STATE TAX COMMISSION OF MISSOURI
| PARK WEST ESTATES, LP | ) | Appeal Number 16-43000 thru 16-43017 |
| PARK WEST ESTATES II, LP | ) | 16-43018 thru 16-43036 |
| Complainant, | ) | |
| ) | ||
| v. | ) | |
| ) | ||
| ROGER PRUDEN, ASSESSOR, | ) | |
| BATES COUNTY, MISSOURI, | ) | |
| ) | ||
| Respondent. | ) |
ORDER AFFIRMING HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
HOLDING
On August 15, 2017, Senior Hearing Officer John Treu (Hearing Officer), entered his Decision and Order (Decision) setting aside the determination of value of the Bates County Board of Equalization (BOE).
Roger Pruden, Assessor of Bates County, (Respondent) filed an Application for Review. Park West Estates, LP and Park West Estates II, LP (Complainants) did not file a Response.
For reasons that will be set forth, the State Tax Commission (STC) finds Respondent’s arguments to be unpersuasive to warrant either modification or overturning of the Decision.
Respondent’s Points on Review
In his Application for Review, Respondent claims:
- “Section 137.076 RSMo. is unconstitutional as it creates a new subclass of property in violation of Article X, Section 4 (a) and Section 4 (b) of the Missouri Constitution, which provides that the subclasses of residential, agricultural, or commercial real property “shall not be further divided.” Missouri Constitution, Article X. Section 4(a) and 4(b).
- The Hearing Officer’s decision is erroneous in that the valuation method used in this case and Section 137.076 RSMo, violates Article X, Section 3 of the Missouri Constitution which requires that property taxes be “uniform upon the same class or subclass of subjects.” Missouri Constitution, Article X, Section 3.
- The Hearing Officer’s decision is erroneous in that it violates the Fourteenth Amendment to the United States Constitution.
In the Matter of the Appeal of Blue Ridge Housing of Bakersville LLC, 738 S.E.2d 802 (NC Ct App 2013)(See In re Se. Baptist Theological Seminary, Inc, 135 N.C. App 247, 258, 520 S.E.2d 302, 309 (1999)), the Supreme Court of the United States held that “a violation of the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution occurs where a lack of uniformity of taxation results from more than mere errors of judgment by officials and amounts to an intentional violation of the essential principal of practical uniformity.”
- The Hearing Officer’s decision is erroneous in that it fails to tax the subject property in “true value in money.”
The owners of the property are allowed to add artificial conclusions to the property and then claim a reduction in value for the restrictions they placed on the property.
- The Hearing Officer’s decision is erroneous in that it violates public policy. There is no public benefit to allowing the owners of real estate to artificially reduce its value by adding LURA’s.
- The Hearing Officer’s decision is erroneous in that it violates Article X, Section 4(a) and 4(b) of the Missouri Constitution, which requires that real estate be taxed based on its value. The Hearing Officer’s decision fails to calculate the property value in that the artificial restrictions were allowed to decrease the true value in money on the property’s value. Missouri Constitution, Article X, Section 3.
- The Hearing Officer’s decision is erroneous in that the Complainants’ management fees are over-inflated and not properly allocated resulting in an assessment for taxes which is below the true value of the property.”
FACTUAL AND PROCEDURAL HISTORY
The subject properties consist of thirty-seven (37) single-family rental homes in Butler, Missouri. Eighteen (18) of the homes are Park West Estates, LP, constructed in 2004, each with 1,447 finished square feet, a 420 square foot two car garage, 3 bedrooms and 2 bathrooms. Nineteen (19) of the homes are Park West Estates II, LP, constructed in 2011, each with 1,447 finished square feet, a 420 square foot two car garage, 3 bedrooms and 2 bathrooms. All of the homes have brick exteriors.
The construction was funded by low income housing tax credits (LIHTC). Complainants entered into a land use restriction agreement (LURA), which controls the properties’ rents, tenant qualifications, maintenance and management obligations, operational obligations, and reporting/audit requirements. The properties are also subject to various increased expenses due to maintenance and management obligations set forth in the LIHTC program as operated by the Missouri Housing and Development Commission.
The BOE determined a true value in money (TVM) of $3,410,000 for the subject properties.
On July 11, 2017, the STC convened in an evidentiary hearing regarding the TVM of the subject properties. The Complainants presented the testimony and appraisal reports of Missouri Certified General Appraiser Rick Muenks (Muenks). Muenks testified as to his determination of the TVM of the property using the income approach to value. Muenks report included the actual expenses and income of the properties. Respondent testified on his own behalf. Respondent valued the properties using the cost approach and also valued the property combining that valuation with the income of the property.
