State Tax Commission of Missouri
| MISSOURI NATURAL GAS, | ) | |
| ) | ||
| Complainant, | ) | |
| ) | ||
| v. | ) | Appeal No. 13-57010 |
| ) | ||
| THOMAS COPELAND, ASSESSOR | ) | |
| FRANKLIN COUNTY, MISSOURI, | ) | |
| ) | ||
| Respondent. | ) |
ORDER
AFFIRMING DECISION OF THE HEARING OFFICER
UPON APPLICATION FOR REVIEW
On May 13, 2016, Senior Hearing Officer John Treu (Hearing Officer), entered his Decision and Order (Decision) sustaining the assessment by the Board of Equalization of Franklin County (BOE).
Missouri Natural Gas (Complainant) filed an Application for Review of the Decision. Thomas Copeland, Assessor of Franklin County, (Respondent) filed his Response.
CONCLUSIONS OF LAW
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).
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. St. Louis County v. State Tax Commission, 515 S.W.2d 446, 450 (Mo. 1974). 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, 515 S.W.2d at 450; Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968). Likewise, the Commission is free to consider all pertinent facts and give them such weight as reasonably the Commission deems them entitled.
The Commission, having reviewed the record and having considered the Decision of the Hearing Officer and the briefs of the parties, enters its Decision. Segments of the Hearing Officer’s Decision have been incorporated into our Decision without further reference.
DECISION
Complainant’s Points on Review
A. The Hearing Officer failed to apply, to real property, the valuation methodology as set forth in Section 137.122 RSMo. for the valuation of business personal property;
B. The Hearing Officer failed to find the Complainant’s evidence to be substantial and persuasive such that their valuation should be adopted; and
C. The Hearing Officer “credited” the appraisal and testimony of Respondent’s appraiser.
Commission’s Ruling
For the reasons that will now be set forth in response to Complainant’s Points on Review, the Commission finds Complainant’s arguments to be unpersuasive to warrant either a modification or overturning of the Decision.
Factual and Procedural History
Complainant is a gas distribution utility company operating in ten counties in the eastern portion of Missouri. Complainant also has property in other counties in Missouri and property outside of the State of Missouri. The company distributes gas to retail customers. The gas distribution property includes underground piping, gas mains, taps, pipe from the distribution to curb boxes, shut off valves, meters, etc. Complainant also has measuring and regulating equipment.
Complainant is regulated by the Federal Energy Regulatory Commission and the Missouri Public Service Commission. Complainant rates include a reasonable return and recoupment of its investment. In calendar year 2012, Complainant’s gross revenues were $764,650,648, of which, $676,321,017 was attributable to service in Missouri.
In 2013, Respondent set the true value of the real property in Franklin County at $20,100,893.13 (assessed value of $6,432,285.80) and the true value of the personal property at $4,475,263.56 (assessed value of $1,491,754.52). The BOE sustained the valuation.
Complainant filed Complaints for Review of Assessment regarding the assessments in Franklin, Ste. Genevieve, and St. Francois Counties. The appeals were consolidated. A hearing was conducted on February 23-24, 2016. After the hearing, Complainant, over the objections of the Respondent, dismissed their Complaints as to Ste. Genevieve and St. Francois Counties leaving Franklin County’s assessment as the only valuation before the Hearing Officer. On May 13, 2016, a Decision was entered.
Analysis
The Commission has reviewed the whole record in this case and finds that the Hearing Officer did not err as Complainant alleged in the application for review.
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 – residential property at 19% of true value in money; commercial property at 32% of true value in money and agricultural property at 12% of productivity capability.
Real Property
Missouri has defined real property as:
Section 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 Commission. 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).
The Complainant’s appraiser only developed a cost approach. Complainant’s appraiser claimed that because it is an integrated system, no other approach was viable[1]. The fallacy of this argument is evidenced by (1) the fact that the distribution system in Franklin County was a stand-alone system; (2) the fact that the distribution system in Franklin County was recently acquired by Complainant; and (3) Respondent’s appraiser was able to develop all three approaches to value.
Complainant presented a cost approach to value. The Hearing Officer did not find the Complainant’s cost approach to value substantial and persuasive. The cost approach developed by the appraiser was based upon the methodology for valuing business personal property for mass appraisal purposes as set forth in Section 137.122 RSMo.
