State Tax Commission of Missouri
|SEVENS ST. LOUIS, LLC,||)|
|)||Appeal Number 07-11368|
|JAKE ZIMMERMAN, ASSESSOR,||)|
|ST. LOUIS COUNTY, MISSOURI,||)|
DECISION AND ORDER
Decision of the County Board of Equalization reducing the assessment made by the Assessor is SET ASIDE. Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization. True value in money for the subject property for tax years 2007 and 2008 is set at $18,465,000, commercial assessed value of $5,428,710.
Complainant appeared by counsel Thomas Campbell.
Respondent appeared by counsel Ed Corrigan
Case heard and decided by Hearing Officer Maureen Monaghan.
Complainant appeals, on the grounds of overvaluation or discrimination, the decision of the St. Louis County Board of Equalization, which reduced the valuation of the subject property. 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 decision of the St. Louis County Board of Equalization.
- Evidentiary Hearing. The Evidentiary Hearing was held on March 25, 2014 at the St. Louis County Administration Building, Clayton, Missouri.
- Identification of Subject Property. The subject property is identified by map parcel number 19K640987. It is further identified as 7777 Bonhomme Ave, Clayton, Missouri.
- Description of Subject Property. The subject property consists of a 1.16 acre tract of land improved by a 24 story, multi-tenant office building, with 200,936 square feet of gross rentable area. The structure has 331,620 square feet or eight stories of parking garage. The property, as of the date of valuation, was 36 years old and in average condition.
- Sale of Subject. The subject property was purchased in November 2007 for $28,250,000.
- Assessment. The Assessor appraised the property at $28,674,800, an assessed commercial value of $9,175,940. The Board of Equalization reduced the true value to $24,500,00, an assessed commercial value of $7,840,000
- Complainant’s Evidence.
|B||Written Direct Testimony of John Hottle Certified Appraiser|
|C||Written Direct Testimony of Michael Robinson Certified Appraiser|
|D||Page 73 etc of the Appraisal Report – Exhibit A|
All Exhibits were admitted into evidence.
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2007, to January 1, 2008, therefore the assessed value for 2007 remains the assessed value for 2008. Section 137.115.1, RSMo.
- Respondent’s Evidence.
|1||County Sales Verification|
|2||Property Record Card of Rental Comp 2|
|3||Table on Rents in Clayton|
|4||Coldwell Banker 1st quarter 2007|
|5||Coldwell Banker 4th quarter 2006|
|6||St. Louis Business Journal Leasing Guide|
|7||Co-Star listing of Subject|
|8||Property Record Card for Sales Comp 2|
|9||Sales packet for Sales Comp 3|
|10||Written Direct Testimony|
|11||Property Record Card for Subject|
The Respondent submitted no exhibits for a case-in-chief. The Exhibits submitted by the Respondent were submitted as rebuttal evidence.
|Exhibit||Purpose Admitted||Admitted into Evidence for:|
|1||Sale of subject verification||Admitted as to whether verification of the sale was possible|
|2||Square foot area of Rent Comp #2||Not admitted. Witness was not cross- examined on the issue.|
|3||Rents in the Clayton Market||Not admitted. Witness was not cross- examined on the issue.|
|4||Information on the market in 2007||Admitted. The Hearing Officer has not given it much weight as both appraisers stated that the sources only provide generalized information|
|7||Whether Subject was Class A office building||Admitted|
|8||Square foot area of Sale 2||Admitted although witness already corrected the report prior to the exhibit being offered|
|9||Rebuts testimony of sale price of $40,100,000 actual was $39,500,000||Admitted as evidence that the sale price was reported as $39,500,000|
|10||Foundation of Rebuttal Exhibits||For exhibits admitted not as an opinion of value|
|11||Sales Verification||Not admitted – hearsay|
- Presumption of Correct Assessment Rebutted – Value Established. The evidence presented by Complainant, testimony of two Missouri Certified General Appraisers, was substantial and persuasive to both rebut the presumption of correct assessment by the Board and to establish the fair market value of the subject property to be $18,465,000,
- Median Level of Assessment. The State Tax Commission previously found that the median level of assessment for commercial property in St. Louis County in 2007 is 29.4%. The previous decision is incorporated by reference.
CONCLUSIONS OF LAW AND DECISION
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.
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).
Complainants’ Burden of Proof
In order to prevail, Complainants must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2007. Hermel, supra. Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse, supra. Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).
