State Tax Commission of Missouri
NORSE PROPERTIES, LLC, )
)
Complainant, )
)
v. ) Appeal No. 09-10074
)
JAKE ZIMMERMAN, ASSESSOR, )
ST. LOUIS COUNTY, MISSOURI, )
)
Respondent. )
ORDER
SETTING ASIDE HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
On June 13, 2012, Senior Hearing Officer W. B. Tichenor entered his Decision and Order (Decision) setting aside the assessment by the St. Louis County Board of Equalization
Complainant and Respondent filed an Application for Review of the Decision. Each party responded to the other’s application. Respondent filed its Reply.
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. The Commission may then summarily allow or deny their request. The Commission may affirm, modify, reverse or set aside the decision. The Commission may take any additional evidence and conduct further hearings.[1]
FINDING OF FACTS
1. Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the St. Louis County Board of Equalization. A hearing was conducted on September 8, 2011, at the St. Louis County Government Building, Clayton, Missouri. Transcript of Hearing was filed with the Commission on November 28, 2011.
2. Post Hearing Briefs. Complainant filed its Post-Hearing Brief on February 6, 2012.[2] Respondent filed his Brief on March 19, 2012. Complainant filed its Post-Hearing Reply Brief on May 3, 2012. The Hearing Officer rendered a decision on June 13, 2012. Both parties requested the Commission review the decision.
3. Claim of Discrimination. Complainant marked as a ground for appeal on the Complaint for Review of Assessment discrimination. However, no evidence was tendered on behalf of Complainant that would have established prima facie a case of discrimination, accordingly, the claim was deemed to have been abandoned.[3]
4. Subject Property. The subject property is identified by locator number 27O540101. It is located at 527 Axminister Drive, Fenton, Missouri. The property consists of a tract of land containing 87,120 square feet (2 acres) at the corner of Axminister Drive and Fenpark Drive. There are 250 feet of frontage along Axminister and 350 feet of frontage on Fenpark. The land is improved with a 25,080 square foot office/warehouse constructed in 2005. The building was specifically designed to accommodate the manufacturing of vanilla extract by the Lochhead Manufacturing Company. The land was acquired and improvements built from 2004-2006 at a cost of $2,275,000.
5. Subject Lease. Complainant’s property as of January 1, 2009, was under a lease to Lochhead Manufacturing Company. The lease was commenced on November 1, 2005, and ends October 31, 2015. This is a triple net lease at $12,500 per month or $5.98 per square foot. It is with a related party to Complainant.[4] The lease was not an arm’s-length market transaction.[5]
6. Assessment. The Assessor appraised the property at $1,513,000, an assessed commercial value of $484,160.[6] The Board sustained the assessment.[7]
7. Complainant’s Evidence. The following exhibits were received into evidence on behalf of Complainant:[8]
|
EXHIBIT |
DESCRIPTION |
|
A |
|
|
B |
Written Direct Testimony – Ernest A. Demba |
|
C |
Written Direct Testimony – John Lochhead |
Mr. Demba and Mr. Lochhead testified at hearing.[10] Mr. Demba concluded a value for the subject property relying on the income approach of $912,900.[11]
There was no evidence of new construction and improvement from January 1, 2009, to January 1, 2010, therefore the assessed value for 2009 remains the assessed value for 2010.[12]
Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2009, to be $912,900, as proposed.
8. Respondent’s Evidence. The following exhibits were received into evidence on behalf of Respondent:[13]
|
EXHIBIT |
DESCRIPTION |
|
1 |
|
|
2 |
General Warranty Deed – recorded 4/19/04 |
|
3 |
Certificate of Value, dated 4/19/04 |
|
4 |
Deed of Trust – recorded 6/10/05 |
|
5 |
Deed of Trust Recorded 9/29/08 |
|
6 |
BOE Appeal Form, dated 7/13/09 |
|
7 |
Commercial Lease Agreement |
|
8 |
Written Direct Testimony – John Gillick |
Mr. Gillick testified at hearing.[15] Mr. Gillick concluded a value for the subject property relying on the income approach of $1,600,000.[16] The Evidence presented by the County was in support of the Board’s determination of value of $1,513,000 in the event the Complainant met its burden of proof.
