STATE TAX COMMISSION OF MISSOURI
| TEN MAIN ASSOCIATES, LLC, | ) | |
| ) | ||
| Complainant, | ) | |
| ) | ||
| v. | ) | Appeal Nos. 15-30095 |
| ) | ||
| ROBERT MURPHY, ASSESSOR, | ) | |
| JACKSON COUNTY, MISSOURI, | ) | |
| ) | ||
| Respondent. | ) |
DECISION AND ORDER
HOLDING
The assessment made by the Board of Equalization of Jackson County (BOE) is SET ASIDE. Ten Main Associates, LLC (Complainant) presented substantial and persuasive evidence to rebut the presumption of correct assessment as to the subject property by the BOE.
Complainant appeared by Counsel Peter Corsale and Thomas Campbell.
Robert Murphy, Assessor, Jackson County, Missouri, (Respondent) appeared by Counsel Whitney Miller.
Appeals decided by Chief Counsel Maureen Monaghan (Hearing Officer).
ISSUE
Complainant appealed on the ground of overvaluation. Respondent set the true market value (TMV) of the subject property at $10,350,000, classified as commercial. The BOE independently determined that the subject property is a commercial property and valued the property at $8,500,000. The State Tax Commission (STC) takes this appeal to determine the TMV of the subject property on January 1, 2015.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
EVIDENCE PRESENTED
Complainant’s Evidence. On appeal before the STC, Complainant submitted the following evidence:
| Exhibit | Description |
| A | Appraisal Report of Troy Smith |
| Testimony | Troy Smith, Missouri Certified General Appraiser |
Complainant called Troy Smith (Smith) as a witness. Smith is a Missouri Certified General Appraiser, license number 2001018522. He is licensed to appraise properties in twelve states.
Smith appraised the property with a date of value of January 1, 2015. He inspected the property on March 22, 2017. He testified that he was familiar with the property as he appraised the property in 2007 and had been at the property on other occasions between his 2007 appraisal and the hearing date.
The appraiser considered all three approaches to value and determined the income capitalization approach was the only relevant approach. The cost approach was not deemed reliable due to the age of the building. The sales approach was not deemed reliable due to the lack of sales of similar properties.
Smith reviewed market and historic rents. The current average lease rate of the subject property is $14.78 per square foot on a full service basis. The most recent lease was for $13.50 per square foot. Comparable rental properties indicated rents from $11 to $18.50 per square foot on full service lease terms with tenant improvements. Smith concluded a market rent of $13.50.
In addition to rental income, Smith estimated income from reimbursement, parking fees and miscellaneous. The total potential gross income was set at $4,383,769.
Smith next reviewed vacancy and collection loss. The anchor tenant left in 2013. Attracting tenants to a property with high vacancy can be difficult. The subject property was 62.2% occupied as of January 1, 2015. During 2015, the vacancy increased to 46% (54% occupancy). Smith reviewed Costar, a source for rental and occupancy information relied on by appraisers, for vacancy levels in the subject’s market and projected a stabilized vacancy of 25%.
Smith next estimated expenses including management, administrative, utilities, repairs, maintenance, and insurances. Smith analyzed the expense items and projected what an investor would consider reasonable. Expenses were projected at $6.84 per square foot. The projected expense was similar to other office buildings in the area.
Smith estimated a net operating income of $4.35 per square foot or $1,283,206. Smith then converted the net income stream into an indication of value using the direct capitalization method. Smith reviewed the Johnson County Cap Rate Study, a study relied upon by appraisers in the Jackson County area, and developed the band of investment approach to conclude an overall capitalization rate of 9.5%. Smith reviewed the effective tax rate for the subject (3.34%). The effective tax rate was added to the overall capitalization rate for an adjusted overall rate of 12.84%. The appraiser opined an indication of value of $9,994,856.
Smith then adjusted the indicated value to account for the market reaction to the rent loss, tenant improvements and leasing commissions for the property to achieve the market occupancy of 75%. Approximately 61,332 square feet of space must be absorbed to achieve stability occupancy. After adjustments, Smith concluded an indication of value of $7,300,000.
Respondent’s Evidence. On appeal before the STC, Respondent submitted the following evidence:
| Exhibit | Description |
| 1 | State Tax Commission 2015 Valuation Report |
| 2 | Income Work Evaluation Report |
| Testimony | John Ebert |
Respondent valued the property at $10,350,000. The BOE reduced the valuation to $8,500,000.
