Michael Judd v. Jake Zimmerman, Assessor, St. Louis County

STATE TAX COMMISSION OF MISSOURI

MICHAEL JUDD,	)
Complainant,	)	Appeal Nos. 19-11128
	)
v.	)	Parcel Nos. 19J320118
	)
JAKE ZIMMERMAN, ASSESSOR,	)
ST. LOUIS COUNTY, MISSOURI,	)
Respondent.	)

DECISION AND ORDER

Michael Judd (Complainant) appeals the St. Louis County Board of Equalization’s (BOE) decision finding that the fair market value of the subject residential property on January 1, 2019, was $564,400.  Complainant claims the subject property is overvalued. Complainant asserts the true value in money (TVM) of the subject property on January 1, 2019, was $450,000. Complainant did not produce substantial and persuasive evidence of overvaluation.  The BOE decision, however, is set aside because Respondent introduced substantial and persuasive evidence showing the TVM of the subject property as of January 1, 2019, was $535,000.[1]

Complainant appeared pro se. Respondent appeared by counsel Steven Robson.

FINDINGS OF FACT

1. The Subject Property. The subject property is a 3,964 square foot, four-family apartment building located at 6401 Alamo Avenue in Clayton, Missouri. Complainant owns the subject property.
2. Assessment and Valuation.  Respondent assessed the subject property as residential property and determined the appraised value on January 1, 2019, was $564,400. The BOE determined the appraised value of the subject property on January 1, 2019, was $564,400.
3. Complainant’s Evidence. Complainant testified the market value of the subject property on January 1, 2019, was $450,000. Complainant testified the income approach is the proper valuation methodology and that the comparable sales approach is inapplicable. Complainant is not an appraiser and has no appraisal training.

Complainant submitted Exhibit A to support his overvaluation claim.^[2] Exhibit A includes a narrative explanation of Complainant’s experience with the BOE and STC appeals process. Complainant asserts the BOE indicated the subject property would be valued by a “Revenue Assessment” model while Respondent’s office indicated the subject property’s value was established by “Market Value” approach. (Ex. A at 2).

Exhibit A includes a list of “actual” and “ideal” rents and expenses for the subject property. (Ex. A at 4). Complainant subtracted “operational costs” from the rental income to calculate an “actual” annual net operating income of $10,286 and an “ideal” net operating income of $13,310. Complainant included “taxes” and “mortgage interest” as “operational costs” used to calculate net operating income. (Ex. A at 4). Complainant divided the “actual” and “ideal” net operating incomes by a capitalization rate of 4.880% to calculate “actual” and “ideal” market values of $210,780 and $272,749, respectively. Complainant conceded both of these valuations are inaccurate and proposed a value of $450,000 to account for the location of the subject property. Complainant also testified he received an offer to purchase the subject property for $450,000.

4. Respondent’s Evidence. Respondent submitted Exhibit 1. Exhibit 1 is a restricted appraisal report prepared by Respondent’s staff appraiser, Steven Zahner. Mr. Zahner has nearly 40 years of experience in appraising residential property. Mr. Zahner testified the sales comparison approach is the best valuation methodology for the subject property. In Exhibit 1, Mr. Zahner utilized the sales comparison approach to estimate the January 1, 2019, market value of the subject property was $535,000.

Mr. Zahner’s comparable sales approach utilized four similar properties located within one-half mile of the subject property and on the same street as the subject property. Mr. Zahner adjusted the sale prices of the comparable properties to account for differences with the subject property. The most pertinent data in Exhibit 1 is summarized as follows:

	Subject Property	6440 Alamo	6631 Alamo	6441 Alamo	6432 Alamo
Gross Living Area	3,964 sq. ft.	4,396 sq. ft.	3,132 sq. ft.	4,192 sq. ft.	4,396 sq. ft.
Design	4 family flat	4 family flat	4 family flat	4 family flat	4 family flat
Condition	Average	Average	Average	Average	Average
Built	1920	1925	1939	1920	1925
Monthly Rent	$3,800	$3,925	$4,040	Unreported	$4,420
Sale Price/Date	N/A	$549,000 (12/19)	$568,000 (10/18)	$575,080 (3/18)	$620,000 (3/13/20)
Adjusted Sale Price	N/A	$514,000	$518,000	$555,080	$555,000

 

Mr. Zahner also utilized a gross rent multiplier (GRM) to support the value determined by the sales comparison approach. Mr. Zahner determined the GRM by dividing the sale price of the comparable properties by their monthly rental income, which yielded a “typical” GRM of 140. Mr. Zahner multiplied the GRM by the subject property’s rental income, which “indicated a value of $532,000.” (Ex. 1 at 9).

5. Value. The TVM of the subject property on January 1, 2019, was $535,000.

CONCLUSIONS OF LAW

1. Assessment and Valuation. Residential real property is assessed at 19% of its TVM as of January 1 of each odd-numbered year. Section 137.115.5(1)(a). “True value in money is the fair market value of the property on the valuation date, and is a function of its highest and best use, which is the use of the property which will produce the greatest return in the reasonably near future.” Snider v. Casino Aztar/Aztar Mo. Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005) (internal quotation omitted). The fair market value is “the price which the property would bring from a willing buyer when offered for sale by a willing seller.” Mo. Baptist Children’s Home v. State Tax Comm’n, 867 S.W.2d 510, 512 (Mo. banc 1993). “Determining the true value in money is an issue of fact for the STC.”
   Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008). The “proper methods of valuation and assessment of property are delegated to the Commission.” Savage v. State Tax Comm’n, 722 S.W.2d 72, 75 (Mo. banc 1986).