After review of all evidence, the Hearing Officer concluded TVM for the subject properties of $957,825.
CONCLUSIONS OF LAW
Standard of Review
A party subject to a Decision and Order of a Hearing Officer with the State Tax Commission (STC) 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.
Section 137.076.2 RSMo (2015)
Subject property is residential property funded by low income tax credits and is subject to rent restrictions and operational requirements. Due to the restrictions and federal subsidies, the appropriate methodology for determining the true value in money (TVM) for the subject property is found in Section 137.076.2 RSMo.
Section 137.076.2 RSMo provides:
“In establishing the value of a parcel of real property, the county assessor shall use an income-based approach for assessment of parcels of real property with federal or state imposed restrictions in regards to rent limitations, operations requirements, or any other restrictions imposed upon the property in connection with:
(1) The property being eligible for any income tax credits under Section 42 of the Internal Revenue Code of 1986, as amended;
(2) Property constructed with the use of the United States Department of Housing and Urban Development HOME investment partnerships program;
(3) Property constructed with the use of incentives provided by the United States Department of Agriculture Rural Development; or
(4) Property receiving any other state or federal subsidies provided with respect to use of the property for housing purposes.
For the purposes of this subsection, the term “income-based approach” shall include the use of direct capitalization methodology and computed by dividing the net operating income of the parcel of property by an appropriate capitalization rate not to exceed the average of the current market data available in the county of said parcel of property. Federal and state tax credits or other subsidies shall not be used when calculating the capitalization rate. Upon expiration of a land use restriction agreement, such parcel of property shall no longer be subject to this subsection.”
Constitutionality of Section 137.076.2 RSMo.
Respondent alleges that Section 137.076.2 RSMo violates the Missouri Constitution. “A statute is presumed constitutional and must not be held otherwise unless ‘clearly and undoubtedly’ contravening the constitution.” Winston v. Reorganized School District R–1 Lawrence County, 636 S.W.2d 324, 327 (Mo. banc 1982), quoting Prokopf v. Whaley, 592 S.W.2d 819, 824 (Mo. banc 1980). The State Tax Commission will not address any points raised as to the constitutionality of the statute. “Deciding constitutional issues is beyond the authority of an administrative agency…” Fayne v. Department of Social Services, 802 S.W.2d 565, 567 (Mo.App.1991); Duncan v. Missouri Board for Architects, Professional Engineers and Land Surveyors, 744 S.W.2d 524, 530–31 (Mo.App.1988).
Because the State Tax Commission is an administrative agency without the authority to address a challenge to the constitutionality of Section 137.076, we will not address the point raised.
Point 1: Additional Subclass of Real Property
Respondent alleges that Section 137.076 RSMo creates a new subclass of property in violation of Article X, Section 4 of the Missouri Constitution. The Missouri Constitution provides for three classes of property: (1) real property; (2) tangible personal property; and (3) intangible personal property. Missouri Constitution Article X, Section 4(a). Property in class 1 is subclassed as (1) residential property; (2) agricultural and horticultural property; and (3) utility, industrial, commercial, railroad, and all other property not included in subclasses (1) and (2). Missouri Constitution Article X, Section 4(b)
Properties subject to the appeal were classified by Respondent as residential. Section 137.016.1(1) defines residential property is a subclass of real property which is (1) improved by a structure or structures which are (2) used or intended to be used for residential living by human occupants.
Hearing Officer found that the properties are residential properties in that the properties are intended to be used for residential living. No additional subclass was created either by statute or by the decision of the Hearing Officer.
Point (1) is denied.
Points 2 & 3 – Uniformity
Complainant argues that the valuation methodology used in this appeal (Section 137.076 RSMo) violates Article X, Section 3 of the Missouri Constitution and the Fourteenth Amendment to the United State Constitution.
Respondent argues that the valuation methodology deprives and denies the Complainant equal protection of the laws. “The purpose of the equal protection clause of the Fourteenth Amendment is to secure every person within the state’s jurisdiction against intentional and arbitrary discrimination, whether occasioned by express terms of a statute or by its improper execution through duly constituted agents.” Sunday Lake Iron Co v Wakefield Tp, 247 U.S. 350, 38 S. Ct 495, 62 L.Ed 1154 (1918) Article X, Section 3 of the Missouri Constitution requires that the subject property not be assessed at a ratio higher than the common level or average for the same class of subject.