John Ebert (Ebert) testified for the Respondent. Ebert is not a Missouri licensed appraiser. He is employed with a property tax administration consulting firm, John Q Ebert and Consultants. He works with government agencies in developing and managing their mass appraisal systems. Ebert was not the author of Exhibit 1 and therefore could not lay the foundation for its admission.
Ebert testified that Exhibit 2 is a valuation report and not an appraisal of the property. Complainant objected to the admission of Exhibit 2 as the “valuation report” set forth an opinion of value in violation of Chapter 339. The objection was sustained.
Ebert testified as to Complainant’s Exhibit A. Ebert testified that he had no issue with Smith’s income approach and conclusion of value. Ebert did have concerns regarding the adjustments made for lease up to stabilized occupancy. However, Ebert testified that the methodology used by Smith is correct and his resulting value is correct if the market vacancy is 25%. Ebert did not present authoritative information regarding the market vacancy or any evidence refuting the information used by Smith.
FINDINGS OF FACT
- Jurisdiction. Jurisdiction over these appeals is proper. Complainant timely appealed to the STC.
- Evidentiary Hearing. An evidentiary hearing was held on October 27, 2017 using State of Missouri’s telepresence technology. The Hearing Officer, Complainant’s counsel and witness appeared at the Truman Building in Jefferson City, Missouri. Respondent’s Counsel and witness appeared at the Fletcher Daniels Building in Kansas City, Missouri. Audio and visual communication was available at all times.
- Identification of Subject Property. The subject property is identified by parcel or locator number 29-220-31-07-00-0-00-000 and is located at 10 West 9th Street, Kansas City, Missouri.
- Description of Subject Property. The subject property is 1.46 acre parcel improved with a 20 story office building with attached parking garage. The office building contains 295,094 square feet of net rentable area in various levels of finish. The garage is 8 levels with 737 covered spaces. The improvements were constructed in 1968. The subject property lost its anchor tenant in 2013 and the occupancy rates have been in decline.
- Assessment. Respondent set the true market value (TMV) of the subject property at $10,350,000, classified as commercial.
- Board of Equalization. The BOE independently determined that the subject property is a commercial property and valued them at $8,500,000.
- Presumption of Correct Assessment Rebutted. Complainant’s exhibits and evidence were substantial and persuasive to rebut the presumption of correct assessment by the BOE. The TMV of the subject property is $7,300,000 as of January 1, 2015.
CONCLUSIONS OF LAW AND DECISION
Jurisdiction
The STC has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious, including the application of any abatement. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the BOE, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo.
Basis of Assessment
The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. The constitutional mandate is to find the true value in money (TMV) for the property under appeal. By statute, real property and tangible personal property are assessed at set percentages of TMV: residential property at 19%; commercial property at 32%; and agricultural property at 12%. Section 137.115.5 RSMo (2000) as amended.
Presumption In Appeal
There is a presumption of validity, good faith and correctness of assessment by the BOE – the BOE presumption. 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. 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, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).
The BOE presumption operates in every case to require the taxpayer to present evidence to rebut it. If Respondent is seeking to prove a value different than that set by the BOE, then Respondent is required to rebut the BOE presumption.
Burden of Proof
A presumption exists that the assessment by the BOE is correct. Rinehart v. Bateman, 363 S.W.3d 357,367 (Mo. App. W.D. 2012); Cohen, 251 S.W.3d at 348; Hermel, Inc., 564 S.W.2d at 895. “Substantial and persuasive controverting evidence is required to rebut the presumption, with the burden of proof resting on the taxpayer.” Cohen, 251 S.W.3d at 348. Substantial evidence can be defined as such relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is evidence that has sufficient weight and probative value to convince the trier of fact. Cupples Hesse Corp., 329 S.W.2d at 702. 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). See also, 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).
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.” Westwood Partnership, 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. W.D. 1991).
Weight to be Given Evidence
The Hearing Officer is not bound by any single formula, rule, or method in determining true value in money and 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 deemed necessary when viewed in connection with all other circumstances. Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. W.D. 1991). The Hearing Officer, as the trier of fact, is not bound by the opinions of experts but may believe all or none of the expert’s testimony or accept it in part or reject it in part. Exchange Bank of Missouri v. Gerlt, 367 S.W.3d 132, 135-36 (Mo. App. W.D. 2012).
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 v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973).
It is the fair market value of the subject property on the valuation date. Hermel, supra.
Market value is the most probable price in terms of money that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.
Implicit in this definition are the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:
- Buyer and seller are typically motivated.
