SNS Hotels Inc v. Chuck Pennel, Assessor, Taney County

STATE TAX COMMISSION OF MISSOURI

SNS HOTELS, INC.,	)
	)
Complainant,	)
	)	Appeal No.	19-89504
v.	)	Parcel/Locator #	18-1.0-01-001-001-009.009
	)
CHUCK PENNEL, ASSESSOR,	)
TANEY COUNTY, MISSOURI,	)
	)
Respondent.	)

DECISION AND ORDER

HOLDING

The decision of the County Board of Equalization of Taney County (BOE) independently valuing the subject property in this appeal at the same true value in money (TVM) as the valuation made by the Assessor is SET ASIDE. Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE.

TVM for the subject property for tax years 2019 and 2020 is set at $2,701,927, commercial assessed value of $864,617.

Complainant was represented by attorney Steven May.

Respondent Chuck Pennel (Pennel) was represented by attorney Bob Paulson.

The case was submitted on the record by agreement of both parties and decided by Senior Hearing Officer John Treu.

ISSUE

Complainant appeals on the ground of overvaluation the decision of the BOE, which sustained the valuation of the subject property. The State Tax Commission (STC) takes this appeal to determine the TVM for the subject property on January 1, 2019. 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.[1]

The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.

FINDINGS OF FACT

1. Authority. Authority over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Taney County BOE.
2. Submission on Record. The parties waived an evidentiary hearing and agreed to submit the appeals on the record of exhibits and evidence. An Order granting submission on the record was issued May 20, 2020.
3. Identification of Subject Property. The subject property is identified by map parcel number or locator number 18-1.0-01-001-001-009.009. It is further identified as the Camden Hotel & Conference Center, 275 Tanger Boulevard, Branson, Taney County, Missouri. (Ex. 1, 2, and 3)
4. Description of Subject Property. The subject property consists of a 2.11 acre tract of land improved by a 102 guest room, mid-scale type limited service lodging property, which is designed with guest rooms, meeting space and common areas in two separate buildings. The two structures are the: 1) motel/lobby and convention center structure and 2) the guest room structure. The motel/lobby portion of the first structure is a two-and-a-half story structure with a full walkout basement. It consists of 20,982 square feet and contains a lobby, offices, on-property laundry, maintenance room, 37 guest rooms and a one bedroom suite. The convention center portion of the first structure has two levels which include a swimming pool enclosure consisting of 2,700 square feet. The remainder of the convention center contains 10,492 square feet. It is divided into large meeting rooms which can be divided into four smaller rooms with dividers. Additionally, it has a separate meeting room, two kitchens, two storage rooms, and men’s and women’s restrooms. This building has a solar electric system. (Ex. B). The guest room structure contains 28,648 square feet. It is a four-story building containing 64 guest rooms, a guest laundry, breakfast room, meeting room, and maid closets. Both structures were fully renovated in 2011 or 2012. (Ex. B).
5. Assessment. For 2019, Respondent utilized the Honeycutt program to value the subject property. It indicated a value of $3,565,757. At the request of Complainant, Respondent lowered the value to $3,017,662, which was the value for 2018. After Complainant produced the appraisal of Jerry Jeschke (Complainant’s Appraiser), Respondent lowered the value further to $2,880,000 (sales comparison approach value of Complainant’s Appraiser), an assessed commercial value of $921,600. The BOE sustained the assessor’s valuation of the property at $2,880,000, an assessed value of $921,600. (Written Direct Testimony of Pennel).
6. Sale of Subject. The subject property was purchased by Complainant on June 12, 2018, for $3,725,000.
7. Complainant’s Evidence.   Complainant’s evidence consisted of the following:

Exhibit	Description
Exhibit A	Appraisal of Jerry Jeschke- Effective Date 4/30/2019
Exhibit B	Written Direct Testimony of Jerry Jeschke
Exhibit C	Written Direct Testimony of Neel Patel (Chief Operating Officer of SNC Hotels, Inc.)

 

Complainant’s Appraiser is a Missouri Certified General Real Estate Appraiser. Complainant’s Appraiser prepared an appraisal of the subject property with an effective date of April 30, 2019 (Exhibit A). Complainant’s Appraiser did not specifically utilize the Rushmore method to value the subject property. He utilized the sales comparison and income approaches to value the subject property. He calculated an effective gross income (EGI) of $1,254,600, expenses of $986,492, real estate taxes of $54,833, TVM of furniture, fixtures and equipment (FF&E) of $72,480, and a capitalization rate of 11.64%. No management fee is associated with the subject property. No franchise fee is associated with the subject property. No reserve for replacement is listed for the subject property. Under his sales approach, the TVM of the subject property was calculated to be $2,880,000 (TVM set by Respondent). Under his income approach, the TVM of the subject property was calculated to be $2,230,000.[2] His appraisal opined a reconciled TVM of the subject property of $2,230,000, as of April 30, 2019. Exhibit B summarizes and explains what is contained in Exhibit A. Neel Patel, Chief Operating Officer of Complainant, testified that he believes the value of the property is $2,230,000 based upon the appraisal of Complainant’s Appraiser (Exhibit C).

