regulations Admitted w/o Objection
Exhibit G Photographs Admitted w/o Objection

 

 

Exhibit A is the Lake Sherwood Estates Declaration of Restrictions (Declaration) that was executed on June 1, 1967 and recorded.  The Declaration provided that:

“WHEREAS, the Developer is now developing the sold property into an outstanding residential community, and it is its desire to continue the development of sold property for such purposes, and for the creation and maintenance of a residence neighborhood possessing features of more than ordinary value as a residence community.”

“WHEREAS, the Developer desires to assist its grantees in providing the necessary means to better enable it and its grantees to accomplish this purpose.”

 

Pursuant to the Declaration, all lots are subjected to certain “covenants, charges and assessments.”   Owners of parcels within Lake Sherwood are members of Lake Sherwood Estates Association, the homeowners association.  The members pay assessments for maintenance of improvements including the lake, common areas, and streets.  The Declaration provides that the homeowners association shall establish rules and regulations for the enjoyment of the common areas.

Exhibit B is a plat map and aerial photographs of Lake Sherwood Estate.  It shows individually owned parcels as well as Lake Allen and surrounding area designated as “park area” and “bridle path.”  (Properties of Appeals 17-91002 and 17-91003).   There is an aerial photograph of subject property of Appeal 17-91004.

Exhibit C is a plat map of subject property of Appeal 17-91002.  Common areas are designated as “bridle path” and “community access.”

Exhibit E is the Articles of Incorporation of the homeowners association.

Exhibit G are photographs of the parcels and the improvements located on the parcels.

 

 

Respondent’s Evidence

Respondent offered the following exhibits:

Exhibit 1 Written Direct Testimony of Wendy Nordwald Admitted w/o Objection
Exhibit 2 BOE Determinations Admitted w/o Objection
Exhibit 3 Stipulation of Facts, filed February 23, 2018 Admitted w/o Objection

 

Respondent’s evidence shows that:

i) Parcel 12-12.0-1-01-003.000.000 (Appeal 17-91002), referred to as the Administrative Parcel is improved by a “building which serves as an administrative building containing offices for staff, storage for records, a conference room, the Association’s manager’s office, the Association’s accountant’s office, an office for the head of security, the security staff, the Association’s collections person, a security gate and a parking lot. There is also a separate building occupied by the Association’s public works department.”  (Exhibit 1)

ii) Parcel 12-12.0-1-02-001.000.000 (Appeal 17-91003), referred to as the Lake parcel “contains the office of the director of public works, a mailroom, a community bulletin board, restrooms, a heated waiting room for school bus children, a dumpster, a maintenance shed, a public works area, a compactor, a recycle bin and Lake Alan, which has a dock for fishing.” (Exhibit 1)

iii) Parcel 12-13.0-2-02-001.000.000 (Appeal 17-91004) is a vacant lot. (Exhibit 1)

FINDINGS OF FACT

  1. Jurisdiction. Jurisdiction over this appeal is proper.  Complainant timely appealed to the State Tax Commission.
  2. Evidentiary Hearing. The issues as set forth above were presented at an evidentiary hearing on May 1, 2018, at the Warren County Administrative Building.

3. Identification of Subject Properties. The subject properties are real property and are identified by parcel/locator numbers 12-12.0-1-01-003.000.000 (Appeal 17-91002), 12-12.0-1-02-001.000.000 (Appeal 17-91003) and Parcel 12-13.0-2-02-001.000.000 (17-91004).  All such properties are located in Warren County, Missouri. (Complaints for Review of Assessment)          4. Owner.   Owner of the subject properties is Lake Sherwood Estates Association formerly known as Lake Sherwood Estates Homeowners Association (Association).  Members of the Association are property owners within Lake Sherwood and they benefit by Association’s ownership of the subject property.

5. Description of Subject Properties.

a. Appeal 17-91002 (Parcel 12-12.0-1-01-003.000.000) referred to as the Administrative Parcel is improved by a “building which serves as an administrative building containing offices for staff, storage for records, a conference room, the Association’s manager’s office, the Association’s accountant’s office, an office for the head of security, the security staff, the Association’s collections person, a security gate and a parking lot. There is also a separate building occupied by the Association’s public works department.”  The bridle path is also located on this parcel.  (Exhibit 1)

b. Appeal 17-91003 (Parcel 12-12.0-1-02-001.000.000) referred to as the Lake parcel “contains the office of the director of public works, a mailroom, a community bulletin board, restrooms, a heated waiting room for school bus children, a dumpster, a maintenance shed, a public works area, a compactor, a recycle bin and Lake Alan, which has a dock for fishing.” (Exhibit 1)

c. Appeal 17-91004 (Parcel 12-13.0-2-02-001.000.000) is a vacant lot. (Exhibit 1)

6. Easement. There are no recorded easements encumbering the property.

7. Assessment of the Properties. The BOE valued and classified the properties as:

Appeal Number Parcel Number TVM Classification
17-91002 12-12.0-1-01-003.000.000 $262,070 Commercial
17-91003 12-12.0-1-02-001.000.000 $164,950 Commercial
17-91004 12-13.0-2-02-001.000.000 $5,000 Residential

 

  1. Presumption of Correct Assessment Rebutted. The evidence was substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE.

