State Tax Commission of Missouri
POPLAR BLUFF ASSOCIATES | ) | 09-45500, 11-45501, 13-45503 | |
POPLAR BLUFF PROPERTIES | ) | 11-45500, 13-45502 | |
) | |||
Complainant | ) | ||
) | |||
v. | ) | ||
) | |||
MARION TIBBS, ASSESSOR | ) | ||
BUTLER COUNTY, MISSOURI, | ) | ||
) | |||
Respondent | ) |
DECISION AND ORDER
HOLDING
Decision of the County Board of Equalization sustaining the assessment made by the Assessor is SET ASIDE. Substantial and persuasive evidence was presented by Complainant to rebut the presumption of correct assessment by the Board of Equalization and sufficient evidence was presented to allowed establishment of a true value for the subject properties and tax years as follows:
Appeal # | Parcel # | Tax Year | True Market Value |
09-45500 | 13-02-04.0-002.004-008.000 | 1/1/09 | $1,355,115 |
11-45501 | 13-02-04.0-002.004-008.000 | 1/1/11 | $1,175,965 |
13-45503 | 13-02-04.0-002.004-008.000 | 1/1/13 | $1,091,964 |
11-45500 | 13-04-19.0-000-000-051.000 | 1/1/11 | $834,349 |
13-45502 | 13-04-19.0-000-000-051.000 | 1/1/13 | $1,019,821 |
Complainant appeared by attorney Richard Dvorak.
Respondent appeared in person and by attorney Trish Hughes.
Case heard and decided by Senior Hearing Officer John J. Treu.
ISSUE
Complainant appeals, on the ground of overvaluation, the decision of the Butler County Board of Equalization, which sustained the valuation of the subject properties. The Commission takes these appeals to determine the true value in money for parcel 13-02-04.0-002.004-008.000 as of January 1, 2009, January 1, 2011 and January 1, 2013 and for parcel 13-04-19.0-000-000-051.000 as of January 1, 2011 and January 1, 2013. The value as of January 1 of the odd numbered year remains the value as of January 1 of the following even numbered year unless there is new construction and improvement to the property. 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 this appeal is proper. Complainant timely appealed to the State Tax Commission from the decisions of the Butler County Board of Equalization.
- Evidentiary Hearing. The Evidentiary Hearing was held on February 18 and 19, 2016, in Butler County, Missouri.
- Identification of Subject Property. The subject property is identified by map parcel numbers 13-02-04.0-002.004-008.000 and 13-04-19.0-000-000-051.000. They are further identified as Idlewild Estates, Poplar Bluff, MO and Oak View Apartments, Poplar Bluff, MO respectively. (Exhibits A (in each appeal), B (in each appeal), 1, 2, Written Direct Testimony and Testimony)
- Description of Subject Property. Idlewild Estates consists of a 8.47 acre tract of land improved by a multi-family dwelling consisting of 21 buildings with a total of 40 units with net rentable area of 39,860 square feet. The improvement was constructed in 2005. The construction was funded by low income housing tax credits (LIHTC). The owners entered into an agreement subject to rent and land use restrictions. The housing is designated for persons for individuals and families whose income is sixty percent or less of the area median gross income (Exhibit 7). The units were 100% occupied in 2009, 2011 & 2013. The net operating income for the subject for the year 2008 was $106,241. The net operating income for the subject for the year 2010 was $83,002. The net operating income for the subject for the year 2012 was $85,610.
Oak View Apartments consists of a 3.92 acre tract of land improved by a multi-family dwelling of 48 units with net rentable area of 43,712 square feet. The improvement was constructed in 1999. The subject is a Low Income Housing Tax Credit garden style apartment property. The construction was funded by low income housing tax credits. The owners entered into an agreement subject to rent and land use restrictions. The housing is designated for persons for individuals and families whose income is fifty percent (50%) or less of the area median gross income for at least forty percent (40%) of the units and for individuals and families whose income is sixty percent (60%) or less of the area median gross income for at least 60% percent of the units (Exhibit 16) The units were 96% occupied in 2011 and 94% occupied in 2013. The net operating income for the subject for the year 2010 was $65,413. The net operating income for the subject for the year 2012 was $79,954. (Exhibits A (in each appeal), B (in each appeal), 1, 2, Written Direct Testimony and Testimony)
The appropriate market direct capitalization rate utilized to calculate the true market value of the subject properties is determined to be 7.84%, which was the actual loaded capitalization rate on Oak View Apartments (Appeal #11-45500, Exhibit A, Page 49 & Appeal #13-45502, Exhibit A, Page 50). Such is deemed to be an appropriate rate for both Idlewild Estates and Oak View Apartments as such is a loaded rate existent within the subsidized housing market. Such rate does not exceed the average capitalization rate in the Poplar Bluff Market. (See Conclusions of Law and Decision for further explanation)
- Assessment. The Butler County Board of Equalization appraised Idlewild Estates at $2,668,060 True Market Value, for tax year 2009; $3,648,494 for tax year 2011 and $3,648,490 for tax year 2013. The Butler County Board of Equalization appraised Oak View Apartments at $2,425,878, True Market Value, for tax year 2011 and $24,258,737 for tax year 2013. (Complaints for Review of Assessments)
- Complainant’s Evidence.