The Respondent presented no evidence that the assessment of the property was discriminatory, i.e. no evidence that the property was assessed at a lower or higher percentage of value than other property, generally, within the same class. The subject property was assessed, like other residential property within the county, at 19% of TVM in accordance with Section 137.115 RSMo. By statute, real property and tangible personal property are assessed at set percentages of true value in money: residential property at 19%; commercial property at 32%; and agricultural property at 12%. Section 137.115.5 RSMo
Points (2) and (3) are denied.
Points 4, 5, 6 and 7 – TVM of the Subject Property
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. 1974). 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).
The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 347 (Mo. 2005).
Subject property is residential property that produces an income stream. Subject property was funded by low income tax credits and is subject to rent restrictions and operational requirements. Due to the restrictions and federal subsidies, the appropriate methodology for determining TVM for the subject is the income methodology as directed by Section 137.076.2 RSMo.
The income approach is appropriate as long as the economic realities of the property are considered. The economic realities cannot be ignored; they “must be taken into consideration and account when making a determination of value for ad valorem tax purposes.” Missouri Baptist Children’s Home v. STC, 867 S.W.2d 510 (Mo. 1993). Mississippi Lime Company v. Clement F. Donze, Assessor, Ste. Genevieve County, Missouri, 2001 WL 256223 (Mo. St. Tax Com) Consideration of the economic realities, such as the restrictions and requirements on the property, is appropriate.
Complainants’ expert Muenks, a certified General Appraiser, licensed in Missouri, provided the income and expense information for the subject properties in his appraisal report. (Exhibits B and C) The capitalization rate utilized by Muenks was developed utilizing the Band of Investment (Mortgage/Equity) approach. Muenks concluded on a capitalization rate of 7.5% based upon market data. Complainant’s expert then calculated a loaded capitalization rate of 8.6796%. Muenks appropriately developed an income approach to value.
Respondent argues that the management fees, included in the expenses, were over-inflated and not properly allocated. Complainants’ evidence as to expenses included the management fees and that management fees are higher for these types of property. Management is required to maintain the building to standards set forth under the LURA, tenant information and qualification, and documentation of compliance for audit requirements. Respondent failed to provide support for his position that the management fees were inflated and/or not accurately reported by the Complainant.
Respondent testified that he calculated a value of the subject properties utilizing the Honeycutt Appraisal Method, which is a cost approach to value. Respondent did not provide any documentation for this approach or how the valuation was calculated using this approach.
Hearing Officer found the evidence presented by the Complainant as to the TVM of the subject properties substantial and persuasive. Using the income approach, the Hearing Officer found the TVM of the subject property to be $957,825.
STC finds that a reasonable mind could have conscientiously reached the same result as the Hearing Officer based on a review of the entire record. 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).
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, persuasive 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 full review of the entire record. The STC 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).
Respondent provided no legal authority or factual support for the allegations of error. We have reviewed the whole record in this case and find no errors as Respondent alleged in his Application for Review.
ORDER
Upon review of the record and the Decision in this appeal, the STC 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 Bates 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 January 9th, 2018.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Victor Callahan, Commissioner
Will Kraus, Commissioner
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 9th day of January, 2018, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.
Jacklyn Wood
Legal Coordinator
Contact Information for State Tax Commission:
Missouri State Tax Commission
301 W. High Street, Room 840
P.O. Box 146
Jefferson City, MO 65102-0146
573-751-2414
573-751-1341 Fax
STATE TAX COMMISSION OF MISSOURI
| PARK WEST ESTATES, LP | ) | Appeal No. | 16-43000 through 16-43017 |
| PARK WEST ESTATES II, LP | ) | 16-43018 through 16-43036 | |
| ) | |||
| Complainants | ) | ||
| ) | |||
| v. | ) | ||
| ) | |||
| ROGER PRUDEN, ASSESSOR | ) | ||
| BATES COUNTY, MISSOURI, | ) | ||
| ) | |||
| Respondent | ) |
DECISION AND ORDER
HOLDING
Decisions of the Bates County Board of Equalization (BOE) of July 18, 2016, are SET ASIDE. Substantial and persuasive evidence was presented by Park West Estates, LP, and Park West Estates II, LP, (Complainants) to rebut the presumption of correct assessments by the BOE.
Complainant was represented by attorney Andrew Coulson.
Roger Pruden, Assessor of Bates County, Missouri (Respondent) was represented by attorney Hugh Jenkins and appeared in person.