8. No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2019, to January 1, 2020, therefore the assessed value for 2019 remains the assessed value for 2020. Section 137.115.1.
9. Respondent’s Evidence. Respondent’s evidence consisted of the following:

Exhibit	Description
Exhibit 1	Appraisal of Anglum- Effective Date 4/16/18
Exhibit 2	Appraisal of Anglum- Effective Date 11/26/18
Exhibit 3	Appraisal of Jerry Jeschke- Effective Date 4/30/19
Exhibit 4	Property Record Card
WDT	Written Direct Testimony of Respondent Chuck Pennel

 

Appraiser Anglum (Respondent’s Appraiser) is a Missouri Certified General Real Estate Appraiser. Respondent’s Appraiser prepared two appraisals of the subject property, marked as Exhibits 1 and 2, with corresponding effective dates of April 16, 2018, and November 29, 2018. The first was prepared for OakStar Bank and Small Business Administration. The second was prepared for Complainant. In Exhibit 1, Respondent’s Appraiser concluded the TVM of the subject property, under the sales comparison approach, without FF&E, was $3,041,985. Under the income approach Respondent’s Appraiser concluded the TVM of the subject property without FF&E was $3,911,985. Respondent’s Appraiser opined a reconciled TVM, as of April 16, 2018, of $3,390,000. In Exhibit 2, Respondent’s Appraiser concluded the TVM of the subject property, under the sales comparison approach, without FF&E, was $2,911,985. Under the income approach Respondent’s Appraiser concluded the TVM of the subject property without FF&E was $3,171,985. Respondent’s Appraiser opined a reconciled TVM, as of November 26, 2018, of $3,010,000. Exhibit 3 is the same as Complainant’s Exhibit A. Exhibit 4 is the property record card of the subject property, containing basic information regarding the property. The Written Direct Testimony of Pennel sets forth his approach to valuing the subject property. The TVM of the subject property for 2019 was set based upon the sales comparison value determined by Complainant’s Appraiser.

10. Presumption of Correct Assessment Rebutted. Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the BOE and to establish the TVM as of January 1, 2019.

CONCLUSIONS OF LAW AND DECISION

Authority

The Commission has authority 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.

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 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.

Issuance of Decision Absent Evidentiary Hearing

The Hearing Officer, after affording the parties reasonable opportunity for fair hearing, shall issue a decision and order affirming, modifying or reversing the determination of the BOE, correcting any assessment which is unlawful, unfair, improper, arbitrary or capricious. Section 138.431.5. The parties waived an evidentiary hearing and agreed to submit the appeals on the record of exhibits and evidence. The Complainant has the burden to present substantial and persuasive evidence. The Hearing Officer considered all the evidence in determining judgment should be entered in Complainant’s favor.

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).   This presumption is a rebuttable rather than a conclusive presumption. It places the burden of going forward with some substantial evidence on the taxpayer – Complainant. When some substantial evidence is produced by the Complainant, “however slight,” the presumption disappears and the Hearing Officer, as trier of facts, receives the issue free of the presumption. United Missouri Bank of Kansas City v. March, 650 S.W.2d 678, 680-81 (Mo. App. 1983), citing to State ex rel. Christian v. Lawry, 405 S.W.2d 729, 730 (Mo. App. 1966). The presumption is not evidence of value. The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the BOE’s valuation is erroneous and what the fair market value should have been placed on the property. Hermel, 564 S.W.2d at 895; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See Cupples-Hesse, 329 S.W.2d 702. 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).

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, 2019. Hermel, 564 S.W.2d at 895. There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a STC 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). A valuation which does not reflect the fair market value (true value in money) of the property under appeal is an unlawful, unfair and improper assessment.

Standard for Valuation

Section 137.115 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, 77 S.W.3d at 649, 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, 564 S.W.2d at 895.

Market value is the most probable price in terms of money which a property should bring in a 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 he 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, 515 S.W.2d at 450; Chicago, Burlington & Quincy Railroad Company, 436 S.W.2d at 650.

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 STC. 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, 564 S.W.2d at 896; 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., 854 S.W.2d at 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).

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, 854 S.W.2d at 529.  In the present appeal, the sales price alone would not be appropriate to estimate value as such price would include the value of the going concern value of the business and the furniture, fixtures, and equipment.

