State Tax Commission of Missouri
| PARK WEST ESTATES | ) | |
| PARK WEST ESTATES II | ) | |
| ) | ||
| Complainants | ) | Appeal Nos. 11-43000 thru 11-43017 |
| ) | Appeal Nos. 11-43018 thru 11-43036 | |
| -vs- | ) | Appeal Nos. 13-43001 and 13-43002 |
| ) | ||
| ROGER PRUDEN, ASSESSOR, | ) | |
| BATES COUNTY, MISSOURI | ) | |
| ) | ||
| Respondent. | ) |
ORDER
AFFIRMING HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
On May 21, 2014, Senior Hearing Officer Luann Johnson entered her Decision and Order (Decision) affirming the decisions of the Bates County Board of Equalization. Complainant filed its Application for Review of the Decision on July 18, 2014.
CONCLUSIONS OF LAW
Standard Upon 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. 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. See Section 138.432. RSMo.
DECISION
Complainant’s Claims of Error
Complainant alleges:
The Hearing Officer erroneously concluded that the evidence proffered by Complainant’s appraiser did not constitute substantial and persuasive evidence to overcome the presumption of validity afforded the Board of Equalization’s assessment.
Complainant argues that the appraiser followed the Maryville Properties formula and, therefore, the appraisal constitutes substantial and persuasive evidence of value. Complainant argues that the Hearing Officer did not question the values determined by the appraiser, only the methodology without providing “any facts or indications why the [Maryville Properties] methodology is no longer being used”. Complainant further argues the Hearing Officer failed to consider the impact of the land use restrictions or the limited income.
Facts
The subject properties are all brick, single family, ranch style homes containing three bedrooms and two baths. Eighteen of the homes were built in 2004 and are designated as Park West Estates I. Nineteen of the homes were built in 2010 and are designated as Park West Estates II. All are designated as low income, rent restricted units for tenants whose income is 60% or less of the “area median gross income”, adjusted for family size. Rent cannot exceed 30% of the income limitation applicable to the unit. Occupancy is at 100%. In Park West Estates I, the original construction cost was $1,567,135. Complainant asked for a value for 2011 of $320,000 and a value for 2013 of $525,000. In Park West Estates II, the original construction cost was $2,931,129. Complainant asked for a value for 2011 of $490,000 and a value for 2013 of $560,000.
Complainants’ appraiser presented only the Maryville Properties formula as a jurisdictional exception to the standard approaches to value.
Discussion and Rulings
Complainant, in its application for review, argues that the appraiser followed the Maryville Properties formula. The Hearing Officer found that the Maryville Properties formula distorts market value. Using Maryville Properties formula would require a new improvement, which cost $185,000 per unit to build, be valued at only $29,000 per unit. The Hearing Officer discussed the relevant law dealing with property valuation and the history of subsidized property appeals in Missouri. She demonstrated that changing the financing terms of these projects substantially impacted the value calculated in the Maryville Properties formula – even to the point where substantially similar properties had disparate market values merely because of a difference in financing.
Complainant argues that the Hearing Officer only looked at the appraiser’s methodology but failed to look at his value. Methodology drives value. If the methodology is incorrect, the value necessarily will be incorrect. The Hearing Officer is not required to give any weight to a valuation determination based upon an improper methodology.
Finally, Complainant argues that the Hearing Officer failed to consider the impact of the use restrictions and the income restrictions. Citing Maryville Properties v. Nelson, 83 S.W. 3rd 608, 616(W.D. 2002), the Hearing Officer found that:
“Objective standards should be used in determining fair market value in the market place. The particular circumstances of the owner are not a proper consideration . . . Investment value is the value of a property to a particular investor, whereas market value is not related to the needs of the individual investors but is objective, impersonal, and detached; investment value is based on subjective, personal parameters…”
The Hearing Officer rejected looking at characteristics of the owner/investor rather than characteristics of the property itself.
Summary and Conclusion
The Missouri Constitution and the statutes mandate the Commission determine market value, not investment value. When construction costs are $185,000 per unit, it defies common sense and logic that the market value is only $29,000 per unit. Either the benefits and burdens under the Maryville Properties formula are not being measured appropriately, or the Maryville Properties formula substantially distorts value to a point of not being a good indicator of market value. Therefore, we must reject the valuation determined using the Maryville Properties formula in this appeal.
