Solar Press, Inc. v. White (Perry)

 

 

SOLAR PRESS, INC., )

)

Complainant, )

)

v. ) Appeal Number 00-77000

)

LARRY WHITE, ASSESSOR, )

PERRY COUNTY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

Decision of the Perry County Board of Equalization sustaining the assessment made by the Assessor, SET ASIDE, Hearing Officer finds true value in money for the subject property for tax year 2000 to be $1,495,115, assessed value of $498,372.

Complainant appeared by Counsel, Thomas L. Caradonna, St. Louis, Missouri.

Respondent appeared by Counsel, Thomas Hoeh, Prosecuting Attorney, Perry County, Missouri.

Case heard and decided by Chief Hearing Officer, W. B. Tichenor.

ISSUES

The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2000.

SUMMARY

Complainant appeals the decision of the Perry County Board of Equalization (Board) which sustained the valuation of the subject property. The Respondent determined an appraised value of $3,426,480 (assessed value of $1,142,160, as personal property – furniture, machinery, tools, manufacturing and office equipment).

A hearing was conducted on September 5, 2001, at the Perry County Courthouse, Perryville, Missouri. This appeal was consolidated for purposes of the evidentiary hearing with T. G. Missouri v. White, STC Appeal No. 00-77001, due to the fact that the experts in both cases and the methodology applied in each appeal for determining true value in money for the subject property was the same. Accordingly, testimony given by both experts, as it related to the general methodology employed, was applicable to both appeals, although given interrogation may have been referencing a specific item of property in a particular appeal. To the extent that interrogation on a specific valuation was illustrative of the general methodology employed, such interrogation is considered in both appeals in arriving at determinations and conclusions as to the strengths, weaknesses and persuasiveness of an appraiser’s overall general methodology.

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

Complainant’s Evidence

Complainant offered into evidence the appraisal report (Exhibit A) and written direct testimony (Exhibit B) of Allen D. Bealmear, ASA, CEA, President of MB Valuation Services. Exhibit C, a cost and sales comparison illustration of valuation referenced in the written direct testimony of Mr. Bealmear, was prefiled with Exhibit B. Exhibit D, copy of a paper on Development, Make-Up and Proper Use of Indexes, prepared by Richard D. Vishanoff, was presented at the evidentiary hearing. Exhibit E, additional sales data, was filed at the evidentiary hearing as rebuttal evidence. Exhibit F, an affidavit of Leo Hudetz, was also filed at the evidentiary hearing. All exhibits were receive into evidence. Mr. Bealmear was cross-examined by Respondent’s Counsel, and that testimony, as well as testimony in response to questions by the Hearing Officer in redirect examination and in rebuttal, constitute part of the record in this appeal. Mr. Richard D. Vishanoff, Chief Managing Editor, Valuation Services, with Marshall and Swift, testified in rebuttal. Mr. Zeke J. Sansone also testified in rebuttal. The testimony of both Mr. Vishanoff and Mr. Sansone constitute part of the record in this appeal.

Mr. Bealmer presented his opinion of value for the property to be $1,483,925.

Respondent’s Evidence

Respondent offered into evidence the following exhibits:

Exhibit 1 Appraisal Report of Roger Chantal, ASA, Chantal Appraisal Service.

Exhibit 2 Qualifications of Mr. Chantal.

Exhibit 3 Assessor’s 2000 Valuation of Personal Property submitted by Complainant for 2000.

Exhibit 4 2000 BOE Appeal for Personal Property submitted by Complainant.

Exhibit 5 Notice of Action by BOE.

Exhibit 6 Letter to County Collector, dated December 22, 2000.

Exhibit 7 Copy of Asset List.

Exhibit 8 Written Direct Testimony of Mr. Chantal, with two comparable sales sheets attached to be included with Exhibit 1.

All the exhibits were received into evidence. Mr. Chantal was cross-examined by Complainant’s Counsel and his testimony under cross-examination, testimony in response to questions by the Hearing Officer and in redirect examination constitute part of the record in this appeal.

Mr. Chantal offered his opinion of value for the property to be $4,831,000.

Mr. Larry White testified in rebuttal and his testimony constitutes part of the record in this appeal.

Commission Exhibit

Commission Exhibit 1, a copy of the handwritten notes of Mr. Chantal relating to the office furniture and computers which were taken during Mr. Chantal’s inspection of the subject facility, was received into evidence during the surrebuttal testimony of Mr. White.

FINDINGS OF FACT

1. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Perry County Board of Equalization.

2. The subject property consists of approximately 1,405 individual items of furniture, office machines and equipment, machinery, tools and manufacturing equipment, identified in 917 entries in Complainant’s appraisal report. The property is identified by the Respondent’s account number 67799 for tax year 2000. The property is located at 1205 Corporation Lane, Perryville, Missouri. These individual items of property make up and constitute the manufacturing operation of Complainant. A complete listing of the items of property under appeal is found in Exhibit A, pp. 19-87.

3. Complainant’s appraiser valued approximately 1,395 of the items of property relying on comparative sales data, and 10 of the items (Items 457, 533, 545, 571, 572, 573, 630, 652, 653 & 915 – Total appraised value of $487,300) relying on a discounted cost analysis or replacement cost new, less depreciation method. Exhibit A, pp. 10 & pp 19-87; Exhibit C.

4. Complainant’s appraiser valued the items of property based on the concept of fair market value – the estimated amount expressed in terms of money that may reasonably be expected for an item of property between a willing buyer and a willing seller with equity to both, neither under compulsion to buy or sell and both fully aware of all relevant facts. Exhibit A, p. 3, 7 & 9; Exhibit B, p. 6 , Lines 16-23, p. 7, Line 24 – p. 8, Line 25. This is the appropriate concept of value to be applied in the valuation of the property. Respondent’s appraiser also purports to have used this standard of value. Exhibit 1, p. 5; Tr. 28, Lines 9-11.

5. Personal property is valued based upon its true value in money. True value in money is value in exchange, not value in use or value installed. Value in use/installed may be, in a given case, the value in exchange if there is market data to so establish. There was no such market data presented in this appeal from which it could be established that value in use/installed was value in exchange.

6. Complainant’s appraiser conducted a personal inspection and inventory of the items of property being valued and confirmed that all of the items valued were at the particular facility as of January 1, 2000. Exhibit A, pp. 2, 6, & 8; Exhibit B, p. 6, Line 24 – p. 7, Line 10; Tr. 7, Lines 13-15; Tr. 22, Lines 5-14.

7. Complainant’s appraiser performed his appraisal in conformity with the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers, and in conformity with the applicable standards of the Uniform Standards of Professional Appraisal Practice (USPAP). Exhibit A, p. 4; Exhibit B, p. 23, Lines 14 -15 & 25 – p. 24, Line 5.

8. The concept of highest and best use was considered by Complainant’s appraiser in his valuation of the subject property in accordance with Standard 7, Subsection 3(a) of USPAP. The subject items of furniture, machinery, tools and equipment were being utilized for the purpose designed by the manufacturer, and therefore were being utilized in the reasonably probable and legal use that is physically possible, appropriately supported and financially feasible, and resulted in the highest value in the appropriate marketplace. Exhibit A, pp. 6 & 9; Exhibit B, p. 11, Line 13 – p. 12, Line 14. None of the items of machinery, tools and equipment have any special or unique characteristics which would require that they be valued as a unit or whole rather than individually. Exhibit B, p. 9, Lines 1-15.

9. The principle of substitution is that a prudent buyer will not pay more for a property than the cost of acquiring a substitute property of equivalent utility. The principle can be applied to either an individual asset or to an entire facility. The principle applies in either a cost, sales comparison or income approach. Valuing Machinery and Equipment, pp. 45, 115, supra; Appraising Machinery and Equipment, Machinery and Equipment Textbook Committee of the American Society of Appraisers, John Alico, Editor, 1989, p. 81; Exhibit 1, p. 7.

