TWELVE OAKS MOTOR INN, INC., )
v. ) Appeal Number 00-89503
JAMES STRAHAN, ASSESSOR, )
TANEY COUNTY, MISSOURI, )
DECISION AND ORDER
Holding: The evidence on the record most persuasively supports a market value of $1,725,000 for the subject property as of January 1, 1999. The assessment is modified accordingly. The May 1999 Notice of Change in Assessed Value provided adequate notice of increased assessment. Accordingly, the Commission only has jurisdiction to review the 2000 assessment.
The subject property in this appeal consists of a 4.05 acre parcel improved with two motels. The two properties have a total of 116 guest rooms. The older motel, Twelve Oaks, has 66 rooms, exterior corridors, was built in three phases (1982, 1986, and 1990) and has three separate buildings. It has an outdoor pool, an office, a manager’s apartment, two other apartments, and a maintenance area with two garage doors. The newer motel, Spinning Wheel, has 50 rooms, exterior corridors and was built in 1993. It has an outdoor pool and a manager’s apartment. The subject property is located at 205 and 215 Shaefer Drive, Branson, Missouri. The parcel identification number is 07-7.0-35-000-000-039.000.
Respondent appraised the subject property at a market value of $2,506,470 ($802,070, assessed) for the 1999 – 2000 assessment cycle. On July 13, 2000, the Taney County Board of Equalization reviewed the assessment for the 2000 tax year and affirmed the assessor’s valuation. Complainant appeals the assessment on the grounds of overvaluation and discrimination and proposes a market value of $1,725,000 ($552,000 assessed). Complainant further challenges the adequacy of the 1999 Notice of Change in Assessed Value in putting Complainant on notice that the 1999 assessed value would increase regardless of the ultimate outcome of the 1997 cycle assessment appeals. Complainant maintains that the notice communicates a tentative assessment increase for the 1999 cycle subject to the court’s decision in the pending litigation. Complainant argues that in light of the ineffective notice, the 1999 assessment should be under consideration in this appeal and should be reduced in accordance with Complainant’s valuation evidence.
An evidentiary hearing was conducted on April 19, 2001, at the Taney County Courthouse, Forsyth, Missouri. Complainant appeared by Counsel, C. Ronald Baird, Springfield, Missouri. Respondent appeared by Counsel, William McCullah, Taney County Counselor, Forsyth, Missouri.
Case heard and decided by Hearing Officer Aimee L. Smashey.
Complainant presented the appraisal testimony and report of Appraiser Kenny Meyers. Mr. Meyers relied upon the income approach in arriving at his opinion of value because typical investors purchase hotels in anticipation of the income stream that can be generated from operation of the property. Mr. Meyers evaluated the cost and sales comparison approaches, but did not develop them because of the significant physical, functional, and external obsolescence applicable to the cost approach, and the lack of a credible means of separating real estate value from the business value and the FF&E value in the sales data.
To begin his income approach, he analyzed the revenue stream for the subject properties for the last 4 years and the market revenues for comparable properties on the Schaefer Drive Loop, and on Green Mountain Drive. From his analysis, he projected a stabilized occupancy of 78%, a stabilized average daily rate (ADR) of $40.50 and a revenue per available room (RevPAR) of $31.59. These projections indicate a room revenue of $967,791 or $8,343 per room. He projected additional miscellaneous revenues at $12,347 which flows from the rental of the two apartments, telephone revenues and merchandise sales. The total projected revenues are $980,291.
Mr. Meyers evaluated the expense information from the subject motels and industry-wide market surveys complied by the Host Report and PKF Trends. He stabilized expenses at 69.3% of revenue. He calculated reserves for replacement at 3.97%, and a return on FF& E of 1.07%. Deducting these expense projections from the projected revenue stream yields a net income attributable to the real property of $241,187.
In order to calculate an appropriate capitalization rate, Mr. Meyers used market extraction and a mortgage-equity analysis. For market rate data, he relied on a capitalization rate study updated in January 2000 that was produced for Johnson, Sedgwick, Shawnee and Douglas Counties in Kansas. He indicated that this study included sales from across the nation and differentiated between luxury/full-service, limited service, and extended stay properties. The market extraction analysis indicated a range of overall rates from 12.5% to 13%. In working his mortgage-equity analysis he utilized Arthur Anderson’s 1996 Hospitality and Leisure Executive Report, and Landuauer and Associates’ 1998 Hospitality Investment Survey Results. He estimated the mortgage interest rates between 8.5% and 9% and the equity yield rate between 17.5% and 20% which lead to a range of overall rates between 11.35% and 12.5%. These analyses led Mr. Meyers to the conclusion that the subject properties would have an overall capitalization rate of 12.5%, which, with the addition of the effective tax rate of 1.37%, indicated a tax-adjusted overall range of 13.75% – 14%. Applying this capitalization range to the projected net income of $241,187, Mr. Meyers concluded a value of $1,725,000 for the subject property as of January 1, 1999. Complainant’s proposed value breaks down to $14,870 per unit.