“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider, 156 S.W.3d at 346. The three generally accepted approaches are the cost approach, the income approach, and the comparable sales approach. Id. at 346-48; see also St. Louis Cty. v. Sec. Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977).

The comparable sales approach “is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis.” Snider, 156 S.W.3d at 348. “The comparable sales approach uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties.”  Id. at 347-48 (internal quotation omitted). “Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.” Id. at 348.1.

2. Evidence. The hearing officer is the finder of fact and determines the credibility and weight of the evidence.   Kelly v. Mo. Dep’t of Soc. Servs., Family Support Div., 456 S.W.3d 107, 111 (Mo. App. W.D. 2015). The finder of fact in an administrative hearing determines the credibility and weight of expert testimony. Hornbeck v. Spectra Painting, Inc., 370 S.W.3d 624, 632 (Mo. banc 2012).   The hearing officer “may inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property.” Section 138.430.2.
3. Complainant’s Burden of Proof. The taxpayer bears the burden of proof and must show by a preponderance of the evidence that the property was overvalued or misclassified.  Westwood P’ship v. Gogarty, 103 S.W.3d 152, 161 (Mo. App. E.D. 2003).  The BOE’s valuation is presumptively correct. Tibbs v. Poplar Bluff Assocs. I, L.P., 599 S.W.3d 1, 7 (Mo. App. S.D. 2020). The “taxpayer may rebut this presumption by presenting substantial and persuasive evidence that the valuation is erroneous” and must prove “the value that should have been placed on the property.” Id. “Substantial evidence is that evidence which, if true, has probative force upon the issues, and from which the trier of fact can reasonably decide the case on the fact issues.” Savage, 722 S.W.2d at 77 (internal quotation omitted). Evidence is persuasive when it has “sufficient weight and probative value to convince the trier of fact.” Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. E.D. 2002); see also White v. Dir. of Revenue, 321 S.W.3d 298, 305 (Mo. banc 2010) (noting the burden of persuasion is the “party’s duty to convince the fact-finder to view the facts in a way that favors that party”).
4. Complainant Did Not Prove Overvaluation. Complainant asserts the TVM of the subject property on January 1, 2019, was $450,000. Complainant did not produce substantial and persuasive evidence to support his opinion of value.

First, Complainant conceded that his analysis in Exhibit A yielded inaccurate “actual” and “ideal” market values of $210,780 and $272,749, respectively. To compensate for these admittedly inaccurate values, Complainant estimated the subject property should have been at $450,000 due to its location. This testimony is unpersuasive because it is not supported by Exhibit A and is not backed by any market analysis. See Cohen, 251 S.W.3d at 349 (holding a landowner’s opinion of value lacks probative value when there is “no other evidence as to what he based his opinion on or how he arrived at his opinion of [value]”).

Second, even if Complainant’s concession that Exhibit A yielded inaccurate value estimates is disregarded, Complainant’s income approach methodology is flawed. Complainant subtracted “taxes” and “mortgage interest” as “operational costs” used to calculate net operating income. (Ex. A at 3). Neither is a proper expense when appraising property for property tax purposes. Because the purpose of a property tax appraisal is to determine the assessed value necessary to calculate tax liability, taxes are not deducted as an expense. Instead, the “effective tax rate” – determined by multiplying the tax rate by the assessment ratio – is included as a component of the capitalization rate. Similarly, debt service expenses are a capital expenditure necessary to acquire the property and, therefore, are typically included in the capitalization rate. By incorrectly including these items as expenses, Complainant’s net operating income and capitalization rate calculations are unreliable.

Although Complainant’s evidence is unpersuasive, Respondent’s Exhibit 1 is substantial and persuasive evidence showing the TVM of the subject property on January 1, 2019, was $535,000. Exhibit 1 utilizes a comparable sales approach to estimate that the value of the subject property on January 1, 2019, was $535,000. (Ex. 1 at 9).   Exhibit 1 demonstrates there is an active market for similar four-family apartment buildings in the subject property’s neighborhood and that there are sufficient data to make a comparative analysis. See Snider, 156 S.W.3d at 348 (noting the comparable sales approach “is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis”). Mr. Zahner testified the comparable sales approach was the best valuation approach for the subject property. The comparable sales approach utilized in Exhibit 1 is an appropriate valuation method and constitutes substantial and persuasive evidence to value the subject property at $535,000.[3]

CONCLUSION AND ORDER

The BOE’s decision is set aside.  The TVM of the subject property on January 1, 2019, was $535,000.

Application for Review

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

Disputed Taxes

The Collector of St. Louis County, and the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an application for review, unless the disputed taxes have been disbursed pursuant to a court order under the provisions of section 139.031.

 

SO ORDERED December 18, 2020.

Eric S. Peterson

Senior Hearing Officer
State Tax Commission

 

 

Certificate of Service

I hereby certify that a copy of the foregoing has been electronically mailed and/or sent by U.S. Mail on December 18, 2020, to:  Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.

 

Elaina McKee
Legal Coordinator

 

Contact Information for State Tax Commission:
Missouri State Tax Commission
421 East Dunklin Street
P.O. Box 146
Jefferson City, MO 65102-0146
573-751-2414
Fax 573-751-1341

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

[2] Complainant submitted Exhibit A for both the instant appeal and appeal 19-11129. Respondent objected to Exhibit A because it was filed after the exhibit exchange date established by the scheduling order governing the disposition of this appeal. Respondent’s objection is overruled.

 

[3] Complainant argued Exhibit 1 improperly applied the income approach by relying on the GRM to determine value. The GRM calculation in Exhibit 1 was not the basis of the value estimate in Exhibit 1. The GRM was utilized as an additional layer of confirmation for the value estimate based on the comparable sales approach.