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 that is unlawful, unfair, improper, arbitrary, or capricious.  Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo. 

Complainant’s Burden of Proof

A presumption exists that the assessed value which is a function of TVM multiplied by the applicable property classification statutory percentage, fixed 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).

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 property and tangible personal property are assessed at set percentages of true value in money:  residential property at 19%; commercial property at 32%; and agricultural property at 12%.  Section 137.115.5 RSMo (2000) as amended.

Common Areas – Servient Estates

Homeowners associations are private, not-for-profit corporations controlled by residential property owners, which are originally established by the developer.  Homeowners associations may own the common areas such as parks, private streets, lakes, amenities, and buffer areas. Associations often provide services as well such as fire protection, street maintenance, solid waste management, and security.  Title of the common areas is in the name of the association.  Membership in the association is automatic upon owning property within the area.  The operational costs of the association are met by fees against individual parcels.

Real property includes land itself, building, structures, improvements and all rights and privileges belonging or appertaining thereto.  Green County v. Hermel, Inc, 511 S.W.2d 762, 770 (Mo. 1974).  An easement is an interest in land which is limited to the right to use the property and that right may be enforced. An easement is appurtenant when in its creation it is attached to a piece of land and benefits the owner of such land in his use and enjoyment thereof.  The parcel of land that benefits from the easement is the dominant tenement. The servient tenement is the parcel of land that provides the easement.  The grant of easements and the imposition of restrictions may deprive a servient estate of whatever value it might otherwise have held.  In other words, a servient estate may be so restricted that a buyer could only obtain a naked legal title with none of the advantages usually enjoyed by owners of real property.   The buyer would hold title to property which he can derive no benefit or enjoyment, but which would be devoted entirely to the enjoyment and use of the surrounding property owners who possess the rights to the dominate estates.  In these situations, the true value in money of the servient estate is lessened and the true value in money of the dominate estate is increased.

The rights and easements appurtenant to the servient estate are relevant factors affecting value that must be taken into consideration for ad valorem taxation.  In situations when use of land is so restricted that its ownership is of no benefit or value, the assessment for tax purposes should be nothing.  Parcels of the servient estate type are often called “common areas.”

In Lakewood Village Property Owners’ Association v. Savage, Second Annual Report, Selected Decisions and Orders, page 111, 1981, the common area owned by the owners’ association was subject to restrictive easements of the owner-members.  STC held that the value of the servient property was to the benefit of the owner-members’ property and should be reflected in their value and not assessed to the association.

Regardless of a particular association’s procedure for acquiring additional property, some type of document must be recorded with the county recorder to demonstrate that the purchased lot is subject to sufficient restrictions (most probably like those that limit and restrict the established common areas of the development) to diminish the lot’s value to zero.  If no such recorded restrictions exist, the parcel would be taxable because no legal device has shifted the value of the lot to the dominant properties upon which the homes are located.

In this appeal, there was no evidence of any easement or recorded document establishing that the parcels are subject to sufficient restrictions.  Although the Declarations provide that the purpose of the Association is to provide for “an outstanding residential community” and the Association “desire[s] to continue the development of sold property for such purposes, and for the creation and maintenance of a residence neighborhood possessing features of more than ordinary value as a residence community,” there were no documents that required the Association to provide any facilities or on particular parcels or documenting easements or restrictions on the subject parcels.          Placement of a zero market valuation on real property is an exceptional circumstance.  Respondent is statutorily required to assess the subject property to its owners.  The Association, through the Declaration, is authorized to assess members for the cost and maintenance of improvements including the lake, common areas, and streets.

Classification

The parcels in Appeal No. 17-91002 and 17-91003 were classified as commercial.  Complainant contends the parcels should be classified as residential.

Section 137.016, RSMo defines the classification of real property in Missouri—residential, agricultural, or commercial.

