State Tax Commission of Missouri
|LAKE SHERWOOD ESTATES ASSOCIATION||)||Appeal No.||17-91002|
|WENDY NORDWALD, ASSESSOR||)|
|WARREN COUNTY, MISSOURI,||)|
DECISION AND ORDER
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).
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|
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.
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 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
- Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission.
- 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|
- 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
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.
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.
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|
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
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
Senior Hearing Officer
Certificate of Service
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