Case decided by Senior Hearing Officer John J. Treu. (Hearing Officer)
ISSUE
Complainants appeal, on the ground of overvaluation, the decisions of the BOE, which determined a true market value (TMV) of $3,410,000, residential classification. The Commission takes these appeals to determine the TMV for the subject properties as of January 1, 2015, for tax year 2016. The values as of January 1 of the odd numbered year remains the values as of January 1 of the following even numbered year unless there is new construction and improvement to the properties. Section 137.115.1 RSMo
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 these appeals is proper. Complainants timely appealed to the State Tax Commission from the decisions of the BOE.
- Identification of Subject Properties. The subject properties are identified by the following parcel numbers:
| Appeal # | County | Complainant | Parcel # |
| 16-43000 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.020 |
| 16-43001 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.030 |
| 16-43002 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.050 |
| 16-43003 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.080 |
| 16-43004 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.090 |
| 16-43005 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.110 |
| 16-43006 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.120 |
| 16-43007 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.130 |
| 16-43008 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.140 |
| 16-43009 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.150 |
| 16-43010 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.160 |
| 16-43011 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.170 |
| 16-43012 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.180 |
| 16-43013 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.190 |
| 16-43014 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.200 |
| 16-43015 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.210 |
| 16-43016 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.220 |
| 16-43017 | Bates | Park West Estates LP | 13-08.0-27-020-001-014.500 |
| 16-43018 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.290 |
| 16-43019 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.300 |
| 16-43020 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.310 |
| 16-43021 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.320 |
| 16-43022 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.330 |
| 16-43023 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.340 |
| 16-43024 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.350 |
| 16-43025 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.360 |
| 16-43026 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.390 |
| 16-43027 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.400 |
| 16-43028 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.410 |
| 16-43029 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.420 |
| 16-43030 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.430 |
| 16-43031 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.440 |
| 16-43032 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.450 |
| 16-43033 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.460 |
| 16-43034 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.470 |
| 16-43035 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.480 |
| 16-43036 | Bates | Park West Estates II LP | 13-08.0-27-020-001-014.490 |
They are all located on South Birch Street, in Butler, Bates County, Missouri. (Complainant for Review of Assessment, Exhibit B and Exhibit C)
- Description of Subject Properties. The subject properties consist of 37 single family rental homes in Butler, Mo. Eighteen of the homes are Park West Estates, LP, model type homes, constructed in 2004, each with 1,447 finished square feet, a 420 square foot two car garage, 3 bedrooms and 2 bathrooms. Nineteen of the homes are Park West Estates II, LP, model type homes, constructed in 2011, each with 1,447 finished square feet, a 420 square foot two car garage, 3 bedrooms and 2 bathrooms. All of the homes have brick exteriors. The construction was funded by low income housing tax credits (LIHTC). Complainants entered into an agreement, a land use restriction agreement (LURA), which control the properties rents, tenants qualifications, maintenance and management obligations, operational obligations, and reporting/audit requirements. The properties are also subject to various increased expenses due to maintenance and management obligations set forth in the LIHTC program as operated by the Missouri Housing and Development Commission. (Written Direct Testimony (WDT) Muenks, Exhibit B and Exhibit C)
- Assessment. The BOE determined the TMV of the subject properties to be $3,410,000. (Complaints for Review of Assessment) The following table sets forth the TMV assigned to each property by the BOE.
| 16-43000 | $90,300 |
| 16-43001 | $90,300 |
| 16-43002 | $88,800 |
| 16-43003 | $89,000 |
| 16-43004 | $88,700 |
| 16-43005 | $88,800 |
| 16-43006 | $88,800 |
| 16-43007 | $88,800 |
| 16-43008 | $88,800 |
| 16-43009 | $88,800 |
| 16-43010 | $88,800 |
| 16-43011 | $88,800 |
| 16-43012 | $88,800 |
| 16-43013 | $88,800 |
| 16-43014 | $88,800 |
| 16-43015 | $88,800 |
| 16-43016 | $88,800 |
| 16-43017 | $89,500 |
| 16-43018 | $94,900 |
| 16-43019 | $94,900 |
| 16-43020 | $97,400 |
| 16-43021 | $95,800 |
| 16-43022 | $94,100 |
| 16-43023 | $94,100 |
| 16-43024 | $95,200 |
| 16-43025 | $97,600 |
| 16-43026 | $94,900 |
| 16-43027 | $94,900 |
| 16-43028 | $94,900 |
| 16-43029 | $94,900 |
| 16-43030 | $94,900 |
| 16-43031 | $94,900 |
| 16-43032 | $94,900 |
| 16-43033 | $94,900 |
| 16-43034 | $94,900 |
| 16-43035 | $94,900 |
| 16-43036 | $94,900 |
| Total | $3,410,100 |
- Evidentiary Hearing. The Evidentiary Hearing was held on July 11, 2017, at the Bates County Sheriff’s Conference Center in Butler, Missouri.