Complainant also offered the testimony of Mr. Martin Joseph Sinclair, sole owner of Complainant. Mr. Sinclair testified that he has been a motel operator in the Branson area since 1982. Mr. Sinclair also testified that he learned of the recent sale of Dutch Country Inn for $12,000 per unit from a Mr. Schaeffer who was a real estate broker involved in the sale.
Respondent, James Strahan, offered testimony that he valued the subject property for tax purposes using a cost approach to value. In his cost approach methodology, he determined the replacement cost new less depreciation for improvements to be $1,977,212 and the value of the land at $529,254 for an indicated total value of $2,506,466 for the subject property as of January 1, 1999. Mr. Strahan’s value breaks down to $21,607 per unit.
Mr. Strahan also offered a list of nine sales of motel properties in the Branson area between 1998 and 2001 that ranged in price from $16,600 to $23,529 per unit. These sales included the contributory value of the property’s furniture, fixtures, and equipment. Tr. 58.
FINDINGS OF FACT
1. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Taney County Board of Equalization.
2. The subject property consists of a 4.05 acre parcel improved with two motels. The two properties have a total of 116 guest rooms. The older motel, Twelve Oaks, has 66 rooms, exterior corridors, was built in three phases (1982, 1986, and 1990) and has three separate buildings. It has an outdoor pool, an office, a manager’s apartment, two other apartments, and a maintenance area with two garage doors. The newer motel, Spinning Wheel, has 50 rooms, exterior corridors and was built in 1993. It has an outdoor pool and a manager’s apartment.
3. The subject motels are not operated year round. The Twelve Oaks Motor Inn is open from mid-March through mid-December for a 271-day season. The Spinning Wheel Inn is open April through mid-December for a 255-day season.
4. Motels are income-producing properties. They are typically bought and sold based upon their ability to produce income.
CONCLUSIONS OF LAW
1. Complainant, as movant in the appeal, has the burden of presenting substantial and persuasive evidence that its proposed value is indicative of the market value of the subject property on January 1, 1999, in order to have that value accepted. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897.
2. “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).
3. “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).
4. It is this Hearing Officer’s judgment that Complainant’s appraisal provides the best indication of what buyers and sellers would rely on in negotiating a sales price for the subject property. Accordingly, it is the best evidence of the market value of the subject property as of January 1, 1999.
5. The subject real property has a market value of $1,725,000 ($14,870 per unit) as of January 1, 1999.
6. The May, 1999 Notice of Change in Assessed Value provided adequate notice of an increase in assessed value for the 1999 tax year despite the unresolved nature of the previous assessment.
The question that must be answered from the evidence submitted is: What was the market value of the subject properties as of January 1, 1999? “Market value” is defined as “…[t]he most probable price which a property would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
1. buyer and seller are typically motivated;
2. both parties are well informed or well advised, and acting in what they consider their best interests;
3. a reasonable time is allowed for exposure in the open market;
4. payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”
Federal Register, vol. 55, no. 163, August 22, 1990, pages 34228 and 34229; also quoted in the Definitions section of the Uniform Standards of Professional Appraisal Practice, 1996 ed.
The hearing officer, sitting as trier of fact in this appeal, has the responsibility to review the evidence presented in order to determine what is the best, most persuasive evidence of the market value of the subject property. The subject property in this appeal is an income-producing property. It is exchanged in the marketplace based upon its ability to produce income. Complainant presented an appraisal that relied upon reasonable projections of stabilized income, expenses, and the appropriate tax-loaded capitalization rate. Respondent presented an appraisal that relied upon reasonable projections of replacement cost, estimates of physical depreciation, and a determination of the contributory value of the underlying land. This Hearing Officer is persuaded that Complainant’s value is the best indicator of the market value of the subject property.
1999 Notice of Increased Assessment
Complainant challenges the adequacy of the 1999 Notice of Change in Assessed Value in putting Complainant on notice that the 1999 assessed value would increase regardless of the ultimate outcome of the 1997 cycle assessment appeals. Complainant maintains that the notice communicates a tentative assessment increase for the 1999 cycle subject to the court’s decision in the pending litigation. Complainant argues that in light of the ineffective notice, the 1999 assessment should be under consideration in this appeal and should be reduced in accordance with Complainant’s valuation evidence. It is this Hearing Officer’s judgment that the May, 1999 notice reasonably communicates the Assessor’s intention to raise the assessment for the 1999 assessment year despite the unresolved nature of the previous assessment.
The 2000 assessed valuation for the subject property is modified to $552,000.