CONCLUSIONS OF LAW
Presumption In Appeals
A presumption exists that the assessed value fixed by the Board of Equalization is correct and the Complainant has the burden to present substantial and persuasive controverting evidence to rebut the presumption.[17]
The Hearing Officer did not hold the Complainant to the burden of presenting substantial and persuasive evidence to rebut the presumption of correct assessment.
Methods of Valuation
Proper methods of valuation and assessment of property are delegated to the Commission.[18] 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.[19]
Weighing of Approaches
The Commission is not bound by any single formula, rule or method in determining true value in money, but is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled. The relative weight to be accorded any relevant factor in a particular case is for the Commission to decide.[20]
Complainant’s Evidence
The Complainant presented an appraisal report. The appraiser for the Complainant performed the sales comparison[21] and income[22] approaches to value. He elected to not develop the cost approach to value.[23] His final value opinion placed all weight on the income approach. The appraiser’s valuation of the property was not supported by market data or authoritative sources. “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.”[24]
Cost Approach
The cost approach is based upon the proposition that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility as the subject property. The Cost Approach is particularly applicable when the property being appraised involves relatively new improvements, which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exists no comparable properties in the marketplace. The cost approach may be based on either reproduction cost or replacement cost. The reproduction cost, or cost of construction, is a determination of the cost of constructing an exact duplicate of an improved property using the same materials and construction standards. The replacement cost is an estimate of the cost of constructing a building with the same utility as the building being appraised but with modern materials and according to current standards, design and layout. While reproduction cost is the best indicator of value for newer properties where the actual costs of construction are available, replacement cost may be more appropriate for older properties.[25]
The Complainant’s appraiser did not elect to develop a cost approach even though the subject was less than three years of age. When the improvement is new, a cost approach is appropriate.[26] The land was purchased in 2004 for $675,180. The improvements were constructed at a cost of $1.6 million in 2006. The improvement was only 3 years old as of the effective tax date. Even if the appraiser determined that the cost approach was not the most persuasive approach, the approach should have been developed to provide support for the resulting conclusion of value.
Sales Comparison Approach Not Applicable
The appraiser testified to the importance of developing more than one approach so that a valuation determination may be more reliable. The Complainant’s appraiser did develop the sales comparison approach.
The appraiser’s sales comparison approach is not reliable and does not offer substantial and persuasive evidence. The appraiser, in fact, did not rely on the approach or find it persuasive.[27] The properties selected by the appraiser in developing this approach were not comparable to the subject. The appraiser stated that the properties presented were “a summary of improved sales used in another analysis for a property in another market.”[28] First, the comparables were not in the subject property’s location. It is unknown why the appraiser did not use sales from the area of the subject property as the County’s appraiser had sales from the area. The comparables were not new construction. The age of the comparables ranged from 12 to 24 years old. The comparables were not of similar size; the comparables were larger than the subject. The “sales” were mostly leases and not sales of the real estate. The appraiser did not present a sales comparison grid in his appraisal report. It is unknown what adjustments or the basis of the adjustments he made to the sales.[29]
After presenting the comparable sale properties, the appraiser concluded on a value of $40 per square foot. The development, source authority and/or market evidence for his adjustments and final conclusion were not presented.
The lack of support for his conclusion makes the Complainant’s sales comparison approach unpersuasive evidence. The approach also is not persuasive because of the comparables used by the Complainant. The appraiser admitted that the comparable properties in fact, were not comparable and used that fact as a reason for not relying on the approach.
Income Approach
Complainant’s income approach was not persuasive. Once again the appraiser failed to present appropriate comparable properties or support for his approach.
The appraiser’s selection of properties for representation of market rent were not comparable to the subject property. The properties included multi-tenant rentals (subject is a single tenant), properties ranged from 11 to 38 years of age (subject is 3 years), and properties were much larger in square footage than the subject. The rents on the market properties ranged from $3.48 to $5.50.