ORDER
The Decision and Order of the Hearing Officer, including the findings of fact and conclusions of law therein, is AFFIRMED and 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, 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 4th day of November, 2014.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Randy B. Holman, Commissioner
Victor Callahan, Commissioner
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid this 5th day of November, 2014, to: Mary Neal, 2659 E. Normandy, Suite 100, Springfield, MO 65804 and Andrew Coulson, P.O. Box 1517, Platte City, MO 64079, Attorneys for Complainant; Hugh Jenkins, Prosecuting Attorney, P.O. Box 222, Butler, MO 64730, Attorney for Respondent; Roger Pruden, Assessor, 1 North Delaware, Bates County Courthouse, Butler, MO 64730; Marlene Wainscott, Clerk, 1 North Delaware, Butler, MO 64730; James Platt, Treasurer, 1 North Delaware, Butler, MO 64730
Jacklyn Wood
Legal Coordinator
State Tax Commission of Missouri
| PARK WEST ESTATES | ) | |
| PARK WEST ESTATES II | ) | |
| ) | ||
| Complainants | ) | Appeal Nos. 11-43000 thru 11-43017 |
| ) | Appeal Nos. 11-43018 thru 11-43036 | |
| -vs- | ) | Appeal Nos. 13-43001 and 13-43002 |
| ) | ||
| ROGER PRUDEN, ASSESSOR, | ) | |
| BATES COUNTY, MISSOURI | ) | |
| ) | ||
| Respondent. | ) |
DECISION AND ORDER
HOLDING
Decisions of the Bates County Board of Equalization are AFFIRMED.The Hearing Officer finds Complainants did not rebut the presumption of correct valuation by the Board.
Complainants are represented by appraiser Rick J. Muenks and counsel Andrew Coulson and Mary Neal.
Respondent is represented by counsel Hugh Jenkins.
The cases are submitted on documents and decided by Senior Hearing Officer Luann Johnson.
EXHIBITS
|
4* |
Muenks’ Appraisal Report of 18 Single Family Rental Homes – Park West Estates I |
|
5* |
Muenks’ Appraisal Report of 19 Single Family Rental Homes – Park West Estates II |
|
6* |
Prefiled Direct Testimony of Rick Muenks – Park West Estates I |
|
7* |
Prefiled Direct Testimony of Rick Muenks – Park West Estates II |
|
A |
Property Record Card |
|
B |
Photograph |
|
C |
Income Worksheet |
|
D |
Prefiled Direct Testimony of Roger Pruden |
*replace previously filed exhibits.
ISSUE
The Commission takes this appeal to determine the true value in money for the subject properties on January 1, 2011 through January 1, 2014.Respondent asserts that using actual income, actual expenses, and actual financing terms for subsidized housing creates an unconstitutional subclassification of residential real property.