137.122. 1. As used in this section, the following terms mean:
(1) “Business personal property”, tangible personal property which is used in a trade or business or used for production of income and which has a determinable life of longer than one year except that supplies used by a business shall also be considered business personal property, but shall not include livestock, farm machinery, grain and other agricultural crops in an unmanufactured condition, property subject to the motor vehicle registration provisions of chapter 301, property assessed under section 137.078, the property of rural electric cooperatives under chapter 394, or property assessed by the state tax commission under chapters 151, 153, and 155, section 137.022, and sections 137.1000 to 137.1030;
(2) “Class life”, the class life of property as set out in the federal Modified Accelerated Cost Recovery System life tables or their successors under the Internal Revenue Code as amended;
(3) “Economic or functional obsolescence”, a loss in value of personal property above and beyond physical deterioration and age of the property. Such loss may be the result of economic or functional obsolescence or both;
(4) “Original cost”, the price the current owner, the taxpayer, paid for the item without freight, installation, or sales or use tax. In the case of acquisition of items of personal property as part of an acquisition of an entity, the original cost shall be the historical cost of those assets remaining in place and in use and the placed-in-service date shall be the date of acquisition by the entity being acquired;
(5) “Placed in service”, property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if the property is not being used, the property is in service when it is ready and available for its specific use;
(6) “Recovery period”, the period over which the original cost of depreciable tangible personal property shall be depreciated for property tax purposes and shall be the same as the recovery period allowed for such property under the Internal Revenue Code.
- To establish uniformity in the assessment of depreciable tangible personal property, each assessor shall use the standardized schedule of depreciation in this section to determine the assessed valuation of depreciable tangible personal property for the purpose of estimating the value of such property subject to taxation under this chapter.
- For purposes of this section, and to estimate the value of depreciable tangible personal property for mass appraisal purposes, each assessor shall value depreciable tangible personal property by applying the class life and recovery period to the original cost of the property according to the following depreciation schedule. The percentage shown for the first year shall be the percentage of the original cost used for January first of the year following the year of acquisition of the property, and the percentage shown for each succeeding year shall be the percentage of the original cost used for January first of the respective succeeding year as follows:
Year Recovery Period in Years
| YEAR | 3 YR % | 5 YR % | 7 YR % | 10 YR % | 15 YR % | 20 YR % |
| 1 | 75.00 | 85.00 | 89.29 | 92.50 | 95.00 | 96.25 |
| 2 | 37.50 | 59.50 | 70.16 | 78.62 | 85.50 | 89.03 |
| 3 | 12.50 | 41.65 | 55.13 | 66.83 | 76.95 | 82.35 |
| 4 | 5.00 | 24.99 | 42.88 | 56.81 | 69.25 | 76.18 |
| 5 | 5.00 | 10.00 | 30.63 | 48.07 | 62.32 | 70.46 |
| 6 | 5.00 | 10.00 | 18.38 | 39.33 | 56.09 | 65.18 |
| 7 | 5.00 | 10.00 | 10.00 | 30.59 | 50.19 | 60.29 |
| 8 | 5.00 | 10.00 | 10.00 | 21.85 | 44.29 | 55.77 |
| 9 | 5.00 | 10.00 | 10.00 | 15.00 | 38.38 | 51.31 |
| 10 | 5.00 | 10.00 | 10.00 | 15.00 | 32.48 | 46.85 |
| 11 | 5.00 | 10.00 | 10.00 | 15.00 | 26.57 | 42.38 |
| 12 | 5.00 | 10.00 | 10.00 | 15.00 | 20.67 | 37.92 |
| 13 | 5.00 | 10.00 | 10.00 | 15.00 | 15.00 | 33.46 |
| 14 | 5.00 | 10.00 | 10.00 | 15.00 | 15.00 | 29.00 |
| 15 | 5.00 | 10.00 | 10.00 | 15.00 | 15.00 | 24.54 |
| 16 | 5.00 | 10.00 | 10.00 | 15.00 | 15.00 | 20.08 |
| 17 + | 5.00 | 10.00 | 10.00 | 15.00 | 15.00 | 20.00 |
Depreciable tangible personal property in all recovery periods shall continue in subsequent years to have the depreciation factor last listed in the appropriate column so long as it is owned or held by the taxpayer. The state tax commission shall study and analyze the values established by this method of assessment and in every odd-numbered year make recommendations to the joint committee on tax policy pertaining to any changes in this methodology, if any, that are warranted.