- Complainant’s Evidence.
| Exhibit | Description |
| A | Resume of Rick Muenks |
| B | Appraisal of Park West Estates II, LP |
| C | Appraisal of Park West Estates, LP |
| D | WDT of Rick Muenks |
All exhibits were admitted into the evidentiary record to be given such weight as the Hearing Officer deemed just and proper.
- Respondent’s Evidence.
| Exhibit | Description |
| 1 | Picture of Park West Estates, LP Type Structure |
| 1A-1R | Property Record Cards Corresponding to Exhibit 1 Type Structures Appealed |
| 2 | Picture of Park West Estates II, LP Type Structure |
| 2A-2S | Property Record Cards Corresponding to Exhibit 2 Type Structures Appealed |
| 3 | Sheet Received by Respondent Showing Income Approach |
| 4 | Sheet Received by Respondent Showing Costs of Construction |
| 5 | Worksheet Prepared by Respondent |
| 6 | State Tax Commission Memo |
| WDT | Roger Pruden |
| Rebuttal WDT | Roger Pruden |
All exhibits were admitted into the evidentiary record to be given such weight as the Hearing Officer deemed just and proper.
- Presumption of Correct Assessment Rebutted. The evidence presented was substantial and persuasive to rebut the presumption of correct assessment by the BOE and establish the true value in money as of January 1, 2015 for tax year 2016.
- Loaded Capitalization Rate. Complainants’ appraiser opined a loaded capitalization rate of 8.6796%. (Exhibits B & C)
- Net Operating Income. The net operating income (NOI), without real estate taxes included as an expense, for Park West Estates, LP, rises and falls in two year cycles. Consequently, a two year average of the NOI for 2013 and 2014 will be utilized, such equaling $36,629.50. (Exhibits C, Page 43)
The NOI, without real estate taxes included as an expense, for Park West Estates II, LP, rises and falls in two year cycles. Consequently, a two year average of the NOI for 2013 and 2014 (09/2012-09/2013 & 09/2013-08/2014) will be utilized, such equaling $44,770. (Exhibits B, Page 43)
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2015, to January 1, 2016; therefore the assessed value for 2015 remains the assessed value for 2016. Section 137.115.1, RSMo.
- TMV. The following table sets forth the calculation of TMV:
| Park West Estates, LP | Park West Estates II, LP | ||
| a. | Loaded Capitalization Rate | 8.6796% | 8.6796% |
| b. | NOI without real estate taxes included as an expense | $36,629.50 | $44,770 |
| c. | TMV Total | $422,018 (b /a) | $515,807 (b /a) |
| d | Avg. TMV Per Home | $23,445.50 (c/18) | $27,148 (c/19) |
CONCLUSIONS OF LAW AND DECISION
Jurisdiction
The Commission has jurisdiction to hear these appeals and correct any assessments which are shown to be unlawful, unfair, arbitrary or capricious. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determinations of the BOE, and correcting any assessments which are 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 – residential property at 19% of true value in money; commercial property at 32% of true value in money and agricultural property at 12% of true value in money.
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).
Standard for Valuation/Methodology of Subsidized Housing
In the past, when valuing subsidized housing, the State Tax Commission has attempted to look at actual income, actual expenses, financing terms and market capitalization rates in order to try to account for risks and benefits associated with this unique type of real property, recognizing that subsidized properties do not tend to sell and costs tend to be inflated, making sales and cost approaches difficult.
The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use. For ad valorem purposes, the property should be valued using actual rents and expenses and looking to the market to develop a capitalization rate. The legislature has given assessors specific direction on the issue of valuing subsidized property.
Section 137.076.2 RSMo (2015) provides:
In establishing the value of a parcel of real property, the county assessor shall use an income-based approach for assessment of parcels of real property with federal or state imposed restrictions in regard to rent limitations, operations requirements, or any other restrictions imposed upon the property in connection with:
(1) The property being eligible for any income tax credits under Section 42 of the Internal Revenue Code of 1986, as amended;
(2) Property constructed with the use of the United States Department of Housing and Urban Development HOME investment partnerships program;
(3) Property constructed with the use of incentives provided by the United States Department of Agriculture Rural Development; or
(4) Property receiving any other state or federal subsidies provided with respect to use of the property for housing purposes.