10. Complainant’s appraiser relied upon the MB Data Base in his appraisal. The MB Data Base is made up of a multitude of research data sources, including purchase price new from a manufacturer, dealers’ asking and selling prices, auction sales, and any other type of transaction which can be gathered. This data base is a large data resource computer program which has sales information posted to it daily of all kinds of equipment from the various sources. The database has the condition of items of sale machinery and equipment when it is known. The database identifies the type of sale, equipment being sold, date of sale, location of sale, and auctioneer from sale brochures on the various auctions. Information from the database can be sorted by categories of equipment type and model. Each equipment category has data posted which can then be retrieved for use in appraising such individual items of machinery and equipment. The sources utilized in the MB Data Base are sources that the appraiser is familiar with and that he has found to be reliable over his years of appraisal practice. The sources used in the data base are sources that are generally accepted by the appraisal community as reliable. Other appraisers use the MB Data Base as a resource in performing their appraisals. Exhibit A, p. 17, Exhibit B, p. 18, Line 22 – p. 22, Line 6.

11. Complainant’s appraiser also utilized recognized pricing guides, sources and catalogues as research data sources. Contacts were made to manufacturers of various items of machinery and equipment being appraised. Exhibit A, p. 17.

12. Complainant presented no evidence relative to the value of the 1996 Ford Aerostar Van, which Respondent had valued at $11,190 (assessed value of $3,730). The value of the said vehicle as of January 1, 2000, is determined to be $11,190.

13. Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and to establish the true value in money of the subject property under appeal as of January 1, 2000, to be $1,495,115, including the value of the 1996 Aerostar Van, as determined by the Assessor.

14. Respondent’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and to establish the true value in money of the subject property under appeal as of January 1, 2000, to be as proposed.

CONCLUSIONS OF LAW

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. Article X, section 14, Mo. Const. of 1945; Sections 138.430, 138.431, RSMo. 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. Section 138.431.4, RSMo.

Board Presumption

There is a presumption of validity, good faith and correctness of assessment by the Board. 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).

Standard for Valuation

Section 137.115, RSMo 1994, 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, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978). True value in money is defined in terms of value in exchange and not value in use. Stephen & Stephen Properties, Inc. v. STC, 499 S. W.2d 798, 801-802 (Mo. 1973); Equitable Life Assurance v. Morton, 852 S.W.2d 376 (380) (Mo. 1993).

Complainant’s Burden of Proof

In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence the proposed value is indicative of the market value of the subject property on January 1, 2000. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897. 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. 1959). 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).

Respondent’s Burden of Proof

In an appeal where Respondent presents an opinion of value different from that determined by the Board, substantial and persuasive evidence must be presented to rebut the Board presumption and establish the value proposed. Hermel, supra.

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).

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; 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).

DECISION

Although both appraisers valued the various items of property under what each identifies as the sales comparison and cost approaches, the exact procedures and methodologies employed by each appraiser are significantly different. The persuasiveness of each appraiser’s methodology rests upon various factors which will be addressed in the discussion which follows. The procedures followed by Complainant’s appraiser provide a sound basis for reliability and credibility. Respondent’s appraiser developed a valuation which is plagued with various errors, defects and shortcomings which weigh against its reliability and credibility. Of the two valuations presented, Complainant’s valuation possesses sufficient substantial and persuasive weight to rebut the presumption of correct assessment by the Board and to establish the value proposed. The valuation presented on behalf of the Respondent did not reach the level of substantial and persuasive evidence to establish value.

Complainant Proved Value

Complainant’s evidence presented an opinion of value based on the concept of fair market value or value in exchange. This concept of value as employed by Complainant’s appraiser presents a methodology which is proper, fair, not arbitrary, not capricious and is lawful under Missouri statutes, Commission regulations and case law. This is the recognized standard under Missouri case law. Section 138.430, RSMo. A listing of recent cases following this standard can be found at the end of this decision (End Note – hereinafter cited as P. D. George et al).

Valuing what a knowledgeable buyer and seller would give in exchange for the individual items of property and totaling the values avoids conjecture and speculation. Complainant’s appraisal clearly demonstrated that there is reliable sales data available on virtually all of the subject items (1,395 out of 1,405 total items of property – .9929%). The sales data establishes the prices at which the various individual items of property are selling in the market. From such data, a clear indication of the value for the various pieces of machinery, tools and equipment can be developed.

Mr. Bealmear’s opinion of value is based upon reliable and appropriate data. He correctly valued the property relying upon the value in exchange concept recognized under Missouri case law, statutes, Commission regulations and decisions. His appraisal methodology and resulting final opinion are based upon a reasonable degree of appraisal standards certainty. Therefore, Complainant has rebutted the presumption of correct assessment by the Board of Equalization and met its burden of proof to establish the true value in money for the subject property as proposed.

Sales Data

The data relied upon by Mr. Bealmear demonstrates that the market for the hundreds of pieces of machinery, tools and equipment that comprise the subject property consists of all types of sales transactions, direct and indirect (direct sale – sale to ultimate end user; indirect sale – sale to used equipment dealer). The fact that some sales, or even a large number of the sales relied upon, are auction sales, either consignment, orderly liquidation or forced liquidation, does not render such sales invalid for developing an opinion of value. Respondent’s appraiser by his use of two sales reporting services utilized the same type of transactions. Such sales are not the same as forced sales for taxes or mortgage foreclosures in real property cases. The market world for items of machinery, tools and equipment consists of new equipment sales, reconditioned equipment sales, orderly liquidations, forced (bankruptcy) sales, excess equipment sales and auctions.

This diversity of types of transactions does not render use of data derived from such sales invalid or inappropriate. This market arena, with its mixed information base, is where real transactions occur each day. It is the responsibility of the appraiser when faced with an appraisal problem such as the present one, to explore and analyze this market arena to extract the most reliable data to utilize in his appraisal. It is the responsibility of the appraiser to make the appropriate upward or downward adjustments to such sales data to arrive at an opinion of value for the particular item of property being valued. Such adjustments are made in large part based on the experience which the individual appraiser is able to bring to bear in a given appraisal assignment.

Complainant’s appraiser made appropriate adjustments for the various types of sales which were utilized in the appraisal relying upon his education, training and experience. Mr. Bealmear is a well trained and experienced appraiser having more than 28 years of experience in valuing machinery, tools and equipment. Furthermore, his firm is able to rely upon the vast experience of other appraisers (Karen Miles Milan, ASA, 15 years appraisal experience & H. W. Choate, ASA) and their education, training and experience, as well as a trained research staff which provides assistance in data collection and analysis. Exhibit A, pp. 97, 98 & 99; Exhibit B, p. 13, Lines 5 -8; p. 14 , Lines 1-22; p. 17, Line 8 – p. 18, Line 21; p. 21, Lines 12-16.

The staff of MB Valuation Services monitors sales of machinery and equipment by on-site attendance at the sale. Questionnaires are filled out regarding information relating to the number of attendants, number of active bidders, type of bidders (end users or used equipment dealers), conduct of auctioneers, handling of the crowd, and the weather. These are all factors which could affect the results of the sale. The information for sales is entered into the databank in order that relevant factors can be considered when adjustments are made to comparables. Exhibit B, p. 19, Line 6 – p. 20, Line 1.

If there is another market arena where sales of the multitude of individual items which comprise the subject property in this appeal sell together in an assembled manner, then it would, of course, be appropriate for the appraiser to explore, investigate and analyze the sales which occur in that market. It would, in fact, be his responsibility to do so in order to arrive at an appropriate opinion of value. However, there is no evidence in this record of such a market.

In the absence of such evidence, it would amount to pure speculation and conjecture for either the appraiser or this Hearing Officer to attempt to arrive at a valuation of the subject property under such a hypothetical market condition. Accordingly, the evidence of sales brought forward by Mr. Bealmear is substantial and persuasive evidence as to what the hundreds of items of machinery, tools and equipment which make up the subject property are selling for in the only market for which evidence was presented

The experience and record of the Commission in addressing valuation of machinery, tools and equipment in more than twenty separate appeals (P. D. George, et al, infra) has clearly shown, without any contradictory evidence, that the auction market is a major component of the arena in which used machinery, tools and equipment are bought and sold throughout the United States. Nothing was presented in the present appeal which demonstrates in any way, shape or form that there is another market arena, level of trade for used machinery and equipment, from which Mr. Bealmear should have drawn sales data. The data base which is utilized by Mr. Bealmear in addition to information received from transactions at auctions also includes used equipment dealer’s asking and selling prices.