Valuing Hotel or Motel Property

In the real estate appraisal industry, the market value of a hotel is considered to consist of four components (1) value of the land; (2) value of the improvements; (3) value of the business or going concern, and franchise affiliation; and (4) value of the furniture, fixtures, and equipment (i.e. personal property). John Hancock Mutual Life v. Stanton, 1996 WL 663128 (Mo.St.Tax.Com.), citing Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, January, 1993, p. 17. Hotels and motels are almost always valued by an income capitalization approach that takes the property’s stabilized net income and capitalizes it into an estimate of market value. The stabilized net income is intended to reflect the anticipated operating results of the hotel over its remaining economic life, given any or all applicable stages of buildup, plateau, and decline in the life cycle. Therefore such stabilized net income excludes from consideration any abnormal relation of supply and demand and any transitory or nonrecurring conditions that may result in unusual revenues or expenses of the property. The process of deriving the stabilized net income for a lodging facility requires the appraiser to look into the future and estimate operating revenues and expenses. This is accomplished by forecasting or predicting trends in historical performance based on the hotel’s current position in an economic life cycle. John Hancock Mutual Life, 1996 WL 663128.

Discussion

The STC recognizes the Rushmore Method for the valuation of hotel properties. The methodology has been recognized by state and federal courts, and by hotel owners and assessors’ offices, as the most appropriate approach for valuing hotel properties.  The valuation methodology was developed by Stephen Rushmore, MAI, FRICS, CHA.  Mr. Rushmore has been extensively published on the valuation of hotels and motels.  The Rushmore methodology has been the leading standard for valuation of hotels for over 20 years. The Rushmore methodology excludes the value of any income derived from FF&E and adjustments are made for replacement of the property and for a return on the FF&E. The Rushmore Method also deducts the expenses for items such as management fees, franchise fees and marketing to address the value derived from the business component.

Two formulas can easily be utilized under the Rushmore Method. Both account for deducting the business component of the hotel and the FF&E of the hotel.

EGI

(Expenses)

(Franchise Fee)

(Management Fee)

(Reserve for Replacement)

         (Book value of FF&E x cap rate)_____

NOI

(divided by) Cap Rate

Market Value

-OR-

EGI

(Expenses)

   (Reserve for Replacement) _

NOI

________(divided by) Cap Rate           _

Market Value of Entire Property

(Franchise fee [divided] cap rate)

(Management fee [divided by] cap rate)

_ (Book value of FF&E)_____              

Market Value of Real Property

The three appraisals offered into evidence and the concluded values in each are summarized in the table below, with none having an effective date of January 1, 2019, the pertinent valuation date:

	Respondent’s Appraisal	Respondent’s Appraisal	Complainant’s Appraisal
Effective Date	4/16/2018	11/26/2018 (closest to pertinent valuation date)	4/30/2019
Sales Approach	$3,041,985	$2,911,985	$2,880,000
Income Approach	$3,911,985	$3,171,985	$2,230,000
Reconciled TVM	$3,390,000	$3,010,000	$2,230,000

 

Complainant’s own evidence supports the determination of the BOE of the TVM of the subject property, as of January 1, 2019.   By utilizing the information within the Complainant’s appraisal and inserting it into the second formula set forth above[3], the Rushmore Method for his income approach, indicates a TVM as follows:

	Amount
Effective Gross Income	$1,254,600
Subtract Total Expenses	$986,492
Add Back Real Estate Taxes[4]	$54,833
Equals Net Operating Income	$322,941
(Divide by Capitalization Rate)	11.64%
TVM of Entire Property	$2,774,407
Subtract Franchise Fee	$0
Subtract Management Fee	$0
Subtract TVM of FF&E	$72,480
Indication of Value	$2,701,927

 

This indication of value is substantial and persuasive.

ORDER

The assessed valuation for the subject property as determined by the Assessor and sustained by the BOE for Taney County for the subject tax day is SET ASIDE.

The TVM of the subject property for tax years 2019 and 2020 is $2,701,927. The assessed value is $864,617.

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, or emailed to Legal@stc.mo.gov, and a copy of said application must be sent to each person 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.

Disputed Taxes

            The Collector of Taney 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.

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 31st day of December, 2020.

STATE TAX COMMISSION OF MISSOURI

John J. Treu

Senior Hearing Officer

 

Certificate of Service

I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 31st of December, 2020, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.

 

 

Elaina McKee, Legal Coordinator

[1] All statutory references are to RSMo 2000, unless otherwise indicated.

[2] A calculation error occurred in Complainant’s appraisal, Exhibit A, Page 93. Complainant’s Appraiser divided $322,941 by 11.64% reaching an incorrect TVM of the entire property of $2,303,333, instead of the correct calculation TVM result for the entire property of $2,774,407.

[3] The second formula was utilized to illustrate the calculation of TVM, under the Rushmore Method, utilizing the financial information in Complainant’s appraisal. Again, no reserve for replacement was specifically identified by Complainant’s appraisal.

[4] The net income used for property tax appraisals excludes any deductions for real estate taxes…” The Appraisal Journal, The Valuation of Hotels and Motels for Assessment Purposes, April 1984.