The appraiser is not persuasive in his conclusion of rental rates as he did not explain or fully support his conclusion. In fact, he stated that $5.50 reflected market rent as of January 1, 2009, the effective date of the valuation, and yet he used $4. [30]
The approach was also flawed in determining the expenses. The appraiser failed to provide support for his conclusion of expenses. For example, he used a management and legal expenses of 6%. His support for this amount was his opinion that if one would call around they would be told 6%. He did not use any authoritative source nor did he conduct a market survey. His determination of other expenses was similar – vacancy and collection of 5%, reserve for replacement of 3% – no market evidence or authoritative sources were presented to support his calculations.
The appraiser also presented a flawed and meandering cap rate analysis. He stated he developed his cap rate using a mortgage equity approach. Although he discusses a Monte Carlo and “crystal ball” which are discounted cash flow models and not supported by anything presented by the appraiser.
In his attempt to develop a cap rate using the mortgage equity approach, he opined a range of 8.75 to 13.16%. The appraiser provided no information or support for his determination. Further, the appraiser stated that the cap rate he concluded may seem high for subject property considering the type of property and age of the building.[31]
Conclusion
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.”[32] The Complainant’s appraisal is lacking. The Complainant’s evidence is not substantial and persuasive in that only one approach to value was truly presented. The Complainant did not present a cost approach even though the property was a new improvement. The Complainant’s appraisal contained a sales comparison approach, but it was poorly developed and not relied upon by the appraiser himself. The Complainant failed to provide market information and authoritative sources for its appraisal and conclusions of value. By failing to provide necessary supportive evidence for their conclusion of value, the Complainant failed to met their burden of proof.
The Complainant failed to meet their burden of proof of presenting substantial and persuasive evidence controverting the presumption and to demonstrate the true value of the property. Because the Complainant failed to present substantial and persuasive evidence to demonstrate the true value of property, the Board’s valuation stands.[33]
ORDER
The Decision of the Hearing Officer is set aside. The State Tax Commission accepts the parties Motion for Application of Review. The State Tax Commission concludes that the Decision of the County Board of Equalization is AFFIRMED. The assessed value of the subject property is $484,160.
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 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 April 2, 2013.
STATE TAX COMMISSION OF MISSOURI
Randy B. Holman, Commissioner
Victor Callahan, Commissioner
DECISION AND ORDER
HOLDING
Decision of the St. Louis County Board of Equalization sustaining the assessment made by the Assessor is SET ASIDE.
True value in money for the subject property for tax years 2009 and 2010 is set at $1,264,820, assessed value of $404,740.
Complainant appeared by Counsel Paul Puricelli, Stone, Leyton & Gershman, St. Louis, Missouri.
Respondent appeared by Associate County Counselor, Edward W. Corrigan.
Case heard and decided by Senior Hearing Officer W. B. Tichenor.
ISSUE
Complainant appeals, on the ground of overvaluation and discrimination, the decision of the St. Louis County Board of Equalization, which sustained the valuation of the subject property. The Commission takes this appeal to determine the true value in money for the subject
property on January 1, 2009. The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
FINDINGS OF FACT
1. Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the St. Louis County Board of Equalization. A hearing was conducted on September 8, 2011, at the St. Louis County Government Building, Clayton, Missouri. Transcript of Hearing was filed with the Commission on November 28, 2011.
2. Post Hearing Briefs. Complainant filed its Post-Hearing Brief on February 6, 2012.[34] Respondent filed his Brief on March 19, 2012. Complainant filed its Post-Hearing Reply Brief on May 3, 2012.