Willing Seller/Willing Buyer and Machinery and Equipment Auctions

The definition of fair market value (true value in money – Section 137.115, RSMo) utilized by the experts for both parties in this appeal is the estimated amount expressed in terms of money that may reasonably be expected for an item of property between a willing buyer and a willing seller with equity to both, neither under compulsion to buy or sell and both fully aware of all relevant facts. In other words, in attempting to value a given item of machinery, or even an assembled group of machinery and equipment, a hypothetical sale between a willing buyer and seller of the property being valued is assumed. In some minds, this translates to a prohibition against the use of any sales data which does not also involve a willing seller and a willing buyer, or, that per se any auction sale is inappropriate and cannot be used. Such a conclusion is in error.

In the field of real estate appraisal, appraisers do not rely upon tax sales as a comparable sale. In most instances, a mortgage foreclosure sale of real estate would not be utilized as a comparable sale. In both cases the seller is not considered to be a willing seller. In addition, however, there are other factors which weigh against using a tax or foreclosure sale in real estate appraisals. In a tax sale, all that is being sought is recovery of taxes owed, and the expenses of the sale. In a foreclosure sale, recovery of the outstanding debt and expenses of sale is what is being sought. In tax and foreclosure real estate sales, the exposure to the market is greatly limited, consisting of generally a legal notice in the local newspaper and posted at the courthouse. Furthermore, in real estate appraisal there is generally sufficient market data outside of tax and foreclosure sales from which sales data can be extracted.

In the realm of machinery and equipment auctions there are significant differences from real estate tax or foreclosure auctions. If a machinery and equipment auction involves a bankruptcy, the bankrupt owner is, of course, being forced to sell. However, the trustee in bankruptcy is under an obligation to protect creditors by obtaining the best price possible when assets are sold. The record in this appeal and in other similar cases (P. D. George, infra) which have come before the Commission, clearly and convincingly establishes that vast amounts of various machinery, tools and equipment used in a multitude of manufacturing operations and facilities are bought and sold on a continuing basis throughout the nation in auction sales. This is a recognized level of trade for used machinery and equipment which can be utilized in valuing machinery and equipment. Valuing Machinery and Equipment, Chapter 4 – Sales Comparison Approach, pp. 115-155; Exhibit B, p. 14, Lines 6-17; Tr. 94, Line 24 – Tr. 95, Line 3.

The very nature of a machinery and equipment auction is for the entity conducting the auction to expose the items to be sold to as large a group of buyers as possible through the advertising of the sale. The auctioneer is motivated to obtain the highest sale price possible, since compensation to the auctioneer is based upon a percentage of sale price. This is the case whether the sale involves a forced liquidation or not. In other words, the auctioneer does not seek to get a lower price for sale items simply because there may be a forced liquidation.

In many states, there is a Deceptive Trade Practice Act which prohibits public offerings of machinery and equipment for sale without disclosing everything the seller knows about the property. For the most part, auctioneers and sellers know the equipment being sold and they are aware if there is anything wrong with it. Sellers at auctions disclose if a machine is only a partial machine, without certain components or whether it was considered scrap or in poor condition. Bidders are also aware of such conditions. They do not buy out of ignorance.

There is no evidence to even suggest that buyers at an auction will bid lower if it is a bankruptcy sale as opposed to a sale of excess machinery or a sale simply due to a plant closing. Basic reasoning establishes that bidding by potential buyers is not tied in any logical fashion to the seller’s motivation or circumstances which brought about the sale. Buyers at an auction, like buyers in any other sales arena, seek to buy at the lowest price. Auctioneers, as the agent for the seller, are seeking the highest price. Competing buyers increase the sale price by bidding against each other.

Any sale, auction or otherwise, of a given piece of machinery is valid to use as a comparable sale for a like piece of machinery if proper adjustments are made. Adjustments to comparable sales, whether in real property or personal property appraisals, are what brings the comparable to reflect market value and make the appropriate comparison to the subject. There is no set formula for each type of adjustment which might be made to a sale price for a given piece of machinery. It is not possible nor practical to set up a sales grid for each item of machinery and equipment in which the subject item of machinery or equipment would be compared to 4, 6, 8 or a dozen like items of property and each one adjusted on the various possible points of comparability for machinery and equipment. (See, Valuing Machinery and Equipment, Elements of Comparability, pp. 120-122).

The adjustments which are required to be made are a product of the appraiser’s training and experience. Mr. Bealmear made adjustments to bring the sales data to the fair market value standard. Exhibit B, p. 13, Lines 5-8; p. 14, Lines 18-22; p. 17, Line 8 – p. 18, Line 21. Exhibit C provides an illustration as to the sales data which would be utilized by the appraiser in conducting his sales comparison valuation. The Bealmear appraisal would be strengthened if some sample illustrations as to the kinds of adjustments which are made during his valuation process were also provided for various items of machinery and equipment. However, the failure to include such sample illustrations is not defective to the appraisal possessing the requisite weight of substantial and persuasive evidence to establish value.

The credentials, testimony and other evidence on this record demonstrate that Mr. Bealmear is quite knowledgeable and experienced in the various elements of comparability which would need to be considered for making adjustments and conducting a proper appraisal. His testimony substantiated that in performing his appraisal he made relevant inquiries related to the subject items of machinery and equipment that are ordinarily and properly made. He had available, through his own research or that of his staff, essential and appropriate information relative to the sales used for comparison in the appraisal. In summary, it is reasonable to conclude that the Bealmear appraisal was conducted in such a manner as to be in accordance with the general frame work and guidelines one would expect for such an appraisal. Valuing Machinery and Equipment, supra, Chapter 4.

Principle of Substitution

Sales Comparison Approach

The valuation of the subject property by Complainant’s expert is in accordance with the principle of substitution for these particular assets. A well informed buyer will not pay more for items of property than the amount such property will command in a market with sufficient demand. Mr. Bealmear found sufficient sales to value nearly every single piece of machinery and equipment by the sales comparison approach. His appraisal demonstrates a market with sufficient demand for the various items of manufacturing property being valued in this appeal. The Bealmear illustrations and supporting data (Exhibit C & Exhibit E) show that he generally had four or more sales of items of machinery and equipment to use to arrive at an indicated value for each of the more than 1,395 items of machinery and equipment valued under the sales comparison approach. The Hearing Officer concludes from the testimony of the expert that there were in all likelihood a larger number than 4 to 6 sales for many of the individual items, however, the appraiser selected those sales which were most like the subject item being valued. Exhibit B, p. 18, Lines 3-14.

The sales information (manufacturer of equipment, used dealers’ asking and selling prices, auction sale results, catalogs, tabloids, newspapers and other sources) utilized by Mr. Bealmear demonstrates what informed buyers are paying for the various items of machinery and equipment. Exhibit B, p. 19, Lines 10-17; p. 20, Lines 2-18. One of the strengths of drawing from such sales data is that the appraiser is dealing with actual transactions for the purchase of like machinery, whether by an end user or a used equipment dealer for resale. Actual sales data provides a firm foundation from which the trained and experienced appraiser can make appropriate adjustments to arrive at an opinion of what price the item of property being valued would demand in an open and active market.

Cost Approach

In the few instances in this appeal, where Complainant’s expert was unable to find adequate sales of machinery and equipment, he arrived at an opinion of value using the cost approach. In developing his cost approach, Mr. Bealmear obtained the replacement cost new as of the effective date for the appraisal (valuation date – January 1, 2000) from the manufacturer of the particular item of machinery or equipment. If the appraiser was unable to obtain a replacement cost new from the manufacturer, he would attempt to determine the date of acquisition and purchase price and make appropriate adjustments for the difference in time between its original purchase and the valuation date. From the replacement cost new, either obtained from the manufacturer or calculated from original acquisition costs, deductions were made for physical, functional and economic obsolescence. Exhibit A, p. 10; Exhibit B, p. 12, Line 25 – p. 13, Line 4; p. 15, Line 5 – p. 17, Line 7.