Exhibit | Description |
A 09-45500 | Appraisal |
A 11-45501 | Appraisal |
A 13-45503 | Appraisal |
B 09-45500 | Written Direct Testimony of Troy Smith |
B 11-45501 | Written Direct Testimony of Troy Smith |
B 13-45503 | Written Direct Testimony of Troy Smith |
A 11-45500 | Appraisal |
A 13-45502 | Appraisal |
B 11-45500 | Written Direct Testimony of Kenneth Jaggers |
B 13-45502 | Written Direct Testimony of Kenneth Jaggers |
All exhibits were admitted into the evidentiary record to be given such weight as the Hearing Officer deemed just and proper.
- Respondent’s Evidence.
Exhibits for 09-45500, 11-45501 & 13-45503 | Description |
WDT | Written Direct Testimony of Jon Karnes |
WDT | Written Direct Testimony of Marion Tibbs |
1 | Appraisal |
4 | Butler County Sales Ratio |
5 | Circuit Court Decision |
6 | Court of Appeals Decision |
7 | LIHTC Restrictions |
8 | Transfers MHDC List |
9 | Excerpt from State Tax Commission Assessor’s Manual |
10 | Information on Low Income Housing Programs |
11 | Tax Credit Example |
12 | News Articles Regarding Low Income Housing |
13 | Excerpt from Daniel Craig’s 2013 Capitalization Rate Study |
14 | Profit Loss |
15 | Value Approach |
WDT Rebuttal | Rebuttal Written Direct Testimony of Marion Tibbs |
All exhibits were admitted into the evidentiary record to be given such weight as the Hearing Officer deemed just and proper.
Exhibit for 11-45500 & 13-45502 | Description |
WDT | Written Direct Testimony of Randy Rahlmann |
WDT | Written Direct Testimony of Marion Tibbs |
2 | Appraisal |
3 | Qualifications of Randy Rahlmann |
4 | Butler County Sales Ratio |
5 | Circuit Court Decision |
6 | Court of Appeals Decision |
7 | LIHTC Restrictions |
8 | Transfers MHDC List |
9 | Excerpt from State Tax Commission Assessor’s Manual |
10 | Information on Low Income Housing Programs |
11 | Tax Credit Example |
12 | News Articles Regarding Low Income Housing |
13 | Excerpt from Daniel Craig’s 2013 Capitalization Rate Study |
14 | Profit Loss |
15 | Value Approach |
16 | LURA Agreement |
WDT | Rebuttal & Supplemental Written Direct Testimony of Marion Tibbs |
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. Evidence presented was 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, January 1, 2011 and January 1, 2013.
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.
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
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).
“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:
- buyer and seller are typically motivated;
- both parties are well informed and well advised, and both acting in what they consider their own best interests;
- a reasonable time is allowed for exposure in the open market;
- payment is made in terms of cash in United State dollars or in terms of financial arrangements comparable thereto; and
- The price represents a normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.” Property Assessment Valuation, IAAO, pp 18-19.
In regards to financing and the definition of market value, 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.)
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).
Subsidized Housing
“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. 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 . . .”
“ . . .[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).
Low Income Housing Tax Credits Are Intangibles
“LIHTCs make no direct contribution to the market value of these housing projects. They are intangible property.” Maryville Properties, L.P. v. Nelson, 83 S.W.3d 608 (Mo. App. WD 2002). Consequently, any argument that the tax credits which Complainants receive should be factored into the market value of the property, are not well taken.
Discussion
Valuation of Different Properties Within Various Classifications
Respondent asserts that by utilizing a “different income approach” in valuing subsidized housing the State Tax Commission creates an unconstitutional sub-classification. Residential properties are valued based on the sales comparison approach, the income approach, the cost approach and a combination of approaches. Proper valuation methods are delegated by the State Tax Commission and the income approach has been recognized by Missouri Courts.
Properties are unique and thus a valuation method that may be appropriate for one property may not be appropriate for another. The appropriate method to value a single family residential dwelling is not necessarily the appropriate method to value a multi-family dwelling. The unique nature of individual properties must be considered when determining an appropriate valuation methodology. In the present appeals, the subject properties are Low Income Housing Tax Credit (LIHTC) properties, otherwise known as subsidized housing. Such type properties are unique; LIHTC (Low Income Housing Tax Credits) owners have willingly participated in a carrot and stick program – accepting various restrictions, including restricted rents, in exchange for economically desirable benefits. A valuation methodology should consider the unique characteristics of the property.