SUMMARY
Subject Property Park West Estates I, 2011 and 2013
Park West Estates I consists of 18 single family houses located on Meadow Lane and Birch Streets in Butler, Bates County, Missouri.State Tax Commission Appeals No. 11-43000 through 11-43017 are identified by the Assessor and valued by the Board of Equalization and the taxpayer, for tax year 2011, as follows:
|
|
Appeal No. |
Parcel Number |
BOE TVM |
A.V. |
Cp Proposed TVM |
Cp Proposed A.V. |
|
1 |
11-43000 |
1308027020001014020 |
$90,300 |
$17,160 |
$17,780 |
$3,380 |
|
2 |
11-43001 |
1308027020001014030 |
$90,300 |
$17,160 |
$17,780 |
$3,380 |
|
3 |
11-43002 |
1308027020001014050 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
4 |
11-43003 |
1308027020001014080 |
$89,000 |
$16,910 |
$17,780 |
$3,380 |
|
5 |
11-43004 |
1308027020001014090 |
$88,700 |
$16,850 |
$17,780 |
$3,380 |
|
6 |
11-43005 |
1308027020001014110 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
7 |
11-43006 |
1308027020001014120 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
8 |
11-43007 |
1308027020001014130 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
9 |
11-43008 |
1308027020001014140 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
10 |
11-43009 |
1308027020001014150 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
11 |
11-43010 |
1308027020001014160 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
12 |
11-43011 |
1308027020001014170 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
13 |
11-43012 |
1308027020001014180 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
14 |
11-43013 |
1308027020001014190 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
15 |
11-43014 |
1308027020001014200 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
16 |
11-43015 |
1308027020001014210 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
17 |
11-43016 |
1308027020001014220 |
$88,800 |
$16,870 |
$17,780 |
$3,380 |
|
18 |
11-43017 |
1308027020001014500 |
$89,500 |
$17,010 |
$17,780 |
$3,380 |
|
|
|
Totals |
$1,602,200 |
|
$320,000 |
|
These same parcels, although identified with a single State Tax Commission appeal number, are valued by the Board of Equalization and taxpayer, for tax year 2013, as follows:
|
|
Appeal No. |
Parcel Number |
BOE TVM |
A.V. |
CP Proposed TVM |
CP Proposed A.V. |
|
1 |
13-43001 |
1308027020001014020 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
2 |
|
1308027020001014030 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
3 |
|
1308027020001014050 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
4 |
|
1308027020001014080 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
5 |
|
1308027020001014090 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
6 |
|
1308027020001014110 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
7 |
|
1308027020001014120 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
8 |
|
1308027020001014130 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
9 |
|
1308027020001014140 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
10 |
|
1308027020001014150 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
11 |
|
1308027020001014160 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
12 |
|
1308027020001014170 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
13 |
|
1308027020001014180 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
14 |
|
1308027020001014190 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
15 |
|
1308027020001014200 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
16 |
|
1308027020001014210 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
17/p> |
|
1308027020001014220 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
18 |
|
1308027020001014500 |
$110,000 |
$20,900 |
$29,170 |
$5,540 |
|
|
|
Totals |
$1,980,000 |
|
$525,000 |
|
The subject properties are 18 single family residences built in approximately 2004. Each residence is of class D, wood frame with brick exteriors on concrete foundations.Each residence contains 1,447 square feet of finished living area with a 420 square foot two car garage.The living area is divided into 3 bedrooms and 2 bathrooms.The properties are in average to good condition. Other amenities include a patio and a laundry room.Lot sizes range from 0.16 to 0.37 acres.
On April 20, 2005 a “Low Income Housing Tax Credit Land Use Restriction Agreement” was recorded for the subject property.The agreement was between Missouri Housing Development Commission (MHDC) and Park West Estates, LP.By the terms of the agreement, MHDC allocated low income housing tax credits to the project in exchange for the owner’s agreement to be regulated by MHDC. The term of the agreement was for 15 years.The owner agreed the units are to be both rent restricted and occupied by individuals or families whose income is 60% or less of the area median gross income. The amount of the tax credits given and the percentage of market rent the owner is allowed to charge are not identified in the Land Use Restriction Agreement. If the property is sold within the contract period, the new owner must also meet MHDC requirements; except that a tenant in good standing, after 15 years, can purchase their living unit at the fair market value, less a discount for years of residency in excess of 4 years.The fair market value of the home is based upon an appraisal prepared by a single family home appraiser actively engaged in doing single family home appraisals for an MHDC approved single family mortgage lender. (Land Use Restriction Agreement, page 20, Ex 4, page 113)
Park West Estates II, 2011 and 2013