The adjustment for physical depreciation is made based upon the actual inspection of each item of machinery and equipment and discussions with plant personnel, if necessary, regarding the physical condition. Functional depreciation can be anything such as a different model from which would be purchased new, difference in speed, capacity, type of controls, energy consumption, technological changes or any other factor which might be considered an obsolescence factor when compared to a new piece of equipment. Economic obsolescence is a deduction that is made for factors which affect the value of an item of machinery outside of the specific piece of property. It could include style of machine, demand for specific equipment or demand for the product which the machine produces, or other factors outside the given machine. The appraiser can contact the manufacturer to investigate demand for a given piece of equipment to determine economic obsolescence. It can also be calculated by looking at equipment of a similar type and comparing the market price for such equipment to the cost new to calculate economic obsolescence where physical and functional obsolescence are known. Information available to Mr. Bealmear through his data sources provides information from the market to assist in adjusting for the three types of obsolescence in performing his cost approach. Exhibit A, p. 17; Exhibit B, p. 16, Lines 3-20; p. 18 , Line 22 – p. 19, Line 5. The cost methodology employed by Mr. Bealmear for the items valued under this approach is within the parameters and guidelines for developing a cost approach as applicable in this appraisal problem generally recognized by the machinery and equipment appraisal community. Valuing Machinery and Equipment, supra, Chapter 3, pp. 45-113.

Respondent Expert’s Valuation Not Persuasive

Appraisal Methodology

Respondent’s appraiser, Mr. Roger Chantal, valued approximately 1,304 items of property, plus two lots of property relying on what he described as the cost and sales comparison approaches. The property was divided into the categories of Machinery and Equipment, Office Machines and Computers, Plant Furniture and Fixtures, and Office Furniture and Fixtures. In the category of Machinery and Equipment, Mr. Chantal valued 940 items under his cost approach, 91 items under his sales approach and another 21 items under what he identified as estimate.

For the valuation of the Office Machines and Computers, only 29 items were valued under the cost approach, with 189 being valued under the sales approach and 34 being valued by estimate. One of the items shown as being valued by estimate (Item 104), was actually given a value from an Orion used price data sheet. Addendum to Exhibit 1. Plant Furniture and Fixtures and Office Furniture and Fixtures were grouped as two lots of items, without any specific listing and valued under the cost approach. For the total appraisal problem, Mr. Chantal valued 969 items, plus two lots of a number of items under the cost approach, 280 items under his sales comparison approach and 55 items by estimate. One item (306) was described as being valued by extrapolation. No explanation was provided in the appraisal or written direct testimony for how the estimate or extrapolation methods of valuation were actually developed.

Sales Comparison Approach

The sales comparison or market approach relied upon by Mr. Chantal consisted of averaging sales prices for given items from L & M publications, without making any adjustments or by taking the used price listing for a given item from Orion, without making any adjustments. Exhibit 1, pp. 6, 13-17; Tr. 92, Lines 8-10; Tr. 93, Lines 1-8; Tr. 97, Lines 17-20; Tr. 103, Lines 7-19. The following examples will provide an illustration of how the appraiser valued items under the sales comparision approach that he used.

Item 327 – 1 Okidata Fax Machine Model 2200 was valued at $138. Exhibit 1, p. 16. The source of this determination of value was Orion Research which simply listed 1993-96 Okidata fax machines model 2200 with a used price of $138 and wholesale from $40 (average) to $75 (mint). Exhibit 1, Addendum.

Item 114 – 1 Jet Engine Lathe, Model BD-1340R, S/N 203-B-184R was valued at $3,750. Exhibit 1, p. 14. The source of this determination of value was L & M Data Reference which listed a single sale of a model 1340, S/N 5090154B for $3,750. Exhibit 1, Addendum.

Items 45 & 46 – Admark 111, Inkjet Labellers were valued at $8,750 each. Exhibit 1, p. 13. The source for this valuation was L & M Data Reference which listed two Admark ink jet addressing systems, with no model number, one sale was for $7,000 and the other was for $10,00, both sales in 1995. The average of the two sales is $8,750. Exhibit 1, Addendum.

In employing this type of sales approach methodology, the appraiser actually valued 25 items relying upon single sales information from L & M. He valued only 7 items based upon L & M sales date which had four sales, which were averaged. A total of 38 items were valued from the L & M sales data where there were only three sales to be averaged. An average of two sales from L & M data was relied upon to determined the value for 13 different items. Exhibit 1, pp. 13-17, L & M Data sheets in addendum of Exhibit 1.

The value determinations made relying upon Orion data consisted of simply taking the used price listing shown by Orion for the various items of equipment mostly, office computer equipment, printers, monitors, faxes and related equipment. No adjustments were made to the used price given, although the range for wholesale price was significantly lower for each item valued using this technique. In all a total of 179 items were given a value simply be using the listed used price provided by Orion. Exhibit 1, pp. 13-17, Orion Data sheets in addendum of Exhibit 1. The Orion sales data essentially consists of taking a group of sales of a given item of equipment, discarding the high sales and low sales, and then averaging the sales that are left to provide an indicated fair market value. Tr. 79, Line 13 – Tr. 80, Line 1. Therefore, the indicated used price provided for any item of machinery or equipment from Orion is simply an average, without any adjustments for various factors which might or might not require consideration when valuing any given item of equipment.

Cost Approach

The cost approach relied upon by Mr. Chantal was a very basic procedure. It consisted of simply applying a trend factor or index to the cost to acquire shown on Complainant’s asset list and then depreciating the resulting amount by applying a percent good factor based upon a 13 year useful life for all of the equipment. Mr. Chantal relied upon the Marshall & Swift indexing and depreciation tables for the printing industry to develop his cost approach for each item of machinery or equipment valued under his cost analysis. Exhibit 1, pp. 7, 13-17; Addendum to Exhibit 1.

All items placed in the catagory of machinery and equipment which were shown on the Complainant’s asset ledger as acquired in the year 1994 were trended at 1.083 and depreciated at 38% or 62% good of the product of multiplying acquisition cost by the index of 1.083. All items shown acquired in 1993 were trended at 1.110 and given a percent good of 54%. Similar trending and depreciation was applied for all other machinery acquired in any given year, as per the table of trending and depreciation indexes derived from Marshall and Swift. Office machines and computer equipment were cost valued in the same manner for those few items so valued. However, in various instances an amount was simply entered on the listing developed by Mr. Chantal for given items under RCN (Replacement Cost New) and then a percent good factor was applied without any data or information as to cost to acquire (See Items 260, 317 & 351, by way of example). Exhibit 1, pp. 13-17 & Addendum. The entire lot items of Plant and Officer Furniture and Fixtures was simply valued by inserting an amount for RCN and then applying a percent good of 50% and 65% respectively to these two lots of various items (work tables, carts, storage cabinets, desks, chairs, office partitions, etc.). Exhibit 1, pp. 16-17.

In at least four instances, the appraiser valued items under a cost approach in which he took a listing price from a catalogue, added a percentage for tax, shipping/freight and handling and then applied a percent good. In each case, Respondent’s appraiser added an amount of 10% of the price new for the listed items (1-cabinet and 3-ladders). To each of these prices new, a depreciation factor of 50% was applied, although no information was given as to the age of any of the items upon which a 50% adjustment to the price new would be based.

Unpersuasiveness of Respondent Expert’s Cost Methodology

There are various deficiencies and inadequacies present in the Chantal valuation which render it unpersuasive in the present appeal. The valuation for the subject property presented by Mr. Chantal when considered either standing alone or in light of the valuation evidence brought forward by Complainant’s expert does not rise to the level of substantial and persuasive evidence to establish valuation. In concise terms, the Chantal appraisal relied upon short-cut sales comparison and cost methodologies, while the Bealmear appraisal employed the procedures which are in keeping with the appropriate development of both the sales comparison and cost approaches.

Major Reliance on Cost Approach

Respondent’s appraiser placed his greatest reliance in arriving at a value for the subject property on his form of the cost approach. Disregarding the items which were valued by estimate and extrapolation, 77.6% of the 1251 items valued under the cost and sales approaches were valued under Mr. Chantal’s trending/depreciation cost approach. Only 16.9% of the total items could be considered as having been valued under Mr. Chantal’s form of the sales comparison approach. Mr. Chantal’s testimony clearly establishes and gives validity to the importance of using market data and attempting to find comparable sales for each and every item of property as was actually done by Mr. Bealmear in his appraisal for 99.29% of the items of property. Mr. Chantal agreed that the market should be searched first and only in the absence of market data would the cost approach be conducted. It was Mr. Chantal’s position that the market approach measures the fair market value in exchange for property and when properly performed provides the best indicator, the leading indicator of what sales values are. He also was of the opinion that it is not the cost approach that is traditionally employed by personal property appraisers. Tr. 76, Line 18 – Tr. 77, Line 10.