3. Claim of Discrimination. Complainant marked as a ground for appeal on the Complaint for Review of Assessment discrimination. However, no evidence was tendered on behalf of Complainant that would have established prima facie a case of discrimination, accordingly, the claim was deemed to have been abandoned.[35]
4. Subject Property. The subject property is identified by locator number 27O540101. It is located at 527 Axminister Drive, Fenton, Missouri. The property consists of a tract of land containing 87,120 square feet (2 acres) at the corner of Axminister Drive and Fenpark Drive. There are 250 feet of frontage along Axminister and 350 feet of frontage on Fenpark. The land is improved with a 25,080 square foot office/warehouse constructed in 2005. The building was specifically designed to accommodate the manufacturing of vanilla extract by the Lochhead Manufacturing Company. The parking at the subject location meets the minimum zoning requirements.[36] The subject is not an investment grade property.[37]
5. Subject Lease. Complainant’s property as of January 1, 2009, was under a lease to Lochhead Manufacturing Company. The lease was commenced on November 1, 2005, and ends October 31, 2015. This is a triple net lease at $12,500 per month or $5.98 per square foot. It is with a related party to Complainant.[38] The lease was not an arms-length market transaction.[39]
6. Assessment. The Assessor appraised the property at $1,513,000, an assessed commercial value of $484,160.[40] The Board sustained the assessment.[41]
7. Complainant’s Evidence. The following exhibits were received into evidence on behalf of Complainant.[42]
|
EXHIBIT |
DESCRIPTION |
|
A |
|
|
B |
Written Direct Testimony – Ernest A. Demba |
|
C |
Written Direct Testimony – John Lochhead |
Mr. Demba and Mr. Lochhead testified at hearing.[44] Mr. Demba concluded a value for the subject property relying on the income approach of $912,900.[45]
There was no evidence of new construction and improvement from January 1, 2009, to January 1, 2010, therefore the assessed value for 2009 remains the assessed value for 2010.[46]
Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2009, to be $912,900, as proposed.
8. Respondent’s Evidence. The following exhibits were received into evidence on behalf of Respondent.[47]
|
EXHIBIT |
DESCRIPTION |
|
1 |
|
|
2 |
General Warranty Deed – recorded 4/19/04 |
|
3 |
Certificate of Value, dated 4/19/04 |
|
4 |
Deed of Trust – recorded 6/10/05 |
|
5 |
Deed of Trust Recorded 9/29/08 |
|
6 |
BOE Appeal Form, dated 7/13/09 |
|
7 |
Commercial Lease Agreement |
|
8 |
Written Direct Testimony – John Gillick |
Mr. Gillick testified at hearing.[49] Mr. Gillick concluded a value for the subject property relying on the income approach of $1,600,000.[50]
9. Valuation Methodology. Neither the Cost nor Sales Comparison Approaches to value are appropriate in this appeal. The Income Approach is the proper methodology to be utilized to conclude value. See, Methods of Valuation and Opinion Testimony by Experts, infra.
10. Valuation. The true value in money for the subject property as of January 1, 2009, is $1,264,820, an assessed commercial value of $404,740. See, Valuation Under the Income Approach, infra.
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.[51]
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.[52] The constitutional mandate is to find the true value in money for the property under appeal. By statute real and tangible personal property is assessed at set percentages of true value in money.[53] In an overvaluation appeal, true value in money for the property being appealed must be determined based upon the evidence on the record that is probative on the issue of the fair market value of the property under appeal.
Presumption In Appeals
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization.[54] This presumption is a rebuttable rather than a conclusive presumption. It places the burden of going forward with some substantial evidence on the taxpayer – Complainant. When some substantial evidence is produced by the Complainant, “however slight”, the presumption disappears and the Hearing Officer, as trier of facts, receives the issue free of the presumption.[55] 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.[56] Upon presentation of the Complainant’s evidence[57] the presumption in this appeal disappeared. The case is decided free of the presumption.
Standard for Valuation
Section 137.115, RSMo, requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so.[58] True value in money is defined in terms of value in exchange and not value in use.[59] It is the fair market value of the subject property on the valuation date.[60] Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.
Implicit in this definition are the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated.
2. Both parties are well informed and well advised, and both acting in what they consider their own best interests.
3. A reasonable time is allowed for exposure in the open market.
4. Payment is made in cash or its equivalent.
5. Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.