A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous.
If an application for review of a hearing officer 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 Taney County as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party 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 September 6, 2001.
STATE TAX COMMISSION OF MISSOURI
DENYING APPLICATION FOR REVIEW
OF HEARING OFFICER DECISION
On September 6, 2001, Hearing Officer Aimee L. Smashey entered her Decision and Order (Decision) setting aside the assessment by the Taney County Board of Equalization and finding value for the property under appeal for the 2000 tax year. The Hearing Officer determined that the 1999 notice of increase in assessment provided adequate notice to Complainant and that the 1999 assessment was not properly before the Commission, since no appeal of the 1999 assessment had been made to the Board of Equalization and the Commission in tax year 1999.
Complainant’s Ground for Review
Complainant timely filed its Application for Review of the Decision. Complainant’s Application for Review does not challenge the determination of valuation for the 2000 tax year. The sole basis for Complainant’s Application for Review is that the Hearing Officer misapplied the law to the facts in this appeal in that the 1999 notice that was sent to the taxpayer was vague and ambiguous and, therefore, was improper notice under the statues and void under the law of the State of Missouri.
Exhibit B in this appeal (copy attached to this Order) (note: a copy of the attachment is available from the State Tax Commission’s office – it is not attached here) is a copy of the May, 1999, Notice of Change in Assessed Value of Real Property issued by Respondent on the subject property. Said Notice contains the following headings and writing: (Items in Bold are as printed on the Notice, Items in Italic are handwritten on the Notice.)
Previous Assessed value (1998):
RESIDENTIAL AGRICULTURAL COMMERCIAL TOTAL
Total 584,000 584,000
pending court Decision
Previous Assessed value (1999):
RESIDENTIAL AGRICULTURAL COMMERCIAL TOTAL
Total 802,070 802,070
The words pending court Decision are also circled on the Notice.
In the case of Twelve Oaks Motor Inn, Inc. v. Strahan, STC Appeal No. 97-89535 (April 26, 1999), the Commission sustained the Decision of Chief Hearing Officer W. B. Tichenor, in finding the assessed value for the subject property for the 1997-98 assessment cycle to be $584,000. On May 6, 1999, Respondent filed a Petition for Review of the Commission’s Decision in the Circuit Court of Taney County.
Hearing Officer Smashey in her Decision made the following Conclusion of Law: The May, 1999 Notice of Change in Assessed Value provided adequate notice of an increase in assessed value for the 1999 tax year despite the unresolved nature of the previous assessment. Decision, p. 6, Conclusion of Law 6. Complainant asserts that this determination by the Hearing Officer was in error. Complainant’s position is that the ambiguous language on the assessment form constituted a failure to give notice of the increased assessment by the Assessor’s Office and thus denied Complainant its administrative remedies. The Commission is not so persuaded.
The Notice of Change also contains the following language which clearly put the Complainant on notice as to its administrative remedy.
In accordance with the laws of the State of Missouri, the Taney County Assessor’s Office is required to provide a notice of change in value to property owners. The assessed value for 1999 total (bold and underlined in original) at the bottom right corner represents the value to be used in determination of property taxes for 1999. If the property owner does not agree with these values, they may appeal this value by one of two methods: Informal Hearing, or Board of Equalization Hearing. If you have questions concerning this notice or wish to schedule an informal hearing, you may call the Taney County Assessor’s Office at 417-546-7241 or 546-7240. Board of Equalization Hearing appointments must be made with the County Clerk’s office at 417-546-7200.
If Complainant found the notice ambiguous, it should have availed itself of the opportunity to place a phone call to the Assessor to determine if the 1998 or the 1999 assessed value would be changed pending the court decision. The location of the phrase pending court Decision on the notice could reasonably be applied to the 1998 valuation and not the 1999 valuation. The Hearing Officer could rightly so find. Furthermore, knowing that the 1997-98 valuation had been for $584,000 it would be most reasonable to assume that figure might change if the circuit court ruled in favor of Respondent on his appeal. The Notice clearly states that the assessed value of $802,070 is the value to be used in determination of the 1999 property taxes. The 1999 valuation was not a part of the pending court case. The Notice taken as a whole clearly provides for an increase in the value of the subject property for 1999 to $802,070.
A review of the record provides support for the determination made by the Hearing Officer relative to adequate notice. The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused her 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). The conclusion made by the Hearing Officer is supported by substantial evidence upon the whole record. A reasonable mind could have conscientiously reached the same result based on a review of the entire record. Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).
The Hearing Officer did not err in her determination as challenged by Complainant. The Complainant’s point is not well taken.
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 December 4, 2001.
STATE TAX COMMISSION OF MISSOURI
Sam D. Leake, Chairman
Bruce E. Davis, Commissioner
Jennifer Tidwell, Commissioner