It is apparent that Respondent’s appraiser did not have access to the range of market data possessed by Complainant’s appraiser. However, the Hearing Officer’s valuation of the property cannot rest upon the fact that one expert was not in possession of sufficient data to perform a given approach to value, when the other expert researched and developed the market data that was available. Mr. Bealmear was able to value all but less than 1% of the total property relying upon the sales comparison approach. This clearly demonstrates that for the value of the subject property to be based primarily on a cost approach when there is sales data for virtually the entire universe of machinery and equipment which makes up the subject property would be to base a valuation on a very arbitrary and capricious standard. Deference cannot be given to the Respondent Appraiser’s cost methodology when it is squarely and overwhelmingly confronted with a valuation resting firmly upon sales comparison data.

Deficiencies in Cost Approach

The cost approach which was developed by Mr. Chantal is only slightly removed from what is the general mass valuation which is employed by assessors throughout the state in their general assessment of machinery and equipment each year. This is a methodology that has not been found to rise to the level of substantial and persuasive evidence in the numerous appeals that have come before the Commission as of this date. (See, Unpersuasiveness of Mass Valuation Methodology in Contested Cases, infra). This record provides no basis upon which the Chantal variation of the mass valuation should be endorsed in this appeal. The only real difference between the Chantal cost valuation and the general mass valuation used by assessor’s is that Mr. Chantal listed individual items of machinery and equipment and depreciated them item by item after trending, instead of simply adding up the total costs shown on the Complainant’s asset list for each given year and then trending and depreciating that total amount. The results would have been exactly the same, irrespective of whether individual items were listed or the costs were summed for each year.

There are a number of other problems presented by the type of cost technique relied upon by Respondent’s appraiser. Mr. Chantal did not, with a few exceptions where catalogues were apparently utilized, contact manufacturers to determine replacement cost new as of January 1, 2000. Tr. 49, Line 19 – Tr. 52, Line 15. Mr. Chantal based his depreciation factors upon the life expectancy guidelines from Marshall and Swift for the printing and publishing industry, although the Complainant’s business is not printing and publishing but packaging, blister packaging in particular, which does employ a limited degree of printing of labels. Tr. 37, Line 7 – Tr. 38, Line 2; Exhibit 1, Addendum. Mr. Chantal trended the original cost reported on Complainant’s asset list without regard for whether the costs reported were original or historical costs. Tr. 33, Line 18 – Tr. 35, Line 24. Mr. Chantal did not conduct any specific market analysis to arrive at the cost indexes used, but simply relied on the Marshall and Swift indexes as is his general practice in valuing personal property under his cost methodology. Tr. 38, Lines 3-15. Mr. Chantal trended the costs shown on Complainant’s asset list which included freight, installation and taxes, although his testimony was that he gave no consideration to such factors and to include them would be improper under the concept of fair market value in exchange. Tr. 28, Line 12 – Tr. 29, Line 8; Tr. 38, Line 19 – Tr. 39, Line 2.

On four specific items (Items 115, 127, 128 & 129), Mr. Chantal specifically made an upward adjustment to a list price new to account for tax and shipping/freight. He added 10% of the list price new for tax and freight, before applying a depreciation factor of 50% to these items. Three of these items (127, 128 & 129) were rolling safety ladders with 13, 16 and 5 steps respectively. Based upon a catalogue these ladders listed new for $560.00, $794.00, and $269.95 respectively. Mr. Chantal placed a Replacement Cost New on the ladders of $616, $824 and $297 by adding for tax and freight. Exhibit 1, p. 14, Addendum. There was no explanation as to how the 10% of list price was determined to be appropriate for tax and freight, even assuming that it was appropriate to be added, which it was not in the absence of market research to establish that in a sale of the used items, original sales tax and freight actually add value to the item of property. The Bealmear appraisal valued these same three ladders under the sales comparison approach at $75.00, $175.00 and $50.00. Exhibit A, p. 56, Entry 510; p. 67, Entries 647 & 648. By Mr. Chantal’s testimony the sales comparison approach provided the best indicator and should be used when market data is available. Tr. 76, Line 18 – Tr. 77, Line 10.

The other item (115) to which Mr. Chantal added tax and freight to the list price was a Justrite Cabinet for Flammable Storage. The only description provided by Mr. Chantal was 1 – Justrite – Cabinet, Solvent Storage, 30-Gallon. Which he valued at $480 (RCN) and depreciated by 50% to arrive at a market value of $240. His source for replacement cost new was a catalogue which listed a 30 gallon capacity, two compartments (doors) 39 x 19 x 44 at $436. To this was added the 10% tax and freight factor. Exhibit 1, p. 14, Addendum. Mr. Bealmear, based upon his inventory of the property, described the subject cabinet as Cabinet, Flammable Storage, Justrite, 30-Gal. Cap., 2-Dr, Locking, Approx. 48 x 48 x 20. He was able to find comparable sales to value the item at $125.00. Exhibit A, p. 82, Entry 844.

The adding of an amount for tax and freight was not appropriate in the present case. The counting of such factors results in a value in place/in use, which may or may not equate to value in exchange for the specific item of property. The trending of reported costs which include expenses for freight, taxes and installation results in a valuation under the in place/in use standard. No market data was presented upon which a determination could reasonably be made that in use value for the collection of Complainant’s property is the same as value in exchange. (See, P. D. George, et al, infra). Absent such evidence, the cost valuation which trends acquisition cost, tax, freight and installation was inappropriate and resulted in a valuation in excess of what reliable sales data will support for the value in exchange. By Mr. Chantal’s own testimony fair market value in exchange is not to include the depreciated elements of freight, installation and taxes, and that value in use or installed produces a higher value than fair market value in exchange. Tr. 27, Line 15 – Tr. 28, Line 3.

In like manner, Mr. Chantal’s methodology values installation costs if the asset list of the Complainant does not identify items as labor or installation. In instances in which Mr. Chantal cannot determine from the line item on an asset list if any labor or installation is included in the reported amount, he will value the line item, treating installation costs as tangible personal property, irrespective of whether there is any market data to support that used machinery and equipment retains some value for installation costs. Tr. 134, Line 8 – Tr. 144, Line 14.

For item 162 (Polar Mohr, Paper Cutter Mod. 92Mon, S/N 5611057), Mr. Chantal valued that item under his trending and depreciating cost approach. The asset list showed the item was acquired in 1993 for $27,500. Mr. Chantal trended that amount by the factor of 1.110 to arrive at his Replacement Cost New of $30,500. He then applied 54% good to arrive at his indicated fair market value of $16,500. However, item 162 had actually been manufactured in 1986, not in 1993. Mr. Bealmear was able to find sufficient market data to value the paper cutter under the sales comparison approach at a value of $12,000. Furthermore, L & M’s The Book, which Mr. Chantal utilized from some of his sales approach data, listed 10 sales of used Polar Mohr paper cutters from 1997 through 2001 publications. Internet sources listed numerous asking prices Polar paper cutters. Tr. 178, Line 22 – Tr. 179, Line 10; Tr. 184, Line 7 – Tr. 185, Line 4; Exhibit 1, p. 14; Exhibit A, p. 75, Item 759; Exhibit E; Tr. 185, Line 5 – Tr. 186, Line 20.

Proper Cost Methodology

The proper methodology for developing an estimate of value relying on the cost approach starts with a determination of replacement cost new for an item of property as of the date of valuation. The next step is to address the issue of physical depreciation for the item of property and make an appropriate deduction. Functional obsolescence for the property must then be analyzed and an adjustment made for this factor. Finally, the matter of economic obsolescence must be considered and investigated so that a proper adjustment can be made. Valuing Machinery and Equipment, supra, Chapter 3, p. 45.

This is not the methodology utilized by Respondent’s appraiser. The cost approach relied upon by Respondent starts with original costs and allegedly trends the cost to estimate current replacement cost, and only then makes a deduction for the element of physical depreciation. Under this trending/depreciation of original costs all machinery and equipment purchased in a given year is trended and depreciated at exactly the same rate. This is true irrespective of whether the item of machinery and equipment is a ladder, a drill press, a lathe, an air compressor, a fork lift or an envelope stuffer, (all items of machinery and equipment included in the subject property). The Chantal cost approach does not conform to the usually recognized proper cost approach, thus rendering it far less persuasive than either the sales comparison or cost approach employed by Complainant’s appraiser.