For the purposes of this subsection, the term “income-based approach” shall include the use of direct capitalization methodology and computed by dividing the net operating income of the parcel of property by an appropriate capitalization rate not to exceed the average of the current market data available in the county of said parcel of property. Federal and state tax credits or other subsidies shall not be used when calculating the capitalization rate. Upon expiration of a land use restriction agreement, such parcel of property shall no longer be subject to this subsection.
In the discretion of the Hearing Officer, the Hearing Officer independently finds the aforementioned methodology provides a valid methodology for the STC to value subsidized properties, to the extent the NOI of the subject property is appropriately vetted and “an appropriate capitalization rate” is utilized. Id.
Loaded Versus Unloaded Capitalization Analysis
For determining proper TMV for ad valorem tax purposes, the deduction of real estate property taxes as an expense is generally not appropriate. Instead, a loaded capitalization rate (capitalization rate + effective tax rate) is utilized to account for real estate property taxes and no deduction for such as an expense is made to NOI. By deducting real estate property taxes as an expense in calculating NOI the appraiser would somehow have to know the actual TMV of the property being appraised and the corresponding proper and correct real estate property tax to deduct as an expense. By utilizing a loaded capitalization rate and not deducting real estate property taxes as an expense, a more accurate and representative valuation can be reached.
Discussion
Included within his appraisal, Complainants’ expert Rick Muenks, a certified General Appraiser, licensed in Missouri, valued the subject properties pursuant to the requirements of Section 137.076 RSMo utilizing the actual 2015 NOI of the subject properties and a market based capitalization rate. As the pertinent valuation date is January 1, 2015, the 2015 NOI’s would have been unknown as such time. Consequently, NOI before the pertinent valuation date must be utilized.
As set forth in the Findings of Fact at paragraph 10, the Hearing Officer found it most persuasive to calculate a two-year average NOI for each of Complainant’s properties. The capitalization rate utilized by Mr. Muenks was developed utilizing the Band of Investment (Mortgage/Equity) approach. Mr. Muenks concluded on a capitalization rate of 7.5% based upon comparison of the data. Complainant’s expert then calculated a loaded capitalization rate of 8.6796%.
Respondent calculated a value of the subject properties utilizing the Honeycutt Appraisal Method, which is a cost approach to value. Respondent did not provide any supporting documents regarding this approach, but merely referred to its use in his WDT. Utilizing such approach, Respondent concluded on a value of $123,600 for each of the 27 homes. This figure falls well above the TMV that Respondent has the properties appraised at for the pertinent assessment period.
Respondent then explained how he actually valued the properties for assessment purposes. Respondent calculated the values using both the income figures and cost figures provided to him by Respondent’s agent, then averaged the figures and made a deduction of approximately 10% for depreciation. This approach does not comply with Section 137.076.2 RSMo. Additionally, Respondent did not do an actual appraisal of the properties compliant with 12 CSR 30.3.065. Instead, Respondent presented three one page exhibits (Exhibits 3, 4 & 5) with no narrative analysis or references. Respondent’s approach did not induce belief in the Hearing Officer and thus was not substantial and persuasive.
Valuation
After review of the actual income and expenses and by utilization of a loaded capitalization rate the TMV of the subject properties are set as follows:
| Park West Estates, LP | Park West Estates II, LP | |
| TMV Total | $422,018 | $515,807 |
| Avg. TMV Per Home | $23,445.50 | $27,148 |
ORDER
The valuations of the BOE are SET ASIDE. The assessed values for the subject properties, for tax year 2016 are set as follows:
| Park West Estates, LP | Park West Estates II, LP | |
| .Assessed Value Total | $80,183 | $98,003 |
| Assessed Value Per Home | $4,455 | $5,158 |
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. Section 138.432, RSMo
Disputed Taxes
The Collector of Bates 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 this 15th day of August, 2017.
STATE TAX COMMISSION OF MISSOURI
John Treu
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 15th day of August, 2017, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.
Jacklyn Wood
Legal Coordinator
Contact Information for State Tax Commission:
Missouri State Tax Commission
301 W. High Street, Room 840
P.O. Box 146
Jefferson City, MO 65102-0146
573-751-2414
573-751-1341 Fax