6. The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction.[61]
Both appraisers concluded value relying on the Standard for Valuation.[62]
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.[63] 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.[64]
Demba Methodologies
Mr. Demba elected to not develop the cost approach to value.[65] He did perform the sales comparison[66] and income[67] approaches to value. His final value opinion placed all weight on the indicated value under the income approach of $912,900.[68]
Gillick Methodologies
Mr. Gillick performed the cost,[69] sales comparison[70] and income[71] approaches to value. The value calculated under the cost approach was $1,896,000. The value calculated under the sales comparison approach was $1,800,000. The value concluded under the income approach was $1,600,000. The final conclusion of value was $1,600,000.[72] Although the appraiser asserted that “most weight has been placed on the income approach with secondary emphasis places on the cost approach and sales comparison approach”[73] in point of fact no weight could have been given to either the indicated values under the cost or sales comparison approaches or else the final concluded value would have been greater than the value developed from the income approach.
Weighing of Approaches
The Hearing Officer is not bound by any single formula, rule or method in determining true value in money, but is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled. The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide.[74]
Cost Approach Not Applicable
The Hearing Officer has given consideration to the issue of whether the cost approach is appropriate to address the appraisal problem. Given that Complainant’s expert concluded that the approach was not applicable and Respondent’s expert gave no actual weight to the approach, the Hearing Officer concludes that the cost approach is not established upon this evidentiary record as an appropriate valuation methodology in this particular instance.
Sales Comparison Approach Not Applicable
The Hearing Officer has likewise reviewed and analyzed the sales data, analysis and conclusions presented by Mr. Demba and Mr. Gillick. Here, as with the cost approach, the Hearing Officer is persuaded by the total lack of reliance by either appraiser on this methodology, that this approach lacks any probative weight in the present valuation.
Income Approach Appropriate Methodology
Both appraiser developed and relied upon the income approach. The property under appeal is a marketable investment property and would be sold and bought primarily based upon the income generated and the future potential income to be generated.[75] The final conclusions of value both rested entirely on the individual opinions provided under the income approaches of the two appraisers. Therefore, the Hearing Officer shall conclude value relying on the income approach.
Opinion Testimony by Experts
If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.
The facts or data upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing and must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject and must be otherwise reliable, the facts or data need not be admissible in evidence.[76]
The facts and data upon which both Mr. Demba and Mr. Gillick formed their respective opinions of value were of the types reasonably relied upon by experts in the field of real estate appraisal and were otherwise reliable. The Hearing Officer as the trier of fact may consider the testimony of an expert witness and give it as much weight and credit as he may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer is not bound by the opinions of experts who testify on the issue of reasonable value, but may believe all or none of the expert’s testimony and accept it in part or reject it in part.[77]
The Hearing Officer is persuaded from the appraisal reports and testimony of both Mr. Demba and Mr. Gillick that it is appropriate to conclude value relying on the data in this record relating to the income approach.
Complainant’s Burden of Proof
In order to prevail, Complainant 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, 2009.[78] There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a Commission 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.”[79] 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.[80] 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.[81]
Complainant’s evidence standing on its own, absent Respondent’s income calculation, constitutes substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization and establish fair market value as proposed in the Demba income approach. However, the Hearing Officer must consider the entirety of the income and expense data in the record.
Valuation Under the Income Approach
To ascertain the indicated value relying on the income approach it is necessary to conclude potential gross income, vacancy and collection loss, effective gross income, allowable expenses and net operating income. A capitalization rate must then be concluded to be applied to the NOI to arrive at the indicated value.
Potential Gross Income
Mr. Demba concluded his potential gross income based upon a $4.00 per square foot rental or $100,320 per year. This was based upon rental rates from five leases with terms from month to month to 5 years and rates from $3.48 to $5.50. Mr. Gillick considered monthly rental rates ranging from $5.50 to $8.54 on terms of 3 to 10 years, with leases that commenced in 2005 and 2006. Included in the Gillick analysis was the subject lease. However, one of the leases, at $8.54 per square foot expired in October 2008. The appraiser failed to research whether this lease was renewed in 2008 for the $8.54 rate or at a different rate. Mr. Gillick however, actually placed no weight on any of his comparable leases and opted instead to conclude that the subject rate of $5.98 was reflective of market as of January 1, 2009. The rates established by the Demba comparable leases are more persuasive to provide an indicator of potential lease rates commencing in 2015. Three of those leases would end in 2013, 2014 and 2014.