- Such estimate of value determined under this section shall be presumed to be correct for the purpose of determining the true value in money of the depreciable tangible personal property, but such 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 or by proof of economic or functional obsolescence or evidence of excessive physical deterioration. For purposes of appeal of the provisions of this section, the salvage or scrap value of depreciable tangible personal property may only be considered if the property is not in use as of the assessment date.
- This section shall not apply to business personal property placed in service before January 2, 2006. Nothing in this section shall create a presumption as to the proper method of determining the assessed valuation of business personal property placed in service before January 2, 2006.
- The provisions of this section are not intended to modify the definition of tangible personal property as defined in section137.010.
(emphasis added)
The statutory methodology is for valuing (1) business personal property and (2) for such property placed in service prior to January 2, 2006. So as to the real property valuation before the State Tax Commission, the statute has no applicability. Complainant cites prior decisions of the State Tax Commission alleging that the Commission found Section 137.122 RSMo is applicable to real property. Complainant’s argument fails as those decisions involved business personal property. For example, Silgan decision involved manufacturing equipment. Further, the decision set forth the standard that the valuation is presumed correct unless substantial and persuasive evidence was presented establishing the true value of the subject personal property.
Complainant’s Burden of Proof
Complainant spent much of its argument addressing the Assessor’s initial determination of valuation of the subject property and alleging that the Assessor failed to properly comply with a methodology for mass appraisal of property within a county. The State Tax Commission provides supervision of assessing officers and assessment practices in the state. In implementing its supervisory role, the Commission assists assessors in the performance of their duties including providing a manual. Included in the manual are guidelines to assist the assessors’ offices with mass appraisal of real and personal property and the valuation of unique properties, including billboards, subsidized housing, and natural gas distribution companies. The State Tax Commission has developed forms to assist the assessor in the gathering of data for assessment. The data gathered may be used in a cost approach valuation. Once original cost is determined, depreciation, based upon the life of the asset is calculated (straight line depreciation). The Assessor is not required to use such methodology and, more important, the Assessor is not required to use such at a hearing before the Commission as substantial and persuasive evidence as to value.
In an appeal before the State Tax Commission, the taxpayer is the moving party seeking affirmative relief. The taxpayer bears the burden of proof. In order to prevail, Complainants must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2013. The Hearing Officer did not find the witness credible or the evidence persuasive as to the calculation of costs. The Hearing Officer questioned, among other things, the appraiser’s determination of original costs. The Hearing Officer did not find the Complainant’s evidence and the appraisal approach to be substantial and persuasive in order to rebut the presumption of correct assessment by the BOE.
The Complainant’s last argument is that the Hearing Officer “credited” the Respondent’s appraiser. A review of the Decision indicates that the Hearing Officer did not make a finding of the persuasiveness of Respondent’s evidence as the Hearing Officer found that the Complainant failed to meet their burden of proof.
Summary & Conclusion
A review of the record in the present appeal provides ample support for the determinations made by the Hearing Officer. There is competent and substantial evidence to establish a sufficient foundation for the Decision of the Hearing Officer. A reasonable mind could have conscientiously reached the same result based on a review of the entire record. The Commission finds no basis to support a determination that the Hearing Officer acted in an erroneous, arbitrary, capricious or unreasonable manner, or that he abused his discretion as the trier of fact and concluder of law in this appeal. Hermel, Inc. v. STC, 564 S.W.2d 888 (Mo. 1978); Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Holt v. Clarke, 965 S.W.2d 241 (Mo. App. W.D. 1998); Smith v. Morton, 890 S.W.2d 403 (Mo. App. E.D. 1995); Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).
The Hearing Officer did not err in his determinations as challenged by Complainant.
ORDER
Upon review of the record and the Decision in this appeal, the Commission finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified. Accordingly, the Decision is affirmed. The Decision and Order of the Hearing Officer, including the findings of fact and conclusions of law therein, is incorporated by reference, as if set out in full, in this final decision of the Commission.
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 Franklin 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 this 27th day of September, 2016.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Victor Callahan, Commissioner
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 27th day of September, 2016, to:
Complainant; the Respondent County Assessor and/or Counsel for the Respondent County Assessor; and the County Collector.