Park West II consists of 19 single family houses located on Park Lane and Birch Streets in Butler, Bates County, Missouri.State Tax Commission Appeals No. 11-43018 through 11-43036 are identified by the Assessor and valued by the Board of Equalization and taxpayer, for tax year 2011, as follows:
|
|
Appeal No. |
Parcel Number |
BOE TVM |
A.V. |
CP Proposed TVM |
CP Proposed A.V. |
|
1 |
11-43018 |
1308027020001014290 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
2 |
11-43019 |
1308027020001014300 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
3 |
11-43010 |
1308027020001014310 |
$54,210 |
$10,300 |
$25,780 |
$4,900 |
|
4 |
11-43021 |
1308027020001014320 |
$52,780 |
$9,990 |
$25,780 |
$4,900 |
|
5 |
11-43022 |
1308027020001014330 |
$50,890 |
$9,670 |
$25,780 |
$4,900 |
|
6 |
11-43023 |
1308027020001014340 |
$50,890 |
$9,670 |
$25,780 |
$4,900 |
|
7 |
11-43024 |
1308027020001014350 |
$52,000 |
$9,880 |
$25,780 |
$4,900 |
|
8 |
11-43025 |
1308027020001014360 |
$54,420 |
$10,340 |
$25,780 |
$4,900 |
|
9 |
11-43026 |
1308027020001014390 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
10 |
11-43027 |
1308027020001014400 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
11 |
11-43028 |
1308027020001014410 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
12 |
11-43029 |
1308027020001014420 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
13 |
11-43030 |
1308027020001014430 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
14 |
11-43031 |
1308027020001014440 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
15 |
11-43032 |
1308027020001014450 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
16 |
11-43033 |
1308027020001014460 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
17 |
11-43034 |
1308027020001014470 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
18 |
11-43035 |
1308027020001014480 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
19 |
11-43036 |
1308027020001014490 |
$51,680 |
$9,820 |
$25,780 |
$4,900 |
|
|
|
Totals |
$987,030 |
|
$490,000 |
|
These same parcels, although identified with a single State Tax Commission appeal number, are valued by the Board of Equalization and taxpayer, for tax year 2013, as follows:
|
|
Appeal No. |
Parcel Number |
BOE TVM |
A.V. |
CP Proposed TVM |
CP Proposed A.V. |
|
1 |
13-43002 |
1308027020001014290 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
2 |
|
1308027020001014300 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
3 |
|
1308027020001014310 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
4 |
|
1308027020001014320 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
5 |
|
1308027020001014330 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
6 |
|
1308027020001014340 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
7 |
|
1308027020001014350 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
8 |
|
1308027020001014360 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
9 |
|
1308027020001014390 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
10 |
|
1308027020001014400 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
11 |
|
1308027020001014410 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
12 |
|
1308027020001014420 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
13 |
|
1308027020001014430 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
14 |
|
1308027020001014440 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
15 |
|
1308027020001014450 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
16 |
|
1308027020001014460 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
17 |
|
1308027020001014470 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
18 |
|
1308027020001014480 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
19 |
|
1308027020001014490 |
$110,000 |
$20,900 |
$29,470 |
$5,600 |
|
|
|
Totals |
$2,090,000 |
|
$560,000 |
|
The subject properties are 19 single family residences built in approximately 2010 and 2011 (Complainants’ appraisal reference a completion date of 2011 but also reports income from 2010.Ex 5, pg 39).Each residence is of class D, wood frame with brick exteriors on concrete foundations. Each residence contains 1,447 square feet of finished living area with a 420 square foot two car garage.The living area is divided into 3 bedrooms and 2 bathrooms.The properties are in average to good condition.Other amenities include a patio and a laundry room.Construction costs were $2,931,129. (Ex. 5, page 47)
On August 10, 2010, a “Low Income Housing Tax Credit Land Use Restriction Agreement” was recorded for the subject property.The agreement was between Missouri Housing Development Commission (MHDC) and Park West Estates II, LP.By the terms of the agreement, MHDC allocated low income housing tax credits to the project in exchange for the owner’s agreement to be regulated by MHDC. The term of the agreement was for 29 years.The owner agreed the units are to be both rent restricted and occupied by individuals or families whose income is 60% or less of the area median gross income.
The percentage of market rent the owner is allowed to charge is not specifically identified in the Land Use Restriction Agreement, other than it being a percentage of the tenant’s income.Complainant is entitled to $332,500 in state tax credits.Federal tax credits are not specified. If the property is sold within the contract period, the new owner must also meet MHDC requirements; except that a tenant in good standing, after 15 years, can purchase their living unit at the fair market value, less a discount for years of residency. (Ex. 5, pg 81)
FINDINGS OF FACT
1.Jurisdiction over this appeal is proper.Complainants timely appealed to the State Tax Commission from the decisions of the Bates County Board of Equalization.The cases were submitted for determination upon documents.