Upon presentation of the Complainants’ evidence the presumption in this appeal disappeared. The Complainant presented the opinion of value of two Missouri State Certified Appraisers. Appraiser Michael Robinson is a certified appraiser with 12 years of experience. Appraiser John Hottle is a certified appraiser with 40 year of appraisal experience, MAI designation, SRA designation, and member of St. Louis Metropolitan Real Estate Board.
The testimony and report is also found to be substantial and persuasive. The appraisal established what the fair market value that should have been placed on the property. No evidence was presented that rebutted the conclusion of value in Complainants’ appraisal.
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). 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).
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:
- 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 cash or its equivalent.
- 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.
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).
“Traditionally, testimony that is given by a witness who relates not what he or she knows personally, but what others have said, and that is therefore dependent upon the credibility of someone other than the witness. Such testimony is generally inadmissible under the rules of evidence.” Black’s Law Dictionary The Courtroom Handbook on Missouri Evidence sets forth that hearsay is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted follows the definition given by the Federal Rules and cited by McCormick. The out of court statement can take the form of either oral or written assertions. Therefore, documents which make assertions of facts are hearsay, just as well, as the speech of another person.
The hearsay rule provides that “no assertion offered as testimony can be received unless it is or has been opened to test by cross-examination or an opportunity for cross-examination, except as otherwise provide by the rules of evidence, by court rules or by statute.” The rationale behind the rule is quite simply that out of court hearsay statements are not made under oath and cannot be subject to cross-examination. Accordingly, when various documents, such as but not limited to, Internet, newspaper and magazine articles are offered as exhibits in a hearing before the Commission, unless the document falls within one of the exceptions to the hearsay rule, upon objection such must be excluded.
The Respondent argues that Exhibit 1 – County Sales Verification – and the sales verification codes on Exhibit 11 should be admitted into evidence as an exception to the hearsay rule under business record or public record exception. To be considered an exception to the hearsay rule, the document must be kept pursuant to a duty imposed – a legal requirement to record those facts. The Court is required to ask (1) whether the record or report is required to be kept or prepared, (2) whether its mode and time of preparation is readily evident, (3) whether it is kept in the regular course of business and (4) whether the sources of information are sufficient and reliable. Even if a document may be considered an exception under the hearsay rule, it will not be admissible if statements or information contained therein are inadmissible hearsay. State v. Sutherland, 939 S.W.2d 373 (SCT 1997)
The County’s sales verification report is not required by statute. The sales verification is performed after the filing of a certification of value which is required by county ordinance. The sales verification document is an internal document of the Assessor. The mode and time of preparation are not readily evident on the document. The sources of information are not readily identifiable or sufficient. Even if the sources were identified, the statements would be additional hearsay.
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).
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. This approach is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses and capitalization rates can reasonably be estimated from existing market conditions. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 347 (Mo. 2005). (citations omitted).
Complainant Proves Value
Complainant presented substantial and persuasive evidence to establish a fair market value as of January 1, 2007, to be $18,465,000 for the subject property. The appraisers reviewed all three approaches to value. The appraisers concluded that the cost approach was not appropriate to value the subject property as the property was 36 years old and it suffered from functional obsolescence. Complainant’s appraisers developed opinions of value relying upon established and recognized approaches for the valuation of real property, the sales comparison and income approach.
In developing the income approach the appraiser relied on the income and expense information of the subject from 2002 to 2004. The appraisers also reviewed market information closer in time to the valuation date. To develop an estimate of rental income, the appraiser reviewed large multi tenant office properties within the Clayton and City of St. Louis central business district. The appraisers concluded on a rent of $19.50 per square. The appraisers also found that although the market vacancy rate was 9.1-10.1%, the subject’s rate was 21.9%. Further the subject’s vacancy rate shows a historic vacancy at that rate. The appraisers concluded 20% was an appropriate rate to use given the subject’s vacancy rate on the effective date and the continued high rate of vacancy thereafter. Other income and expenses were also based on review of historic and market information.
The appraisers also developed capitalization rate. They developed a rate by reviewing sales of commercial buildings which had leases in place at the time of the sale. The rates ranged from 7.29% to 10.64%. with an average of 8.55%. The appraisers used an 8% cap rate and added the effective tax rate of 2.82%. After applying the overall rate to the net operating income, the resulting indication of value under the income approach is $18,465,000.
The appraisers also developed the sales comparison approach. The appraisers reviewed sales of similar buildings in terms of size, style, design, age, condition and market. The appraisers made adjustments to the comparable sales for size, construction, age, condition, land: building ratio, and utility.
The appraisers concluded on price per square foot of $100. The indication of value under the sales comparison approach is $20,095,000.