The typical holding period for the hypothetical purchase of the subject on January 1, 2009, would have been 10 years.[82] The hypothetical purchaser on January 1, 2009, would have known that for the first six years of the holding period that he would have received $150,000 per year under a triple net lease. At a $4.00 per square foot rental for years 7 through 10 of the projected holding period, the prospective investor purchaser could expect to receive $100,320 per year.
Vacancy & Collection
Mr. Demba utilized a 5% vacancy and collection factor. Mr. Gillick relied on a 10% factor. The Hearing Officer gives equal weight to the opinion of each appraiser and will apply a 7.5% vacancy and collection factor.
Effective Gross Income
The effective gross income for each of the first six years would be $138,750.[83] The effective gross income for each of the last four years would be $92,700.[84]
Expenses
Mr. Demba took a 6% deduction for Management and Legal Expenses and a 3% allowance for Reserves for Replacement. Both of these are appropriately allowable when addressing a valuation under a triple net lease. Mr. Gillick only allowed a management fee of 3%. The Hearing Officer gives equal weight to the opinion of each appraiser on the issue of a management fee allowance and will apply a factor of 4.5%. Mr. Gillick omitted an allowance for reserves for replacements based upon his reasoning that there would be no replacements of any major components during a typical holding period. The Hearing Officer is not persuaded by the Gillick assertion on this point. Mr. Demba properly made an allowance for reserves. The Hearing Officer will utilize the 4% factor. Accordingly, the expense allowance for the first 6 years would be $10,410.[85] The expense allowance for the last four years would be $6,950.[86]
Net Operating Income
Subtracting the Expenses from the Effective Gross Income, the NOI for each of the first six years would be $128,340. The NOI for each of the last four years would be $85,750.
Capitalization Rate
Mr. Demba concluded a capitalization rate of 9.5%. Mr. Gillick utilized an 8.1% rate. The Hearing Officer gives equal weight to the conclusion of each appraiser and will apply an 8.8% capitalization rate.
Indicated Value
The Indicate Value relying on the NOI for the first six years of the holding period would be $1,458,410.[87] The Indicated Value relying on the NOI for the last four years of the holding period would be $974,430.[88] Weighting the indicated value of $1,458,410 at 60% of the holding period, and the indicated value of $974,430 at 40% of the holding period, results in a final conclusion of value as of January 1, 2009, of $1,264,820.[89]
Evidence of Increase in Value
In any case in St. Louis County where the assessor presents evidence which indicates a valuation higher than the value finally determined by the assessor or the value determined by the board of equalization, whichever is higher, for that assessment period, such evidence will only be received for the purpose of sustaining the assessor’s or board’s valuation, and not for increasing the valuation of the property under appeal.[90] Therefore, under the Commission rule just cited and Supreme Court decision[91] the assessed value cannot be increased above $484,160 in this particular appeal.
Exhibit 1 on the second page of the Letter of Transmittal states:
“It is acknowledged that, according to Section 138.060 of the Missouri Revised Statutes, the Assessor shall not advocate nor present evidence advocating a valuation higher than that value finally determined by the Assessor or the value determined by the Board of Equalization, whichever is higher, for that assessment period. Therefore, this appraisal report and the value estimate contained herein, is submitted only as support of the value estimated by the Assessor as of January 1, 2009.”
Accordingly, the evidence presented by the Respondent was to establish the value of $1,513,000.
ORDER
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for St. Louis County for the subject tax day is SET ASIDE.
The assessed value for the subject property for tax years 2009 and 2010 is set at $404,740.
Application for Review
A party may file with the Commission 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. [92]
Disputed Taxes
The Collector of St. Louis 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 13, 2012.