2.The subject properties are all brick, single family, ranch style homes containing three bedrooms and two baths, identified by the parcel numbers set out above.Eighteen of the homes were built in 2004 and are designated as Park West Estates I.Nineteen of the homes were built in 2010 and are designated as Park West Estates II. All are designated are low income, rent restricted units for tenants whose income is 60% or less of the “area median gross income”, adjusted for family size.Rent cannot exceed 30% of the income limitation applicable to the unit. Occupancy is at 100%.This is believed to be a stabilized level. (Ex 4 pg 32, Ex 5 pg 33)
3.Current appraisal standards recognize three basic approaches to real estate value.These are identified as the Cost, Income and Sales Comparison Approaches. (Ex4 pg 33, Ex 5 pg 34) Complainants’ appraiser presented only the “Maryville Properties” income approach, as a jurisdictional exception to the standard approaches to value.Complainants’ appraiser’s value determinations were based upon actual income, actual expenses and a capitalization rate of 7.5% derived from the property funding. (Ex.4, pg. 37, Ex. 5, p 38)These calculations resulted in the values listed above. Respondent indicated that a cost approach based upon the Honeycutt Appraisal method yielded a market value per home of $123,600.Respondent further testified that he added Complainants’ income approach value of $21,275 per home to their actual cost of $185,387 per home, divided that by two and came to a value of $103,331 per home. (Respondent’s Ex. D)
4.Complainants’ evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money on the relevant tax days.
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.)
Subsidized Housing
In TV Apartments L.P. v. Bushmeyer, STC Appeal No. 09-20117, (March 13, 2012 Decision, Affirming Decision July 24, 2012) after considering all of the economic realities associated with the subject property, it was found that:
Each valuation approach is applied with reference to a specific property’s use.Apartments and duplexes are valued using an income approach, based upon market income.Low income housing property should be valued and assessed based upon the same criteria as any other housing in the state.The value of housing should not be discounted because the owner has agreed to enter into unfavorable financing and/or rental agreements.
* * *
For ad valorem tax purposes, the fee simple interest in the property is appraised, i.e. as if all ownership rights and interests are attached. Whether or not a seller would be willing to sell the property for less than the loan amount or would be unable contractually to sell the property with HUD’s approval, is not part of this appraisal problem.” (emphasis added)
This decision was affirmed by the Missouri Court of Appeals. (____ S.W.3d____, Mo. App. ED April 15, 2014)
The weight to be given to certain economic realities has been addressed by our courts.In Nance v. State Tax Commission,[18 SW3d 611 (Mo. App. WD. 2000)] the Court specifically affirmed the Commission’s determination that:
“ . . .projected actual income may be adjusted to reflect current market conditions where actual rent substantially distorts the property’s true value . . .”
Further, citing Missouri Baptist Children’s Home v. State Tax Commission, 867 SW2d 510 (Mo Banc 1993) the Nance court found “[P]lacing a value on real property is not an exact science. When relying on the income capitalization method to determine value, the fact finder necessarily has some discretion to decide what weight will be given to actual rent, as opposed to potential market rent, in reaching its decision.Where the lease was prudent when entered into, the Commission is quite correct to consider actual rent as a factor in determining the value of the property under the income capitalization method.
The income approach may be too speculative to be a reliable measure of value when actual rent substantially distorts the property’s true value . . .” (emphasis added)
Specifically, under the MBCH analysis, a prudent lease is one that gives the property value.The . . .factors present in MBCH (i.e., the long-term lease was necessary to obtain long-term financing which made the improvements possible, and/or the leaseholder was a large, nationally known retailer whose presence enhances nearby property values) did not exist in Nance and, therefore, the Commission was not bound by the income generated by that lease.