- Both parties are well informed and well advised, and both acting in what they consider their own best interests.
- A reasonable time is allowed for exposure in the open market.
- Payment is made in cash or its equivalent.
- Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.
- The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction. Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation,J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.
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, 615 (Mo. App. W.D. 2000); Hermel, Inc., 564 S.W.2d at 897; Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975). Missouri courts have approved the comparable sales or market approach, the cost approach, and the income approach as recognized methods of arriving at fair market value. St. Joe Minerals Corp. v. STC, 854 S.W.2d 526, 529 (App. E.D. 1993); Aspenhof Corp. v. STC, 789 S.W.2d 867, 869 (App. E.D. 1990); Quincy Soybean Company, Inc., v. Lowe, 773 S.W.2d 503, 504 (App. E.D. 1989), citing Del-Mar Redevelopment Corp v. Associated Garages, Inc., 726 S.W.2d 866, 869 (App. E.D. 1987); and State ex rel. State Highway Comm’n v. Southern Dev. Co., 509 S.W.2d 18, 27 (Mo. 1974).
“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005), citing St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977). “Each valuation approach is applied with reference to a specific use of the property—its highest and best use.” Snider, 156 S.W.3d at 346-47, citing Aspenhof Corp., 789 S.W.2d at 869. “The method used depends on several variables inherent in the highest and best use of the property in question.” Snider, 156 S.W.3d at 347.
Discussion
Complainant presented the testimony of an experienced appraiser and his appraisal report on the subject property. The appraiser inspected the property, reviewed the income and expenses of the subject property, and reviewed market data to develop the income approach to value. The approach is appropriate for valuation of this property as the market value would be reliant on the income produced by the property. Using the information, the appraiser was able to form an opinion on value for the subject property as of January 1, 2015. The information presented was substantial and persuasive to rebut the presumption of correct assessment by the BOE. Complainant presented substantial and persuasive evidence to support their opinion of TMV as of January 1, 2015.
Respondent did not present evidence to refute the Complainant’s evidence nor did they present evidence as to value of the property as of January 1, 2015. Respondent offered two reports that they argued were “valuation reports” and not “appraisal reports”. Respondent did not present the author of one of the reports and therefore the report was excluded. The other “valuation report” was excluded for violation of Chapter 339. Chapter 339 defines an appraisal as “an objective analysis, evaluation, opinion, or conclusion relating to the nature, quality, value or utility of specified interests in, or aspects of, identified real estate. An appraisal may be classified by subject matter into either a valuation or an analysis;” Section 339.503(1) RSMo. Chapter 339 defines an appraisal report as “any communication, written or oral, of an appraisal. The purpose of an appraisal is immaterial, therefore valuation reports, real estate counseling reports, real estate tax counseling reports, real estate offering memoranda, mortgage banking offers, highest and best use studies, market demand and economic feasibility studies and all other reports communicating an appraisal analysis, opinion or conclusion are appraisal reports, regardless of title;” Section 339.503(7) RSMo (emphasis added) Respondent’s witness was not qualified to provide an opinion of value.
In any event, Exhibit 2 was not substantial and persuasive as the Respondent’s witness provides advice for mass appraisal of properties within the county. The witness did not inspect the subject property, review the information from the subject property, or analyze the subject property’s market for the purpose of determining the value of the subject property as of January 1, 2015.
Respondent’s witness testified that the Complainant’s witness properly developed the income approach. Respondent’s witness stated that he had concerns with the adjustment made by Complainant’s appraiser for lease-up. However, Respondent’s witness stated that if the market vacancy rate was 25%, then the adjustment made was proper. Respondent did not provide market information that refuted the information presented in Exhibit A.
ORDER
The assessed valuation of the subject property as determined by the BOE for the subject tax day SET ASIDE. Assessed value for the subject property as of January 1, 2015 was $2,336,000.
Application for Review
A party may file with the Commission an application for review of this decision within thirty days of the mailing date set forth in the Certificate of Service for this Decision. The application shall contain specific facts or law as grounds upon which it is claimed the decision is erroneous. Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.
Failure to state specific facts or law upon which the application for review is based will result in summary denial. Section 138.432, RSMo
Disputed Taxes
The Collector of Jackson County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8, RSMo.
Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.
SO ORDERED November 21, 2017.
STATE TAX COMMISSION OF MISSOURI
Maureen Monaghan
Chief Counsel
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 21st day of November, 2017, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.
Jacklyn Wood
Legal Coordinator