Methodology
The five appraisals developed by the Complainant’s appraisers are illustrative of forming an opinion on housing developed through the use of low income tax credits. Tax policy favors taxation and any exemption is the exception.
Subject properties herein should be valued using the income approach, utilizing the actual rents and expenses and looking to the market to develop a capitalization rate. In 2015, the legislature provided specific direction on the issue of valuing subsidized property, Section 137.076 RSMo., provides as follows:
- 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 the 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.
Whether such statute is required to be applied retroactively or is only required to be applied on a prospective basis is not pertinent as the Hearing Officer, whether compelled to utilize such statute or not, believes, that the utilization of such methodology is the most appropriate approach, irrespective of whether the statute (137.076 RSMo) existed or not.
The Complainant’s appraisals provide sufficient information to allow the Hearing Officer to utilize the methodology set forth in Section 137.076 RSMo.
Subject Properties
Regarding parcel 13-04-19.0-000-000-051.000 Complainant’s appraiser utilized both the sales comparison approach and the income approach. Under the income approach certain projections were made and market expenses were considered. For 2011 the appraiser opined a value of $1,750,000 under the sales comparison approach and $670,000 under the income approach. For 2013 the appraiser opined a value of $1,200,000 under the sales comparison approach and $970,000 under the income approach.
Regarding parcel 13-02-04.0-002.004-008.000, Complainant’s appraiser utilized both the cost approach and the income approach. Under the income approach certain projections were made and market expenses were considered. The net operating income for the subject for the year 2008 was $106,241. The net operating income for the subject for the year 2010 was $83,002. The net operating income for the subject for the year 2012 was $85,610. For 2009 the appraiser reached the same valuation of $1,020,000 under both approaches. For 2011 the appraiser reached the same valuation of $1,030,000 under both approaches. For 2013 the appraiser reached the same valuation of $1,060,000 under both approaches.
Capitalization Rate
The appropriate market direct capitalization rate to utilize to calculate the true market value of the all of the subject properties is 7.84%, which was the actual loaded capitalization rate on Oak View Apartments (Appeal #11-45500, Exhibit A, Page 49 & Appeal #13-45502, Exhibit A, Page 50). The loaded rate is consistent within the subsidized housing market and does not exceed the average capitalization rate in the Poplar Bluff Market. The posited loaded capitalization rate by Respondent’s appraiser for valuing the Oak View Apartments was 9.8091% (rounded by Appraiser to 10%). The posited loaded capitalization rate by Respondent for valuing Idlewild Estates, without a deduction for “Equity Build-Up” (Respondent’s Appraiser deducted 1.9% for Equity Build-Up), was 9.017%. The deduction for Equity Build-Up was not deemed persuasive by the Hearing Officer for utilization in the income approach. Consequently, the 7.84% utilized below for the valuation of the LIHTC properties was well below[1] the 9.8091% and 9.017% within Respondent’s appraisals. By utilizing an appropriate capitalization rate, the unique nature of various properties can be accounted for in reaching a True Market Valuation.
Valuations
After review of the actual income and expenses of the subject properties for the pertinent periods of time and by utilization of the loaded capitalization rate of 7.84%, which again is deemed, in the discretion of the Hearing Officer, to be an appropriate rate for both Idlewild Estates and Oak View Apartments, the following true market and assessed value determinations are made:
Appeal # | Parcel # | Tax Year | True Market Value | Assessed Value |
09-45500 | 13-02-04.0-002.004-008.000 | 1/1/09 | $1,355,115 | $257,471 |
11-45501 | 13-02-04.0-002.004-008.000 | 1/1/11 | $1,175,965 | $223,433 |
13-45503 | 13-02-04.0-002.004-008.000 | 1/1/13 | $1,091,964 | $207,473 |
11-45500 | 13-04-19.0-000-000-051.000 | 1/1/11 | $834,349 | $158,527 |
13-45502 | 13-04-19.0-000-000-051.000 | 1/1/13 | $1,019,821 | $193,766 |
ORDER
The assessed valuation for parcels 13-02-04.0-002.004-008.000 and 13-04-19.0-000-000-051.000 by the Board of Equalization for Butler County for the subject tax days are SET ASIDE.
The assessed value for parcel 13-02-04.0-002.004-008.000 for tax year 2009 is set at $257,471, for tax year 2011 is set at $223,433 and for tax year 2013 is set at $207,473.
The assessed value for parcel 13-04-19.0-000-000-051.000 for tax year 2011 is set at $158,527 and for tax year 2013 is set at $193,766.
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 Butler 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 16th day of June, 2016
STATE TAX COMMISSION OF MISSOURI
John Treu
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been emailed on this 16th day of June, 2016, to: Richard Dvorak, Attorney for Complainants,
Patricia Hughes, Attorney for Respondent, trish.hughes@libertylawoffices.com
Marion Tibbs, Assessor
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
[1] Capitalization rates have an inverse relation to values. A higher capitalization rate results in a lower value.