Trending in Cost Approach

Respondent Appraiser’s methodology is further unpersuasive due to its variance from accepted appraisal practice. The trending factor (whatever it may be for a given year) has been applied by Mr. Chantal to original cost as shown on Complainant’s asset list. Trending is applied not to the original cost but to the historical cost. Historical cost is the cost of a property when first placed in service by its first owner. Original cost is the actual cost of a property when acquired by the present owner. In some instances historical and original cost may, of course, be the same. Valuing Machinery and Equipment, supra, Chapter 3, p. 62.

Trending can easily lead to errors in valuation. Trending does not give replacement cost new, but reproduction cost new. It does not provide a means to measure the difference between reproduction cost new and replacement cost new. Trending is to only be applied to historical cost. The appraiser must establish that the cost being trended is the actual historical cost and not a cost resulting from a prior allocation of purchase price or used cost. Historical cost to be trended may not be the typical cost, but may include or exclude cost factors that must be considered and accounted for in a given appraisal problem. Trending of used cost is improper. Trending factors are based on averages, but the specific property being valued may differ from the average. Trending for periods in excess of ten years should not be employed unless confirmation can be made by other methods of estimating cost new. The appraiser should know the basics of how the trending index was developed. Valuing Machinery and Equipment, supra, Chapter 3, pp. 62-64. The record in this appeal provides nothing to demonstrate that any of these concerns are addressed in any manner by the trending index employed by Mr. Chantal. This results in the methodology as applied being unsubstantial and non-persuasive to establish the value proposed.

Depreciation Factors

In like manner, the depreciation factors utilized by Mr. Chantal lack in persuasive content for the purpose for which they are employed. The most obvious deficiency is that the factors do not separately identify physical, functional and economic obsolescence. Nor was it established that the depreciation factors can in any way, shape or form account for functional and economic obsolescence. This results in all individual items of office furniture and equipment for a given year being depreciated at the same rate for physical, functional and economic factors, irrespective of actual physical condition, functional utility or economic circumstances. The same would be true for each item of manufacturing machinery and equipment. Mr. Chantal did not make any specific analysis of physical, functional or economic depreciation for the items of property, but simply relied upon the Marshall and Swift tables and applied depreciation based on life expectancy. Tr. 52, Line 16 – Tr. 71, Line 23. Nor did the appraiser make any market analysis to determine that the life expectancy based on the Marshall and Swift printing and publishing table and used for the subject property was accurate and reliable. Tr. 71, Line 24 – Tr. 75, Line 2. The persuasive content of the values developed under the trending/depreciation method is rendered completely unconvincing and non-compelling in light of these deficiencies and imperfections.

Marshall and Swift Trending and Depreciation Indexes

One final inadequacy in Mr. Chantal’s cost approach relates to the reliance on the Marshall and Swift Trending and Depreciation Indexes. The testimony of Mr. Richard D. Vishanoff, Managing Editor of Marshall and Swift Valuation Services established the weaknesses and flaws in simply applying a trending factor and depreciation factor to an acquisition cost which may or may not included tax, freight and installation costs.

Trending Indexes

The Marshall and Swift cost factors ( M & S Indexes) are inflation escalators broken down by industries. Most of the elements that go into inflation escalators are some producer price indexes. The M & S Indexes contain some weighting for a number of elements beside the basic cost. There are price elements, some of that being labor and other elements that are weighed in to account for the installation of the equipment including taxes, shipping and installation.

The M & S Indexes are designed to trend a cost up in time, and would be considered a reproduction index of reproducing what the index is being applied to. They are simply inflation escalators. These do not take into account any significant technological change that would take place in the original costs that would be trended. The Indexes were developed originally as inflation escalators for the insurance market. Tr. 194, Line 6 – Tr. 196, Line 8.

Indexes for trending equipment are designed to reflect the changes in an entire industry, and as such do not directly reflect the cost of any one time or a group of items. They are not obtained by periodically repricing actual items of equipment from catalogs and weighting their cost changes to arrive at a composite trend. Indexes are primarily determined by a method of averaging. Total plant costs are averaged based on appraisals in each industry then formulating specialized equipment pricing, which is representative of major equipment groups in proportion to their average occurrence in each of the industries listed in the index. Weightings for installation, taxes and other factors representing the general business activity and condition of the economy are also a part of the indexes. The composite mix of various factors contained in the indexes which are based on average occurrence may never actually exist in any one plant.  Exhibit D; Tr. 199, Lines 9-24.

Depreciation Tables

The Marshal and Swift Depreciation Tables (M & S Tables) were originally published in the early nineteen sixties with an extended life methodology generally paralleling original studies done prior to that time for machinery and equipment in place of a straight line or accounting type of methodology. The Tables basically follow the same curve as originally developed, the depreciation curve has not changed. The Tables represent a very general and average approach to encompass all of the various facets of components that Marshall and Swift publish as far as equipment on a very general basis.

The Tables are basically designed as a broad brush approach that can be detailed based on further refinements or adjustments. In order to use any of the Tables properly a person needs to have some type of benchmark or established criteria to work from to validate that they are being used properly. The Tables are one approach among a number of methods that might be available to the appraiser in establishing values. Whether they would be used singly or in conjunction with other methods would depend on the knowledge and experience of the user and the information at hand. The Tables basically account only for typical physical depreciation. They do not account for any excessive or any economic depreciation.

The Tables have a ceiling or cap that is somewhat arbitrary in that they generally stop at 20% good, or depreciated 80%. Essentially the ceiling or cap accounts for value in use. The Tables are based on a value in use principle.

A methodology in which a complete survey of all the items being valued, noting makes and models, is conducted and then going to the used machinery market and establishing what similar types of equipment might be selling for or researching catalog pricing for establishing value would be preferable and superior to simply relying on the Indexes and Tables. This is especially true where there exists reliable market data to provide a foundation for either the cost or sales comparison approaches. Tr. 196, Line 9 – Tr. 199, Line 8.

Summary and Conclusion Relative to the Chantal Cost Approach

Based on the forgoing (Unpersuasiveness of Respondent Expert’s Cost Methodology & Marshall and Swift Trending and Depreciation Indexes), the opinions of value propounded by Mr. Chantal which were based upon his cost approach cannot be found to have substantial and persuasive value. The cumulation of the various deficiencies and inadequacies which have been noted and discussed affects 95.4% ($4,609,627 – cost approach valuation/$4,831,000 – total opinion of value = .9542) of the entire value proposed for the subject property. In light of the weaknesses reviewed and examined in the cost approach evidence presented by Respondent’s expert and the market data based valuation presented by Complainant’s expert the Chantal opinion of value has no probative merit in the valuation of the subject property.

Unpersuasiveness of Respondent Expert’s Sales, Extrapolation & Estimate Methodology

Extrapolation and Estimate Valuations

For the remaining 4.6% of the proposed value for the subject property which was valued under Complainant’s sales, extrapolation or estimate methodology, the expert’s opinion of value is likewise unpersuasive. Only a total of 33 items of property were valued by Mr. Chantal using an estimate or extrapolation (32 – estimates & 1 – extrapolation). This accounted for only $4,978 out of the total opinion of value for the subject property of $4,831,000.

It is understood that appraisers in the course of arriving at a value under either the cost or sales comparison approaches will make estimates. For example, the amount for physical depreciation on a piece of manufacturing equipment is an estimate based upon personal observation of the machinery and the experience of the given appraiser. An adjustment under the sales comparison approach for the item of time of sale or type of sale involves some level or degree of estimating by the expert. However, neither Exhibit 1 nor the testimony of Mr. Chantal provides what the actual basis for the estimate or extrapolation values were in this appraisal problem. It is also recognizes that it is not always possible to get a clear picture or demonstration of the mental processes employed by an appraiser when adjusting under either the cost or sales comparison approach. A duplication or reconstruction of an individual’s thought operation in working through an appraisal assignment is not mandated. However, in the present appeal, the Hearing Officer was left unpersuaded by the testimonial support for valuation under the estimate or extrapolation methods. Tr. 177, Line 11 – Tr. 178, Line 21. Furthermore, Complainant Expert’s use of actual sales data completely rebuts any opinion of value for these few items valued by Mr. Chantal by estimate and extrapolation.