Finally, the Nance Court stated:
“ . . .[I]f a property owner could unilaterally alienate his property by lease or by other actions that make the property have no value to him, the taxing authority could not collect appropriate property tax because of the taxpayer’s unilateral action.If the property were not valued and assessed as unencumbered by the lease, the taxpayer appears to be afforded a tax cut because of the poor judgment . . .” (emphasis added)
Official and Judicial Notice
Agencies shall take official notice of all matters of which the courts take judicial notice. (Section 536.070 (6))
Courts will take judicial notice of their own records in the same cases. State ex rel. Horton v. Bourke, 129 S.W.2d 866, 869 (1939); Barth v. Kansas City Elevated Railway Company, 44 S.W. 788, 781 (1898).In addition, courts may take judicial notice of records in earlier cases when justice requires (Burton v. Moulder, 245 S.W.2d 844, 846 (Mo. 1952); Knorp v. Thompson, 175 S.W.2d 889, 894 (1943); Bushman v. Barlow, 15 S.W.2d 329, 332 (Mo. banc 1929)or when it is necessary for a full understanding of the instant appeal. State ex rel St. Louis Public Service Company v. Public Service Commission, 291 S.W.2d 95, 97 (Mo. banc 1956). Courts may take judicial notice of their own records in prior proceedings involving the same parties and basically the same facts. In re Murphy, 732 S.W.2d 895, 902 (Mo. banc 1987); State v. Gilmore, 681 S.W.2d 934, 940 (Mo. banc 1984); State v. Keeble, 399 S.W.2d 118, 122 (Mo. 1966).
Presumptions In Appeals
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 in favor of the Board is not evidence.A presumption simply accepts something as true without any substantial proof to the contrary.In an evidentiary hearing before the Commission, the valuation determined by the Board, even if simply to sustain the value made by the Assessor, is accepted as true only until and so long as there is no substantial evidence to the contrary. The presumption of correct assessment is rebutted when
the taxpayer, or respondent when advocating a value different than that determined by the Board, 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
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. 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).It is the fair market value of the subject property on the valuation date. (Hermel, supra)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. 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.
Duty to Investigate
In order to investigate appeals filed with the Commission, the Hearing Officer has the duty to inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property.The Hearing Officer’s decision regarding the assessment or valuation of the property may be based solely upon its inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties. (Section 138.430.2 RSMo)
Weight to be Given Evidence
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. 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).
Trier of Fact
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. 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).
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).\
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. 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).
Complainants’ Burden of Proof
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.” 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).
Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959Persuasive 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).
Owner’s Opinion of Value
The owner of property is generally held competent to testify to its reasonable market value. Rigali v. Kensington Place Homeowners’ Ass’n, 103 S.W.3d 839, 846 (Mo. App. E.D. 2003); Boten v. Brecklein, 452 S.W.2d 86, 95 (Sup. 1970).The owner’s opinion is without probative value however, where it is shown to have been based upon improper elements or an improper foundation. (Cohen v. Bushmeyer, 251 S.W.3d 345, (Mo. App. E.D., March 25, 2008); Carmel Energy, Inc. v. Fritter, 827 S.W.2d 780, 783 (Mo. App. W.D. 1992); State, ex rel. Missouri Hwy & Transp. Com’n v. Pracht, 801 S.W.2d 90, 94 (Mo. App. E.D. 1990); Shelby County R-4 School District v. Hermann, 392 S.W.2d 609, 613 (Sup. 1965).“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).
Discussion
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. (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).We consider financing which is generally available in the community and the price must represent a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction. (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.) “Objective standards should be used in determining fair market value in the market place.The particular circumstances of the owner are not a proper consideration . . . Investment value is the value of a property to a particular investor, whereas market value is not related to the needs of the individual investors but is objective, impersonal, and detached; investment value is based on subjective, personal parameters . . .” (Maryville Properties
v. Nelson, 83 SW3d 608, 616 WD 2002) In the past, when valuing subsidized housing, we have 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.We have, perhaps, put too much emphasis on actual income when said actual income distorts value.Respondent argues that this results in creating an unconstitutional subclassification of residential real property.This may, or may not be true.But, what is evident
is that the practice of trying to account for those risks and benefits can easily devolve into looking at characteristics of the owner/investor rather than characteristics of the property itself. The owner/investor has chosen to saddle the property with certain risks in order to enjoy certain benefits but the property, itself, is no different than other properties owned without the benefit of special financing and tax credits.