Section 137.016 RSMO defines residential property as:

“[A]ll real property improved by a structure which is used or intended to be used for residential living by human occupants, vacant land in connection with an airport, land used as a golf course, manufactured home parks, bed and breakfast inns in which the owner resides and uses as a primary residence with six or fewer rooms for rent, and time-share units as defined in section 407.600, except to the extent such units are actually rented and subject to sales tax under subdivision (6) of subsection 1 of section 144.020, but residential property shall not include other similar facilities used primarily for transient housing.  For the purposes of this section, “transient housing” means all rooms available for rent or lease for which the receipts from the rent or lease of such rooms are subject to state sales tax pursuant to subdivision (6) of subsection 1 of section 144.020;

 

Section 137.016 RSMo defines agricultural property as:

“Agricultural and horticultural property”, all real property used for agricultural purposes and devoted primarily to the raising and harvesting of crops; to the feeding, breeding and management of livestock which shall include breeding, showing, and boarding of horses; to dairying, or to any other combination thereof; and buildings and structures customarily associated with farming, agricultural, and horticultural uses.  Agricultural and horticultural property shall also include land devoted to and qualifying for payments or other compensation under a soil conservation or agricultural assistance program under an agreement with an agency of the federal government.  Agricultural and horticultural property shall further include land and improvements, exclusive of structures, on privately owned airports that qualify as reliever airports under the National Plan of Integrated Airports System, to receive federal airport improvement project funds through the Federal Aviation Administration.  Real property classified as forest croplands shall not be agricultural or horticultural property so long as it is classified as forest croplands and shall be taxed in accordance with the laws enacted to implement Section 7 of Article X of the Missouri Constitution.  Agricultural and horticultural property shall also include any sawmill or planing mill defined in the U.S. Department of Labor’s Standard Industrial Classification (SIC) Manual under Industry Group 242 with the SIC number 2421;

 

Section 137.016 RSMo defines commercial property as:

“Utility, industrial, commercial, railroad and other real property”, all real property used directly or indirectly, for any commercial, mining, industrial, manufacturing, trade, professional, business, or similar purpose, including all property centrally assessed by the state tax commission but shall not include floating docks, portions of which are separately owned and the remainder of which is designated for common ownership and in which no one person or business entity owns more than five individual units. All other real property not included in the property listed in subclasses (1) [Residential] and (2) [Agricultural] of section 4(b) of article X of the Missouri Constitution, as such property is defined in this section, shall be deemed to be included in the term “utility, industrial, commercial, railroad and other real property”.

 

Subject parcels do not immediately meet the definition of either residential or agricultural property.  The initial conclusion is that they must be the only remaining classification – commercial. However, real property should not be placed in subclass 3, commercial, simply because it is neither residential nor agricultural. In such cases, there are additional factors that should be given consideration under the provisions of Section137.016.5 RSMo.

Section 137.016.5, RSMo

 

Subsection 5 of 137.016, RSMo provides as follows:

“All real property which is vacant, unused, or held for future use; which is used for a private club, a not-for-profit or other nonexempt lodge, club, business, trade, service organization, or similar entity; or for which a determination as to its classification cannot be made under the definitions set out in subsection 1 of this section, shall be classified according to its immediate most suitable economic use, which use shall be determined after consideration of:

(1)  Immediate prior use, if any, of such property;

(2)  Location of such property;

(3)  Zoning classification of such property; except that, such zoning classification shall not be considered conclusive if, upon consideration of all factors, it is determined that such zoning classification does not reflect the immediate most suitable economic use of the property;

(4)  Other legal restrictions on the use of such property;

(5)  Availability of water, electricity, gas, sewers, street lighting, and other public services for such property;

(6)  Size of such property;

(7)  Access of such property to public thoroughfares; and

(8)  Any other factors relevant to a determination of the immediate most suitable economic use of such property.”

 

The Hearing Officer determines subject parcels fall within the provisions of Section 137.016.5. The parcels, owned by a not-for-profit, namely Complainant, do not fit the definitions set forth in Section 137.016.1 RSMo. Given that the parcels are owned by a homeowners association, whose use of the property is for the support and benefit of the homeowners, the parcels are most appropriately classified as residential and should be assessed at 19% of their market value or true value in money.

ORDER

            The assessment of the BOE in appeals 17-91002 and 17-91003 is SET ASIDE.  The assessed value for the subject properties for tax year 2017 are set as follows:

 

Appeal Number Parcel Number TVM Classification Assessed Value
17-91002 12-12.0-1-01-003.000.000 $262,070 Residential $49,793
17-91003 12-12.0-1-02-001.000.000 $164,950 Residential $31,341
17-91004 12-13.0-2-02-001.000.000 $5,000 Residential $950

 

Application for Review

A party may file with the STC 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 Warren 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 June 22, 2018.

STATE TAX COMMISSION OF MISSOURI

John Treu

Senior Hearing Officer

 

Certificate of Service

 

I hereby certify that a copy of the foregoing has been emailed on this 22nd day of June, 2018 to:  wnordwald@warrencountymo.org; kesmith@sandbergphoenix.com  jwu@lewisreedallen.com;

dreed@lewisreedallen.com; jschaumberg@warrencountymo.org

 

Jacklyn Wood

Legal Coordinator

 

Contact Information for State Tax Commission:

Missouri State Tax Commission

301 W. High Street, Room 840

P.O. Box 146

Jefferson City, MO 65102-0146

573-751-2414

573-751-1341 Fax