Jacklyn Wood
Legal Coordinator
Contact Information for State Tax Commission:
Missouri State Tax Commission
P.O. Box 146
301 W. High Street, Room 840
Jefferson City, MO 65102
573-751-2414
573-751-1341 FAX
[1]The State Tax Commission values distributable property such as railroads, telephone, electric and transmission pipeline companies. The values of those companies are determined by the unit value method. Using information provided by the company and independent sources, such as FERC or PSC, the value of an entire company is determining by considering all three approaches to value. The appraiser then allocates a share of the value to Missouri. The assessed value is allocated to the counties in which the company is found.
State Tax Commission of Missouri
| MISSOURI NATURAL GAS, | ) | ||
| ) | |||
| Complainant, | ) | ||
| ) | |||
| v. | ) | ||
| ) | |||
| THOMAS COPELAND, ASSESSOR | ) | Appeal # | 13-57010 |
| FRANKLIN CO., MISSOURI | ) | ||
| ) | |||
| DAN WARD, ASSESSOR, | ) | 13-84005 | |
| ST. FRANCOIS CO., MISSOURI, | ) | ||
| ) | |||
| LINDA WAGNER, ASSESSOR | ) | 13-84503 | |
| STE. GENEVIEVE CO., MISSOURI | ) | ||
| ) | |||
| Respondent. | ) |
DECISION AND ORDER
HOLDING
In appeal 13-57010, decision of the County Board of Equalization of Franklin County is AFFIRMED. Complainant failed to present substantial and persuasive evidence to rebut the presumption of correct assessment by the Franklin County Board of Equalization. Complainant filed Motions to Dismiss Appeals 13-84005 and 13-84503 after the Evidentiary Hearing. The State Tax Commission issued an Order of Dismissal on April 12, 2016.
Complainant appeared by attorney Mary Bonacorsi.
Respondent appeared by attorney Richard Reed and Jennifer Wu.
Case heard by Senior Hearing Officer John J. Treu.
ISSUE
Complainant appeals, on the ground of overvaluation, the decision of the Franklin County Board of Equalization, which sustained the valuation of the subject properties. The Commission takes this appeal to determine the true value in money for the subject properties on January 1, 2013.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
FINDINGS OF FACT
- Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission.
- Evidentiary Hearing. The Evidentiary Hearing was held on February 23, 2016, and February 24, 2016, in St. Louis, Missouri.
- Identification and Description of Subject Property and Description of Accounting. Laclede Gas Company, has two divisions, such being Laclede and Missouri Natural Gas. Complainant, Missouri Natural Gas Company (hereinafter “MONAT”) owns and operates a gas utility operation. Only one county is the subject of this Decision. Complainant is a regulated utility providing service and as such is entitled to a reasonable return and recoupment of its investment. Laclede Gas Company, Inc,. owns and operates a gas division which is reported under Laclede Gas Company, Inc., to the Federal Energy Regulatory Commission and to the Missouri Public Service Commission. Laclede Gas Company operates in 10 counties in the eastern portion of the state of Missouri, including the City of St. Louis. Franklin County is accounted for separately. Otherwise, records are kept on a general basis and do not distinguish between 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 calendar year 2012, all of Laclede Gas Company’s property, including its Missouri Natural Gas property, generated gross revenues of $764,650,648 ($676,321,017 in Missouri), from its 642,703 customers (601,470 were residential customers and 41,233 were commercial or industrial customers). In fiscal year 2012 (October 1, 2011 to September 30, 2012), Complainant had 627,817 customers (588,061 were residential customers and 39,756 were commercial or industrial customers). During such fiscal year, residential sales were $487,529,497 and commercial and industrial sales were $163,970,907. Additional revenue was generated from other sources including transporting gas for others. As of December 31, 2012, Laclede Gas Company had $1,485,430,676 of original cost in plant in 10 counties, plus the City of St. Louis, in Missouri. Complainant had a book reserve depreciation of $478,120,528, for a book value of $1,007,310,148.
Public utility rates are regulated. Regulation accounting and Generally Accepted Accounting Principles (GAAP) differ. In public utility accounting, certain additional procedures occur to enable regulatory oversight of the companies. Such is moderately unique to the public utility industry resulting in the ability to compare one utility to another resulting in the ability to determine, between different entities, earnings before interest, taxes, depreciation and amortization (EBITDA).