STATE TAX COMMISSION OF MISSOURI
W. B. Tichenor
Senior Hearing Officer
[6] Commercial property is assessed at 32% of its appraised value (true value in money, fair market value) – Section 137.115.5, RSMo
[8] Exhibit D – Fenton Zoning Section 496.160 – Off-Street Parking and Loading Requirements – Business, Commercial and Industrial Uses was marked for identification, however, it was not received into evidence. TR 112: 23 – 113:5
[13] Respondent’s Rebuttal Exhibit 1 – Implied Equity Yield Rates was marked for identification, however, it was not received into evidence. TR 112: 23 – 113:5
[16] Exhibit 1 – Income Approach pp. 34 – 38; RECONCILIATION AND FINAL CONCLUSION OF VALUE, pp. 54 – 55
[17] Cohen, 352 S.W.3d at 348. Rinehart v. Bateman, 363 S.W.3d 357 (Mo. Ct. App. WD 2012) Cupples Hesse Corp v. STC, 329 S.W.2d 696 (S Ct 1959)
[18] 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).
[19] 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).
[20] 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).
[36] Exhibit A – Summary of Facts and Conclusions, pp. 4 – 5; SITE DESCRIPTION, pp 13 – 24; Exhibit B – Q & A 26 – 37; Exhibit C – Q & A 10 – 11; Exhibit 1 – Summary of Important Data and Conclusions, pp. 6; IDENTIFICATION OF THE PROPERTY, P. 10; DESCRIPTION OF THE SITE, pp. 15 – 17; DESCRIPTION OF THE IMPROVEMENTS, pp. 18 – 22
[40] Commercial property is assessed at 32% of its appraised value (true value in money, fair market value) – Section 137.115.5, RSMo
[42] Exhibit D – Fenton Zoning Section 496.160 – Off-Street Parking and Loading Requirements – Business, Commercial and Industrial Uses was marked for identification, however, it was not received into evidence. TR 112: 23 – 113:5
[47] Respondent’s Rebuttal Exhibit 1 – Implied Equity Yield Rates was marked for identification, however, it was not received into evidence. TR 112: 23 – 113:5
[50] Exhibit 1 – Income Approach pp. 34 – 38; RECONCILIATION AND FINAL CONCLUSION OF VALUE, pp. 54 – 55
[54] 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)
[55] United Missouri Bank of Kansas City v. March, 650 S.W.2d 678, 680-81 (Mo. App. 1983), citing to State ex rel. Christian v. Lawry, 405 S.W.2d 729, 730 (Mo. App. 1966) and cases therein cited.
[56] Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959)
[58] St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children’s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993).
[59] Daly v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973).
[61] Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.
[62] Exhibit A – DEFINITION OF MARKET VALUE, P. 10; Exhibit B – Q & A 23; Exhibit 1 – DEFINITION OF MARKET VALUE, p. 8
[63] 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).
[64] 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).
[74] 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).
[76] Section 490.065, RSMo; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. SC. 2004); Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. E.D. 1992).
[77] St. Louis County v. Boatmen’s Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992); Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981).
[79] See, 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). Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. 1991).
[89] $1,458,410 x .60 = $875,046, rounded to $875,050; $974,430 x .40 = $398,772, rounded to $389,770; $875,050 + $389,770 = $1,264,820
[91] The Supreme Court of Missouri has interpreted Section 138.060. The Court stated:
“Section 138.060 prohibits an assessor from advocating for or presenting evidence advocating for a higher ‘valuation’ than the ‘value’ finally determined by the assessor. … . Because the legislature uses the singular terms ‘valuation’ and ‘value’ in the statute, however, it clearly was not referring to both true market value and assessed value. While the assessor establishes both true market value and assessed value, which are necessary components of a taxpayer’s assessment, as noted previously, the assessed value is the figure that is multiplied against the actual tax rate to determine the amount of tax a property owner is required to pay. The assessed value is the ‘value that is finally determined’ by the assessor for the assessment period and is the value that limits the assessor’s advocacy and evidence. Section 138.060. By restricting the assessor from advocating for a higher assessed valuation than that finally determined by the assessor for the relevant assessment period, the legislature prevents an assessor from putting a taxpayer at risk of being penalized with a higher assessment for challenging an assessor’s prior determination of the value of the taxpayer’s property.” State ex rel. Ashby Road Partners, LLC et al v. STC and Muehlheausler, 297 S.W.3d 80, 87-88 (Mo 8/4/09)