After Lake Ozark Village v. Whitworth, STC Appeal Nos. 97-47000, 99-47003 and 01-47002, parties to appeals involving subsidized housing properties utilized the Maryville Properties v. Nelson, STC Appeal No. 97-74500 methodology for determining value – as modified by the Western District Court of Appeals.At that time, subsidized housing typically included extremely low interest, low equity loans which had subsidized income, subsidized mortgages, subsidized interest and non-recourse promissory notes.In attempting to follow the directive of Missouri Baptist Children’s Home to consider all relevant economic facts, the Commission instructed assessors to value subsidized housing based upon actual income, actual expenses and capitalization rates.The Maryville formula resulted in a 6% to 20% reduction in value in Lake Ozark, depending upon the year considered.
This shorthand methodology operated effectively until 2005 when equity positions were no longer the 3% to 5% found in the Maryville Properties/Lake Ozark cases but had now skyrocketed to 81%.(Moberly Plaza and Moberly Plaza II v. Tregnago, STC appeals 03-81500 and 03-81501)While, at the time of Maryville Properties/Lake Ozarkit was possible for a typical investor to obtain a 3% or 5% loan in the open market, we have never seen an instance where a typical investor finances a loan with an 81% equity position.The shorthand methodology contemplated a low equity position with a market return rate and a high financed position with an extremely low interest rate.But, times change.
The impact of the increase in equity position was illustrated in the Moberly Plaza cases, we were called upon to value two substantially similar groupings of low income housing.Besides age, and equity rate, the only difference in the two was that the older improvement had 24 units and the newer improvement had 20 units.We found that, under the Maryville formula, an increase in the equity position of the newer improvement resulted in it being valued substantially less than the older improvement.And, both improvements would have been valued substantially higher if they had had 3% to 5% equity positions instead of 45% and 81% equity positions.
The less a financing scheme looks like a typical market derived financing, the more it resembles a subjective valuation methodology involving value in use – which has no place in ad valorem tax process. “Objective standards should be used in determining fair market value in the market place.The particular circumstances of the owner are not a proper consideration….Investment value is the value of a property to a particular investor, where as market value is not related to the needs of the individual investors but is objection, impersonal, and detached; investment value is based on subjective, personal parameters….(Maryville Properties v. Nelson, 83 SW3d 608, 616 WD 2002).
In Park West Estates I, the original construction cost was $1,567,135 with a debt financing of $396,650 and equity position of 74.7%.Complainant asks for a value for 2011 of $320,000 and a value for 2013 of $525,000.
In Park West Estates II, the original construction cost was $2,931,129 while the mortgage was only $282,000 indicating a 90.4% equity position.Complainant asks for a value for 2011 of$490,000 and a value for 2013 of $560,000.
Park West Estates II was completed during 2011.Would a typical investor spend almost $3 million for a property that only had a market value of $490,000 before it is even completed?Of course not.Either the benefits and burdens under the Maryville formula are not being measured appropriately; or the income approach substantially distorts market value to a point of no longer being a good indicator of value.Arguably, facts surrounding subsidized housing and its financing have gone so far beyond typical market behavior that an income approach based upon subjective facts associated with these properties can never reasonably capture value.
Although the Commission has wide discretion in determining appropriate valuation methodology, the Respondent’s assertion that the Maryville formula creates an unconstitutional subclass is at least entitled to some consideration in the instance cases.Here we have brand new or nearly new single family homes which cost as much as $185,000 each to build and which Complainant asks us to value at $29,000.We decline to endorse a methodology that so clearly distorts value.Even if, for argument’s sake, we presume that subsidized housing costs a little more to construct than typical housing, no one can reasonably believe that a brand new three bedroom, two bath, brick single family residence would sell for only $29,000 on the tax day.
While public policy may favor subsidized housing, and certain benefits are provided accordingly through various different laws, there is nothing in the ad valorem tax law that gives owners of this type of property more benefits than they already enjoy through tax credits and other benefits associated with specialized funding.The burden still remains upon the taxpayer to demonstrate that risks and benefits impact market value.
ORDER
The Board’s market value for the subject properties is AFFIRMED.
SO ORDERED this 21st day of May, 2014.
STATE TAX COMMISSION OF MISSOURI
Luann Johnson
Senior Hearing Officer