Complainant separately accounts for Franklin County, Missouri. Complainant acquired the Franklin County system in 1991. Such system was run as a stand-alone system.
- Assessment. Assessment of the Commercial Real Property in 2013:
| Appeal No. | County | Assessor’s True Value | Board’s Ruling | Assessed Value |
| 13-57010 | Franklin | $20,100,893.13 | Sustained | $6,432,285.80 |
Assessment of the Personal Property in 2013:
| Appeal No. | County | Assessor’s True Value | Board’s Ruling | Assessed Value |
| 13-57010 | Franklin | $4,475,263.56 | Sustained | $1,491,754.52 |
(See Appendix for More Comprehensive Overview)
- Complainant’s Evidence. The following exhibits were filed in each appeal:
| 13-57010 | |
| Written Direct Testimony | Lindsay Link |
| A | 2003-2012 Property Tax Returns for Complainant |
| B | 2013 Natural Gas Distribution Co. Statement of Taxable Property |
| C | 2013 Natural Gas Distribution Co. Taxable Property by Sub-district |
| D | 2013 Complaints for Review/ St. Francois Co. & Sub-districts |
| E | 1/1/13 MONAT Asset Ledger/Real & Pers. By FERC Class, Asset Class & Original Cost |
| Written Direct Testimony | Kevin Reilly |
| F | CV of Kevin Reilly |
| G | 1/1/13 Asset Ledger for MONAT Counties |
| H | Appraisal Report of Kevin Reilly |
| I | 137.122 RSMo. |
| M | Pages from 10K Report |
| N | Portion of Section VII of Assessors Manual |
| AA | Rebuttal Testimony of Kevin Reilly |
| BB | Table 6 With Calculations/Arithmetic |
The Complainant’s proposed value for real and personal property in Franklin County is $8,492,337.00.
- Respondent’s Evidence.
| 13-57010 | |
| 1 | Written Direct Testimony of George Sancousy |
| 2 | Appraisal Report of George Sansoucy |
| 3 | Written Direct Testimony of Linda Wagner |
| 4 | Complainant’s 2013 Property Tax Return Filed with Ste. Genevieve Assessor on or about 3/25/13 |
| 5 | Complainant’s Restated 2013 Property Tax Return Filed with Ste. Genevieve Assessor on or about 4/13/13 |
| 6 | Third Iteration of Complainant’s Property Tax Return Used for Filing Complaint for Review of Assessment with STC |
| 7 | Book- “The Appraisal of Real Estate”, 14th Edition |
The Respondents’ proposed value for real and personal property in Franklin county is $24,576,156.69.
- Presumption of Correct Assessment Not Rebutted. Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Franklin County Board of Equalization and establish the true value in money as of January 1, 2013.
- Complainant’s Appraiser and Appraisals. In general, the Hearing Officer herein did not find Complainant’s appraiser to have sufficient credibility to find in favor of Complainant. Additionally, the Hearing Officer herein specifically notes that Complainant’s appraiser did not have sufficient credibility as to his appraisal technique and sufficient credibility relating to the appraiser’s knowledge of the particular nuances of regulated utilities. Finally, the Hearing Officer is not persuaded that the documents on which he relied are reliable. Complainant’s appraiser and appraisal are further discussed below.
- Specification of Location of Properties and Unreliability of Costs of Such. The properties in Franklin County were presented as known to exist within Franklin County. The actual original costs of the properties in Franklin, as presented by Complainant, were unreliable. The Hearing Officer had no confidence in the accuracy or reliability of the cost figures presented by Complainant. Such were not persuasive, did not induce confidence and did not induce belief by the Hearing Officer.
CONCLUSIONS OF LAW AND DECISION
Jurisdiction
The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the Board of Equalization, and correcting any assessment which is 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. . .” (emphasis added). See 137.122 RSMo. Said section 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.
Section 137.122 RSMo is the methodology set forth in Missouri statutes for assessors to utilize for mass appraisal of business personal property in place after 2006. Real property and business personal property in place prior to 2006 is not subject to the statutory methodology of Section 137.122.
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).
