Prairie View Estates LP v. Gloria Gourley, Assessor Newton County

January 26th, 2016

State Tax Commission of Missouri

 

PRAIRIE VIEW ESTATES, LP )  
  )  
             Complainant, )  
  )  
v. )      Appeal Number 14-74000 through 14-74011
  )  
GLORIA GOURLEY, ASSESSOR, )  
NEWTON COUNTY, MISSOURI, )  
  )  
             Respondent. )  

 

DECISION AND ORDER

HOLDING

Decisions of the County Board of Equalization sustaining the assessments made by the Assessor are 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 establish a true value for tax year 2014 of $52,017, residential assessed value of $9,880 for each of the twelve (12) subject properties.

Complainant appeared by attorney Andrew Coulson.

Respondent appeared in person and by counsel Jacob Skouby.

Case heard and decided by Senior Hearing Officer John Treu.

ISSUE

Complainant appeals, on the ground of overvaluation, the decision of the Newton County Board of Equalization, which sustained the valuation of the subject properties. The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2013 for tax year 2014.  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

  1. Jurisdiction. Jurisdiction over this appeal is proper.  Complainant timely appealed to the State Tax Commission from the decision of the Newton County Board of Equalization.
  2. Evidentiary Hearing. The Evidentiary Hearing was held on December 30, 2015 in Newton County, Missouri.
  3. Identification of Subject Property. The subject properties are identified as follows:
14-74000 214017000000002002
14-74001 214017000000002003
14-74002 214017000000002004
14-74003 214017000000002018
14-47004 214017000000002020
14-74005 214017000000002026
14-74006 214017000000002021
14-74007 214017000000002027
14-74008 214017000000002028
14-74009 214017000000002019
14-74010 214017000000002029
14-74011 214017000000002030

 

  1. Description of Subject Properties. The subject properties consist of twelve (12) single family residences in Prairie View Subdivision.  Each has approximately 1,408 square feet of finished living area with a two (2) car attached garage. Each has three (3) bedrooms and two (2) baths.  The exteriors are brick and vinyl.  The structures were constructed in 2013.

All of the twelve (12) properties are subject to a “Low-Income Housing Tax Credit Land Use Restriction Agreement” (LURA) under the Missouri Low Income Housing Tax Credit (LIHTC) program.

  1. Assessment. The Assessor appraised the properties and the Board of Equalization sustained the values of:
Appeal No. True Value
14-74000 $106,800
14-74001 $107,300
14-74002 $106,800
14-74003 $109,400
14-47004 $113,100
14-74005 $113,100
14-74006 $113,600
14-74007 $113,600
14-74008 $109,400
14-74009 $109,900
14-74010 $109,900
14-74011 $107,300

 

  1. Complainant’s Evidence.
Exhibit Description
A Appraisal Report of Rick Muenks
B Written Direct Testimony of Rick Mueks
C Copy of Section 137.076 RSMo
D Multi-Family Sale on 12/24/14
E Summary Calculation

 

All exhibits were received into the evidentiary record without objection

  1. New Construction & Improvement. The property was constructed in 2013 and fully occupied by January 1, 2014.
  2. Respondent’s Evidence. Respondent offered no Exhibits
  3. Presumption of Correct Assessment Rebutted. The 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, 2013 for tax year 2014.

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:

  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 terms of cash in United State dollars or in terms of financial arrangements comparable thereto; and
  5. 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.)

As to the participants and their motivation in regards to market value, true value in money is defined in terms of value in exchange and not value in use. Daly v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973)

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.

In Complainant’s appraisal, the appraiser developed the cost approach and the income approach.  At the Evidentiary Hearing, the appraiser submitted a calculation based upon the guidelines of Section 137.076 RSMo 2015 (Exhibit E)

Cost Approach

            Complainant’s appraiser developed the cost approach.  The cost approach is most appropriate when the property being valued has been recently improved with structures that conform to the highest and best use of the property or when the property has unique or specialized improvements for which there are no comparables in the market.  While reproduction cost is the best indicator of value for newer properties where the actual costs of construction are available, replacement cost may be more appropriate for older properties.  Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 347 (Mo. 2005). (citations omitted).

The appraiser found the cost approach applicable since the improvements would be new and the market for land sales was active.  The appraiser opined a value of $55,800 per unit.

Income Approach

            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. The appraiser developed the income approach based upon discounted cash flow.  The appraiser opined a value of $45,000 per unit.  A capitalization rate of 5.9% was utilized.

Concluded Value in Appraisal

Complainant’s appraiser considered both the income and cost approaches to opine a final opinion of value in his appraisal. He opined a value of $50,400 per unit.

Section 137.076 Valuation

In the appraiser’s calculation pursuant to Section 137.076 RSMo, the appraiser proffered each unit had a Net Operation Income (NOI) of $3,069. The appraiser utilized a capitalization rate of 8.31%.  Based upon such, he opined a value of $36,931 per unit.

Conclusion

For ad valorem purposes, the properties should be valued using actual rents and expenses and looking to the market to develop a capitalization rate. The legislature has given us specific direction on the issue of valuing subsidized property. That direction, in the form of a new paragraph 2 under Section 137.076 RSMo., provides as follows:

  1. 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.

The Complainant’s appraisals provide sufficient information to do so.  The net operating income of $3,069 per unit may be capitalized using the market average of 5.9% capitalization rate utilized in Complainant’s discounted cash flow calculation.  Such capitalization rate accounts for the residual value of the subject properties after all restrictions have expired.  This results in a valuation of $52,017 per home (unit). This valuation is supported by the valuation of Complainant’s appraiser in his original appraisal report ($50,400 per unit).

The Hearing Officer is persuaded that substantial and persuasive evidence supports the aforementioned valuation. The valuations utilizing Section 137.076 RSMo and the valuations using the cost and income approach (discounted cash flow calculation) all fall well in line.

ORDER

The assessed valuations for each of the subject properties as determined by the Assessor and sustained by the Board of Equalization for Newton County for the subject tax day is SET ASIDE.

The assessed value for each of the subject properties for tax year 2014 is set at $9,880.

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 Newton 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 26 day of January, 2016.

STATE TAX COMMISSION OF MISSOURI

 

John J. Treu

Senior Hearing Officer

 

 

I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 26   day of January, 2016, to:

 

 

Jacklyn Wood

Legal Coordinator