Sales Comparison Valuations

Only $216,772 of the opinion of value proffered by Mr. Chantal was based upon his sales methodology. This accounts for only 4.5% ($216,772/$4,831,000 = .0449) of the total opinion of value given by the appraiser or less than 7% of the total items of property (91 – items valued by sales method/1306 – total items and lots of property = .0697). The sales comparison method relied upon by Respondent’s Expert consisted in large part of simply taking the reported used price for individual items from Orion Research Corporation. In instances in which the appraiser relied upon data from L & M – The Book, the procedure was a simple averaging if there were two or more reported sales.

In only one of the instances (Item 164) of employing this form of sales comparison method did Mr. Chantal make any type of adjustments to the used prices or sale prices reported by either Orion or L & M. The instance involving Item 164 related to a single sale of a comparable piece of equipment. Tr. 117, Line 16 – Tr. 123, Line 20; Tr. 125, Lines 1-11. However, Mr. Chantal agreed that under a sales comparison approach adjustments are to be made to the comparable property to account for differences between the comparables and the property being valued. He agreed that differences based upon condition, size, effective age, date of sale, circumstances of sale, location, environmental compliance, safety compliance and any other factors affecting sale price should be adjusted for by the appraiser. Tr. 123, Line 21 – Tr. 124, Line 25.

It was the position of Mr. Chantal that the deletion of extra high or low values and the use of the median average is an adjustment. Tr. 125, Lines 1-7. The use of reported sales prices that constitute the average does not qualify as an adjustment. It only qualifies as using an average.

The opinions of value founded upon little more than an average sale price, without taking into consideration the possible need for adjustments renders this methodology without persuasive force to establish a value for the limited number of items valued using reported sales data from Orion and L & M. Furthermore, valuing less than 5% of the total value of the subject property or less than 7% of the total number of items of subject property under the Chantal sales method when Complainant’s appraiser was able to develop the sales comparison approach for over 67% of the total value and over 99% of the total items of the subject property also weighs on the side of unpersuasiveness for the Chantal valuation.

Unpersuasiveness of Mass Valuation Methodology in Contested Cases

Mass valuation of personal property under a standard set of depreciation schedules is used for purposes of reassessment throughout the state, especially when dealing with the machinery and equipment which makes up a manufacturing facility. Due to the multitude of items of personal property and the individual personal property accounts in any given county it is not possible, nor practical for the assessor to perform an individual appraisal on each manufacturing facility for purposes of his annual personal property assessment. Therefore, the methodology whereby the assessor multiplies the total acquisition costs for a given year times a set original cost multiplier amount (trended original cost and percent good factor) for each year to arrive at an indicated true value in money is an appropriate tool to use for valuing office furniture, computer equipment and manufacturing machinery and equipment for purposes of a mass valuation. However, once the issue of valuation has moved to an appeal before the Commission, the mass valuation approach, absent market derived supporting evidence, will generally lack the qualities of substantial and persuasive evidence to establish value. This is especially true in the face of an appraisal based upon market data in the development of sales comparison and cost approaches.

The mass valuation technique has been presented in various contested cases before the Commission (See, P. D. George, et al, infra). It has failed to reach the level of substantial and persuasive evidence in each instance. The reason the method is not persuasive in a contested case is quite simple. There is no hard market data to demonstrate and support the validity and soundness of the underlying figures used in the mathematical calculations as they are applied to specific items of machinery and manufacturing equipment, or office furniture and equipment. As has been discussed above (See, Proper Cost Methodology, Trending in Cost Approach, Depreciation Factors, supra), the critical factors which go into the math equation are unsupported by the market. This is especially true in light of the market data presented by Complainant’s expert which clearly provides abundant information to establish that the overwhelming majority of the individual items of machinery and equipment are bought and sold in an active market.

Relying on a set of trending/depreciation tables in a contested case is fatally flawed in the absence of market data to establish the proper foundation for this methodology and in light of actual sales data as demonstrated by Complainant’s appraisal. Respondent Appraiser’s valuation does not provide any supporting documentation which will demonstrate that acquisition costs as shown on Complainant’s asset list trended by a set of inflation factors represents the replacement cost new as of January 1, 2000. There is nothing within the Chantal appraisal that establishes that the various trending and depreciation factors, which were used for furniture and office machines, computers and peripherals, manufacturing equipment and tooling, are appropriate for any of the given items of property or the entire group of items of property which were acquired in a single year to which one depreciation (percent good) factor would apply. Both the trending and depreciation factors must be founded upon market data to satisfy the requirement of being both substantial and persuasive evidence.

The entire exercise of using factors or indexes for trending and depreciation is unnecessary in the vast majority of appeals, since it has been demonstrated time and time again that there is an active user to user (direct), and user to dealer (indirect) market for the vast majority of machinery and equipment that is found in virtually every type of manufacturing facility. (See, P. D. George, et al, infra). Sales from this market can be adjusted to arrive at a market based indication of value. Furthermore, the appropriate and proper methodology, if a party seeks to rely upon the cost approach, is to obtain replacement cost new from the market and then adjust for physical depreciation based upon actual observation of each item of property and adjusted for functional and economic obsolescence derived from appropriate market data and investigation.

Reliance upon acquisition costs, whether historical or original, as the starting point of a valuation exercise in a contested case, and a table of trending and depreciation factors in the face of actual sales data does not reach the level of substantial and persuasive evidence to establish value. It matters little what was paid for an item of equipment five or six years prior to the tax date when one can go to the market and find a sufficient number of actual sales for the item to demonstrate the present value. This procedure (inventory of the property and investigation and research of the present market) eliminates any level of speculation and conjecture as to whether the trended and then depreciated acquisition cost is reflective of market value for individual items of machinery and equipment.

Expert Testimony

A determination of value in a personal property case involving items of machinery and equipment rests to a very large extent on evidence presented by the expert witnesses. Where specialized knowledge will assist the hearing officer to understand evidence or to determine a fact in issue, a witness with necessary knowledge, skill, experience, training and education may testify as an expert. Section 490.065, RSMo. The issue of valuation of machinery and equipment calls for expert testimony in the form of an appraisal and direct and cross-examinations. In the present appeal a witness for each side was tendered as an expert in valuation of the property under appeal.

Complainant’s Expert

Complainant’s expert, Allen D. Bealmear, brings extensive education, training and experience to the performance of his appraisal assignment. He has in excess of twenty-eight years of appraisal experience. He has performed appraisal and research assignments relating to machinery and equipment in industrial plants in a variety of different industries. Mr. Bealmear has testified as an expert witness in Federal Bankruptcy Courts and tax courts in various states and before the State Tax Commission of Missouri on approximately twenty occasions. Exhibit A, p. 97 & Exhibit B, p. 5, Line 9 – p. 6, Line 15 .

Mr. Bealmear was assisted in his appraisal of the subject property by Karen Miles Milan, ASA and CEA and H. W. Choate, ASA. Their experience in appraisal of machinery and equipment in industrial plants is similar to that of Mr. Bealmear. Exhibit A, pp. 98 & 99.

Weight Accorded Evidence

The Hearing Officer as trier of the facts is responsible for the weighing of the evidence presented. The Hearing Officer has the duty to evaluate the evidence presented to determine the sufficiency and persuasiveness of the evidence in establishing market value. One of the critical factors in weighing and evaluating evidence is the education, training and experience of the experts who testify on the issue of value.

The Hearing Officer cannot simply turn a blind eye and a deaf ear to the Complainant’s evidence as developed and presented by a recognized expert in the field of machinery and equipment valuation. This is especially true in this appeal, where significant and detrimental errors, omissions and flaws in the appraisal methodology and procedure employed by Respondent’s expert were clearly demonstrated. The Bealmear appraisal comes within the standards of both the Commission rule (12 CSR 30-3.065(2) and the American Society of Appraisers guidelines (Valuing Machinery and Equipment, supra) for rendering a persuasive opinion of value. The Bealmear appraisal and methodology was superior to that of Mr. Chantal. The evidence on this record which is possessed of both substantial and persuasive weight is the opinion of value developed by the Bealmear appraisal. This is so because of the following factors:

1. Mr. Bealmear possesses the necessary credentials to establish his expert status for performing both a proper cost approach and a proper market approach to arrive at an opinion of value.