The appraisers reconciled the valuations under the different approaches. The appraisers concluded that the income approach provided a reliable estimate of value as properties of this type are typically owned by investors and would not be purchased by an individual.
Sale of Subject
Evidence of the actual sales price of property is admissible to establish value at the time of an assessment, provided that such evidence involves a voluntary purchase not too remote in time. The actual sale price is a method that may be considered for estimating true value. The actual sales price, between a willing seller who is not obligated to sell and a willing buyer who is not compelled to buy, establishes an outer limit on the value of real property. St. Joe Minerals Corp. v. STC, 854 S.W.2d 526 (App. E.D. 1993).
The subject property sold in November 2007. The certified appraisers reviewed the sale. The appraisers noted that if they derived a capitalization rate from that sale, it would indicate a cap rate of 5.6%. The market capitalization rate was higher. Even the Respondent’s employee acknowledged that the sale price would produce a below market capitalization rate. The Complainant’s certified appraiser, in their review, also noted that the high vacancy rate of the subject makes it curious that the sale price would be so much higher than market sales. The certified appraisers testified that the sale price was not deemed reliable as a market sale. Lastly, the certified appraisers reviewed the participants in the sale. The buyer of the property was deemed to be an “inverse” buyer by the appraisers in that the buyers made money and then looked for real estate to purchase unlike the typical buyer that looks for real estate in order to make money.
The purpose of the equal protection clause of the 14th Amendment is to secure every person within the state’s jurisdiction against discrimination whether it be through intentional violations of the statute or by improper execution of a statute. If a jurisdiction cannot both secure the standard of true value and uniformly and equitably assess property for taxing purposes, “the latter requirement is to be preferred as just and ultimate purpose of law.” A taxpayer whose property is taxed differently from other property within a jurisdiction has the right to have his assessment reduced to the percentage of that value at which the others are taxed. Sioux City Bridge v. Dakota County, 260 U.S. 441 (U.S. S.Ct. 1923)
In order to obtain a reduction in assessed value based upon discrimination, the Complainant must (1) prove the true value in money of their property on January 1, 2007; and (2) show an intentional plan of discrimination by the assessing officials resulting in an assessment of that property at a greater percentage of value than other property, generally, within the same class within the same taxing jurisdiction or show that the level of an assessment is so grossly excessive as to be inconsistent with an honest exercise of judgment. Savage v. State Tax Commission, 722 S.W.2d 72 (Mo. banc 1986); Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003.)
As stated previously, the first prong of the test to prove discrimination, determining true value of the property, has been addressed. The next step is to review the assessment of the subject property and properties within the same class.
The median level of assessment for a particular class of real property and the actual assessment imposed on the property of the taxpayer alleging discrimination must be evaluated. Savage 722 S.W.2d at 79 The median level of assessment is determined by (a) independently determining the market value of a representative sample of commercial properties within the County; (b) determining the assessed value placed on the property by the Assessor’s office for the relevant year; (c) dividing the assessed value by the market value to determine the level of assessment for each property in the sample; and (d) determining the mean and median of the results. The Commission, in a previous hearing, held that the median level of assessment for commercial properties in St. Louis County in 2007 was 29.4%. See In The Matter of the 2007 and 2008 Commercial Assessment Ratio of Properties in St. Louis County v. Zimmerman State Tax Commission Appeal 07-08 Ratio (“2007 Ratio Case”).
The subject property’s assessed value as determined by the Assessor was $9,175,940 using an assessment ratio of 32%. The subject property’s assessed value using the true value of the property of $18,465,000 a median assessment ratio of 29.4% is $5,428,710; a difference of $3,747,230. The subject property was assessed at an assessment ratio of 49.7%. The Complainant established that the assessment was more than a de minimus error in judgment on the part of the assessor.
The assessed valuation for the subject property as determined by the Assessor and reduced by the Board of Equalization for St. Louis County for the subject tax day is SET ASIDE.
The assessed value for the subject property for tax years 2007 and 2008 is set at $5,428,710.
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
The Collector of St. Louis County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8, RSMo.
Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.
SO ORDERED this 30th day of July, 2014.
STATE TAX COMMISSION OF MISSOURI
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 30th day of July, 2014 to: Thomas Campbell, 100 S. 4th St., #1000, St Louis, MO 63102, Attorney for Complainant; Edward Corrigan, 41 S. Central Ave., St Louis, MO 63105, Attorney for Respondent; Jake Zimmerman, St. Louis County Assessor, 41 S. Central Avenue, Clayton, MO 63105; Mark Devore, St. Louis County Collector, 41 S. Central Ave., Clayton, MO 63105.