Therefore the pipeline is not personal property and is not subject to the valuation methodology set forth under Section 137.122 RSMo but may be valued under any of the recognized methodologies. (See Methods of Valuation)
Presumption In Appeal
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. 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 Board’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). During the Evidentiary Hearing, Complainant spent a considerable amount of time addressing the Assessors’ valuations. The Assessors’ valuations are not the valuations that must be defeated. Instead, in a State Tax Commission appeal, the valuation to be defeated is the Board of Equalization value. The value set by each Board of Equalization is an independent valuation from that of the Assessor. Section 137.122 RSMo does not impose any specific limitations as to how Boards of Equalization are to value the assets which are the subject of such statute, as compared to the language which addresses parameters for county Assessors.
Methods of Valuation
Proper methods of valuation and assessment of property are delegated to the Commission. 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).
The State Tax Commission provides supervision of assessing officers and assessment practices in the state. In implementing its supervisory role, the Commission assists assessors in the performance of their duties including providing a manual. Included in the Assessors Manual are mere guides to assist the assessors’ offices with the estimation of valuation of unique properties, including natural gas distribution companies, in the mass appraisal process. Such are not requirements, but are instead non-mandatory assistive tools to allow the assessors to attempt to value properties in a mass appraisal process for ad valorem purposes. Included with such, the State Tax Commission has developed forms to assist the assessors in the gathering of data for assessment. The form may be used by the assessors, but are not mandatory. The data gathered with these discretionary forms may be used in a cost approach valuation. The cost approach may use original costs. “Original cost” is defined in Section 137.122 RSMo as the price the current owner, the taxpayer, paid for the item without freight, installation, or sales or use tax. Once original cost is determined, depreciation, based upon the life of the asset is calculated. Again, such are guides for assessors to obtain estimates for mass appraisal purposes only and not as a treatise as to how to perform a more in-depth, focused appraisal.
Complainants’ Burden of Proof and Evidence
In an appeal before the State Tax Commission, the taxpayer is the moving party seeking affirmative relief. The taxpayer bears the burden of proof. Complainant bears the burden to show the Board of Equalization value to be erroneous. Additionally, in order to prevail, Complainant must present an opinion of market value 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 January 1, 2013. Hermel, supra. A valuation which does not reflect the fair market value (true value in money) 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 Franklin County Board of Equalization valuation was erroneous. Moreover, the Hearing Officer was not persuaded by Complainant’s evidence of the value of the subject properties. The Hearing Officer, as the trier of fact, simply was not convinced or persuaded by Complainant’s evidence on either of the aforementioned, let alone both. The Hearing Officer felt left “in the nebulous twilight of speculation, conjecture and surmise.” Id. Consequently, Complainant’s evidence, in and of itself, did not meet Complainant’s burden of proof, irrespective of any evidence by Respondent.
Complainant’s Methodology
Complainant’s appraisal only developed the cost approach to valuation regarding the subject properties in Franklin County. Complainant’s appraiser did not develop the sales comparison approach or the income approach to value. As explanation for not developing the sales comparison approach, Complainants proffered that only complete natural gas systems sell and that sales of partial natural gas distribution systems are very rare.
This proffered explanation regarding failure to develop the sales comparison approach is not persuasive, in that Complainant itself bought the Franklin County system, which ran as an independent system. To say that such system could not be sold back to the original seller or to a new buyer and run as a complete natural gas system lacks credibility and violates common sense. Simply because Complainant has made the Franklin County system part of its integrated distribution system does equate to the fact that such system could not run independent of such system again.
Regarding the developed cost approach, such is equally not convincing. Complainant’s appraiser was provided internal accounting documents of Complainant by Complainant. Within Complainant’s operation, documents are developed for many reasons, including, but not limited for the Internal Revenue Service and for regulatory purposes, which are prepared to maximize tax benefits, etc. The testimony offered by Complainant instilled no confidence in the Hearing Officer that Complainant’s internal documents truly and accurately reflect what property actually exists in Franklin County. Instead, the Hearing Officer is left with the belief that Complainant’s documents, which its appraiser relied upon, are nothing more than an alternative reflection, based upon otherwise acceptable accounting principles for accounting for such assets for purposes other than ad valorem tax purposes, where a real snapshot in time of the assets in a county by type and age are required. Complainant’s evidence was not persuasive and did not instill belief.