2. The various items of furniture, computer and manufacturing equipment are regularly traded in the used machinery and equipment market as evidenced by the fact that comparable sales data was available on 99.29% of the total items being valued in this appeal (1395/1405 = .9929).

3. Complainant’s appraisal valued the items of machinery and equipment on the basis that they will continue to be utilized for the specific purpose or function for which each is designed. The property was not valued on a salvage or scrap basis. The appraiser recognized that the machinery and equipment will continue to be used in a manufacturing process, as evidenced by the reliance on sales of comparable machinery and equipment that is bought and sold to be used in an on going manufacturing operation.

4. Complainant’s valuation was based upon generally accepted appraisal methodology and practice for furniture, computers, machinery and equipment such as comprise the personal property under appeal, relying upon appropriately developed sales and cost data.

5. No evidence was presented, derived from and/or supported by market transactions, which would establish that the subject property would sell for a value greater than that determined under Complainant’s cost and sales comparison approaches.

6. Respondent Expert’s almost complete reliance on the Marshall and Swift Trending Indexes and Depreciation Tables resulted in a valuation of the subject property in use which is an inappropriate valuation standard under Missouri law absent a showing that the market will support the adding of trended and depreciated costs for taxes, freight, installation, etc. which go into an in use valuation so that exchange value and in use value would in fact, based upon market data, be the same. No such showing was made on this record.

7. Respondent Expert’s mass cost methodology and limited sales comparison methodology failed to demonstrate or establish that such a methodology provides a reliable and persuasive indication of market value (value in exchange) and was for all practical purposes countered and rebutted by Complainant’s evidence of value.

ORDER

The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for Perry County for the subject tax day is SET ASIDE.

The assessed value for the subject property for tax year 2000 is set at $498,372.

A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision. The application shall contain specific grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial. Section 138.432, RSMo 1994.

If an application for review of this decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Perry County shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any or all protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, Complainant may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

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 November 29, 2001.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Chief Hearing Officer

END NOTE

The following is a list of recent appeals which have addressed the issue of valuing of machinery, tools and equipment in various manufacturing facilities in various counties.

P. D. George v. Daly, STC Appeal 97-20316, March 21, 2000, Order Granting Application for Review, August 10, 2000, (Daly v. P. D. George Co., Cause No. 004-2046, Circuit Court City of St. Louis, April 24, 2001);

St. Clair Die Casting v. Overschmidt, STC Appeal 99-57024, 5/3/00;

Rexam v. Overschmidt, STC Appeal 99-57025, 5/3/00;

Bull Moose Tube Co. v Overschmidt, STC Appeals 99-57027 & 99-57028, 5/3/00;

Angeles Group, Inc. v. Overschmidt, STC Appeal 99-57029, 5/3/00;

Ducoa v. Tunnell, STC Appeal 99-65000, 5/5/00;

St. Louis Post-Dispatch v. Daly, STC Appeal 99-20261, 1/29/01;

Nordyne, Inc. v. Daly, STC Appeal 99-20263 (1/29/01);

Lincoln Industrial v. Daly, STC Appeal 99-20264, 1/29/01;

Boxes, Inc. v. Daly, STC Appeal 99-20265, 1/29/01;

P. D. George v. Daly, STC Appeal No. 99-20262, 2/2/01;

Sunline Brands v. Daly, STC Appeal 99-20269, 4/30/01;

Alumax Foils, Inc. v. Daly, STC Appeal 99-20270; 4/30/01;

St. Clair Die Casting Company v. Overschmidt, STC Appeal 00-57002, 5/16/01;

Rexam Containers v. Overschmidt, STC Appeal No. 00-57003, 5/16/01;

Bull Moose Tube Company v. Overschmidt, STC Appeals No. 00-57004 & 00-57005, 5/16/01;

Lowell Manufacturing Co. v. Overschmidt, STC Appeal 00-57006, 5/16/01.

Warner-Jenkinson v. Daly, STC Appeal 99-20267, 8/8/01.

Watlow Industries v. Ruhl, STC Appeal 00-81000, 8/8/01.

VonWeise Gear v. Overschmidt, STC Appeal 00-57001, 8/8/01.

Pohlman, Inc. v. Gogarty, STC Appeal 00-10023, 9/6/01.

Nestle USA, Inc. v. Gogarty, STC Appeal 00-10006, 00-10007 & 00-10008, 10/4/01.

Leonards Metal, Inc. v. Zimmerman, STC Appeals 00-33002 & 00-33003, 11/6/01.

Ambassador Envelope Co. v. Zimmerman, STC Appeal 00-33004, 11/6/01.

Pohlman, Inc. v. Zimmerman, STC Appeal 00-33006, 11/6/01.

 

ORDER

DENYING APPLICATION FOR REVIEW

OF HEARING OFFICER DECISION

On November 29, 2001, Chief Hearing Officer, W. B. Tichenor, entered his Decision and Order (Decision) setting aside the assessment made by Respondent and sustained by the Perry County Board of Equalization and finding value for the subject property.

Respondent’s Grounds for Review

Respondent timely filed his Application for Review of the Decision. Complainant timely filed (January 31, 2001) his Response to the Application for Review.

Respondent asserted two grounds for review. They were: (1) The Hearing Officer erred in determining that the concept of value employed by Complainant’s appraiser presented a methodology which was proper, fair, not arbitrary, and lawful under Missouri law, commission regulations and case law; and (2) The Hearing Officer erred in determining that Respondent’s evidence of valuation did not reach the level of substantial and persuasive evidence to establish value.

Standard Upon Review

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).

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).

The Commission will not lightly interfere with the Hearing Officer’s Decision and substitute its judgment on the credibility of witnesses and weight to be given the evidence for that of the Hearing Officer as the trier of fact. Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Lowe v. Lombardi, 957 S.W.2d 808 (Mo. App. W.D. 1997); Forms World, Inc. v. Labor and Industrial Relations Com’n, 935 S.W.2d 680 (Mo. App. W.D. 1996); Evangelical Retirement Homes v. STC, 669 S.W.2d 548 (Mo. 1984); Pulitzer Pub. Co. v. Labor and Indus. Relations Commission, 596 S.W.2d 413 (Mo. 1980); St. Louis County v. STC, 562 S.W.2d 334 (Mo. 1978); St. Louis County v. STC, 406 S.W.2d 644 (Mo. 1966).

DECISION

The Commission notes that the Hearing Officer set out in extensive and exacting detail the rational and basis for his determination relating to the substantial and persuasive nature of Complainant’s evidence. Decision, pp. 11-21; 41-44. In like manner, the Hearing Officer addressed in considerable and comprehensive detail the logic and foundation for his determination relating to the failure of Respondent’s expert to present evidence which could be found to possess the requisite qualities of substantiality and persuasiveness necessary to establish value. Decision, pp. 21-41. Therefore, the Commission will not burden this record by a recapitulation of the Hearing Officer’s Decision.

A review of the record in the present appeal provides support for the determinations made by the Hearing Officer. Quite simply, Complainant’s expert persuaded the trier of fact for very sound reasons as set forth in the Decision. On the other hand, Respondent’s expert failed to persuade the trier of fact, for equally sound reasons that were set forth in the Decision. A reasonable mind could have conscientiously reached the result which the Hearing Officer reached on each of the points raised by Respondent. There is competent and substantial evidence to establish a sufficient foundation for the Decision. The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused his discretion as the trier of fact and concluder of law in this appeal. Hermel, Inc. v. STC, 564 S.W.2d 888 (Mo. 1978); Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Holt v. Clarke, 965 S.W.2d 241 (Mo. App. W.D. 1998); Smith v. Morton, 890 S.W.2d 403 (Mo. App. E.D. 1995). Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).

The Hearing Officer did not err in his determinations as challenged by Respondent. The Respondent’s points are not well taken.

ORDER

The Commission, upon review of the record and Decision in this appeal, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified. Accordingly, the Decision is affirmed.

Judicial review of this Order may be had in the manner provided in Sections 138.470 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.

SO ORDERED April 29, 2002.

STATE TAX COMMISSION OF MISSOURI

Sam D. Leake, Chairman

Bruce E. Davis, Commissioner

Jennifer Tidwell, Commissioner