Complainant chose not to conduct a sampling of the assets Franklin County, based upon work order, etc., which would be statistically significant enough to allow a statistician, with an acceptable standard of deviation, to estimate the composition of the assets in each county and then to submit such to an appraiser for appraisal purposes. Standard deviation is used to measure the confidence in conclusions made by a statistician. Such potentially may have served to assist Complainant in meeting its burden of proof.
Respondent’s Evidence
Notwithstanding the foregoing, and independent of such, Respondent presented evidence in support of the Boards’ presumed correct valuations. Respondent proffered the testimony and appraisal report of George Sansoucy, (the appraiser). The appraiser has a Masters in Civil Engineering and is a General Certified Appraiser with the State of Missouri and eleven other states. He has over thirty years of experience in planning, design, financing, construction, operation and management of hydroelectric plants, transmission and distribution facilities, and other utility areas.
The appraiser developed all three approaches to value. The appraiser developed the cost approach, the sales comparison approaches and the income approaches. The Hearing Officer was thoroughly persuaded and convinced by Respondents’ appraiser’s knowledge, comments and answers regarding the nuances and particularities of regulated utilities. Such induced belief in the Hearing Officer. The Hearing Officer was also thoroughly persuaded and convinced by the appraiser’s testimony to the extent that such testimony induced belief in the Hearing Office that Complainant’s appraisal regarding Franklin County was flawed to such a level that Complainant’s appraisals lacked sufficient indicia of reliability and that such could not be relied upon for the valuation of the subject properties.
Due to the fact that Complainant’s evidence did not meet Complainant’s burden of proof, the Hearing Office need not determine if Respondents’ evidence was substantial and persuasive or whether Respondents’ evidence supported the finding of the Franklin County Board of Equalization. Respondent did not bear the burden to prove anything, as such initial burden was squarely Complainant’s to meet. Complainant did not meet its burden.
Conclusion
The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the Board’s valuation is erroneous and what the fair market value should have been placed on the property. Complainant is the moving party seeking affirmative relief and therefore bears the burden of proof. Complainant failed to meet their burden of proof to show the Boards of Equalization value of Franklin County was in error and to show the true market value of their property, in each county, on January 1, 2013. Complainant’s evidence was simply not substantial and persuasive. Complainant’s reliance on Section 137.122 RSMo is misplaced as the methodology is for mass appraisal of business personal property in place after 2006. The statutory methodology is for mass appraisal purposes only; the methodology is not required in an appeal to the State Tax Commission. The methodology is not applicable to the property which is the subject of this appeal. The property is a natural gas pipeline which is real property. Even in the event the property was to be considered personal property, it was put in place prior to 2006. Consequently, the valuation by the Franklin County Board of Equalization is AFFIRMED.
ORDER
The assessed valuation for the subject properties, as determined by the Franklin County Board of Equalization, is 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 May 13, 2016.
STATE TAX COMMISSION OF MISSOURI
John J. Treu
Senior Hearing Officer
Delivery or Notice was made via mail, email, fax, or personally on May 13th , 2016 to the following Individuals of this Order
Mary Bonacorsi, Attorney for Complainant, mbonacorsi@thompsoncoburn.com
Nickolas Kappas, Attorney for Complainant, nkappas@thompsoncoburn.com
Richard Reed, Attorney for Respondent, dreed@lewisreedallen.com
Linda Emmons, Franklin County Collector, lemmons@franklinmo.net
Jacklyn Wood
Legal Coordinator
APPENDIX
| 13-57010 | |||||
| Franklin | |||||
| Assessor Value | Assessor Value | ||||
| & BOE Value | & BOE Value | Franklin | |||
| Real Property | BPP | Totals Combined | |||
| $8,251,623.47 | $456,459.00 | ||||
| $4,358,679.50 | $1,687,710.00 | ||||
| $2,263,818.93 | $998,181.00 | ||||
| $1,628,408.63 | $252,957.00 | ||||
| $2,188,810.45 | $789,187.00 | ||||
| $1,386,784.24 | $286,455.00 | ||||
| $22,767.91 | $4,314.56 | ||||
| TOTALS- Assessor/ BOE | $20,100,893.13 | $4,475,263.56 | $24,576,156.69 | ||
| Complainant’s Appraisal Value | $7,391,325.00 | $1,101,012.00 | |||
| $8,492,337.00 | |||||
| Respondents’ Appraisal Value | $20,100,893.13 | $4,475,263.56 | |||
| $24,576,156.69 | |||||